Ernst & Young Case Analysis

Sean Adams Leena Hamad Ernst & Young Case Analysis

Case Facts • E&Y has been in a “war for talent” • They tried to seek the best talent • Focused on retention • Business strategy is to grow & provide a unique and high quality consulting service • Using a committed expert strategy • Differentiation and long-term • E&Y forced to have layoffs and hiring freezes • Has implicated HR strategy of attracting/retaining great employees • E&Y’s HR practices not part of a cohesive HR function • Their HR policy and practices aren’t cohesive, nimble or efficient

Parties Involved • HR Department • E&Y Management • E&Y’s Management Partner • E&Y Employees

Symptoms of E&Y’s HR Strategy • HR practices are not aligned with a cohesive HR function • HR strategy of attracting and retaining employees doesn’t work with layoffs occurring • HR functions don’t fit with its competitive strategy and don’thave resources to effectively carry it out • E&Y forced to layoff employees and have a hiring freeze

E&Y’s Core Problem • E&Y’s vertical and horizontal alignment don’t line up • Vertical alignment- Organization’s HR strategy does not support its competitive strategy • Not consistent, focus on hiring the best employees, but hiring freezes are occuring • Horizontal alignment- Individual HR practices fit and supports each other • Not consistent, focus on retention but layoffs occurring • Led to poor individual and organizational performance

E&Y’s Core Problem (ctd.) • Too much money spent on “war for talent” in the past • Should be developing organization internally & working with the talent they have • Spending money on tuition reimbursement becomes useless if laying off employees • Company reputation will be ruined if HR continues to layoff employees • Not trustworthy

Solutions for E&Y • Redefine HR strategy and goals • Shift HR focus from hiring new talent to retaining current employees • Develop current employees internally by hiring coaches • On-the-job training and development • Build up performance management in organization • Continuous performance evaluations & feedback will motivate employees • Hire and promote from within organization • Reduces recruiting costs • Creates organizational loyalty and trust • Use reinforcement • Merit Bonus- contingent upon performance • Tuition reimbursement • Although expensive, will pay off in the long term

Solution for E&Y (ctd.) • Cut out layoffs completely • Help HR gain trust and support from employees back • Will develop and fix the horizontal alignment of the organization • Layoffs create organizational problems • Layoff survivors suffer in psychological and emotional health • Leads individuals to withdraw from organization • Greater stress left for layoff survivors

Alternative to Layoffs • Cut employees’ pay by 5% • It is found that most people would rather take a pay cut than 20% of the workforce getting laid off • Leads to less organizational problems stemmed from layoff victims & survivors

Company Examples • China E&Y • Offered 9,000 of their employees in Hong Kong and the mainland the option of taking 1 month unpaid leave during the first half of the year this cut E&Y’s payroll costs by 17% • Wharton School of Business • Peter Cappelli, director of the Center for Human Resources at the school, says that a 5% salary cut costs less than a 5% layoff because there are no severance payments • Toyota • “It would be a whole lot easier to just downsize like any other company but we instead have to be much more thoughtful and creative about how we use people”

Solution for E&Y (ctd.) • Continue with hiring freeze • Focus on internal development • Build up HR management • In the next few years it will become increasingly difficult to find people, so build up HR management and incorporate that as part of the competitive strategy • Benefits of good HR management will continue to grow as the talented workers become more and more limited

Implementation • Communication is key • Communicate with employees • Gain support • Obtain any of their ideas or thoughts • Create and communicate vision to employees

Implementation • Outsource a professional coaching service • The International Coach Federation (ICF) • Largest association for providing coaches to equip employees with tools, knowledge, and opportunities they need to become more effective in the organization • DeLouitte & Touche USA • Company that uses professional coaches • Credits the program for retaining at least 650 employees • DeLouitte values coaching program so much that they have 13 full-time coaches on staff

Implementation • Provide continuous feedback • Multisource assessments & feedback • Highlight positive aspects of performance • Hiring freezes • Once over, hire employees to fit company culture • Focus on personalities, values and knowledge of job responsibilities • Getting to know on a personal level will ensure individuals who are a good organizational fit

Cost of Implementation • Cost in money • 5% Salary Cut • 23,102 E&Y U.S. employees • $102,593 average salary of manager • $61,513 average salary of Admin. Assistant • Average salary is $82,053/employee • 5% salary cut saves E&Y $4,103/employee • Total saved is $94,779,420 • Internal Coaching Program is about $82,000/coach • 370 employees per coach were used at DeLoitte & Touche USA • 23,102 employees/370 is 63 coaches needed through out E&Y • $82,000/coach with 63 coaches is $5,166,000

Cost of Implementation (ctd.) • Cost in Time • Salary cuts should be effective immediately • Will take about a year to develop employees internally

Conclusion • After implementation • E&Y saves $89,613,420 • Equivalent to laying off 1,092 employees • Benefits outweigh the costs

The End • Questions?

Ernst & Young Case Analysis