The World is Local: A New Model for Human Resources
Despite continued focus on globalization, new research by DHL shows that the world is not as "flat" as once believed. While low cost networking has made it easier than ever to communicate around the world, economic and cultural conditions from country to country are more different than ever. The DHL Global Connectedness study, authored by Professor Pankaj Gemawhat, states:
"The world is far less globally connected today than it was in 2007, and global connectedness falls far short of the levels commonly assumed by business executives and the general public."
The study's point is not that the world is not flat, but rather that "flatness" has given way to a new type of business environment: one where all markets are local, and we as business people have to localize our products and services for the countries we do business.
Think about China. Within two years China is expected to have a larger middle class than the United States. The labor market in China is far more competitive, younger, and more dynamic than in the US. Leadership styles are different and tools like LinkedIn are not the dominant players in recruiting and social networking. It is a fast-growing unique business climate. Companies that thrive in China create new business practices, different talent strategies, and different leadership styles.
Our research shows that today's business leaders don't just want to "globalize," they want to "localize" – optimizing their product, channel, sales, and talent strategies in the markets they serve.
How Do Our Talent and HR Programs Keep Up?
How well are you able to localize your talent, recruiting, learning, and leadership programs in the markets you serve? Are you able to provide flexible, rapid response to local business needs? Are your performance and succession programs relevant and localized? Are your HR systems up to date, accurate, and easy to use in local geographies? Do you have local HR staff which can optimize talent and learning programs in each business entity?
While talent is now a top priority on the minds of CEOs (Conference Board Research), our research shows that HR teams have a tough time staying relevant to business leader needs (only 3% rate themselves world-class).
In our recent High-Impact HR research, only 8% of companies believe their HR strategy can adjust rapidly enough to meet business needs, only 6% believe they are most efficiently using their HR resources, and only 9% believe they have clearly defined HR goals, purpose, and objectives. And when we ask our research members to describe the state of their HR organization, nearly half tell us they are going through some form of "transformation."
The Challenge of HR Alignment
The issue facing the HR function is trying to stay aligned with changing business needs while optimizing, designing, and integrating various people processes. Organizations have three conflicting challenges: effectiveness, efficiency and alignment.
Fig 1: Bersin Impact Model
What the model shows is that HR, like other business practices, struggle with three issues: effectiveness (quality of hire, employee capability, depth of leadership pipeline, etc.), efficiency (cost to hire, cost to train, time to complete, etc.), and alignment (business relevance). Too many HR executives focus on effectiveness and efficiency without thinking about the need to "constantly realign" people practices.
For example, if your company goes through an acquisition or expansion to a new market, how relevant are your talent programs? How quickly can they adapt? It turns out that agility is one of the biggest drivers of business impact.
Human Resources must deliver a tapestry of programs for recruiting, onboarding, training, performance management, compensation, employee relations, succession, engagement, and leadership development. While doing this, HR must manage payroll and benefits, avoid legal problems, and keep employees happy. Lots to do.
How HR Drives Business Value
When managed well, HR provides tremendous strategic value.
When asked to try to estimate what drives business success in their organizations, executives tell us that the operations of HR itself contributes around 7% to the company's bottom line performance. When we include the role of HR in driving leadership, management, and employee productivity this increases to 37%. More than 1/3 of total revenue and profitability comes from programs HR directly manages.
Putting this another way, HR's ability to help staff, train, enable, and coach people generates four times the return of HR's compliance and operations functions.
So while companies spend a lot of time focused on reducing HR costs and improving service delivery efficiency, the big value occurs when HR team directly engages with managers and leaders to help the business run better.
Example: Most companies struggle with two conflicting challenges: high levels of execution (which requires rigor, focus, training, and performance excellence) coupled with high levels of innovation (listening to customers, coming up with new ideas, changing and improving work, and taking time to learn). Managers tend to be good at one or the other, but usually not both.
One client is a global technology company which has recently shifted its strategy into high margin services.
This particular company has varying degrees of success in its transformation around the world. The CHRO, in his effort to drive business value, took the time to interview business leaders in the highest-performing business units and asked them to explain their talent strategies. How do they decide who to hire? How do they plan work? How do they set goals and measure performance? How do they assess and select leaders?
He found out that the highest performing team (they were located in Eastern Europe) had a unique and rigorous approach to these talent-related practices. They were not using the "standard" HR approach at all. His reaction was simple: he told the local HR business partners to get deeply involved and tell others and try to fold these practices into the standard operating models. His goal was to "collect this intelligence" and feed it back into the global people strategy.
This example, coupled with two years of quantitative and qualitative research, is what led us to develop a new model for HR.
The Bersin by Deloitte High-Impact HR Research
The research we are introducing this week will be detailed in a series of reports, recommendations, tools, and models over the coming months. You can download the preliminary findings here.
The research shows that a more distributed approach to HR drives tremendous value. In our research we found that 7% of companies we studied adopt certain practices which statistically improve business outcomes. These "high-impact" companies rated themselves 40% better at delivering products ahead of their competition, 33% better at maintaining low delivery costs, 29% better at continuously improving productivity, 9% better at responding to customer issues, and 27% better at winning over their competition. In short, these companies are operating in a more competitive way, incurring lower costs, and staying closer to their customers.
We found five keys to success (click her to read more).
1. HR business partners must be highly trained and specialized.
We must distribute expertise to the front lines. These people engage in recruiting, staffing, management, coaching, and planning. They must be true partners to the CEOs and leaders of their respective business units. They are not "generalists" they are "specialists." And this means they need training, support, and coaching themselves.
Our research also shows that HR business partners need new skills. They should have business backgrounds, understand data and technology, and take on a performance consulting role. High-Impact HR organizations recruit from business schools for these roles, and they train and certify senior HR professionals. We will be publishing details on these roles in the coming months.
2. HR business partners need the authority to design and deliver.
This research shows that high-impact organizations empower HR professionals to design, innovate, and deliver programs locally. They do this within frameworks, standard technology platforms, and standard tools.
Local design is critical to success. While we certainly don't want chaos in people processes, high-impact companies adjust their performance, compensation, and leadership programs as needed to deal with critical workforce and business unit segments.
One HR executive put it like this: we want the local teams to "innovate" and we want corporate to "integrate" and "standardize" where it makes sense.
(It's like distribute computing today – all computers are "smart." Likewise all HR staff must be "smart.")
3. Centers of Excellence should become "Networks of Expertise" or "Communities of Expertise"
HR has a concept of a "Center of Excellence" – a team of people who design and roll out critical programs and systems. While this model makes logical sense, these people cannot possibly keep up with all the various needs of local businesses. The high-impact organizations in our research adopted a different approach: they build a "network of expertise" or "community of expertise" rather than a "center of expertise."
These companies create frameworks, standard platforms, and standard tools. But they expect HR business partners to innovate at the business unit level, operating within corporate frameworks.
This of course changes the skills and capabilities needed in the business units, and most companies will deploy this model in stages. One major client, for example, distributed sales compensation design to its three largest business units – enabling the local VP's of HR to design the structure appropriate to their teams. The global VP of compensation enforces standards and makes sure incentives and compensation levels are consistent.
4. External intelligence gathering plays a critical role.
High-Impact HR organizations are intelligence gathering machines. They benchmark themselves, purchase external data, read research, study vendors and new tools, and focus on continuous development of their own teams. They often have a person or team focused on "HR for HR," developing curriculum, training, and ongoing information services for HR professionals around the world.
This focus on external intelligence gives them the ability to innovate and adapt to new practices more quickly. Because their local HR teams are highly trained and empowered, they can adapt and change their HR practices rapidly as needed.
One of our large technology clients in Silicon Valley, for example, noticed a steady drop in employee engagement and increase in turnover over the last three years. They started losing people to fast-growing companies like Facebook, Google, and Twitter. This particular company is a well known legacy company in the valley, and their talent practices had not been revamped in several years.
Working as a "network of expertise," a team of both corporate HR and local business partners threw away the company's performance management system and started over. While the new approach is not perfect, it is a big step forward – and was driven through the needs of local engineering teams. While it will provide data and consistency needed at a corporate level, it was specifically designed to be "agile," just like the software teams themselves.
One of the key strengths of these high-impact HR teams is agility. They see how the world is changing and they have the culture and expertise to adapt their talent programs.
5. It's Time for a Bold, Business-Integrated CHRO.
High-Impact HR demands leadership. Roles will change. HR staff will be more business oriented (one CHRO told us that he believes 50% of his HR team should come from the business). HR people will be held accountable. And the company must innovate in its HR programs themselves. The CHRO must lead this change, align closely with business leaders, and drive innovation into the HR team.
This is an exciting time for HR, learning, and talent professionals. As the world becomes more "globally local" we have to adapt.
Watch for more from us on this vitally important topic. You can follow me to stay up to date on trends, research, and news in all areas of HR, leadership, and talent management on twitter at @josh_bersin. For more information on Bersin by Deloitte, please visit http://www.bersin.com .
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