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Creating People Advantage 2010

How Companies Can Adapt Their HR Practices for Volatile Times
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The challenges of leading and managing people were complicated by the financial crisis and global recession. The crisis layered in a new level of volatility and uncertainty on top of the accelerating change that most businesses were already experiencing. Companies that don’t adapt to the new state of high volatility will be rendered obsolete by more nimble and flexible rivals—and the key variables for adaptation are the quality of the workforce and how it is deployed.

It’s no longer feasible to conceive a strategy in an executive ivory tower and expect a docile workforce to implement it. Innovation and growth today require creativity and engagement by employees at all levels. This survey report details those human resources practices and methodologies that enable companies to create competitive advantage—and those that are no longer suited to these times.

This global survey is the second conducted by The Boston Consulting Group and the World Federation of People Management Associations. The first was completed in 2008. (BCG has also partnered with the European Association for People Management in 2007 and 2009 on a similar European survey.)

  • The online survey generated 5,561 responses (nearly one-fifth more than our 2008 survey) from 109 countries covering five continents and numerous industries. We also interviewed more than 150 executives, mostly board and executive committee members of multinational companies.

  • This report presents our findings and analysis of the 21 topics covered. We also feature short case studies on individual company initiatives or relevant research.

Most industries and countries will experience a widening talent gap, notably for highly skilled positions and for the next generation of middle and senior leaders.

  • Populations in most developed countries such as Japan, Germany, and the United States will skew sharply older in the coming decade, barring radical changes in immigration policies. The upcoming waves of baby boomer retirements may cause many positions to go unfilled and raise the risk that companies will lose valuable institutional and process knowledge. Rapid growth in many emerging nations, meanwhile, has already created a gap in skills that population growth alone cannot ameliorate.

  • Revising public policy to facilitate labor mobility would help, but companies have to seize control of their own fate when it comes to securing the best workforce today and for the future. They need to ramp up their talent-sourcing, retention, and development practices now, before it’s too late.

Four HR topics stand out as the most critical.

  • Managing talent—identifying, attracting, and retaining talent—continues to be the most important future HR topic. Corporate capabilities in this area have improved only slightly since our 2008 survey.

  • Improving leadership development has risen in importance over the past two years. Fifty-six percent of survey respondents cited a critical talent gap for senior managers’ successors. In volatile times, leaders who can convey the company’s vision and motivate employees are invaluable. It is generally easier and more effective for homegrown talent to step into leadership roles. Yet companies fill more than half of their executive positions from outside, suggesting that internal leadership-development programs, including corporate universities, need to be improved.

  • Employee engagement suffered during the past two years because of layoffs and other cutbacks. Companies are now trying to restore a sense of pride and trust. Our survey found that flexibility measures such as job mobility and flexible work arrangements can help improve engagement and are more effective economic measures than cutbacks over the long term. Strengthening the corps of middle managers, who supervise the majority of employees, is another means of bringing engagement back.

  • Strategic workforce planning is the cornerstone of fact-based HR management. Companies need an accurate picture of the composition, age structure, and capabilities of their people. But executives rated current capabilities low in this regard. Only 9 percent of companies deploy a sophisticated workforce supply-and-demand model, suggesting that strategic-workforce-planning capabilities have a long way to go. Business volatility and uncertainty increase the need for companies to rely on advanced analytics, scenario simulations, and other sophisticated workforce-planning levers.

High-performing companies emphasize certain HR practices that low-performing companies tend to play down.

  • Performance management and rewards is a topic that separates strong and weak companies (as measured by revenue and profitability growth). It was ranked the second-highest HR capability by high-performing companies but only ninth by low performers. This correlation highlights the value of focusing on performance and rewards.

  • High-performing companies also focus their efforts on fewer, carefully chosen HR projects. Even when they have a strong capability in an important HR area, these organizations keep refining and experimenting to grow even stronger.

Companies need to reboot their HR function and boost resources devoted to it.

  • HR professionals should be viewed as functional experts and partners to the business units, similar to corporate finance. At many companies, they have been going through this transformation, but they still need stronger capabilities and larger roles. HR professionals themselves acknowledge that they have big capability gaps in business analytics, business planning, and client relationship management. In particular, more sophisticated analytical skills will permit them to better predict future requirements, track performance outcomes, and calculate the return on investment for various human-capital initiatives.

  • While both HR professionals and business managers recognize the need for training and other developmental initiatives, the differences in their perceptions must be addressed. Business managers view HR professionals’ HR expertise as less important than their skills in business planning and conflict resolution. And, while both groups agree that business managers’ handling of poor performers is their most important people-management skill, business managers see a far smaller gap in their own performance than HR professionals do.

The rest of the report discusses how to strengthen the various links among employees, the HR function, and business strategy and execution. Here’s a summary of the five sections.

  • “Global Trends in Managing People” summarizes the survey results, revealing which topics executives deem critical and which corporate capabilities need upgrading

  • “Do You Have the Right Future Leaders?” discusses how the HR function can build stronger capabilities in leadership development and talent management

  • “A Strategic Workforce Plan to Build the Capabilities You Need” outlines an approach to creating long-term strategic workforce plans that incorporate future shifts in strategy, product mix, and technology

  • “Building Flexibility in the Workforce” examines the use of flexibility measures to create a more elastic and engaged workforce

  • “Developing Capabilities for HR to Partner with the Business Units” lays out a road map for HR professionals to develop new analytical skills and expert knowledge, and to serve as trusted counsel to business managers

A related BCG White Paper, Creating a New Deal for Middle Managers: Empowering a Neglected but Critical Group, published in July 2010, discusses how to empower middle managers to better execute the business strategy and engage employees.