Consequences of an Economic Crisis: The Samsung and The Greek Banks case

1. Introduction

An economic crisis can be defined as the sudden collapse of an economy induced by a financial catastrophe. Symptoms may include inflation and deflation, falling GDP and can result in a recession or a depression. Visually, economic crises and their cycles can be depicted by a convex-like point called a trough. Due to their damaging implications, economic crises can prove to be an organization’s most challenging occurrence. Two examples of a major global crises, the Great Depression of 1929 and the Financial Crisis of 2008, demonstrated that buying power as well as the different human and social dimensions of an organization are deeply affected when financial cuts are made.

Based on past crises, best practices determine that implementing effective crisis management helps companies to cope with problems and recover from a crisis. This paper will investigate the effect of economic crisis on the social and human dimension of an organization through two real-life scenarios, the Samsung Case and the Greek Banks Case.

Firstly, this paper presents the two cases and relates them to the empirical cycle. Secondly, it compares them and analyzes the contradictory positive and negative humanistic effects of an economic crises. Thirdly, it introduces three methodological concepts and relates them to the topic.

2. Presentation of the Two Cases

a. The Greek Banks case

The 2008 economic crisis had a negative impact on most organizations, “The rapid global economic downturn severely disrupted economic growth worldwide” (United Nations, 2011). The social impacts of this crisis were fatal: unemployment rates increased, wage levels decreased, and many businesses had to close. In addition, there was also “an increasing number of people facing social exclusion through wage inequalities” (Dr. Aravopoulou & Mitsakis, 2016). Since the economic crisis is a period of social change, an organization faces instability. It has to deal with fear and panic among members of its organization, resulting in a decrease of the company’s performance as people are not operating at their optimized levels. A crisis also creates tensions within the company and its stakeholders, threatening potential financial resources. Therefore, human resource development (HRD) plays a key role in ensuring the survival of the company.

After the fall of the Lehman Brothers Bank in 2008, the banking sector in Greece was in a critical situation and the country could no longer sustain finances independently – requiring IMF help. The Lehman Brothers fall led to a worldwide Trust Crisis where organizations were no longer willing to lend money to third parties. This global recession can be reflected in our case study where two of Greece’s largest privately-owned banks had to significantly reduce costs to stay afloat. These reductions resulted in both banks decreasing department budgets and prioritizing financial spending efforts. When interviewing employees from the first bank, they stated that before the crisis, HR had been valued and that the department had been influential in implementing businesses strategies. However, after the crisis, management from the bank focused on reparation by dealing with the most pressing consequences. This limited the influence of HR development; there were fewer opportunities for employees to participate in advantageous training sessions and the HR department also faced staff shortages. In the end, the economic crisis had a heavy impact on the HR department where training and developmental opportunities for employees were reduced. Workers also faced increased workloads, pay cuts and a reduction in overall morale and job satisfaction (Dr. Aravopoulou & Mitsakis, 2016).

The steps of this research study can be described through the empirical cycle. Firstly, this method involves the observation of behavior( or other phenomena). It begins with casual or informal observations. In the case mentioned above, different stakeholders’ behavior was observed during a period of time. This period consisted of a pre-crisis and post-crisis observation of members of the bank. The second step of this cycle involves the “forming of a tentative answer or explanation” (Gravetter & Forzano, 2009). By identifying other variables, the method helps to determine a general hypothesis. Relating to the Greek Banks example, the economic crisis decreases the effectiveness of HR development when budget reductions are made. The first two steps allow the researcher to use previous hypothesis to generate a testable prediction (Gravetter & Forzano, 2009). Referring to the specific case from the banking sector, the diminished budget available for HR should decrease the training opportunities for employees. Next, the cycle surmises a prediction by making systematic, planned observations (Gravetter & Forzano, 2009).

In 2014, qualitative research was utilized when collecting data from HR staff, bank managers and employees. Individuals employed for more than six years, were asked to participate in the research so that they could accurately reflect on HR development and detail how training opportunities had changed because of the economic crisis. In the final empirical cycle step, the observation is used to support, refute or refine the original hypothesis (Gravetter & Forzano, 2009). Based on the evaluation of the answers provided by the members of the bank, the organization was able to determine that the crisis had had a severe impact on the effectiveness of HR development. Before the crisis, employees were able to choose from a wide range of career-enhancing training opportunities and after the crisis, much of this training went away/

b. The Samsung case

In 1996, Samsung Electronics Co. (SEC) was the most valuable subsidiary of the Samsung Conglomerate Group, contributing to nearly twenty-five percent of the total company’s earnings. Their goal was to become the dominant global supplier for computer microchips. After a dramatic price decrease and a failure in financial management, SEC’s total profit fell by ninety-three percent. Schmitt, Probst and Tushman (2010) emphasize that the Asian Financial Crisis emerged in 1997, causing regional tumult and SEC’s total earnings decreased by eighty percent. Consequently, SEC suffered excess production and decreased product-life cycles.

Before Samsung was subjected to crisis, they were burdened with large amounts of employees numbers. A lack of management became apparent as Samsung was not able to sustain its employment force. To revive the company, a new CEO was instated and a systematic organizational restructuring was instituted. This reorganization included a new framework for the Memory and Non-Memory division, another subsidiary of the Samsung Conglomerate Group, and introduced a “flatter” hierarchical structure and a decentralized communication system to improve company performance. Reflecting upon a Samsung prior to the crisis where a formal, inflexible hierarchy was typical, employees noted a drastic increase in organizational culture. They were now encouraged to innovate based on individual capabilities, contrasting to before where speed and intelligence had been “regulated” and individual innovation was static. This change allowed SEC to rebound from financial failure. Competitiveness was fostered, divisions were compared internally to determine the most profitable group and with external companies to benchmark Samsung’s success in relation to other companies on the market. Additionally, the new CEO introduced a new management philosophy called “Quality is My Pride”, expressing the companies new commitment to valuing quality over quantity (Schmitt, Probst and Tushman, 2010).He also hired international staff members to create a more diverse work environment. These changes allowed the business to endure and increased employee’s job satisfaction and improved the company’s efficiency by giving employees more liberty.

The empirical cycle’s first step of application is indicated in this case, by the ability to deduce that an overburdened and unsustainable workforce size taxes the banking organizations. Moreover, the arrangement seems inflexible and inefficient. Additionally, the structure of the business divisions were not fit to optimize the businesses goals. The company’s culture has also been investigated, and the conclusion found that workers were not motivated and that the management team was not diverse, where the predominant hiring was only areas within Korea. As part of the cycle’s second step, the deducted hypothesis formulates that organizational structure, corporate culture, and management need to be correctly adjusted to appropriately meet company’s needs. The next step highlights that an adapted framework within the company should increase the company’s profits. The fourth step involves collecting data and this collection can be made from comparing statistics before and after the company’s period of restructure. Based on the evaluation of these comparisons, the hypothesis formulated in step three proved correct. It can be concluded that SEC increased its profits by three-thousand one hundred percent after the economic crisis.

3. Comparison of the Two Cases

Positive and Negative Consequences of an Economic Crisis

To illustrate how an economic crisis can positively or negatively affect the human/social dimension of an organization, the two real-life cases presented above depict that a crisis can either damage or strengthen an organization’s structure. The Financial Crisis of 2008 affected the banking system on a global level. Unemployment levels rose as many individuals had to be let go; the Greek Bank Case demonstrated that limited resources in HR leave employees facing increased workload, decreased job satisfaction demoralizing employment wage. After the adjustment of the variables, (i.e employees and management) and a company-wide restructuring, company performance increased as well as individual job satisfaction and innovation.

4. Relating the Three Methodological Concepts

The final part of our paper will relate three methodological terms to the discussed subject matter. These will be applicable through both case studies and to the general topic of crisis managemtn. The first concept, causation, describes the way in which “a person’s attributes to one variable are expected to cause, predispose or encourage a particular attribute to another variable”. With the assumption that an attribute represents the characteristics and qualities that describe animate and inanimate objects (i.e people and things), causation can be applied to determine how satisfied a person is with their job (Babbie). As demonstrated by both the Samsung and the Greek Banks cases, when an individual does not feel well supported in their career through a lack of belonging, monetary compensation and personal ambition, they are likely feel a negative sense of external satisfaction. Economic crisis, with their high tendencies to result in employee termination, can cause many people to feel betrayed and disconnected from the organization they work for.

However, if they are driven to remain at the organization, the threat of “being let go” may motivate them to work harder. The second concept, paradigms, are the “fundamental models or frames of reference we use to organize our observations and reasonings”. These systems, the ones in which we operate in, can be compared to cultural systems at work. Organizations are structured to maximize efficiency and performance. While this translates to fiscal gain, it may not be conducive in supporting employees and their various needs. An optimized cultural system is one where satisfaction and utilization are intensified through company performance, employee loyalty, and job fulfillment. Demonstrated by the Samsung case, companies that spend their energy and time into making these changes are positively rewarded. The last concept, macroeconomics, can be explored in the Great Recession of 2008 where economic crisis in America caused a global economic collapse. Macroeconomics evaluates at the economy as a whole, as opposed to microeconomics, which approaches the economy through a narrow, more tapered view. Whereas the Greek Banks case can be described by macroeconomics, the Samsung case can be described through microeconomics.

5. Conclusion

It’s clear that in a time of economic crisis, one of the facets most affected within an organization are its human and social characteristics. By ensuring that effective communication is systematic throughout the organization and that employees are made to feel motivated, individually supported, and creatively free, organizations can rebound from catastrophe. There are some situations, the Samsung case for example, where organizations are able to recover strongly and are more successful than beforehand. To move on from a crisis, firms must be aware of self-destructive behavior and that visionary leadership, coupled with a strategic reshaping, can increase a firm’s performance and boost its company morale.

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