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 a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more information, please visit www.bcg.com. 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. For information or permission to reprint, please contact BCG at: E-mail: bcg-info@bcg.com Fax: +1 617 850 3901, attention BCG/Permissions Mail: BCG/Permissions The Boston Consulting Group, Inc. Exchange Place Boston, MA 02109 USA 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 strack.rainer@bcg.com Jean-Michel Caye Partner and Managing Director Global Coleader, People Advantage BCG Paris +33 1 40 17 10 10 caye.jean-michel@bcg.com Rudolf Thurner President EAPM +43 664 133 76 62 rudolf.thurner@verbund.at Pieter Haen Vice President EAPM +31 343 57 81 40 pieterhaen@duurstedegroep.com Philipp Zimmermann Project Leader BCG Düsseldorf +49 211 3011 30 zimmermann.philipp@bcg.com Carsten von der Linden Associate BCG Düsseldorf +49 211 3011 30 vonderlinden.carsten@bcg.com If you want to receive the full report, please visit www.creatingpeopleadvantage.com The Boston Consulting Group • European Association for People Management 6 For a complete list of EAPM publications and information about how to obtain copies, please visit our Web site at www.eapm.org. For a complete list of BCG publications and information about how to obtain copies, please visit our Web site at www.bcg.com/publications. To receive future BCG publications in electronic form about this topic or others, please visit our subscription Web site at www.bcg.com/subscribe. 6/09 European Association for People Management bcg.com eapm.org