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Senior executives say they understand that a strategic human resources function is crucial in today’s competitive global market. At the same time, however, the C-suite believes that HR is ineffective and consistently fails to provide value to the organization, a new report found.
According to a survey conducted by the Economist Intelligence Unit and sponsored by management consultancy KPMG, about eight in 10 (81 percent) respondents said that the “war for talent” will be key to competitive success. Six in ten (59 percent) believed that HR will grow in strategic importance. Only 17 percent of respondents believed that HR does a good job, and just 15 percent viewed HR as providing insightful and predictive workforce analytics.
The survey report,
Rethinking Human Resources in a Changing World, revealed that the HR function has new challenges to meet and old perceptions to shed. The survey of 418 executives was conducted in the spring of 2012. Thirty-seven percent of respondents identified themselves as C-suite executives; the remainder identified themselves at the management level up to senior vice president. Fifty-eight percent primarily serve an HR function.
The survey was global, with respondents based in Asia-Pacific (32 percent), Europe (30 percent), North America (28 percent) and Latin America (10 percent). More than one-half of the companies surveyed had more than 10,000 employees, with the remaining 47 percent having between 1,000 and 10,000 employees.
Commenting in the survey report, KPMG Management Consulting Partner Robert Bolton said: “At the very least, HR has a perception problem. In many cases it may have actually failed to deliver real value.” As the shifting challenges of globalization and virtualization combine with the new technological tools available to enable a reshaping of the HR function, HR executives should take a number of steps to improve the function’s contribution and its image, he said.
The survey’s main findings focus on the need to understand and anticipate the requirements of an increasingly global, flexible workforce.
According to the survey, 71 percent of respondents believed that working across borders has increased over the past three years, while at over half of companies polled, international reporting lines and talent flows have become more common. Sixty-three percent of respondents agreed that HR functions are likely to become more globalized, centralized and uniform in the next three years, suggesting that HR policy and strategy needs to grow globally. Only one-quarter of respondents said that their HR departments effectively source key talent globally; 24 percent said HR effectively supports the company’s globalization strategies.
Survey respondents are embracing the concept of a wider range of flexible work arrangements, which can reduce labor costs and allow greater access to talent, according to the report.
Sixty percent of businesses have increased their use of virtual workspaces, while 48 percent reduced their reliance on physical office premises and shifted to hot-desking, which involves multiple workers using a single physical work station during different time periods.
Fifty-five percent of respondents have hired more contractual or temporary workers in the last three years. Forty-one percent are using former employees as contractors.
“These trends are set to continue, according to our respondents, with 72 percent maintaining that their companies should increase the use of both virtual and flexible workers,” the report stated.
Contingent workers, remote workers, temporary workers and part-time workers—the growing array of employee types—present HR with a challenge, the report said. The HR function also needs to determine which workforce roles are appropriate to work remotely and which are not. Only 24 percent of respondents believed their HR department effectively supports an increasingly virtual and flexible workforce.
Retaining talent remains HR’s biggest concern, according to survey respondents: 34 percent of respondents cited retaining crucial skills as HR’s leading focus in the last three years and 40 percent said it will remain so over the next three years.
Talent retention is proving challenging, according to a recent CareerBuilder survey of North American employees published in October 2012. The survey found that as many as sixty-nine percent of full-time workers reported that searching for new job opportunities is part of their regular routine. Thirty percent said job searching is a weekly activity. Among Economist Intelligence Unit survey respondents, only 26 percent said that their company retains the key talent it requires.
“The key to improving these figures is employee engagement, increasing the commitment of the workforce to the organization,” the report stated. A recent study by the Corporate Executive Board found that employees who are most committed to their organizations expend 57 percent more effort and are 87 percent less likely to resign than those who are disengaged.
Current practices are not working, researchers said.
“I believe there is often a gap between the ambition and rhetoric of talent management and the practice on the ground,” said Tim Payne, partner and KPMG Europe lead, writing in the report. “Many talent processes have unfortunately become annual form-filling exercises where business managers comply and HR departments are disappointed with the outcomes.”
HR can redefine talent management by thinking “outside-in,” Payne said, which he defined as beginning with the talent companies need, rather than the talent they already have. “Talent management is so often anchored in the present rather than focusing on the unique roles, capabilities and skills the organization needs to succeed in the future,” he said.
The advent of data analytics—the most commonly cited area by respondents for IT investment in the next three years—will lead to the next technological quantum leap for HR, the report found. Respondents explained that the application of analytics, if done properly, will enable a more robust understanding of employee-related needs and opportunities. For example, 57 percent of respondents said that data analytics is helping to identify future talent gaps already.
“Analytics will allow HR to not only be involved in managing talent, but to also collect clearer information on its supply chain of talent and where the most demand for particular skills lies,” the report said. “Rather than acting on instinct alone, the HR function will be able to provide a far more granular roadmap of how the organization’s people resources need to be reshaped to deliver on the corporate strategy.”
Kate Terrell, vice president, Human Resources, Global Products Organization, at Whirlpool Corporation, explained in the report: “When you arm a business partner of the future with analytics, and they can share the facts with their teams to help drive better decision-making, it allows you to be much more strategic, much more insightful, and potentially, much more laser-focused on where you should be spending your time.”
Paulette Welsing, a KPMG managing director, sees taking workforce analytics even further. “I think there is a third level of workforce analytics, but this is real holy grail stuff,” she said in the report. “This is the stage at which we will be able to demonstrate the return on the human capital employed. It’s the ultimate killer metric; benchmarking people in terms of the revenue and profitability associated with their efforts. It would allow us to strip away even the benefits of the technology around them and hone in on what people actually deliver,” she said.
“Well-designed, predictive workforce analytics could become as important to the CEO as the balance sheet,” she added.
The study found that HR perceives its biggest current challenge to be seizing the opportunity to transform itself into a strategic player. KPMG’s Bolton doesn’t buy that outlook. “I’ve heard it all before,” he said. “HR functions have tried for the past 15 years to transform themselves into strategic players and earn a place at the leadership table.”
Bolton said that HR has had limited success with this goal, because “they’ve focused on rolling out generic HR models and universal best practice, rather than customized solutions that support the value drivers of the business.” He added that the situation is made worse by the “inevitable delays that typically follow when such fixes are delivered in a business of any meaningful size. At the conclusion of all that, strategic involvement and influence is actually diminished and so the cycle repeats.” That’s the doom loop, he said. “That’s the vicious cycle from which HR finds itself unable to break free.”
Bolton’s conclusion: “Another 15 years of pursuing generic best practice will simply not add value to the business or the reputation of the profession.”
Roy Maurer is an online editor/manager for SHRM.
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