Reference no: EM132808652

A matter of costs - Case Study

Karen Saunders, vice-president, human resources, could sense the tension as soon as she entered the large, light-fitted office of her boss, Rachel Razak, president of Global Industries. Sitting next to Rachel was Andrew Lam, CFO, his eyes downturned and his face impassive. 'Karen, Andrew and I have been reviewing all the budget estimates. As you are aware, our financial position - sales are down by 40 per cent already this year and we are heading for our first loss in 25 years. We have no choice but to cut back on expenses.' Karen sighed. 'Yes, I clearly understand the company's financial situation'. Are you sure, Karen?' snapped Rachel. 'To Andrew and me, your budget estimates appear to have completely ignored the financial realities of our present position.' What do you mean?' questioned Karen in surprise. 'Just that your HR budget is totally unrealistic'. Andrew shot back. 'We have cut our overall expenses by 15 per cent in line with the reductions made by all other departments. What is wrong with my department's budget estimates?' asked Karen. 'Karen, take your training expenditure proposals as an example'. Andrew sharply replied. 'You propose to keep the present headcount of one HRD manager, supported by a graduate trainee and a secretary.' 'Yes, we are already understaffed in that area. Training and development have played a key role in the growing of our pool of management talent.' Andrew looked at Rachel, and then said, 'Perhaps we should forget about growing our own talent in these difficult times and simply headhunt the best from our competitors'. Before Karen could reply, Rachel said, 'Then, there is the matter of training programs'. 'What is the problem?' asked Karen, now feeling the pressure of the intense questioning. 'Well, to put it mildly, Karen', said Andrew, 'some of these programs look like they belong in an entertainment budget - abseiling, cookery lessons, war games and the like.' 'We have used them very successfully in the past as team-building exercises ... They have also proved to be extremely popular with all the participants', replied Karen. 'I have no doubt that they were great fun, but do they add value, Karen? Do people now do their jobs better because they have been abseiling or learnt how to boil an egg? Do these training programs make this company money?' Andrew asked angrily. 'Andrew, you can't judge everything in terms of money', retorted Karen. 'I can, It's my job', snapped back Andrew. 'What are you proposing then - I cut my budget by another ten per cent?' asked Karen. 'No', replied Andrew. 'I am suggesting that you abolish your HRD department - get rid of all the people and outsource any training we need. Also, I believe that unless your department can clearly show that all recommended training programs have a direct payback, they should all be cancelled.' Karen turned to Rachel and asked, 'You agree with all of this?' Rached sighed. 'Karen, the company is in a desperate financial position. Unless you can justify everything in your proposed budget in financial terms, I will have no choice but to go along with all of Andrew's recommendations.'

Discussion questions

1. Identify the major stakeholders involved. What will their likely views be?

2. Is training a 'luxury' that cannot be afforded in times of economic downturn?

3. What are the arguments for and against outsourcing training and development activities?

4. If you were Karen, what would you do? Explain as to why you would be doing this?

What are the arguments against outsourcing training and development activities and what would one do in Karen's place?