Creating People Advantage 2013

Creating People Advantage 2013

          
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Creating People Advantage 2013

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  • Root Causes of Success

    A key difference in this year’s report is that on the basis of empirical analyses, we sought to identify the root causes of people management success among highly capable companies across all ten of the survey’s HR topics. In this discussion, the topics are arranged by order of the identified need to act.

    Within each topic, we asked survey respondents who reported very high or very low current capabilities for their company—which also correlated with a high versus low return on effort invested—to provide more specific answers about subcomponents of that topic. (For details about the methodology, see the Appendix.) The results—shown graphically for each topic in the following section—establish a clear demarcation between highly capable and low-capability companies and highlight the activities that most clearly differentiate these groups. These activities represent the most effective drivers of success: the processes and functions that HR leaders should focus on to trigger meaningful improvements in people management performance and to increase their return on efforts invested. Exhibit 4 gives an overview of the most promising drivers of high capability in each of the examined sections.

    exhibit

    For each of the ten HR and people-management topics, we provide detailed descriptions of the key differentiators between highly capable and low-capability companies.

    Talent Management and Leadership

    Talent management and leadership activities are used to identify highly capable employees and develop them for more senior positions of greater responsibility. It is a key means by which companies improve retention and fill their leadership pipeline. This topic showed the highest need to act and also the lowest return on effort invested. In our examination of highly capable companies, we identified the actions that companies should take in order to increase their capabilities and the return on effort invested in this area. (See Exhibit 5.)

    exhibit

    Break down the silos. When asked whether their talent-identification processes were transparent, efficient, and enterprise-wide, respondents of highly capable companies showed an average degree of agreement of 74 percent, compared with just 23 percent among low-capability companies.1 Highly capable companies succeed in breaking down the silos of business units and locations, thereby enriching their talent and leadership pipelines. In this way, talented employees are not proprietary assets for individual managers; rather, these employees support the organization as a whole. In addition, everyone should have a fair shot at rising to leadership roles, and the evaluation and decision processes should be perceived as transparent and unbiased.

    Plan your talent for the long term and invest. About 60 to 80 percent of a company’s leaders are typically promoted from within, and, in general, it takes 10 to 12 years for talent to rise to top-leadership positions. Because of this long development process, it is key to strategically plan talent and leadership needs on a long-term basis instead of simply reacting to ad hoc short-term trends. Highly capable companies have predictive models in place for planning for their talent needs at least five years into the future—by business unit, expertise, and location. This allows them to manage their talent proactively and, for example, to modulate the career pace of certain employees to prevent temporary oversupplies or talent gaps. Société Générale’s approach makes clear that planning for the long term also implies maintaining talent development programs in times of crisis.

    Make talent, not war. Best-practice companies analyze the experiences that a future leader requires in order to succeed, and they systematically develop their talent by offering the right trainings, opportunities, and programs. By motivating talented employees to migrate to strategic, high-growth zones (for example, through rotation and international-mobility programs), companies can proactively develop their talent according to their needs instead of being forced to buy talent.

    Walk the talk through consistent leadership criteria. Highly capable companies have clearly defined leadership criteria that pervade the HR value chain. By systematically applying their leadership criteria in all selection, promotion, and reward processes, these companies give transparent guidance to their employees and make sure that the talent that best fits the company’s strategy makes it to the top.

    Disagreement corresponds to an agreement value of 0 percent, while a value of 100 percent reflects full agreement. For more details, see the Methodology in the Appendix.
    See “Make Talent, Not War: Building a Strong Leadership Advantage” in Creating People Advantage 2011: Time to Act; HR Certainties in Uncertain Times, BCG report, September 2011. See also “Building Up Your Critical Assets: Talent and Leadership Development” in Creating People Advantage 2012: Mastering HR Challenges in a Two-Speed World, BCG report, October 2012.
    HR Analytics: Strategic Workforce Planning and Reporting

    We define HR analytics as those activities that companies use to forecast workforce supply and demand and to track and report HR and workforce KPIs. Implicit in this activity is the analysis of data to make predictions, as well as the monitoring and improving of HR and people management processes.

    This topic showed the second-most-urgent need to act, as well as a low return on effort invested. In digging deeper into the results, we identified the key actions that companies should take in order to increase their capabilities in HR analytics. (See Exhibit 6.)

    exhibit

    Build predictive models. Highly capable companies have a regular and clearly defined process for measuring HR and workforce KPIs (the difference in the degree of agreement between highly capable and low-capability companies was 38 percentage points), and they use this as the basis for building predictive models regarding workforce engagement, performance, and behaviors. Using data to establish predictive models gives a quantitative foundation to decisions along the complete HR value chain—from selecting the most promising candidates in the recruiting process to predicting attrition and identifying the characteristics of successful leaders. Furthermore, the regular collection of HR data helps a company spot issues that need to be addressed and to quantify the success of people management initiatives.

    Accurately assess job demand. Best-practice companies have a demand model linked to their business strategy that enables them to predict job profiles that will be needed by business unit and location. By using strategic-workforce-planning tools that enable companies to compare workforce supply with demand, HR can anticipate future shortages and surpluses and mitigate their impact on the company through proactive measures (such as increased recruiting efforts). To integrate workforce planning with the corporate strategy and finance, HR employees should work closely with line managers. Syngenta demonstrates that strategic workforce planning can also lead to revamping the overall business strategy.

    Don’t do it only once—update it. Highly capable companies have a systematic and regular process for updating their HR and workforce analyses and plans. When they measure KPIs, companies need to make sure that they are still in line with the company’s strategy. This assessment should be done on a regular basis. The same is true for predictive models: to improve the precision of predictions, the models should be updated regularly with the newest available data.

    Engagement, Behavior, and Culture Management

    Engagement, behavior, and culture management includes the degree to which the organization can establish company-specific norms and behaviors for employees, engage and retain them, and give them the sense that they are contributing to something meaningful.

    With high ratings of future importance and only moderate current capabilities, this topic also shows a high need to act. We identified several key activities for companies that want to improve their capabilities in engagement, behavior, and culture management and to increase their return on effort invested. (See Exhibit 7.)

    exhibit

    Be proactive in shaping your culture. Best-in-class companies realize that the right corporate culture does not simply grow organically. Instead of waiting to see whether employees’ behaviors might destroy value, they invest significantly in developing their culture. Although many leaders think that shaping the culture is mainly a communication effort, success requires actively changing the environment in order to embed cultural shifts and make behaviors stick. In many cases, this is a big investment and can mean transforming processes that have a strong impact on the company’s culture, such as budgetary oversight and control, strategic planning, capital expenditure controls, and performance and career management. And generally, it is the leaders themselves who must change their behavior. For example, a leader who wants to foster an entrepreneurial culture must not micromanage his employees.

    Measure how much value your culture is creating. Highly capable companies have measurement tools in place that gauge the impact of culture initiatives and their influence on employee behavior. Leaders should implement systematic and recurring surveys with a very long reach (such as engagement and culture surveys) to assess how changes to the culture affect the bottom line and to identify negative trends. With the emergence of Web-based surveys, it is much easier to do this today than it was in the past.

    Use a clearly defined management cascade. Best-in-class companies use a management cascade process to improve engagement and steer their culture in the desired direction. Although senior managers need to be onboard and supportive of culture initiatives, they are too far removed from frontline workers to succeed in delineating specific steps. It is crucial that management use the right mix of communications channels, which should include leader-led face-to-face discussions through organized management cascades (extending down at least four or five management levels). Furthermore, when they undergo cultural-change processes, many successful companies use a co-design, or “middle out,” approach to make sure that middle managers really care about the organization rather than that they are simply conveying the change. The middle managers can also adapt initiatives to local peculiarities.

    Performance Management and Rewards

    Performance management and rewards includes the assessment of how employees work, along with the effectiveness of incentives to improve performance. This involves activities such as monitoring employees’ performance, providing constructive and timely feedback, and using a compensation model that links rewards to key behaviors that the company seeks to foster.

    Although this topic received high ratings of future importance, the return on effort invested is very low. We identified the key aspects that companies should focus on in order to advance from good to great performance management. (See Exhibit 8.)

    exhibit

    Make expectations clear. Highly capable companies have clearly defined performance criteria for each job function and, thus, ensure that employees know what is expected of them. In order to spur behavior that is truly beneficial for the company, leaders must carefully analyze which KPIs really drive the company’s overall success and support its overarching strategy. The KPIs by which an employee is evaluated should be clearly measurable, and companies should limit them to a manageable number. Moreover, performance criteria must be updated in line with changes to the strategy—otherwise compensation and benefits might end up incentivizing yesterday’s target behaviors.

    Build a meritocracy governed by consistent performance criteria. Highly capable companies apply consistent performance criteria in the feedback and promotion process, and they align performance metrics both vertically and horizontally across the organization. By transparently and consistently linking individual results to bonuses and individual employees’ careers, companies foster a sense of fairness, eliminate any perceptions of favoritism and bias, and make sure employees know that good work will pay off.

    Reward both results and behaviors. In the past, many organizations assessed results and behaviors separately. Employees with the right behaviors received promotions, while those who delivered results got bonuses. Today, best-practice companies are moving toward a more comprehensive system for measuring performance, in which behaviors and results are linked to and rewarded through a transparent system of incentives. This holistic approach is described by Ivana Bonnet, human resources director at Crédit Agricole CIB: “In the new corporate- and investment-banking context, we have to make sure that all business lines work together effectively to optimize client service and adopt more long-term-oriented business behaviors. Therefore, we base rewards around integrated holistic performance measures, which are grouped into four clusters: business results, human capital management, cross-business-unit collaboration, and corporate social responsibility.”

    Look beyond financial performance. Our results show that competitive monetary and nonmonetary offers have relatively little effect in differentiating highly capable and low-capability companies. This result is in line with earlier BCG findings showing that employees generally look far beyond a mere compensation package and benefits. In our experience, employees are willing to forego a significant component of their salary if other aspects of the work experience are positive. Besides money and benefits, the “total offer” is being assessed according to the work environment, the job’s development opportunities, and the employer’s reputation.

    HR Communications and Social Media

    HR communications and social media includes activities aimed at consuming, sharing, and creating information and knowledge from within the HR department. Implicit in this category is the use of different communication channels, including digital media.

    On average, companies’ current capabilities in HR communications and social media were lower than for any of the other HR areas we analyzed. As Exhibit 9 shows, highly capable companies in this area focus on several activities. With the increase in digitalization and the entry of Generation Y into the job market, these activities should be high priorities for companies—especially as our analysis of return on effort invested shows that such investments seem to pay off.

    exhibit

    Be ahead of the social-media game. With the emergence of social media, companies have become fully transparent. Dozens of social-media tools give both employees and candidates a holistic means of assessing the company—without controls or oversight. Best-in-class companies are proactive and have a clearly defined and integrated HR communications and social media strategy that is built on multimedia; leverages, for example, traditional Web channels, e-mail, company intranets, and social networks; is consistent across these channels and also across different functions (for example, ensuring that client and employee communications are aligned); and is tailored to match the preferences of relevant target groups. (See “How Social Media Can Improve Recruiting.”)

    How Social Media Can Improve Recruiting

    Given the growing importance of social media—not only for the younger generations but also for all other audiences—companies need to actively address the capability gap shown in our survey. One of the areas in which social media already play a decisive role is recruiting. To become best-in-class, companies should use an integrated approach for external communications from HR, addressing all stages along their recruiting processes.

    • Employer Branding. Use all media channels and platforms to create a comprehensive portrait of the company that resonates with a wide base of potential employees. Reach out to target candidates with campaigns on the company website, online job forums, and social networks.

    • Recruiting Strategy. Recruit through appropriate channels. Use career networks to identify relevant candidate groups by applying filters that isolate specific functional expertise, qualifications, and regions.

    • Candidate Recruiting. Be sure that the online application process is as streamlined as possible, making the most of online-screening tools, interview simulations, and online tests.

    • Onboarding. Use both the company intranet and external social networks to help new employees get situated.

    Take the pulse of the Web. By monitoring its social-media presence and actively listening to what people are saying, a company can gain valuable and actionable insights. Companies should use these insights to assess current social-media activities and, if necessary, to craft measures for improving their external image. A helpful tool is an employee Web survey that measures how much employees advocate and promote their company. This is a good indicator for the company’s e-reputation, and companies can improve results by linking managers’ compensation to the results.

    Integrate digital activators and social-media experts. Although many companies are still struggling to use new media proficiently, highly capable companies have dedicated employees for social-media activities. These employees can act as surveyors and digital activators. They monitor activity in social-media communities and channels and provide content to actively shape the company’s external image. Moreover, some companies have “digital activators,” who use social media to stimulate discussions and viral spread and to maintain strong ties with alumni. The precise impact of social media in business is still unfolding. However, one thing is clear: social media will only become more important over time.

    HR Target Operating Model

    The HR target operating model includes effective HR processes, organization, and governance, and positions HR as a strategic business partner. On average, companies showed low-capability ratings regarding their HR target operating model. Exhibit 10 shows what companies can do to improve.

    exhibit

    Make your HR a strong sparring partner of the company’s leaders. If HR is to link its processes effectively with the company’s overall strategy—and adapt the strategy to HR—HR leaders must be accepted by the business as strategic sparring partners for all people-related topics. That said, HR staff must understand that there is a balance. In some cases, ambitious HR executives consider themselves change agents and start thinking strategically before they have built up sufficient credibility in the organization. Instead, they must build from a base of HR expertise and then apply that to strategic considerations.

    In fact, there are levels that HR professionals must work through before they can achieve the true strategic-partner role. The first is making HR processes function smoothly and efficiently. The next is being a good partner to business units by helping managers evaluate the performance of their staff, transitioning poor performers out, promoting top performers, and training those in the middle. At that point, HR business partners will have built up a profound understanding of the business and will be able to dedicate their time to business-related strategic tasks. As Kjetil Kristiansen, head of HR for the Norwegian holding company Aker ASA, put it, “A key objective for human resources is to understand the business context and the real implications for HR—and not run HR in isolation from the business. That is crucial for success.”

    Build critical-mass HR expertise instead of fragmenting it. In order to avoid a silo approach, HR has to bundle its expertise across multiple areas, such as talent, learning, and leadership. This requires strong collaboration and is usually more easily achieved with centers of expertise, which can offer high-quality services and create clear points of contact for company leaders and business units.

    Translating this theoretical HR model with HR business partners and centers of expertise into real-world practice is a sizable challenge for many companies today. Merely creating these HR roles does not mean that they will be applied effectively. As Albina Nash, senior HR director at PepsiCo Russia, noted, “We have an HR business-partner model, but we’re not fully satisfied. It’s not clear who’s responsible for which types of business tasks, especially in some geographic markets. In part, this is likely because we’re currently integrating multiple acquisitions. We’ll need to establish and maintain the right structure to clarify roles.”

    Establish the right balance of global and local responsibilities. Global corporations require global HR departments. However, they must also remain flexible and adapt to local requirements and customs. In many cases, the ideal solution is an effective companywide balance of global standards that are implemented through localized roles and responsibilities and organized under a central global HR function. As the 2012 survey showed, globally standardized activities are often perceived as more effective, yet sometimes companies need to be able to adjust to local markets. Although strategic activities should be globally standardized, for its functional and administrative activities, each company has to adapt the degree of standardization to its unique needs.

    See “HR Governance: Global or Local?” in Creating People Advantage 2012: Mastering HR Challenges in a Two-Speed World, BCG report, October 2012.
    Training and People Development

    The training and people development topic includes all activities aimed at helping employees improve their performance and learn new skills that will prepare them for new roles within the company. This area comprises a broad range of programs, such as formal classroom training, job rotations, and tuition reimbursement for self-directed learning.

    Companies devote the most effort to training and people development, and this area shows the highest average capabilities. With the third-lowest return on effort among all ten HR topics, however, there is a lot of room for improvement, specifically by focusing on the activities highlighted in Exhibit 11.

    exhibit

    Use training as a way of engaging employees in the company’s strategic agenda. Highly capable companies use learning and development activities to generate strategic insights. Some companies have approached the challenge by forming corporate universities. While in the past, corporate universities were used primarily to deliver specific training to employees, many today serve as strategy platforms and actively support the development and execution of the company’s strategy. (See “Success Factors for Corporate Universities.”)

    Success Factors for Corporate Universities

    Many companies that strive to develop their talent turn to corporate universities. In the past, corporate universities focused on training design and delivery. Currently, these organizations are expanding to support overall corporate strategy and culture. Corporate universities are no longer simply training centers: many are dedicated strategy platforms that act as partners with senior leadership. (See the exhibit below.)

    exhibit

    To guide businesses in fortifying their existing corporate universities and provide a roadmap for organizations aiming to create them, BCG recently conducted a major study to identify trends and best practices. This study identified seven key success factors.

    • Engage the CEO. HR leaders should develop a close relationship with the CEO to shape offerings and ensure that the corporate university is widely accepted. Individual board members should sponsor specific programs.

    • Connect to the company strategy. Learning objectives should support the corporate strategy by building needed capabilities. Development programs for top talent should prepare employees to forge new strategic pathways.

    • Stay close to the business. Establish close collaboration in needs assessment and include business representatives on an advisory board.

    • Provide high-caliber offerings. Restructure the staff to include learning experts who can provide high-quality programs that outperform those of competitors.

    • Create a link to employee development processes. Integrate performance management and development, and provide programs that support new assignments and positions.

    • Measure the value. Assess capabilities and skill needs, and measure the impact of learning programs. Invoice business units at full cost so that they can easily compare the value of the offering with open-enrollment options.

    • Market internally and externally. Communicate the ways in which the corporate university is a key component of the employee value proposition. Use consistent “one face to the customer” branding internally and externally.

    Fundamentally, the company’s overall strategy should not result in a one-way flow of mandates and directives from management to employees. Rather, leaders need to make sure that there is a two-way exchange, in which the strategy stays responsive to the ideas, insights, and current capabilities of the entire organization.

    Make your company’s leaders your faculty. Highly capable companies are distinguished by their leaders’ commitment to learning and development. This commitment goes beyond providing financial resources: above all, these leaders actively promote, support, and participate in learning and development activities and act as sponsors for important programs.

    Allocate your training resources according to your strategic goals. Highly capable companies have established a clear link between their business strategy and their learning and development programs. To achieve this, companies need to regularly assess the kinds of capabilities that are required for creating value and reaching their strategic goals and then allocate their learning and development resources accordingly. This high level of reactivity becomes even more important in times of rapidly changing market conditions, which require adaptations in the company’s overall strategy.

    Diversity and Generation Management

    Diversity and generation management includes managing employee differences in gender and age as well as, for example, social, cultural, and religious disparities. Globalization and demographic shifts have increased the relevance of this topic in HR, and that trend is likely to continue for the foreseeable future.

    The surprisingly low rating of the future importance of diversity and generation management—in fact the lowest of all ten HR topics—shows that many companies do not grasp a core aspect of diversity. Such measures are not about being “nice” or complying with regulations. Instead, they are tools for generating better business results and will be even more important as the workforce ages and Europe’s talent supply decreases. The high return on invested effort that we identified in our analysis should motivate companies to intensify their comparatively weak efforts.

    Looking at the subcomponents of diversity and generation management, we identified levers that companies should focus on for improving their capabilities. (See Exhibit 12.)

    exhibit

    Tap the senior talent pool. Best-in-class companies do not just attract and develop young talent: they also systematically invest in building senior employees’ capabilities. The extremely high rate of early retirement in Europe—in some countries more than one out of two employees retire before the statutory age—shows that most companies are neglecting the potentially high value of senior employees. Because they have critical expertise, they are a valuable resource. This is especially important given current demographic shifts: people are living longer, and the talent shortage is growing. Companies that foster lifelong learning and take steps to attract, develop, and motivate senior talent will turn this demographic change into a competitive advantage.

    Build on your differences. It is not enough to build a diverse workforce: in order to connect a company’s cultural diversity to real productivity gains, HR leaders should systematically apply cross-cultural team-building activities and cultural-awareness training. This is how best-in-class companies create a spirit of collaboration. Companies should tap into this wellspring of ideas and insights to boost company operations. In addition, promoting diversity in recruiting processes can dramatically increase the size of recruiting pools: some 50 percent of potential future leaders are women, who need the same opportunities as men to succeed within the company.

    Listen to your junior employees. Best-in-class companies have established processes that encourage junior employees to present their opinions. In this way, these companies make sure that their younger employees understand that their opinions matter, and this encourages them to actively think about strategic options and present their ideas for consideration.

    A good means of establishing such an exchange is to regularly host management roundtables, which also help company leaders establish contact with the companies’ future leaders.

    As Exhibit 13 demonstrates, most European countries will face a profound workforce shortage in the future. This underscores the need for companies to attract the largest potential workforce by focusing on untapped pools through diversity initiatives. (See “Key Drivers in Diversity and Generation Management.”)

    exhibit

    Key Drivers in Diversity and Generation Management

    Companies still have a long way to go to ensure that the best talent—regardless of gender, ethnicity, or any other measure of diversity—makes it into leadership positions. In a recent benchmark study based on interviews with roughly 100 HR managers in 44 international companies, BCG identified a number of best practices that drive success in diversity initiatives.

    • Diversity by itself is not the main objective. Instead, it is a means of bringing new perspectives and insights to the way a company or business unit operates, ultimately leading to better performance.

    • Diversity must be a top priority for leaders. A company’s CEO and senior managers must have the primary responsibility for establishing and achieving diversity objectives, and they must act as role models.

    • Diversity does not mean preferential treatment for women or minorities. Business leaders must communicate that diversity is about hiring and promoting the best employees—not through preferences or quotas but through fair, open, and transparent processes for applicants and employees.

    • Diversity is not a PR gimmick. For diversity initiatives to be credible, the company must back up its communications with actions, and it must make itself accountable by ensuring that progress is visible and measurable.

    • Diversity is local and global. For most major initiatives, it’s important to integrate international staff from various units. Initiatives that have a global reach must always take unique local factors into account.

    • Diversity is not just for women or minorities. Men and majorities must be equally represented on any diversity project team. The goal is not the promotion of a specific group but a balance that reflects society at large—in the initiative and throughout the business units.

    • Diversity is cross-divisional. Successful initiatives do not get handed down from HR to the business units. Rather, involving representatives from units outside of HR at an early stage can ensure broader acceptance, help structure change initiatives correctly, and guarantee a companywide shift in mindset.

    Recruiting: Branding, Hiring, and Onboarding

    Recruiting includes the complete process of people sourcing—from employer branding to recruiting strategy, recruiting process, onboarding, and retention. As our results show, on average, companies rate their capability comparatively high in recruiting. Given the growing talent shortage in most European companies however, companies should be more than merely good at recruiting: they must be better than others. As Exhibit 14 shows, our survey clearly identified some measures that companies should take.

    exhibit

    Adapt recruiting strategies to target audiences. Highly capable companies know there is no one-size-fits-all approach. Rather, each category of hiring and job function is akin to a subpopulation, complete with its own priorities, requirements, and incentives. For example, although career opportunity is the most important job criterion for employees in most European countries, in China compensation comes first. And while Generation Y places high value on corporate social responsibility and personal development, the priorities of older generations in the workforce are different. Accordingly, companies should look below the surface, analyze subcategories, and adapt their recruiting strategies for different job positions, target groups, entry levels, and recruiting channels. This is especially important for attracting the best talent, who always have the greatest choice of suitors.

    Promote the company from within. Best-in-class companies have a systematically developed employer value proposition, both internally and externally. Companies should systematically assess internal perceptions of the brand among employees and understand how those perceptions influence the expectations of external job candidates. Next, they should develop a credible employer-brand positioning, with core attributes differentiated by target groups, and prioritize specific steps to implement the new brand positioning. Although defining the brand’s key messages and consistently promoting them is essential for a positive employer brand, it is not enough. Given today’s widespread corporate transparency, leaders need to make sure that their employees are the organization’s best promoters. To achieve this, the employer brand needs to resonate internally, and the day-to-day workplace experience needs to match the brand’s internal promise. The best employer value proposition is useless and can even lead to loss of reputation if it does not keep its promises.

    Reduce early regretted attrition with systematic onboarding. The third major difference between highly capable- and low-capability-company recruiting is a systematic process for cultural onboarding of new hires. The recruiting process does not stop on the employee’s first day, and HR must ensure that each new employee is positioned and comfortable as quickly as possible in order for him or her to begin contributing to the company’s success. As abundant case experience shows, a systematic new-hire-onboarding process not only increases productivity but also leads to a reduction in “regretted attrition”—the loss of employees that the company wants to retain—in the first and second years of employment. That reduction can be as great as 50 percent. Such a systematic process comprises not only administrative and professional onboarding of new hires but introduction to all relevant cultural aspects of the organization as well. To ensure that they are factoring in culture, companies should employ a set of specific programs, such as orientation events for new hires and mentors.

    Labor Costs, Flexibility, and Restructuring

    Labor costs, flexibility, and restructuring includes the company’s ability to react to a changing business environment. Our results indicate that companies do not see a high need to act on their capabilities in labor costs, flexibility, and restructuring. However, given heightened economic volatility, organizations often have to scale up and down in dramatic fashion, adapting the workforce size and capability set much more rapidly than in the past. Exhibit 15 shows areas of focus for improvement.

    exhibit

    Facilitate change through workforce-planning transparency. Best-in-class companies have full transparency on workforce supply and demand across regions, countries, locations, business units, and skill clusters. This information is not limited only to the company leaders: it is communicated openly within the company. When undergoing transformations due to strategic changes, companies should be transparent about workforce implications, working openly with both employees and employees’ representatives and unions. Landesbank Baden-Württemberg demonstrated that such transparency enables companies to have a well-framed transformation process with a clear schedule and reduces resistance to implementation. Above all, this transparency not only helps managers and HR leaders anticipate and meet future needs, it also allows employees to manage their career proactively.

    Make sure you have high flexibility within your workforce. Highly capable companies have a two-layer workforce: a core group that covers capabilities and knowledge of high strategic importance and a second layer consisting of external providers and freelancers. This second layer allows for flexible workforce adjustments and enables companies to stay ahead of shifting business priorities. To maximize flexibility, companies should establish clear processes and requisite control mechanisms to handle workers in these relationships. Other tools that companies should use include annual working-time accounts, leaves of absence, and transfers among locations and business units. This ability is increasingly important and also helps companies retain key employees.