Human Resource Management in the New Normal

The COVID-19 pandemic has resulted in the largest and dramatic drop in economic activity in modern history. Among the many criticalities, one of the largest was the handling of human resources (HR). Human capital represents the most important part of firms’ knowledge stock and accounts for a significant percent of operating expenses (70% on average), which are traditionally characterized by a low degree of flexibility.

The labor market has changed rapidly from February 2020, changing the experience of work for thevast majority of employees and forcing organizations across the globe to adapt how work is organized and how jobs are designed. Globally, extraordinary HR initiatives have been implemented to face cost-cutting pressures. In common law countries (e.g., US), the large majority of organizations have started to lay off a large part of their workforce to cut costs, while in civil law countries, such as Italy, important governmental lay-off extraordinary measures have been implemented to support employees and ban the termination of collective and individual contract agreements during the pandemic period. In turn, this has created re-organizational issues, reducingcompanies’ autonomy and internal flexibility.

Nowadays, with restored confidence and the vaccine campaign, HR leaders are required to think through what will come next, and how to appropriately implement cost-effective workforce strategies to restore business growth as well as preserve the employees’ welfare.

The cost of re-hiring competence. Once the economy will re-start, organizations will have to consider rehiring or replacing workers. Employers often underestimate the costs to replace employees. These costs are instead notable – estimated to account for about one-third of a worker’s annual earnings and increasing with the level of education (The Center for American Progress) – and spans from more explicit costs incurred for the opening of a new position and the training of a new worker to more hidden (and potentially way more relevant) costs associated with the loss of social capital and creativity due to workers’ departure. From a cost perspective, organizations need to urgently and strategically balance the need for re-hiring competence with HRcost-cutting decisions, while preserving employees’ engagement and productivity. An in-depth evaluation of their contribution within the corporate ecosystem can help avoid rash decisions that might damage key talent outcomes in the middle-long term.

The cost of smart working in the post-COVID era. During the first waves of the pandemic, COVID-19 forced many firms to leave employees at home. Today, with raising vaccination campaigns, return to offices and in-person interactions appear closer. However, as reported by interviewed members of the Harvard Business School, the new post-COVID workplace will strongly differ from the past and workers’ productivity should be fostered within a new paradigm. As much as some employees will crave the return of in-person social connections in the office, they have become accustomed to the flexibility that comes with virtual work, from less time to commute to more time with family. Managers will have to accommodate changes to work patterns and find newsolutions not to incur in costs associated with a low level of personnel’s commitment, knowledge transfer, creativity, and problem-solving capabilities. From a cost perspective, a better understanding of how new forms of remote working could both preserve employees’ productivity and allow the re-organization of firms’ physical spaces (and associated expenses) is today essentialfor sustainably operate in the “new normal”.

Human resource management in the new era. Human resource leaders have become central to the response in organizations globally in the last two years. At its core, the COVID‐19 pandemic has been indeed a human crisis that implies profound socio-psychological, physical, and technical implications for employees. This contrasts with previous crises such as the global recession of 2008-09 or the Y2K crisis that focused on only financial or IT aspects. Today, the increasing importance to constantly examine workforce planning and their conditions, along with emerging skills and digitalization trends will make HR leaders key figures in the organization. HR leaders will need to adapt and be equipped to appropriately evaluate the trade-off between home working and in-person working and thus implement new extended work-from-home engagement activities, implement virtual performance evaluation for new candidates as well as train employees to work effectively and efficiently remotely.

More than a necessity, being successful in the redesign of the future of work will constitute a key factor of talent acquisition and retention strategies, eventually boosting company’s competitive advantage.

Edited by:
Daniele Piazzalunga
Mattia Cattaneo
(Università degli Studi di Bergamo)

In the early months of 2020, the outbreak of COVID-19 pandemic has dramatically affected the global economy, forcing companies to quickly adapt for a new business landscape. The impact on M&A volume diverged substantially across industries and economic areas. Global M&A activity was strongest in sectors least impacted by COVID-19 (e.g., tech, healthcare, and financial services), while it suffered a severe setback in industries more affected by the pandemic and characterized  by medium/long-term recovery paths (e.g., energy/utilities, real estate).

Quite surprisingly, despite the brutal halt in the first months of 2020 (with monthly activity much lower than that registered in prior years), the global M&A market did not just recover but went into overdrive by the end of the year, reporting an average monthly count far beyond the historical norm in the second half of 2020 (e.g., about 13% higher than 2019. Source: Morgan Stanley).  Furthermore, market insights reveal that M&A opportunities in the coming years will abound for companies who kept a strong position through the pandemic and that are in the right place to take advantage of them, whether these open up new markets or allow for bargain acquisitions.

QuotingRob Kindler, Global Head of M&A at Morgan Stanley: “All the elements are there for an active M&A market in 2021, from corporations looking for scale and growth to private equity firms and SPACs looking to invest capital”. Specifically, several are the factors underpinning a robust M&A activity in 2021, such as the expected rebound in sectors that were more severely affected by COVID-19, abundant capital from private equity and special purpose acquisition companies (SPACs), and the increasing emphasis toward digital transformation.

At the same time, companies must be ready to capitalize on these elements and take advantage of M&A deals. Recent reports by Deloitte and KPMG highlight some fundamental concepts that will be essential for companies to strengthen their positions for survival and success in the “new normal”, as well as to successfully handle future transactions and sustain corporate growth.

Resilience appears to be the new paradigm in setting up a successful post-covid M&A strategy. The pandemic has highlighted the importance of building and maintaining resilience in every aspect of the business, not only from a financial perspective, but also from the perspective of human resources, operations, and IT integration. From a deal perspective, building resilience entails a greater strategic emphasis on a company’s business portfolio and deal evaluation practices such as M&A planning and due diligence. Having a good understanding of the commercial aspects of a business target and ensuring that it is aligned with the refocused business strategy is of paramount importance to be resilient in today’s uncertain and fast-changing environment. In turn, this calls for a more integrated and strategic assessment as part of any pre-deal discussion, with a focus on identifying risks and opportunities associated with the new business landscape. Despite increased uncertainties and changing business models, COVID-19 has accelerated some broader shifts in the deal market and the economy in general, which should also be taken into account when planning for M&A. These involve, for instance, new working paradigms and organizational changes, which mandate companies to think through how the future of work will impact their business and transactions’ synergies.

Digital transformation and sustainability will be key drivers of investment and deal activity. A key component of a business’ arsenal in becoming and staying resilient is the investment in innovation. In the near future, governments are going to invest greatly in new technology and infrastructure to create an economic stimulus, while pursuing a strategic shift towards sustainability. A notable example is Europe’s investment in the electric vehicle infrastructure and green deal, or the Recovery Plan itself, which will be centered around the achievement of digitalization and sustainability targets. In this respect, M&A has an important role to play as companies typically pursue innovation either internally through R&D activities or by acquiring innovative targets. Hence, a growth of  M&A deals involving high-tech companies is expected. Furthermore, businesses that do not want to be left behind need to think about how they can innovate their products and operations, looking at M&A as a promising means to accelerate growth, gain scale and become more digitally capable.

Edited by:
Fabio Trabucchi
Sebastian Birolini (Università degli Studi di Bergamo)