impact of recession on hr policies in it sector
DESCRIPTION
research report on impact of recession on Hr policiesTRANSCRIPT
INTRODUCTION TO THE TOPIC
SIGNIFICANCE OF THE STUDY
IT is a very dynamic industry and even after 20 years in India we do not have and
standards for salary. The industry is not yet matured. Recruitment is totally depend on
the need and if companies want resource then that time they are ready to pay anything
just to attract the resource. During recession people with more pay are in problem.
Increasing the living standard is easy but coming back is bit tough.
IT is the cornerstone of each sphere. Fluctuations are always a part of IT, so the cycle of
ups and downs keep on moving. This time IT is in recession mode (due to rupee
appreciation) and how it affects the various policies of HR in different sectors (IT sector)
is the main significance of my study. As retention is always a challenge for HR
managers. This study also lay emphasis on the attrition rate and other factors like salary
cut down, hiring and firing etc.
1
CONCEPTUALIZATION
There are confirmed reports that IT budgets in a number of industries in the US and UK,
have been nearly halved. A number of Indians in the US have been sent back, after
project cancellations, lay-offs etc. Recent survey from Reuters has also proved the
recession that we all are going to witness. The report also says that unlike the previous
one, which lasted for just 8 months, this one is expected to last longer.
Some people are welcoming this recession. Even though this might appear strange but
this is true, as just we are likely to see a price drop here as well. Some services
companies are happy for the fact that they have managed to increase their H1B poo l , this
recession may literally suppress all this happiness straight.
As expected, the slowdown in IT has percolated it's way into India and is affecting HR
policies
It will be interesting to see what strategies our services companies adopt to overcome
recession and also stay profitable at the same time.
The main concept is to know about various changes in HR policies due to slowdown. In
this case we are seeing how HR Policies are affected by slowdown in IT. As
SLOWDOWN has not only impacted IT sector only, rather it has affected many other
sectors like banking sector, BPO’S and other FMCG sector So to show the impact of
slowdown on HR, I have taken IT sector
And the HR POLICIES include
1.) Hiring and Firing
2.) Salary countdowns
3.) Attrition Rate
4.) Motivational level of employees
2
FOCUS OF PROBLEM
The main focus of the problem is to know how HR deals with the IT slowdown i.e.
during the recession mode is their any change in the HR policies of a company like in
recruitment, attrition rate, salary packages, or is this slowdown affecting the motivation
level of employees and hence effecting productivity.
3
OBJECTIVES OF THE STUDY
Main objective:
To study the impact of slowdown on HR Policies in IT sector.
Other objectives:
To know how IT slowdown affects the attrition rate.
To know how recession mode in IT create panic among employees due to their salary cut
downs.
To know about hiring and firing policy during slowdown.
4
LIMITATIONS OF THE STUDY
Every coins has two sides in the same way while during our project analysis we also
come across such things that created problem for us. These are listed below:-
1. Sample Size:
Sometimes sample size taken for the study is not enough to carry out the analysis
as the result may not be generalized for the whole population.
2. Time Factor:
To carry out the project more time is required so as to gather and
compare data from every possible source because of less time the study has a
limited scope
3. Geographical area covered in the survey can be limited.
4. Biasness on part of the respondents can be there. Most often respondents show
biasness; in this case biasness can be shown on the part that their company HR
policies are best in the phase of slowdown.
5. Many respondents wanted an additional aid to fill in response. So the information
gathered may include some errors.
6. Most of the IT companies don’t like to give their internal data like of salary cut
downs, hiring processes etc as this will effect their reputation as their competition
in IT.
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RESEARCH METHODOLOGY
RESEARCH DESIGN
As the study is based on IT so the Analytical method will be best suited for this study.
And the impact on HR is to found so for going into the detail of HR Descriptive should
be followed.
Descriptive and Analytical survey method
UNIVERSE
The set of objects which has to be clarified before carrying out a study is known as
Universe. It may be finite or infinite. In my research universe is finite & it will be in IT
INDUSTRY in India
SAMPLE
This refers to the number of items to be selected from the universe to constitute the
sample.
Sample:-TCS, HCL, INFOSYS
SAMPLING TECHNIQUE
Random Sampling
These sampling techniques will be applied to know about the views of different
employees simultaneous; it will make the study easier the study is based on different
sectors.
SAMPLING SIZE- 50 Respondents
SAMPLING UNIT- Single unit
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COLLECTION OF DATA-
The data can be collected by two ways:-
PRIMARY SOURCE
SECONDARY SOURCE
PRIMARY DATA
The data collected for the first time by the researcher himself is called primary data.
There are several methods of collecting primary data like questionnaire, Personal
interviews etc.
The method adopted for the study will be:
Questionnaire
Personal interviews
e-mails
SECONDARY DATA
The data already available is called secondary data. This data may be present in the form
of journals, publishing’s etc. under this report the information will be collected from
different sources like:
Internet
Magazines
Newspapers
Company bulletins
Journals
Fact sheet
books etc
7
REVIEW OF EXISTING LITERATURE
SOURCE 1:
Article: Recession of The Levator Muscle for Lagophthalmos in Exophthalmic Goiter, By Isidor Goldstein, M.D.
The economy and the stock market are closely related. The stock markets reflect the
buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of
Economic Analysis, but investors are a worried lot. The Indian stock markets also
crashed due to a slowdown in the US economy.
The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The
markets bounced back after the US Fed cut interest rates. However, stock prices are now
at a low ebb in India with little cheer coming to investors.
SOURCE 2:
The Journal of Business
Sequential Signals of Recession and Recovery By Victor Zarnowitz and Geoffrey H. Moore
At a time when inflation and rising oil prices are pinching hard, there are me more bad
news. Sectors like banking and financial services, IT, BPO, real estate and auto, which
usually have highest salary hikes, are going to significantly cut down on increments this
year.
8
SOURCE 3:
www.livemint.com/2008/09/12005434/Slowdown-may-impact-hiring-bu.html?pg=1 -
88k –
SUMMARY:
Information technology (IT) firms appear to have lost their appeal at the Indian Institutes
of Technology (IIT). Campus recruitment figures by Major Indian and foreign IT firms
have dipped this year, raising further concerns of and industry slowdown. Firms like
IBM, HCL, Hughes Software and CSC opted out of placements this year and hiring by
firms like India’s largest IT services provider Tata Consultancy Service has dropped.
SOURCE 4:
news.in.msn.com/business/article.aspx?cp-documentid=1256745 - 53k
SUMMARY:
Attrition rate has always been a sensitive issue for all organizations. Calculating
employee turnover rate is not that simple as it seems to be. No common formula can be
used by all the organizations. A formula had to be devised keeping in view the nature of
the business and different job functions. Moreover, calculating attrition rate is not only
about devising a mathematical formula. It also has to take into account the root of the
problem by going back to the hiring stage.
9
IMPACT OF RECESSION ON HR POLICIES IN IT SECTOR
RECESSION
In economics, the term recession generally describes the reduction of a country's gross
domestic product (GDP) for at least two quarters. The usual dictionary definition is "a
period of reduced economic activity", a business cycle contraction.
The United States-based National Bureau of Economic Research (NBER) defines
economic recession as: "a significant decline in [the] economic activity spread across the
country, lasting more than a few months, normally visible in real GDP growth, real
personal income, employment (non-farm payrolls), industrial production, and wholesale-
retail sales."
In macroeconomics, a recession is a decline in a country's gross domestic product (GDP),
or negative real economic growth, for two or more successive quarters of a year. Some
economists prefer a more robust definition of a 1.5% rise in unemployment within 12
months.
In a 1974 New York Times article, Julius Shiskin suggested several rules of thumb to
identify a recession, which included two successive quarterly declines in gross domestic
product (GDP). His other rules are usually ignored.
An alternative, less accepted, definition of recession is a downward trend in the rate of
actual GDP growth as promoted by the business-cycle dating committee of the National
Bureau of Economic Research[citation needed]. That private organization defines a
recession more ambiguously as "a significant decline in economic activity spread across
the economy, lasting more than a few months." A recession has many attributes that can
occur simultaneously and can include declines in coincident measures of activity such as
employment, investment, and corporate profits.
A recession is a decrease of less than 10% in a country’s Gross Domestic Product
(GDP). The decrease must last for more than one consecutive quarter of a year. The GDP
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is defined as the sum of private spending and government spending on goods, services,
labor and investment.
The terms recession and depression are often confused. It can be said that a recession is
in general not as severe as a depression. A recession tends to resolve more quickly.
Not everyone agrees on a specific definition for determining an economic recession, but
most can point to several factors, which can cause a recession. Either significant drop in
prices, or significant increases in prices can occur. A drop indicates that people may
spend less money, thus the GDP is decreased. An increase in price may also reduce both
private and public spending and thus decrease the GDP.
In some ways, it is quite natural for countries to experience mild recessions. This is a
built-in or endogenous factor of a society. Spending and consumption are going to
increase and decrease, as will prices. However, another factor besides these occasional
built-in drops in spending is needed to evoke a recession. Usually, something changes
quickly and provokes sharp increase or decrease in prices.
A recent recession in early 2000 was caused by the sudden decrease in activity of the
dot.com industry. In the 1990s, the telecom industry had made huge amounts of money
and began to overreach its expectations in terms of assessing future demand. Suddenly,
the previously looked for demand was much lower than expected, leading to mass
layoffs, decrease in production, and thus decrease in spending.
The dot.com fall is considered a “shock” in the GDP, which can fall sharply if the
product or industry falls in production and spending. Though the recession resulting from
the dot.com bust was considered over by 2003, it has far-reaching consequences that are
still felt.
Those who initially made excessive amounts of money may still find themselves jobless.
Telecom companies significantly cut jobs, and employment rates in the industry have
never fully been restored. Telecom companies also cut costs by outsourcing production
to foreign countries. While this outsourcing has allowed some companies to continue
operations, it left many with training for specific jobs they could no longer perform.
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However, other industries have since expanded and raised the GDP. So the recession is
termed over even though many still feel its effects on a personal level. Terming a
recession as “over” does not necessarily account for positive economic changes for the
individual.
For example, sometimes recession is evaluated in terms of the country’s jobless rate.
When this is the case, and people find jobs, failure to evaluate changes in income can
make the economy appear more productive than it actually is. A former telecom
employee who now works at Wal-Mart may have a job, but this job is not equivalent to
former work in compensation. So analysis of only one aspect of a recession should not
be used to indicate economic recovery.
Recession 2008: Most of the world’s stock markets in late 2007 and early 2008 were
touching sky. Even Indian stock market made hay while the sun shone on its horizon.
Speculation was rife in many corporate headquarters that, this over exuberance and huge
flow of money does not justify stock indices of several countries. There were signals of
herd mentality and greed looming all over. Those signals finally came to life in early
2008. It started with IMF prediction of world growth falling to 4.0 percent from 4.9
percent. 4.0 was still a respectable prediction but that announcement was changed just
after two months.
USA is a dominant force in world economy and as per data it represents 21 percent of the
world economy. Changing economic statistics pointed towards a possible USA recession
and that signified a global downtrend in economic cycle because of domineering impact
of American economy. Many countries, particularly developing ones are heavily
dependent on USA and a hint of slowdown in America spelled doom for them. The
average spending of American consumers reduced significantly and that resulted in
reduced demand for imported items.
Oil is extremely important for any country and 2008 witnessed highest ever increase in
oil prices. Due to high oil prices, food prices also increased significantly. Crude oil
prices rose to $ 147 per barrel from $ 80 per barrel in a span of 6-7 months. That fuelled
global inflation to a dangerous mark. 2008 also witnessed unprecedented credit crisis
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across the world which resulted in closure of several established investment banks.
Things started getting worst with U.S. sub prime-mortgage market. This induced a
tremendous housing market correction of huge implications for pushing up credit costs
worldwide. Because of this correction, a good number of Americans, European and
Asian banks had to write down billions of dollars in holdings. In fact, few banks filed for
bankruptcy and that includes name like Lehman Brothers. It was biggest ever bankruptcy
case in US history. More than 81 companies have filed for bankruptcy in USA.
Unemployment rate also increased substantially in USA and many people had to leave
job. Another 1, 57, 000 jobs were lost in September 2008. Many developed and
developing countries are struggling with low GDP and decreasing economic growth.
Credit crunch has spread all over the world. However, world over, policy makers are
putting in extra liquidity and several other measures to stem the fall but nevertheless, we
seem to be going through economic recession.
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IMPACT OF US RECESSION IN INDIA
The ripples of crumbling USA market can be witnessed all over the world. Whatever
happens in America, its impact can be felt way beyond the United States. Indian
economy is no exception to this rule. World over, companies are biting dust including
lions of financial world like, Lehman Brothers, Bear Sterns, AIG, Merill Lynch etc. It
has been an unprecedented collapse of financial giants of American economy. The
effects of American crisis can be seen in European and Japanese companies. Many banks
are almost on the verge of collapse and frantic steps are undertaken by respective
governments to prop them up.
India, on the other hand, is far more fortunate. Many factors are responsible for relatively
less negative impact on Indian economy. The slow pace of financial reforms taking place
in India, cautious approach towards permitting foreign investments in Indian business
sectors, numerous bureaucratic hurdles and regulatory constraints have turned out to be
advantageous for India. India has always been criticized for its slow speed in economic
growth but in hindsight it’s that very turtle speed has proved to be a blessing in disguise.
Indian financial system has very little exposure to foreign assets and their derivative
products and that’s the prime reason India won’t be as adversely affected as other major
countries. Revival of world economy will take a long time. Though, India will be
affected in certain aspects like, low investments by foreign companies. Many FIIs
(financial institutional investors) are heavily selling their holdings in numerous Indian
companies and that is reflecting in gloom and doom scenario in stock exchange. Apart,
companies, mainly IT and ITES companies whose prime business target is USA are
bound to suffer. Also, textile companies will find themselves with low top line and
bottom-line growth in their balance sheets because of less demand from foreign countries
and consequently less revenue from exports.
Another impact would be seen in financial reforms taking place in India. India’s cautious
approach towards integrating with world economy has paid off and now even more
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caution would be taken in de-regularization of the financial sector considering conditions
of market based economies. More regulations are expected to come into force so that
India does not have to face similar worst conditions as faced by ASEAN counties in
1997-98 crisis and recession of 2008
In other words, the effects of this recession on India may be quite distinct from those of
the past. Here are some areas worth following:
1. A credit crisis in the United States might lead to a restructuring of asset allocation
at pension funds. It has been suggested that CalPERS is likely to shift an
additional US$24 billion to its international portfolio. A large portion of this is
likely to flow into India and China. If other funds follow suit, a cascading effect
can be expected. Along with the already significant dollar funds available, the
additional funds could be deployed to create infrastructure--roads, airports, and
seaports--and be ready for a rapid takeoff when normalcy is restored.
2. In terms of specific sectors, the IT Enabled Services sector may be hit since a
majority of Indian IT firms derive 75% or more of their revenues from the United
States--a classic case of having put all eggs in one basket. If Fortune 500
companies slash their IT budgets, Indian firms could be adversely affected.
Instead of looking at the scenario as a threat, the sector would do well to focus on
product innovation (as opposed to merely providing services). If this is done,
India can emerge as a major player in the IT products category as well.
3. The manufacturing sector has to ramp up scale economies, and improve
productivity and operational efficiency, thus lowering prices, if it wishes to offset
the loss of revenue from a possible US recession. The demand for appliances,
consumer electronics, apparel, and a host of products is huge and can be
exploited to advantage by adopting appropriate pricing strategies. Although
unlikely, a prolonged recession might see the emergence of new regional
groupings--India, China, and Korea?
15
4. The tourism sector could be affected. Now is the time to aggressively promote
health tourism. Given the availability of talented professionals, and with a distinct
cost advantage, India can be the destination of choice for health tourism.
5. A recession in the United States may see the loss of some jobs in India. The
concept of Social Security, that has been absent until now, may gain momentum.
6. The Indian Rupee has appreciated in relation to the US dollar. Exporters are
pushing for government intervention and rate cuts. What is conveniently
forgotten in this debate is that a stronger Rupee would reduce the import bill, and
narrow the overall trade deficit. The Indian central bank (Reserve Bank of India)
can intervene anytime and cut interest rates, increasing liquidity in the economy,
and catalyzing domestic demand. A strong domestic demand would also help in
competing globally when the recession is over.
In summary, at the macro-level, a recession in the US may bring down GDP growth, but
not by much. At the micro-level, specific sectors could be affected. Innovation now may
prove to be the engine for growth when the next boom occurs.
For US firms, who have long looked at China as a better investment destination, this may
be a good time to look at India as well. After all, 350 million people with purchasing
power cannot be ignored. This is not a sales pitch for India, but only a gentle suggestion
to US corporations.
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STRATEGIC ROLE OF HR DURING RECESSION
The recession is an opportunity for HR professionals to step and contribute strategically.
In the classical strategy paradigm, we begin by looking at the macro economic
environment. Then we look at the micro-environment - what affects us and our
competitors. Next, we establish which strategic factors HR influences directly. Finally,
we drop down to our tacticsThe recession is about the creative Human Resources
Management. The HRM Function is asked to bring new ideas, to change the HRM
Processes and to develop or change the procedures. And this effort has to be cheap or it
has to cut the costs of the organization. The HRM Innovation is easy in times of the
business growth, but the recession is not good for big innovative HRM Initiatives.
The HR Management has to focus on unpopular innovations during the recession as the
role of HR during the recession is to save money to the organization. The senior
management expects all the support functions to bring innovative ideas and solutions
which will lead to stronger organization, when the next growth era comes.
The point has to be focused by HR management during recession are as follows:
To optimize the manpower strength.
To take strategic initiatives to increase the productivity and efficiency of the
entire organization.
To work on compensation benefits.
Redesign training and development programs.
Ensure your organization’s policies and handbooks are up to date. Remember that
an annual review of your employee handbook for compliance by an experienced
professional is highly recommended. Also, each employee having a copy of the
employee handbook is not enough. They have to be able to read and understand
the content. Be sure that you provide employees a handbook in a language they
can read and understand.
Layoffs are never easy. Ensure you are familiar with your legal responsibilities in
a lay off to minimize your organization's risk. Be sure that you have properly
defined the criteria you are using to determine who will be let go.
18
Alternative Workweek Schedules and Flexible Scheduling can maximize
production and cut-back on overhead costs for organizations. Be sure you
follow all of the DLSE rules when deciding if an Alternative Workweek
Schedule or Flexible Scheduling is right for your organization.
Cutting Pay may be an option to consider to save on today’s costs. Is this really
an option for your organization? How are your pay scales as related to the
market? Are you willing to risk losing key employees whose talents may be
needed by other organizations, because you chose to reduce their pay at this
time? Remember, you should not cut pay without a recovering strategy of how
you will re-adjust when the economy has turned.
Downsizing does require internal document maintenance for your organization.
As jobs are modified and responsibilities are increased changes also must be
made to your job descriptions.
On the other hand the HR Management has to find some innovative solutions
during the recession like,
To identify the real key employees and to intact them in the organization
To identify the real top potentials and to strengthen their development program
The HR Management has to have priorities in mind and the strategic impact of the HRM
Innovations in the recession time. The role of the HR Management is not to minimize the
costs for the time being, but to make the organization stronger and ready for the future
growth.
Recommendations while your employer facing negative challenges during recession:
1. Top management should know the contingency plan.
2. Do the brainstorming session with your top management and contribute in their
strategic planning.
3. A complete or partial job freeze, however, communicate to the workforce that
the company many continue to recruit key individuals even in difficult times
4. Review the employee performance evaluations to determine the key people that
company cannot afford to lose.
19
5. Flow of Communicate should be from top to down that will help in making
conducive atmosphere within the organization
6. Make prepare yourself for individual and group concerns therefore there should
be a proper counseling session.
7. To maintain a calm atmosphere
8. Review all HR policies, processes and procedures to ensure that they are
purposeful and contribute directly to the success of the company.
9. Suppose the company has to lay-off staffs ensure that there are no other
opportunities for them in other functions or divisions of the organization.
10. Advise managers to deal the process of managing change.
Managing Human Resources (HR) in a difficult economic environment is even more
demanding than working in times of rapid growth. Therefore the
task of HR is very important to maintain equilibrium throughout the hierarchy.
How to intact your employee during recession:
Here is how to keep your employees with you and away from your competitors during
tough economic times.
Differentiate Between Your Good and Average Employees
Redirect Your Employees to Other Departments (Job Rotation)
Listen to Your Employees
Keep Them Motivated and Busy (Communicate-Communicate and
Communicate)
Show them the long term vision
The above steps will enable the employer to hold its team together during a recession,
and will even make bond between all of you stronger. Employees should be motivated
enough to stick to the employer during tough times and put in the extra effort required
for the organization growth.
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HRM Innovations in Recession
The recession is about the creative Human Resources Management. The HRM
Function is asked to bring new ideas, to change the HRM Processes and to develop or
change the procedures. And this effort has to be cheap or it has to cut the costs of the
organization. The HRM Innovation is easy in times of the business growth, but the
recession is not good for big innovative HRM Initiatives.
On the other hand, the top management understands the effort to innovate the HRM
Processes better. The top management is in the search for the potential cost savings and
they count every single penny brought by the line management. The HRM Costs are
usually a very significant cost to the organization and the HRM Function has to be
proactive.
The HRM Function has to focus on unpopular innovations during the recession as the
role of Human Resources during the recession is to save money to the organization. The
top management expects all the support functions to bring innovative solutions, which
will have to make the organization stronger, when the next growth era comes.
The HRM Innovation during the recession has to focus on the following topics:
1. Reduce the number of employees in the organization
2. Strategic initiatives to increase the productivity and efficiency of the whole
organization
3. Redesign of the compensation scheme
4. Cancellation of several benefit schemes
On the other hand the HRM Function has to find innovative solutions for the following
topics:
1. Identifying the real key employees and to keep them in the organization
2. Identifying the real top potentials and to strengthen their development program
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The second two topics have to be done with the minimum additional costs and it is a
really hard task to accomplish. The HRM Function has to have priorities in mind and the
strategic impact of the HRM Innovations in the recession time. The role of the HRM
Function is not to cut the costs for the time being, but to make the organization stronger
and ready for the future growth.
As a leader and strategic partner in your organization, you have the tools to assist your
company in surviving and thriving through these difficult times. First you need to start
thinking strategically…
How can the organization make effective and economical changes that will help
through these difficult times?
What can I do to minimize our organization’s risk for fines, violations and/or
unnecessary legal proceedings?
Following area should be looked upon:
Ensure your organization’s policies and handbooks are up to date. Remember that
an annual review of your employee handbook for compliance by an experienced
professional is highly recommended. Also, each employee having a copy of the
employee handbook is not enough. They have to be able to read and understand
the content. Be sure that you provide employees a handbook in a language they
can read and understand.
Layoffs are never easy. Ensure you are familiar with your legal responsibilities in
a lay off to minimize your organization's risk. Be sure that you have properly
defined the criteria you are using to determine who will be let go.
Alternative Workweek Schedules and Flexible Scheduling can maximize
production and cut-back on overhead costs for organizations
Cutting Pay may be an option to consider saving on today’s costs. Is this really an
option for your organization? How are your pay scales as related to the market?
Are you willing to risk losing key employees whose talents may be needed by
other organizations, because you chose to reduce their pay at this time?
22
Remember, you should not cut pay without a recovering strategy of how you will
re-adjust when the economy has turned.
Offer Professional Development as a reward or incentive to employees for
performance and hitting goals. Professional Development courses are an
economical way to reward employees with the gift of education and skills they
will use throughout their lifetime.
Downsizing does require internal document maintenance for your organization.
As jobs are modified and responsibilities are increased changes also must be
made to your job descriptions.
Remember that the law is very specific on what positions can be considered
Salaried – Exempt and what constitutes an Independent Contractor. Looking at
adjusting your staff to fit into one of these two categories is NEVER the answer
when trying to save money.
23
Impact of Recession on HR Policies
Recruitment
Recruitment refers to the process of screening, and selecting qualifed people for a job at
an organization or firm, or for a vacancy in a volunteer-based organization or community
group. While generalist managers or administrators can undertake some components of
the recruitment process, mid- and large-size organizations and companies often retain
professional recruiters or outsource some of the process to recruitment agencies. External
recruitment is the process of attracting and selecting employees from outside the
organization.
The recruitment industry has four main types of agencies: employment agencies,
recruitment websites and job search engines, "headhunters" for executive and
professional recruitment, and in-house recruitment. The stages in recruitment include
sourcing candidates by advertising or other methods, and screening and selecting
potential candidates using tests or interviews.
Impact of Recession on Recruitment
Organisations respond to tough times in different ways, but we have seen clear impact on
teams as follows (not exhaustive):
A deliberate dismantling of teams and hierarchies
An overall reduction of cost base, requiring (unspecified) cuts measured in
percentages
Movement of headcount to suppliers (outsourcing)
Movement of headcount to cheaper locations (off-shore or in-shore)
Realignment of staff to profit centres
Information Professionals encouraged to become para-consultants/ fee-earners
24
A reduction in headcount, but an elevated expectation of performance – fewer
heads but more expert
Roles become multi-faceted; step change from service delivery to
solutions/advisory roles
Restructuring to either centralise, to reduce costs, or de-centralise to take out
overheads
Absolute redundancy; when firms enter procedures for administration or
liquidation (rare)
In the last recession (2001/2), there were two main factors at play; a correction in the
capital markets (dot.com bust), and the impact of the terrorist activity, 9/11 and
worldwide, affecting confidence. The capital markets downturn impacted profits and the
level of transactions, affecting all organisations in the City, directly or indirectly.
Markets are quick to react, so after 9/11, there was a hiatus in recruitment until business
resumed some sort of normality – redundancies occurred; a reduction and redeployment
of headcount and then a re-shaping of research/information knowledge services across
the board. Many of the companies who had invested in setting up a knowledge-based
infrastructure used this time to dismantle the teams who had worked on the first
iterations of database building, information gathering, coding and training, to replace
them (foundations successfully laid) with professionals able to perform strategic research
and focus on fee–supporting activities.
Retrenchment
Retrenchment is something akin to downsizing. When a company or government goes
through retrenchment, it reduces outgoing money or expenditures or redirects focus in an
attempt to become more financially solvent. Many companies that are being pressured by
stockholders or have had flagging profit reports may resort to retrenchment to shore up
their operations and make them more profitable. Although retrenchment is most often
used in countries throughout the world to refer to layoffs, it can also label the more
general tactic of cutting back and downsizing.
25
Companies can employ this tactic in two different ways. One way is to slash
expenditures by laying off employees, closing superfluous offices or branches, reducing
benefits such as medical coverage or retirement plans, freezing hiring or salaries, or even
cutting salaries. There are numerous other ways in which a company can employ
retrenchment. These can be non-employee related, such as reducing the quality of the
materials used in a product, streamlining the process in which a product is manufactured
or produced, or moving headquarters to a location where operating costs are lower.
Impact of Recession on Retrenchment
The financial slow in economic market and US's attempt to get market back on track
with its $700 billion bailout package, things can get better. But what is the impact of US
recession on Indian IT? The article is just a sneak preview of what is currently going
with IT segment in the country:
India, a hot destination for outsourcing and booming market for IT segment is making
global imprints.
With its distinguished workforce and talented human power it is spearheading to global
expansion. Undoubtedly, India is riding on the back of considerable growth of IT and
ITeS segment which is the major reason for high GDP growth from past few years. But,
the so far well doing sector seems badly influenced by the US economic crunch.
US is in slumping stage as concluded last year, but initially it was expected that it will
not hit Indian IT at high node as Indian companies are more dependant on domestic
market. Considering last year's scenario, our 13% goods were sold in overseas market
thus increasing the FDI. This indicates that our dependancy on foreign markets is
increasing. Nevertheless, it is coming true as of now factually Indian economy is also
facing the blues. US is the major market for Indian outsourcers and around 60% of
software industry is based on the project being outsourced from that end.
With US, facing high economic downturn, Indian software industry is on the reality
check; what is stored for them in this economic slump. Barring some top shots, it seems
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whole IT industry is crippling with projects ended and future deals in abeyance. The
companies are facing the billing pressure indicating that meltdown is cracking the
backbone of strong Indian GDP growth and aim of being reckoned as global power in
coming few years.
The Attrition Rate
The attrition rate has always been a sensitive issue for all organizations. Calculating
employee turnover rate is not that simple as it seems to be. No common formula can be
used by all the organizations. A formula had to be devised keeping in view the nature of
the business and different job functions. Moreover, calculating attrition rate is not only
about devising a mathematical formula. It also has to take into account the root of the
problem by going back to the hiring stage.
Attrition rate: There is no standard formula to calculate the attrition rate of a company.
This is because of certain factors as:
The employee base changes each month. So if a company has 1,000 employees in
April 2004 and 2,000 in March 2005, then they may take their base as 2,000 or as
1,500 (average for the year). If the number of employees who left is 300, then the
attrition figure could be 15 percent or 20 percent depending on what base you
take.
Many firms may not include attrition of freshers who leave because of higher
studies or within three months of joining.
In some cases, attrition of poor performers may also not be treated as attrition.
Calculating attrition rate:
Attrition rates can be calculated using a simple formula:
= (No. of employees who left in the year / average employees in the year) x 100
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Impact of Recession on Attrition Rate
IT Sector is being looked upon as the next big employment generator (Nasscom predicts
1.1 million job requirement by the year 2008). It is however no easy task for an HR
manager in this sector to bridge the ever increasing demand and supply gap of
professionals. Unlike his software industry counterpart, the HR manager is not only
required to fulfill this responsibility, but also find the right kind of people who can keep
pace with the unique work patterns in this industry. Adding to this is the issue of
maintaining consistency in performance and keeping the motivation levels high, despite
the monotonous work. The toughest concern for an HR manager is however the high
attrition rate.
In India, the average attrition rate in the IT sector is approximately 30-35 percent. It is
true that this is far less than the prevalent attrition rate in the US market (around 70
percent), but the challenge continues to be greater considering the recent growth of the
industry in the country. The US IT sector is estimated to be somewhere around three
decades old. Keeping low attrition levels is a major challenge as the demand outstrips the
supply of good agents by a big margin. Further, the salary growth plan for each
employee is not well defined. All this only encourages poaching by other companies who
can offer a higher salary.
Motivation
Motivation has been defined as: the psychological process that gives behavior purpose
and direction (Kreitner, 1995); a predisposition to behave in a purposive manner to
achieve specific, unmet needs (Buford, Bedeian, & Lindner, 1995); an internal drive to
satisfy an unsatisfied need (Higgins, 1994); and the will to achieve (Bedeian, 1993). For
this paper, motivation is operationally defined as the inner force that drives individuals to
accomplish personal and organizational goals.
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Impact of Recession on Motivation level of Employee
Motivation level of employees has been affected by various factors:
Salary cut downs
Firing policies
Various cut down of allowances.
The IT sector will be the worst hit as 75 per cent of its revenues come from the US. Low
demand for services may force most Indian Fortune 500 companies to slash their IT
budgets.
The status of Employment in all IT sectors is fine for the moment, but in coming future it
will have a heavy impact on them, Job cuts, cuts in salaries will create havoc.
Worst affected because of US recession will be the service industry of India. Under
service industries come BPO, KPO, IT, ITeS etc. Service industry contributes about 52%
to India's GDP growth. Now if that is going to get hurt then it will also hurt India's
overall growth but very slightly. India is not going to face a major impact due to US
recession. People may say that there is going to be a huge job loss due to recession. and
will cite the example of TCS firing about 500 employees but these were employees who
didnt perform and for cost cutting one have to reduce Non performing asset and that
exactly what has been done. There is no threat to the skilled people. According to
NASSCOM India will have a shortage of about 5 million skilled people in IT/ITeS. So
there are lots of opportunities.
The Indian IT industry will take a very big hit as their bottom line earnings will go down
since major market in IT still remains the USA and there is a lot of dependence on the
market .This would mean there would be the following impact
1. Employment rate will slow down and there could be a situation where fore cast
hiring would virtually be stopped
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2. The ITES sector will be hit under the belt as the low cost destination factor will
no longer seem very attractive and there could be very drastic slow down in
business in this sector
3. Call centers however will continue to thrive
4. The pay package in these industries will also take a hit with no increments and
salary cuts
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IT Strategies for a Recession
When economic times get tough, it's necessary for small and medium-size businesses to
reevaluate the budget and in some cases tighten the proverbial belt. Most importantly it
means thinking strategically about how best to spend, and save, in a recession. Your
information technology department is a good place to start
Doing this means taking a comprehensive view of organizational expenses and
prioritizing. Understanding which technology investments help to increase productivity
and better serve clients is the first step. Continuing to fund these strategic technologies
during an economic downturn is very important. With a recession technology plan in
place, your organization can survive, and even thrive, within this turbulent economy.
Here are three steps to take when putting together your IT strategy for the slowing
economy.
Step 1: Reevaluate Your Needs
Treat recession planning like budget planning. Changing economic conditions require a
change in thinking. Just as you reevaluate your expenses from the previous year when
planning for a new fiscal year, you need to reevaluate your current operating budget
during a recession. Ask yourself the following questions:
What technology must be maintained or implemented that makes you
indispensable to your customers or members? Your target markets will be feeling
the recession too; you want to make sure their relationship with your organization
continues by providing efficient, affordable, and high-shelf service.
Do you have technology in place that is instrumental in helping you attract
new customers and retain current ones? Your bottom line is key in a recession.
Since any additions will greatly impact the bottom line, consider maintaining
technology that supports customer retention throughout the economic downturn.
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Is your current method of technology and network support working for
you? Is it cost-effective? Efficient? If not, it may be time to consider other options.
Rebalance technology investments by looking at the comprehensive picture. Don’t
focus on shutting them down; focus on making strategic IT investments.
Step 2: Stretch Your IT Dollars
If yours is like most organizations, it needs to make budgeted IT dollars go further. Here
are a few ways:
Save on upgrades: Wait to make any noncritical upgrades until after the
recession is over.
Stretch equipment life cycles: Workstations usually have a three-year life
cycle. During a recession it is OK to stretch this to four years, though you may want
to consider minor upgrades such as increasing RAM.
Review software licensing and support agreements: As part of your
reevaluation, you should take time to review all of your organization’s software
licensing and support agreements to make sure you are not paying for duplicate
coverage.
Step 3: Spend Smart
In a recession, organizations often panic and tighten their belts to the point of passing
out; and then they are down for the count. So whatever your IT strategy for dealing with
an economic downturn, don’t be cheap. Good spending does exist and it comes in the
form of IT investments that will add to your organization’s security and productivity.
Here are five IT investments you should consider, even during a recession:
Security investments: Protect your company with firewalls, Microsoft
patching, antivirus and spyware protection, and so forth. It's critical to maintain all
services that are protecting your network and keeping your systems up and running
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because no organization can afford a loss in productivity, especially during a
recession.
Warranties: If you are stretching the lifetime of your hardware, you should not
skimp on hardware maintenance. Be sure to extend your warranties.
Proactive IT service: Without proactive monitoring, problems are much more
likely. This is even more important during a recession because calling your IT
service provider only when something goes wrong incurs much higher service costs.
Backup and disaster recovery mechanisms: Ensure your backup and disaster
recovery systems are working well. You don’t want operations to stop during a
recession should something happen with your front-line business applications.
Line of business applications: For all businesses, this means continuing to
support technologies such as time and billing software that make the operation more
efficient. Continued productivity is key in slow economies.
Condition of IT Industry before recession
Condition of IT Industry after recession
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Fact of TCS
Overview:
Tata Consultancy Services Limited is an IT services, business solutions and outsourcing
organization that delivers real results to global businesses, ensuring a level of certainty
no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-
enabled services delivered through its unique Global Network Delivery Model,
recognized as the benchmark of excellence in software development.
A part of the Tata Group, India’s largest industrial conglomerate, TCS has over 130,000
of the world's best trained IT consultants in 42 countries. The company generated
consolidated revenues of US $5.7 billion for fiscal year ended 31 March 2008 and is
listed on the National Stock Exchange and Bombay Stock Exchange in India.
Revenues: US$ 5.7 billion (12 months. ended Mar. 31, 2008)
Profits after tax: US$ 1,251.51 million (12 months. ended Mar. 31, 2008)
Market Capitalization: US$ 9.41 billion (as on December 31, 2008).
Ticker/ Exchange: TCS.BO (Bombay Stock Exchange) TCS. NI (National Stock Exchange, Mumbai)
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HIGHLIGHTS AND DIFFERENTIATORS
Integrated full-services player: Portfolio of offerings extends from consulting to
implementation, testing and support; from engineering services to BPO; from
products to end-to-end solutions
Global Network Delivery Model: Unique network of 79 Delivery Centers in Brazil,
Uruguay, Chile, China, Hungary, UK, Japan, Australia, Singapore and India that
operate at the same quality, security and skill levels, giving customers the same
experience of certainty across the organization globally
High Quality and Maximum security: In 2005, TCS was awarded enterprise-wide
triple certification for:
Quality (ISO 9001:2000)
Security (ISO 27001-2:2005)
Services (ISO 20000-1:2005)
Innovation network of 20 labs and strong links with start-ups, academia and alliance
partners
Superior Customer Base:
TCS customers span different industries and have operations spread across the world
More than 95% of revenues come from existing customers and 6 of our top 10
customers have been TCS customers for over 5 years
Six of the Top 10 Fortune-500 US Companies are TCS customers as are 49 of the
Top 100 Fortune-500 US Companies
Total number of active customers: 965
Percentage of revenues from Top 10 customers: 26.3
World-class Talent Management Program
130,343 Employees worldwide (average age: 28 years)
9.1 % employees are non-Indian nationals from 67 nationalities
15. 3% are Masters and 0.10% are Phds.
52% have more than 3 years’ experience
Attrition rate: 11.9 (last 12 months)
30% Women Employees
Extensive Global Footprint: 142 offices in 42 countries.
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Revenues by Geography in % (Quarter ended December 31, 2008):
Industry Presence: Unmatched Breadth and Depth
Our model of domain-led solutions is focused around nine industry practices that bring
in-depth global knowledge of these industries for our customers, extend best-practices
across markets and help us create business solutions for customers that also take account
of their business, regulatory and market needs.
Revenues by Industry vertical:
Integrated Full Services Portfolio:
North America 52.2Ibero America 5.1UK 18.5Continental Europe 10.7India 6.8Asia Pacific 5.0Middle East and Africa 1.7
Banking, Financial Services & Insurance 41.9Telecom 13.8Manufacturing 10.6Retail & Distribution 11.2Hi- Tech 6.7Life Sciences and Healthcare 5.2Travel & Hospitality 3.7Energy and Utilities 2.6Media & Entertainment 2.0Others 2.3
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Our Services capture the entire chain of a customer’s technology requirements from
consulting through to implementation, testing to support. We also provide BPO,
engineering, infrastructure services as well as solutions and products, primarily in the
financial services space. The number of customers using multiple TCS services is
increasing with 320 international customers now using at least two or more TCS
services.
Fact Sheet of Infosys
Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with
US$ 250. Today, we are a global leader in the "next generation" of IT and consulting
with revenues of over US$ 4 billion.
Infosys defines, designs and delivers technology-enabled business solutions that help
Global 2000 companies win in a Flat World. Infosys also provides a complete range of
services by leveraging our domain and business expertise and strategic alliances with
leading technology providers.
Revenues: US$ 4 billion (12 months. ended Mar. 31, 2008)
Profits after tax: US$ 1,301.51 million (12 months. ended Mar. 31, 2008)
Market Capitalization: US$ 7.21 billion (as on December 31, 2008).
HIGHLIGHTS AND DIFFERENTIATORS
IT Solutions and Services- Application Development and Maintenance 49.0- Business Intelligence 8.1- Enterprise Solutions 12.6- Assurance Services 4.2Engineering & Industrial Services 6.3Infrastructure Services 8.3Global Consulting 2.5Asset Leveraged Solutions 3.2BPO 5.8
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Infosys' service offerings span business and technology consulting, application services,
systems integration, product engineering, custom software development, maintenance,
re-engineering, independent testing and validation services, IT infrastructure services and
business process outsourcing
Infosys has a global footprint with over 50 offices and development centers in
India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan
Superior Customer Base:
Infosys takes pride in building strategic long-term client relationships
INFOSYS customers span different industries and have operations spread across the
world
More than 97% of revenues come from existing customers
Infosys selected as a member of The Global Dow
Infosys Technologies is now an original component member of 'The Global Dow' - a
new stock index of 150 leading blue-chip stocks from around the world.
World-class Talent Management Program
115,240 Employees worldwide (average age: 28 years)
9.1 % employees are non-Indian nationals from 67 nationalities
13. 3% are Masters and 0.10% are Phds.
48% have more than 3 years’ experience
Attrition rate: 12.1 (last 12 months)
42% Women Employees
DATA ANALYSIS AND INTERPRETATION
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Q1. Do you understand about recession?
Particular Percentage
Yes 90%
No 10%
INTERPRETATION
According to 90% respondents says that they are understand about recession and other
10% respondents says that they are not understand about recession.
Q2. Is recession affecting the IT Industry?
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Particular Percentage
Yes 85%
No 15%
INTERPRETATION
According to 85% respondents says that recession is affecting the IT Industry and other
15% respondents says that recession is not affecting the IT Industry.
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Q3. Is recession having any impact on HR policies of your company?
Particular Percentage
Yes 60%
No 40%
INTERPRETATION
According to 60% respondents says that recession have impact on HR policies of
company and other 40% respondents says that recession have not impact on HR policies
of company.
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Q4. Which HR policy is having worst impact due to recession of your company?
Particular Percentage
Recruitment 20%
Retrenchment 30%
Attrition Rate 15%
Salary cut downs 35%
INTERPRETATION
According to 20% respondents says that Recruitment is the HR policy having worst
impact due to recession, 30% respondents says that Retrenchment is the HR policy
having worst impact due to recession, 15% respondents says that Attrition is the HR
policy having worst impact due to recession and other 35% respondents says that Salary
Cut downs is the HR policy having worst impact due to recession.
Q5. Do you feel that recession is only for private employees in India?
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Particular Percentage
Yes 95%
No 5%
INTERPRETATION
According to 95% respondents says that recession is only for private employees in
India and other 5% respondents says that recession is not only for private
employees in India.
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Q6. Are you satisfied with the salaries and remuneration given to you during this
recession period?
Particular Percentage
Yes 82%
No 18%
INTERPRETATION
According to 82% respondents says that they are satisfied with the salaries and
remuneration given the period of recession and other 18% respondents says that they are
not satisfied with the salaries and remuneration given the period of recession.
44
Q7. Do you feel that the attrition rate has really slowed down due to recession?
Particular Percentage
Yes 87%
No 13%
INTERPRETATION
According to 87% respondents says that they are feel that the attrition rate has really
slowed down due to recession and other 13% respondents says that they are not feel that
the attrition rate has really slowed down due to recession.
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Q8. Is recession really closing doors of IT professionals?
Particular Percentage
Yes 88%
No 12%
INTERPRETATION
According to 88% respondents says that recession really closing doors of It professionals
and other 12% respondents says that recession not really closing doors of It
professionals.
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Q9. According to you in how much time the market will recover?
Particular Percentage
In Six Months 12%
In One Year 28%
In 1½ Year 35%
In Two Years 25%
0%5%
10%15%20%25%30%35%40%
In SixMonths
In OneYear
In One &half Year
In twoYears
Series1
INTERPRETATION
According to 12% respondents says that in six months time the market will recover,
28% respondents says that in one year time the market will recover, 35%
respondents says that in one & half year time the market will recover and other
25% respondents says that in two years time the market will recover.
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Q10. Is your company taking any measures to overcome this recession?
Particular Percentage
Yes 75%
No 25%
INTERPRETATION
According to 75% respondents says that they are taking any measures to overcome
this recession and other 25% respondents says that they are not taking any
measures to overcome this recession.
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SUGGESTION AND RECOMMENDATION
Recommendations while your employer facing negative challenges during
recession:
1. Top management should know the contingency plan.
2. Do the brainstorming session with your top management and contribute in
their strategic planning.
3. A complete or partial job freeze, however, communicate to the workforce
that the company many continue to recruit key individuals even in difficult times
4. Review the employee performance evaluations to determine the key
people that company cannot afford to lose.
5. Flow of Communicate should be from top to down that will help in
making conducive atmosphere within the organization
6. Make prepare yourself for individual and group concerns therefore there
should be a proper counseling session.
7. To maintain a calm atmosphere
8. Review all HR policies, processes and procedures to ensure that they are
purposeful and contribute directly to the success of the company.
9. Suppose the company has to lay-off staffs ensure that there are no other
opportunities for them in other functions or divisions of the organization.
10. Advise managers to deal the process of managing change.
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CONCLUSION
Recession will have its plus point and minus points. The minus points are that, there will
be job scarcity; retrenchment will be all time high, liquidity in the market will be low;
export market will be severely hit etc etc.
The plus point is that cost of living will come down. Things we were exporting will be
forced to be sold locally, bringing the price of products down. Real estate which was out
of reach for the common man, will be within his reach.
As sales revenues and profits decline, the manufacturer will cut back on hiring new
employees, or freeze hiring entirely. In an effort to cut costs and improve the bottom
line, the manufacturer may stop buying new equipment, curtail research and
development and stop new product rollouts (a factor in the growth of revenue and
market share). Expenditures for marketing and advertising may also be reduced. These
cost-cutting efforts will impact other businesses, both big and small, which provide the
goods and services used by the big manufacturer.
Employee Lay-offs and Benefit Reductions
The business may cut employees, and more work will have to be done by fewer people.
Productivity per employee may increase, but morale may suffer as hours become longer,
work becomes harder, wage increases are stopped and fear of further layoffs persists.
(Read about how employment statistics influence corporate confidence in Surveying
The Employment Report.)
As the recession increases in severity and length, management and labor may meet and
agree to mutual concessions, both to save the company and to save jobs. The concessions
may include wage reductions and reduced benefits. If the company is a manufacturer, it
may be forced to close plants and discontinue poorly performing brands. Automobile
manufacturers, for example, have done this in previous recessions.
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Cuts to Quality of Goods and Services
Secondary aspects of the goods and services produced by the recession-impacted
manufacturer may also suffer. In an attempt to further cut costs to improve its bottom
line, the company may compromise the quality, and thus the desirability, of its products.
This may manifest itself in a variety of ways and is a common reaction of many big
businesses in a steep recession.
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QUESTIONNAIRE
Name : ________________________________
Age : ________________________________
Sex : ________________________________
Address : ________________________________
Phone no. : _________________________________
Instructions:-
Tick in the appropriate column.
The information provided by you is confidential and is used only for academic
purpose.
Q1. Do you understand about recession?
Yes ( ) No ( )
Q2. Is recession affecting the IT Industry?
Yes ( ) No ( )
Q3. Is recession having any impact on HR policies of your company?
Yes ( ) No ( )
Q4. Which HR policy is having worst impact due to recession of your company?
Recruitment ( ) Retrenchment ( )
Attrition Rate ( ) Salary cut downs ( )
Q5. Do you feel that recession is only for private employees in India?
Yes ( ) No ( )
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Q6. Are you satisfied with the salaries and remuneration given to you during this recession
period?
Yes ( ) No ( )
Q7. Do you feel that the attrition rate has really slowed down due to recession?
Yes ( ) No ( )
Q8. Is recession really closing doors of It professionals?
Yes ( ) No ( )
Q9. According to you in how much time the market will recover?
In Six Months In One Year
In 1/½ Year In two years
Q10. Is your company taking any measures to overcome this recession?
Yes ( ) No ( )
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BIBLIOGRAPHY
Bernadin H.John,(2003); “Human Resource Management”, Tata McGraw Hill, New Delhi
Raymond A. Noe. Et al (2003); “Human Resource Management”, Tata McGraw Hill, New Delhi
Mamoria C.B., S.V. Gankar, “Personnel Management”, Sultan Chand and Sons
Arthur Diane, “Recruiting, Intervening and orienting new employees”,
Prentice Hall of India Pvt. Ltd.
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pg=1 - 88k –
2. www.cipd.co.uk/podcasts/_articles/hr-trends-episode-15.htm?view=transcript -
39k –
3. news.in.msn.com/business/article.aspx?cp-documentid=1256745 - 53
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