Creating People Advantage How to Tackle the Major HR Challenges

European
Association
for
People
Management
2009 Edition: Europe
Creating People
Advantage
How to Tackle the Major HR Challenges
During the Crisis and Beyond
Executive Summary
The Boston Consulting Group (BCG) is
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The European Association for People Management (EAPM) and its national member
organizations in 28 European countries—
comprising not only members of the European Union but also Norway, Switzerland,
Russia, and Turkey—are pursuing the
goal of improving the quality of human
resources management and developing
and improving professional standards.
With its initiatives, conventions, surveys,
and dialogue platforms, the EAPM is promoting professional exchange among HR
experts. For more information, please visit
www.eapm.org.
European
Association
for
People
Management
© The Boston Consulting Group, Inc./
European Association for People Management.
2009. All rights reserved.
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Executive Summary
L
ike the sun and tide, economies rise and fall.
But they are less predictable than nature and
have their own rhythm. For senior executives, the trick is to manage a company
through the downturns without destroying
its long-term foundation.
Today most companies are understandably cutting
costs, frequently through layoffs. While some companies undoubtedly need to reduce the size of their work
force, others are following the crowd, expecting that
they can rehire once the economy improves. They
should not be so sure.
In less than ten years—as the demographic data tell us—
people will be the scarcest resource for companies. As a
result, many companies may be unable to secure the skills
that they need in order to succeed. Others may find that
their best talent has left—having either retired or been
recruited by rivals. And yet others may find it difficult to
hire good people, not necessarily because of a paucity of
talented workers but because of their own reputation as
poor managers of their staff. The reputations of many
companies have already been damaged by how they have
treated their employees in this recession: employees remember how they were treated in tough times, and many
vote with their feet when the economy improves.
However, it is not enough merely to manage through—
and survive—the downturn. Executives need to start preparing for when the economy experiences an upturn:
they need to remember that the choices they make today
could have unpleasant consequences tomorrow. In this
regard, the human resources (HR) department has never
before played such a critical role in ensuring the future
prosperity of the company.
Creating People Advantage
Creating People Advantage
In the full report, we present our findings and analysis of
a survey of 3,348 executives throughout Europe and of
one-on-one interviews with more than 100 senior leaders,
mostly board members of large companies. Our research
focused on people challenges, both today’s and those of
the future.
A year ago, when we published Creating People Advantage:
How to Address HR Challenges Worldwide Through 2015, we
suggested that companies that successfully harnessed
four people trends would develop what we call people
advantage—a competitive advantage created through
people strategies. Those trends are as relevant today as
they were in 2008.
◊ Talent and leadership are becoming even scarcer resources.
This trend continues, especially at those companies in
which people are already the most important asset.
◊ The work force, on average, is growing older, and people
are having fewer children. The baby boom generation is
a year closer to retirement. Long-term demographic
trends trump recessions.
◊ Companies are becoming global organizations. The recession may have temporarily dampened the global ambitions of companies and fanned protectionist fires.
But globalization is here to stay. The reasons for companies to pursue global growth endure.
◊ The emotional well-being of employees is more important
than ever before. Work-life balance is no longer an immediate priority. More than ever, however, companies—seeking to maneuver through these tough
1
times—need engaged employees. Farsighted companies are actively monitoring and managing the emotional well-being of their people.1
Exhibit 1. HR Needs to Be Connected
to Strategy and Metrics
Strategy
Uniting Strategy, Metrics, and HR
Today the HR department sits at a pivotal place. It is—or
at least should be—the link between a company’s longterm strategy and its people strategy. HR executives
should be able to understand how their company’s overall strategy drives the demand for people—and how
short-term reductions in the work force might threaten
the achievement of long-term goals. Yet we found that
only 15 percent of the companies covered by our survey
strategically plan their work force more than three years
in advance.
As we noted last year, if we view strategy, metrics, and
HR as three points on a triangle, we find that at most
companies, the links between HR and strategy and those
between HR and metrics are broken or nonexistent. (See
Exhibit 1.) Senior executives need to make sure that people are the cornerstone of their corporate strategy. This is
easier said than done. Still, one of the most effective ways
to integrate HR and strategy is through the creation of a
strategic work force plan. Measuring the performance of
people and the HR department is also key. Few companies, for example, track the quality of their HR processes.
Even among those companies that do, fewer than half
have targets and processes in place to improve results.
In this year’s report, we offer guidance and support for
companies that want to tighten the links that bind together strategy, metrics, and HR. In the section “Benchmarking the Scene,” we show how European executives assess
current and future HR challenges. We also outline the
state of the partnership between business executives and
the HR departments. There is room for improvement.
HR and other executives in Europe identified the top future challenges in an online survey that covered 21 HR
topics and that was conducted by The Boston Consulting
Group (BCG) and the European Association for People
Management (EAPM). As shown in Exhibit 2, the following
7 topics emerged at the top of the overall HR agenda:
◊ Managing Talent. The number-one topic in both 2007
and 2009, managing talent is viewed as critical in almost all industries and countries. (See Exhibit 3.)
?
Metrics
HR
Source: BCG analysis.
◊ Improving Leadership Development. Many executives
have led only during good times; now they have to
steer their organizations through stormy weather.
◊ Strategically Planning the Work Force. By conducting strategic work force planning, companies can clearly assess
supply and demand by job groups and make long-term
recruiting, training, outsourcing, and layoff decisions.
◊ Enhancing Employee Commitment. This topic was not
deemed critical in the 2007 survey, but executives now
recognize the importance of employee morale and
motivation. If they want to accelerate out of the downturn, they will need the support of their employees.
◊ Measuring Work Force Performance. Respondents are
struggling to determine how to measure the value of
each employee in order to create a more efficient and
productive work force.
◊ Managing Change and Cultural Transformation. Change
does not just happen. It requires sustained and rigorous
program management and a clear change agenda—
activities that today are more important than ever.
◊ Becoming a Learning Organization. Companies need to
retain both the explicit and the tacit knowledge of retiring employees, and they need to ensure that new
1. See “Talent Management: Nurturing the Egg,” BCG Opportunities for Action in Organization, October 2007.
The Boston Consulting Group • European Association for People Management 2
Exhibit 2. Managing Talent, Improving Leadership Development, and Enhancing Employee
Commitment Are Considered Top Long-Term Priorities
High
High
Managing
Managing
Talent
Talent
Measuring work force
performance
Improving Leadership
Improving
Leadership
Development
Enhancing Enhancing
employee
employee
commitment
commitment
Transforming HR into
a strategic partner
Transforming HR into
Improving
a strategic partner
leadership
Improving performance
Measuring
Development
workforce
Measuring
performance
workforce
performance
Strategically planning
the workforce
Managing
change and
Strategically
planning
development
management and
rewards
cultural transformation
the workforce
Improving
Strategically
performance
planning
the on
Improving
performance
Delivering
Managing
change and
Becoming
a
Restructuring the
management
force
Transforming
managementwork
and
rewards
recruiting
learning
cultural HR
transformation
organization
and rewards
into a
Improving employer
organization
strategic partner
branding
Future
importance Delivering onMastering HR
recruiting
Future
importance
flexibility
Improving employer
branding
Measuring HR
Mastering HR
processes
Enhancing
Restructuring
the
employee
organization
commitment
performance
Managing
flexibility
Sample size: 3,348
Becoming a
learning
organization
Managing
Managing
flexibility
processes
Sample size: 3,348
Measuring HR
performance
Managing
talent
Becoming
a learning
Managing
organization
work-life
balance
Relevance
Managing
globalization Managing
Measuring
today
changeHR
and
ManagingManaging Managing
diversity
performance
corporate socialcultural transformation
demographic
Managing
work-life
balance
responsibility
aging
Improving employer
branding
Managing
Managing corporate
Managing
Managing
social responsibilitydiversity
Delivering on
Providing shared services
globaliLow
High
work-life
balance
recruiting
Managing
Managing demographic
aging HR
and outsourcing
zation
globalization
Providing shared services
Managing
Managing
and outsourcing
HR
Mastering HR
processes
Restructuring the
organization
Low
High
Relevance
today
Samplesize:
size:3,348
55
Sample
Strong
need
to actLow
Low Medium
need
need
to act
to act
Low Medium
need
need
to act
to act
Low
Transforming HR
into a strategic
partner
Becoming
a learning
organization
Improving
performance
France Germany Ireland
Focus country Austria Bulgaria
management
HR topic
Hightalent
Managing
Improving leadership development
Future
importance
Enhancing
employee commitment
2
Transforming HR
into a strategic
Delivering on
Improving employer branding
3
partner
recruiting and
staffing
Becoming a learning organization
Strategically planning the work force
Managing demographic aging
Transforming HR into
a strategic partner
Improving performance
Future
Low
importancemanagement and rewards
Managing change and
cultural transformation
Delivering on
recruiting and
staffing
Enhancing
2
5
employee
commitment
5
Improving
performance
Restructuring
management
the
organization
5
Mastering HR
processes
Managing corporate
5
social responsibility
5
3
3
5
2
1
10
2
2
6
3
4
5
3
4
2
Sample size: 31,355
2
4
5
2
1
Providing shared
services
and
5 Managing
demographics
outsourcing
HR
Measuring HR
3
and employee
performance
Managing
3
4
globalization
Current capability
Restructuring
the organization
Sources: Proprietary online survey; BCG/EAPM analysis.
High
5
1
4
and employee
3
Enhancing
employee
Highcommitment
1
1
performance
Managing
Managing
3 Becoming
work-life
globalization a learning
Managing
balance
organization diversity
3
4
Mastering HR
processes
Managing flexibility
Low
Italy
3Measuring HR
4
and rewards
Measuring work force performance
Creating People Advantage
Number of
focus countries
in which the
topic was
ranked in
NetherUnited
the top
lands Norway Sample
Russia size:
Spain1,355
Kingdom three topics
Managing
work-life
balance
and rewards
Improving
Managing talent
2
1 leadership
1
1
1
1
1
Managing change
Managing
development
demographics
and
cultural
2
1
2
4
4
2
transformation
4
1
2
1
4
1
Low
5
Managing
diversity
1
5
Managing corporate
social responsibility
Providing shared
services and
outsourcing HR
Ranking:
1
0
2
3
4
5
3
Low
High
Strong
need
to act
Low Medium
need
need
to act
to act
Exhibit 3. Managing Talent Ranked
as the Most Important Topic
Improving
Managing talent
High
Current
capability
leadership
in Nearly All Focus Countries development
Managing change
and cultural
transformation
Strong
need
to act
Low
Low
demographic
aging
Current capability
Managing
diversity
Sources: Proprietary online survey; BCG/EAPM analysis.
Providing shared services
Low
and outsourcing HR
corporate social
responsibility
High
Relevance
today
High
Exhibit 4. Interviewees Identified Strategic Planning and Sustainable Implementation as
the Most Critical Areas to Address During the Recession
Points in HR action plan
Senior executive
assessment
Description
Sustainable
implementation
HR and
performance
improvements
Work force
adaptation
Strategic
planning
Capability
Importance
1
Strategic work force planning
Link work force planning with business strategy by
introducing demand and supply scenarios by job
category
2
Productivity controlling
Introduce a new productivity metric such as value added
per person to manage productivity programs
3
Work force flexibility
Utilize working-time tools such as lifetime work
accounts, sabbatical programs, and engagement with
unions
4
Work force reduction
Adjust work force size to the new economic environment
while respecting job category forecasts
5
Personnel cost management
Optimize personnel cost programs by transforming
cash incentives to noncash ones
6
Focused recruiting of
key personnel
Hire top candidates for mission-critical jobs
7
Restructuring the HR
organization
8
Performance management
9
Employee engagement
10 Leadership capabilities
11 Change management
12 Internal and external
communication
Assess all HR activities to ensure excellence through
bundling, process optimization, and governance
measures
Align performance measures to the new
environment by abandoning short-term views and
enforcing long-term thinking
Focus on such values as honesty and trust and
start an initiative to bring discipline and motivation
into balance
Coach leaders to transition from growth to crisis
with workshops, communication measures, and
support from top management
Establish best-in-class support by clarifying
accountabilities, enforcing transparency, and
soliciting employee feedback
Deploy a clear communication strategy and processes
that target critical stakeholders
Low
High
Sources: Interviews with more than 100 senior HR executives, executives outside of HR, and board members of large corporations predominantly in 11 focus
countries; BCG/EAPM analysis.
employees have the knowledge and skills to perform
their jobs.
After analyzing the 21 topics, the report next discusses
five relevant HR concerns. The first section explains the
importance of strategic work force planning. The second
describes the effects of the crisis on HR. The third examines the best ways to prepare for growth, and the fourth
makes the case for taking advantage of key performance
indicators (KPIs). The final section examines sustainable
people practices. Metaphorically, these five sections form
a compass. At the center is strategic work force planning.
Managing through a recession, preparing for growth,
measuring people performance, and creating sustainable
HR practices are four directions that companies should
pursue simultaneously.
These sections highlight several key findings.
◊ Many companies still neglect strategic work force
planning, the strongest tool for making difficult HR
decisions. Companies should know how their work
force will develop and which job categories will demand substantial numbers of new employees. Strategic work force planning can also yield valuable information for knowing where—and where not—to cut in
times of crisis.
◊ About one-third of all the companies plan to lay off
full-time employees in this recession. HR executives
should consider both the short- and long-term effect of
layoffs, especially the likely drop in employee commitment. Other options, such as awarding employees time
The Boston Consulting Group • European Association for People Management 4
off to compensate for earlier overtime, are effective
and actually improve employee commitment. A
12-point action plan can help companies survive the
recession and prepare for growth when the economy
starts to recover. (See Exhibit 4, which appears in Creating People Advantage in Times of Crisis: How to Address
HR Challenges in the Recession, a White Paper that is
enclosed with the full report.)
◊ Almost one-third of the respondents said that pursuing organic growth was one of the most important
business issues facing HR executives. Some companies will have to adjust to a permanent mixture of
restructuring and growth: offense is often the best
defense. For most of the remaining companies,
growth will eventually return when the recession
fades. In all cases, companies that excel at sourcing
(or recruiting), developing (or training), and affiliating (or retaining) employees will outperform their
less successful peers. Other companies should pay attention to the actions of the companies that are successful in these areas.
Creating People Advantage
◊ Companies already collect a considerable amount of
data on people and people processes, but few companies use KPIs that are more sophisticated, and few take
concrete action based on the feedback that they receive
from KPIs. A methodology, such as BCG’s Workonomics,
can help the HR department assess employee productivity and steer the organization in the right direction.2
◊ The financial crisis had many causes, including the
sometimes unsustainable, short-term, and shortsighted
business practices and compensation systems of financial institutions. HR can play a critical role in encouraging people practices and processes that are sustainable over the long term.
The HR department has an unprecedented opportunity
to oversee the transformation of companies preparing for
an era in which people will drive competition.
2. For more information, see Felix Barber and Rainer Strack, “The
Surprising Economics of a ‘People Business,’” Harvard Business Review, June 2005.
5
Authors
Rainer Strack
Senior Partner and Managing Director
European Leader, Organization Practice
Global Coleader, People Advantage
BCG Düsseldorf
+49 211 3011 30
[email protected]
Jean-Michel Caye
Partner and Managing Director
Global Coleader, People Advantage
BCG Paris
+33 1 40 17 10 10
[email protected]
Rudolf Thurner
President
EAPM
+43 664 133 76 62
[email protected]
Pieter Haen
Vice President
EAPM
+31 343 57 81 40
[email protected]
Philipp Zimmermann
Project Leader
BCG Düsseldorf
+49 211 3011 30
[email protected]
Carsten von der Linden
Associate
BCG Düsseldorf
+49 211 3011 30
[email protected]
If you want to receive the full report, please visit
www.creatingpeopleadvantage.com
The Boston Consulting Group • European Association for People Management 6
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