Human Resource Management Assignment

Instructor: Prof Tony Dobbins

ASB: 4904

Name: Alisha Sajjal

ID: 500432605
MBA in International Business
abp747@bangor.ac.uk

Table of Contents
Abstract....................................................................................................................... 3
Introduction:................................................................................................................. 4
Broad political economy context:....................................................................................... 4
Impact on strategy in Royal Bank of Scotland:.....................................................................6
1.

Changes relevant to Business Strategy.......................................................................6

2.

Changes in overall HRM strategy.............................................................................7

Impact on HRM policies and practices:..............................................................................7

1.

Resourcing the organization.................................................................................... 7

2.

Human resource development (HRD)........................................................................8

3.

Employment relations............................................................................................ 9

4.

Managing performance and reward..........................................................................9

Context:....................................................................................................................... 9
Conclusion and Recommendations:..................................................................................10

Abstract
The aim of this paper is to assess the broad political context of the crisis, evaluate the impact of
overall strategy and HRM policies in a chosen organization, analyze impacts on HRM practices
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and assess the context can affect the impacts of the crises. The organization chosen for this paper
is the Royal Bank of Scotland. The paper concludes that different organizational, industry based,
international, etc. contexts have a lot of influence on the impacts of the economic crisis. It had to
close a lot of businesses and had to let go of a lot of employees. Layoffs were one of the biggest
negative impacts of the economic crisis on RBS HRM. However, it must be noted that in order
to ensure that its operations ran smoothly, RBS could not compromise on employee motivation
even though it was laying off over 20,000 people. It paid bonuses to senior employees in order to
make them feel secure. After 2009 situations improved further and more of a decentralized
structure was appreciated and maximum communication among employees.

Introduction:
This paper focuses on the impact of the 2008 financial crisis on the HRM practices and policies
of companies. The financial crisis 2007-2008, which began in the US loan market was
considered as the worst global financial crisis since the Great Depression of the 1930s (Dean,
2012). In several parts of the world financial crisis led to several years of recession, where entire
countries were in danger of going bankrupt and also the Euro was threatened (Heyes, et al.,
2012). The crisis lasted several years and even five years later efforts went on to clean up in the
aftermath of the crisis, including through ongoing litigation and asset sales of bankrupt estates
(Wray, 2010).
The aim of this paper is to assess the broad political context of the crisis, evaluate the impact of
overall strategy and HRM policies in a chosen organization, analyze impacts on HRM practices
and assess the context can affect the impacts of the crises. The organization chosen for this paper
is the Royal Bank of Scotland.

Broad political economy context:

In UK, autumn 2007 already the British bank Northern Rock entered into financial problems and
a bank run occurred. The bank was rescued quickly by the state, so that the crisis does not spread
further. Once the crisis hit the UK market, the so-called buy-to-let arrangement became
popular. The prices increased from an average price of about 60,000 in 1999 and peaked at
200,000 in 2007 (Slater, 2013). The said price increases (and thus the height of fall) on the
properties contributed to the financial bubble size. The interest rate spread which is normally
within 10 points was between 150 and 200 points in US and 250-300 in UK resulting in lending
to other banks becoming riskier (Dean, 2012). In its beginning point itself the financial crisis
threw UK economy to an unforeseen low with 51 billion lost from the biggest companies of the
country.
Financial crises of 2007-08 lead to massive downfall in major sectors and lots of business either
went out of the business or closed their branches e.g Woolworths closing 200 stores, Makro
closing 3 stories1MFI and Dolcis (Campello, et al., 2010). Thus unemployment in UK increased
by 8% in 2008 as shown in (figure 1) and tax generation reduced leading to lower UK GDP by
1 In Swansea, Coventry and Wolverhampton
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1.5% by the end of 2008. The average earning growth in UK is shown in figure 2 making it
obvious that construction sector was affected the most followed by downfall in other sectors
(Campos, et al., 2011). Many multinationals lost their competitive advantage of superior
technology and the focus of HRM department moved towards employees quality and
productivity (Zagelmeyer & Gollan, 2012). The link between innovation and human resource
skills is shown in (Figure 3). As can be seen in the table that UK was still trying very hard to get
back on their feet.
Financial earthquake of (2007-08) enormously hit the job market of UK and more than 155,266
people in UK lost their jobs till Oct 2008. More than 1250 jobs were cut off by Fujitsu Company
in UK whereas by the end of June 2008, Lloyd Bank cut off more than 10,000 jobs leading to
massive chaos. Other leading companies indulge in downsizing included BT group (laid off
10,000 people in UK), BAE system (500 jobs), Royal Bank of Scotland (20,000 jobs), Man
group (280 jobs), First Group (1,750 jobs), IMI (250 jobs), Bodycote (1300 jobs), Southwest
Trains (480 jobs), Barclays (408 jobs), Mark & Spencer (1230 jobs), Cadbury (600 jobs) and the
list goes on (The Telegraph, 2008). Further, companies like Northern foods, Bay trading etc.
closed their factories or outlets leading to extended unemployment. Companies mostly in
publishing and retail sector became more competitive and employees had to perform with their
best skills to lower the chances of redundancy thus leading to more stress of job work (The
Guardian, 2008).
A survey was conducted for evaluating the HRM difficulties faced by 10 medium sized furniture
companies in UK and it was found out that all were affected and reduced their number of
employees by 10 to 35%. More focus was given on productivity and corporation still 5
companies wanted to opt for voluntary resignation (Ochetan & Ochetan, 2012). Moreover, many
leading companies were involved in downsizing for instance, in airline industry British Airways
that was competing on premium seats lost major profits and as a result reduced their staff to
improve situation. As banks stopped lending resulting in many workers laid off in companies like
Honda and Jaguar Land Rover and introduced short-term working to reduce costs (Wood, 2010).

HR practices changed drastically under this time period and more focus towards hard HR
practices2 leading to direct cost reduction was obvious in many leading organizations like Lloyd
Bank, Cookson, and Wincanton etc (Savor, 2013). It was further backed with multi-stranded
HR retrenchment plans and pay freeze focused schemes initiatives to reduce costs.
Companies like BMW and Huntsman combined hard practices with soft HR practices of
communication and involvement to increase productivity and commitment. Later on many other
companies also started using these strategies in their businesses (Roche, 2012).
Thus, positive change that was apparent later was remarkable stability and durability of the
employment relationship (Roche, 2012, p. 80). Further in London more than 13500 jobs were
created in social work activities and human wealth. Many companies started merging their HRM
strategies with overall business strategies and by the end of 2009 GDP of UK raised by 0.3%
(Slater, 2013).

Impact on strategy in Royal Bank of Scotland:

According to Finch (2014), Bank of Scotland of Royal Group is a PLC and Direct British
holding company, which provides banking and insurance services.
1. Changes relevant to Business Strategy
Following the commencement of the crisis, RBS changed its strategies and policies
significantly. On 22nd April 2008, RBS declared that it would raise 12bn of capital in order to
deal with the shortage of 5.9bn caused by credit crunch. The goal was to increase reserves due
to depleted resources following the acquisition of ABN AMRO. The bank also stated that it
would divest some subsidiaries in order to gather more capital, particularly its insurance
businesses, Direct Line and Churchill. Also, it sold off its stake in Tesco Bank to Tesco itself for
950 million.
In October 2008, in order to re-stabilize the bank, the British Government bought 58% stake in
the company (Conan, 2009). This was done to give the bank an opportunity to restructure itself
and make its resources stronger. This was done under the recapitalization strategy of the
government. A rights issue followed in which the shareholders failed to have the minimal
2 Cuts in pay and bonuses, pay proportionate to working hours, productivity
measures, curbs on promotions
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holdings needed to run the company. Ultimately, the government ended up owning above 70% of
the capital of RBS.
The treasury invested 37 billion (representing 617 for each UK citizen) into organizations like
Royal Bank of Scotland Group, Lloyds TSB, etc. The government pointed out at the time of
implementation of this strategy that this was not permanent public ownership and that the banks
would get back to private ownership eventually. The government stated that the tax payers of UK
would get benefits from this strategy as the government would have significant control over
RBS. If the shareholder take up was 0%, the government would own 58% of the bank (Finch,
2014). If it was 100%, the bank would own 0%. Unfortunately, following the crisis, only 56
million fresh shares were bought by people, which stood for just 0.24% of RBS value.
Following the implementation of the rescue plan, the CEO of RBS, Fred Goodwin, resigned and
Stephen Hester became the new CEO.
In late 2008, RBS releases a statement that highlighted that it had faced losses of 7-8 billion
Pounds. Also, it had to write down an amount worth 20 billion Pounds due to the takeover of
ABN-AMRO. This made total losses 28 billion Pounds, the biggest loss in the history of UK.
Due to this declaration, the share prices of RBS dropped by more than 66% in a day to reach just
10.9p each share. Eventually, the prices dropped by 97% (Savor, 2013).
2. Changes in overall HRM strategy
In terms of its HRM strategy, RBS had one of the finest model which combined
interrelationships between leadership, strategy, culture and HRM till 2007 (Li, 2012). When the
financial crises hit the company strategies changed. According to an interviewee in a research, he
explained that RBS human resource department was diverted to personal issues like creating
tension to catalyse change in 2008 (Martin & Gollan, 2012, p. 3306). Morning meetings under
Goodwin leadership style known as morning prayers or beatings were used to chasten senior
managers (The Scotsman, 2012). Another interviewee explained that ritual humiliation was seen
as a right of passage (Martin & Gollan, 2012, p. 3306). It was known as the culture of fear
where employees were continuously working to protect their jobs and yet more than 20,000
employees were laid off by the end of 2008.
More of an autocratic leadership style combined with continuous pressure and bullying culture to
enhance only the output levels prevailed in HR department of RBS. Relative performance was
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important and higher productivity was only expected. Due to all these problems job satisfaction
level was lowered by 6% and 7% decline in employment security score in 2008-09. Later due to
the CEO in 2009 HRM strategies changed and more of a democratic structure succeeded (The
Scotsman, 2012).

Impact on HRM policies and practices:

1. Resourcing the organization
Recruitment and selection of employees is a process through with a desired outcome is achieved
by employing the most suitable human resources (Pilbeam & Corbridge, 2009). Financial
earthquake (2008-09) effected RBS adversely and as a result Recruitment and selection process
became stagnant. Highly competitive environment prevailed leading to reduction in jobs instead
of recruitment (Li, 2012). Recessions result in efforts to reduce cost and it is majorly done by
reducing labor and paying according to the working hours and same was the case with RBS
(Hendry, 2012). Moreover many department were merged like insurance was merged with
investment in 2008 leading to further downsizing and specialized skills were not fully
acknowledged.
Later in 2009, when RBS was trying to rebuild its image it had to incur major costs as the
redundancy programs lead to many seniors leaving their jobs. New teams needed to be approved
and experienced staff was hired to get back the lost image (Jones, 2013). Selection was done on
not only external basis like at the time of recession it focused on overall productivity, instead
internal qualities and communication skills were closely measured to improves decentralized
structure as it leads to circulation and generation of better ideas (Hendry, 2012).
2. Human resource development (HRD)
Human resource development helps in developing personal as well as organizational skills
among employees in order to achieve effective results (Conan, 2009 p.23). During recession, to
conduct training programs becomes really difficult and instead focus moves towards protecting
jobs. Similar case happened in RBS where the bank was already going in losses and in such
situations training was not part of to-do-list. Many specialized seniors had to leave their jobs as
the major focus was on increasing productivity only by focusing on hard HR practices 3 (Roche,
3 Cuts in pay and bonuses, pay proportionate to working hours, productivity
measures, curbs on promotions
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2012). In 2009, RBS returned to its previous strategies of communication, teamwork and soft
practices of HR. Thus as a result 5 new training programs were started focusing on all major
departments and new staff that replaced the fired employees were trained to achieve effective
results (Osborne, 2013). Overall conditions were still not very stable due to which productivity
was still very important yet the focus moved towards achieving it with help if internal qualities
of staff instead of only focusing on external side. Employees participation rights which were
abolished under Goodwin leadership style were reestablished and a decentralized structure where
new ideas were appreciated prevailed in 2009 (The Scotsman, 2012).
3. Employment relations
Although RBS laid of many jobs yet at the bank knew its most valued employees and retained
them with bonuses of1.5bn to the senior employees to stabilize the position through increase in
productivity (Cohen, 2009). However at the time of crises employees had no major say and they
had to work as robots and strict environment. As according to Flanagan (2009) employees are
also protective about their jobs in recession they were not hesitant to indulge in multitasking and
extra work. Same strategy prevailed in other banks as well like Lloyd bank also downsized
heavily and made their departments to merge in terms of employees and tasks.
4. Managing performance and reward
As mentioned that government owned 80% of shares in RBS and more then 20,000 employees
were laid off, the board of directors went against the government and stated that they would
resign if they were not allowed to give bonuses of 1.5bn to the employees (Cohen, 2009). It
must be noted that rewards have been an integral aspect of HRM and helps in gaining trust of
employees (Hendry, 2012). The board wanted to ensure efficiency by providing bonuses.
Ultimately, around 100 senior employees got greater than 1 million in 2010 and the overall
bonus payments reached around 1 billion. This was despite of the fact that the bank declared
losses of 1.1 billion in the year 2010. Unions were confused by this strategy as even though the
bank was owned by taxpayers, employees were getting bonuses. The losses were of 3.6 billion
in 2009 and 24bn in 2008 (Seville, 2012). Thus, the 1.1 billion of 2010 was an improvement.

Context:
As per Flanagan (2009), different organizational, industry based, international, etc. contexts have
a lot of influence on the impacts of the economic crisis. Within the organization, as mentioned
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earlier, RBS had to alter its strategies in order to sustain itself. It had to close a lot of businesses
and had to let go of a lot of employees. Layoffs were one of the biggest negative impacts of the
economic crisis on RBS HRM (Treanor, 2009). However, it must be noted that in order to ensure
that its operations ran smoothly, RBS could not compromise on employee motivation even
though it was laying off over 34000 people. Despite off the credit crunch and financial crisis, it
paid bonuses to senior employees in order to make them feel secure. This strategy met a lot of
criticism from unions and certain segments of media, but the board of directors stood by their
decision and even revolted against the UK government (Mulholland, 2008). Rewards is a key
motivation strategy of RBS and it continued to implement this strategy even during the
downturn. At the industry level, the company suffered as the entire banking industry suffered.
Irrespective of its financial records and debts, RBS could not access credit due to the credit
crunch that affected the entire banking industry. As per Winnett (2012), due to the burst of the
real estate bubble, RBS suffered along with the entire industry. In the international context, RBS
had to sell its stakes in Bank of China as its expansions in China were giving tough competition
to the bank. Bank of China pressurized RBS to sell off its stakes so that its competitive edge
would reduce in China. Due to the economic crisis, RBS stopped recruiting people and reduced
its human resource needs. It lowered the number of human resources and let go of all redundant
employees. It chose to give attention and focus to the existing employees and motivate them
strongly with bonuses and rewards so that overall productivity and efficiency of the company
does not get compromised (Jones, 2015).

Conclusion and Recommendations:

However there are further recommendations that can be followed by RBS and any other
organization as well regarding HRM that can be very beneficial for growth. These include:
1. In terms of recruitment and selection more pro-active approach needs to be followed and
employees must be hired through job analysis and proper interview procedures (Gilmore
& Williams, 2013). At the time of recession many potential and hardworking employees
were fired thus proper recruitment procedure can help in improving efficiency.
2. HRM strategy must be in line with overall strategy of the business to provide more
strategic approach. HR competencies and teamwork can majorly help in achieving
strategic objectives (Mathis & Jackson, 2007). RBS needs to integrate in strategic human
resource management in order to get out of losses and revive its position.
3. Up to date training of staff is necessary to survive in the competitive world thus more
training programs mostly in-house in terms of RBS (as incurred losses previously and

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need cost effective measures) are necessary. It can be combined with job rotation
practices to provide much better exposure to employees.
4. Constructive and healthy working environment is necessary for employees to score well
(Kramar & Syed, 2012). Thus more focus on team work and good relation among
employees combined with good working conditions must be provided to enhance
outcomes.
5. Performance monitoring systems must be use in order to assure continuous
improvements. Other essentials to enhance performance includes coaching, good
manager and employee relation, role interpretation and communication (Lucio, 2014).
6. Offer a sense of job security in terms of proper compensation and benefit plans. It will
help to gain employees interest back (Storey, 2009). It must be sum up with retirement
plans as well so that employees retain their interest in the bank.
7. Previously in RBS meeting were more of a way to insult employees. However this
must not be the case instead productive meeting must be scheduled in order to discuss
performance measures and problem solving techniques (Roche, 2012).
Thus, with help of the recommendations mentioned above RBS will be able to achieve much
more in less time. As Hendry (2012) said that motivation, training, good performance and reward
system are all key ingredients that leads to improvement in performance of an organization.

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