Eurozone Challenges

The intense economic pressures in the European Union, combined with high unemployment, restrictive labor policies, an aging workforce and high costs of living, offer some key challenges for HR leaders. Intensified workforce planning is crucial.

Thursday, December 22, 2011
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Extreme uncertainty is plaguing employers operating today in the eurozone, as fears of government/bank default, euro breakup, bankruptcies and employee/customer distress continue to percolate.

The eurozone, which is comprised of 17 European Union members that have adopted the euro as their common currency, face some serious challenges as economic conditions continue to unravel.

"Unlike recent economic difficulties, today's crisis has the potential to totally undermine the eurozone, the whole EU and beyond," says Andrea Di Maio, vice president at Gartner Inc.


Recently, Gartner noted some broad organizational challenges raised by the euro crisis, including one HR leaders should focus on.

For starters, there are millions of people out of work in Europe. At the same time, formal government austerity packages and informal corporate restrictions on salaries and benefits -- combined with high costs of living -- are stressing workforces.

"This situation is compounded by retirement-funding shortfalls, extensions in the working age and loss of benefits," Di Maio says. "CIOs and business executives face significant HR issues in terms of rewarding and motivating staff, securing funds to hire appropriate new talent, and dealing with the personnel hardships of individuals entering the work environment, which impair productivity."

Di Maio adds that organizations must also plan to deal with retention issues, as foreign workers may move to better opportunities. Foreign workers may also see their work permits and visas removed in response to political backlash from rapidly rising unemployment, resulting in a potential brain drain.

Ibraiz Tarique, associate professor of human resources management and director of global HRM programs at Pace University in New York, says HR executives face three key challenges when it comes to managing in deteriorating eurozone conditions.

One is the changing psychological contract between employers and employees. Tarique says factors such as high unemployment -- especially among the youth -- rising levels of poverty and falling real wages are changing the way people view work there.

"For the first time in many years, job insecurity is becoming a reality for many people," he says. "The traditional European work model can no longer be sustained. It was nice while it lasted, but now there are new realities."

As a result, there is a shift from "work to live" to "live to work." This new attitude toward work has implications for HR, mainly in the increased competition among workers. Motivation to learn and develop will be high among workers looking for work.

"HR will have to develop incentive models that focus on what motivates key talent," he says, adding that -- similar to the Western labor markets -- boundaries between private and work life will intersect; HR practices that balance work and life will become critical in a labor pool that is used to "life" in the work/life balance equation.  

A second major change is occurring in the role of HR -- an increased emphasis on the "HR as a broker" model.

Traditionally, Tarique says, the influential and extensive labor laws and regulations in the EU have limited HR's ability to staff, train and terminate employees. Now, to create jobs and sustain current jobs in an era of limited budgets and resources, governments are looking at ways to deregulate labor markets.

As a result, HR's role is changing significantly, he says.

For example, one challenge for HR is dealing with the so-called "flexibility-security nexus," which requires HR leaders to balance increased EU labor-market flexibility -- which is necessary to enable global competitiveness -- with possible deregulation of employee protections.

"In this context, the role that the HR function plays is mostly of a broker between an organization's management and the labor force," Tarique says. "HR has to satisfy three key stakeholders -- governments, employers and employees. This is not an easy task."  

Tarique says HR also has an important social role here, as governments most likely will look to organizations -- which, in turn, will look to HR to develop policies -- to facilitate job creation. For HR, "job design" will become critical.

For example, HR needs to figure out how to design jobs that will increase productivity. There also will be considerable focus on developing pools of contingent or part-time workers, he says.

"HR will have to play a strategic role here and form partnerships with various government agencies," he says.  

Finally, Tarique says, changing labor demographics and retention of talent represent serious challenges. With a projected eurozone negative population growth by 2015-2020, managing an older or aging workforce will be a key hurdle for HR.

"An important issue for HR is to develop policies and practices to motivate and engage the aging workforce," he says. "Another issue for HR is to design practices that capture, retain and transfer knowledge from an older workforce to other employee groups."  

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Tarique adds that eurozone companies may also attract a diverse group of employees from a variety of Asian countries, where population trends are relatively different. With a diverse workforce, HR will need to become a change agent focusing on effective cross-cultural transformations and communications.  

On the flip side, he adds, if the current economic decline continues, talent flow out of Europe may become an issue for many organizations, especially at the senior-management level.

"Top talent may flow to Asian-Pacific countries and India," he says, "so retention of key talent will become an issue for HR."  

Tarique says organizations must also be concerned about the risk of losing key talent when the economic conditions improve, as a shortage of talent at a global level may result in rising voluntary turnover rates in the EU.

"HR will need to be extremely proactive and design retention strategies for an eventual recovery," he says. "With limited financial resources, HR may have to focus on non-financial rewards to retain and motivate employees."

Ed Hannibal, the leader of New York-based Mercer's global mobility business for North America, says he has been spending a lot of time talking with clients about talent-management concerns in Europe.

The next few years, he says, could offer serious talent- and succession-management challenges. That requires HR leaders to ensure "there is an even stronger focus on the ongoing workforce-planning process."

"HR needs to look at the roles they have in place and the individuals in the pipeline to fill those roles, and decide what the alternatives might be," Hannibal says. 

One possibility would be taking a more global view of talent, he says.

"Planning a global workforce is a normal part of any global company's operating procedures, but now, with what is happening in Europe, it's even more critical," he says.

"It's hard to predict, but we all know the countries right behind Greece that are on everyone's watch list," he adds, citing Italy, Portugal and Spain, among others, as especially problematic.

Workforce planning is always important, Hannibal says, but in today's EU, it has to be accelerated and greatly intensified.

"Most of all, the solutions need to be very specific to the company," he says. "There is no one-size-fits-all strategy. For HR-related issues, you have to look at core business areas and specific workforce needs, and make sure you know what comprises business-critical talent. The big issue is getting ahead of workforce planning, making it a real focus, both long- and short-term."

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