Creating People Advantage 2011

Creating People Advantage 2011

          
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Creating People Advantage 2011

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  • European Trends in Managing People

    This report analyzes how HR challenges have been changing over time through survey responses and interviews on 22 topics. Our online survey generated 2,039 responses from executives in 35 European countries. (See Exhibit 1.) The top 5 responding countries were Germany, Italy, Portugal, Russia, and Spain. Respondents came from a broad range of industries and government bodies. Among the industries generating the most responses were business services, industrial goods, the public sector, technology and communications, and health care. We also interviewed 58 executives, including board and executive committee members of multinational companies.

    exhibit

    To start, we asked executives to rate their organization’s current capability in each topic and tell us whether they foresee the topic becoming more or less important in the future. In general, the most pressing issues this year involve more future-directed, strategic challenges, in contrast to our past surveys, in which the top issues concerned present challenges. This year’s issues are among the red-zone topics shown in Exhibit 2. For example, Transforming HR into a strategic partner entered the red zone in 2011.

    exhibit
    The Most Critical HR Topics

    The cluster of future-directed challenges in the red zone suggests that executives are extending their field of view and demonstrating a readiness to change regarding these topics. However, the corresponding capabilities rank low to middling, suggesting that companies have not yet actively embraced the challenges. Here’s what the red zone looks like:

    Managing talent, which includes issues such as identifying talent pools and effectively staffing leadership positions, continues to be the most critical topic for executives and has been in the red zone for several years, consistently being viewed as having high future importance across many countries. (See Exhibit 3.)

    exhibit

    Improving leadership development follows managing talent. It ranks slightly higher than other red-zone topics in capability, driven mostly by large companies.

    Transforming HR into a strategic partner has risen in future importance. There is a significant gap between the capability ratings of HR respondents and the lower ratings of business managers.

    Strategic workforce planning was viewed by many respondents as fairly important for the future, but current capabilities were rated low. In our experience, many executives have not yet adopted the tools and mindset required to plan the workforce over the long term. Instead, they react to short-term trends and adjust their workforce capacities on an ad hoc basis. The HR function, however, should be equipped with sophisticated models to predict supply-and-demand dynamics that are closely aligned with an evolving company strategy.

    Our survey data indicate that high-performing companies (defined on the basis of a combination of revenue growth and profitability over a three-year period) conduct a larger number of strategic-workforce-planning projects than do their low-performing counterparts. As Roberto di Bernardini, HR head of emerging markets/EMEA for Janssen, explained, “Strategic workforce planning allows us to understand the talent challenges in the context of tremendous change in pharma markets. It has also helped us make some counterintuitive moves.”

    Trends Shaping the Senior Management Agenda

    Turning to the yellow zone, several HR topics clustering low on both dimensions relate to megatrends that are high or rising on many companies’ agendas. Despite the importance of these areas, the relevant capabilities were among those rated lowest by respondents, so companies face a tough task in addressing the issues. (See Exhibit 4.)

    exhibit

    Demographics. It is a statistical certainty that the coming waves of baby-boomer retirements will create huge talent gaps in most industrialized countries. By 2020, the median age will exceed 47 in Germany and Italy. “More than one thousand colleagues will be retiring in our group over the next five years. Replacing their experience is a crucial challenge,” said László Szőcs, director of HR for Hungary’s largest oil and gas company, MOL Group. “The key is to identify a reserve of passionate natives and help them to survive in the new world. They need to enable the integration of the new generation’s competencies,” explained Monica Possa, director of HR and organization for RCS Media Group. Even nations with large cohorts of young people are not immune to workforce risk. Rapidly developing economies show very high workforce demand yet are wrestling with the issue of low employability of many citizens, and that affects European companies doing business in those markets. Companies will have to address such demographic problems through better strategic workforce planning and better recruiting.

    Social Media. The growing talent gap in developed countries means that power is shifting to employees and recruits. At the same time, several generations of people have grown accustomed to more technology-intensive ways of interacting with colleagues and potential employers. Talent management is thus becoming democratized and decentralized. Companies that don’t master online social-media technologies soon will struggle to keep pace in the talent race.

    Globalization. Globalization of customer segments and supply chains, together with the return of economic growth in many countries over the past two years, have led to an increasing number of cross-border activities. But international growth seems to have outpaced HR’s participation. Although core business and HR operations have become synchronized in some companies, the majority of companies have neither built an international operating model for HR nor prepared their professionals to think and act on a global scale.

    Diversity. Competitive markets today are characterized by globalization, talent scarcity, and increasingly distinct customer segments. Companies staffed exclusively with similar-looking and similar-minded employees lack the broad range of insight and experience needed to meet those challenges. They must fish for talent in new waters and use diversity strategically to deliver better products, enhance innovation, and make the organization more agile.

    Work-Life Balance. This topic currently receives little attention from companies. However, as the balance of power shifts from employers to skilled employees, the demand for a work life that meshes well with one’s private life—a preference strongly expressed by the millennial generation—will become more important. “Younger people, in particular, look for more in a job than just salary and position these days in choosing an employer,” said Christian G. Machate, head of HR for private banking and Switzerland at Credit Suisse. “They consider work-life balance, the company’s culture, and engagement with society. It’s about a partnership, and that’s what Credit Suisse focuses on. I strongly believe that’s why people approach us.”

    By addressing these topics, HR can substantially improve organizational performance and increase its value added. HR executives at large companies seem to recognize this: respondents from companies with more than 5,000 employees perceive a significantly higher future importance for managing diversity and inclusion, managing demographics, and strategic workforce planning. In addition, they report higher capabilities in managing globalization and managing diversity and inclusion.

    But HR will first have to overcome its perceived role as strictly a service provider, which contributes to the ongoing gap in perspective between HR and non-HR executives about HR’s capabilities and performance, both in basic service areas and in the strategic dimension. (See Exhibit 5.) “The businesses often tend to see HR merely as a body provider,” said Pierangelo Scappini, director for organizational development and planning for Poste Italiane. “HR needs to adopt the culture and skill set of the business functions to overcome that perception.”

    exhibit

    Excellence in HR thus encompasses both solid execution of basic HR activities for the present and active preparation for future challenges. In particular, we would highlight four trends and the areas for development that they entail:

    • Demographic changes and the attendant talent scarcity, with implications for talent and leadership development

    • Technological shifts that increase the importance of mastering social media for use in recruiting, engagement, and communications

    • Globalization and the new role for HR, including development of a global delivery model

    • The growing diversity of customer segments, which, combined with scarcity of talent, demands greater diversity in the workforce

    The remainder of this report discusses how HR can deal with these challenges and turn them into opportunities.

    Various national statistical institutes; BCG analysis.