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Many companies struggling to harness top talent

Poor management of human capital can take a toll on multinational enterprises because agility is often essential for survival.

By Dr.Paul Kielstra

The numbers are alarming: only 27% of senior corporate leaders believe their companies are prepared to meet the human capital challenges they face, according to a recent global survey by the Conference Board and Development Dimensions International (DDI) — a leadership consultancy. This even though the issue is the top concern of these same executives.

“… these employees (millennials) are sufficiently distinct that we have to change how we lead.“

Lisa Wadlin, Chief Tax Officer, Wal-Mart Stores Inc.

Rich Wellins, senior vice president at DDI in Pennsylvania, US, believes that such data accurately indicts today’s corporate management of talent and leadership.

So, too, do the widespread talent deficits at businesses — the inevitable outcome of poor sourcing and development of the workforce.

Just 46% of critical positions at respondents’ companies could be filled with internal candidates immediately if the need suddenly arose, the survey found, and just 15% of those surveyed thought that their organizations had a strong bench of future leaders.

‘Behind the curve’

To some, the findings are no surprise. David Collings, Professor of Human Resource Management at Dublin City University explains that, “in a lot of organizations, there is a broad recognition that they are behind the curve of where they need to be in talent management. They are struggling with a lot of the issues.”

This is in some ways even more true for large, multinational companies than for smaller ones. Collings notes, for example, that after a certain point of growth, companies can struggle to keep track of key talent on a global basis.

Talent-related weakness, however, is something these businesses can ill afford. Facing ever-intensifying global competition and shrinking business cycles, agility is essential not just for corporate success but, often, for survival.

This has substantial implications for what companies need from their human resources, says Sayed Sadjady, EY’s Americas People Advisory Services Talent Leader in New York.

“Today you need a more agile and flexible workforce so that, if the business and operating models shift, the workforce can adjust quickly,” Sadjady says. “This is a major reason why talent is becoming more of an issue on CEO agendas.”

Higher expectations

CEOs are frequently not content with what once was acceptable.

South Africa-based David Storey, EY’s Global Talent Leader for PAS, says that “the expectations placed on talent management are now dramatically enhanced.”

Accordingly, Philipp Zimmermann, Head of Talent and Leadership at Evonik Industries — a specialty chemicals company headquartered in Essen, Germany — believes the key overarching talent management challenge today is engagement with the strategy of the company and shaping talent strategy accordingly.

At most companies, meeting this goal requires substantial, rapid change.

In the past, the traditional human resources function — the typical home of talent management — has been too busy with day-to-day transactions — such as payroll and compliance — to deliver the kind of strategic insights now required.

But the need to step back and take a strategic approach to talent is more critical than ever if businesses hope to understand the profound evolution of not only of potential workers’ needs but the very environment in which these people are to be found.

A shifting talent landscape

Ongoing economic globalization, radical demographic changes and cultural shifts arising in the wake of generational succession are reshaping demand and supply of talent at companies.

Sadjady says the deepening economic integration caused by globalization has intensified competition for talent, especially in emerging markets. “In the past, when you thought about Asia, it was how to distribute,” he says. “Now it is about how you set up operations. Are there skills out there at the point of use?”

Generally, there aren’t enough skilled workers in developing markets to meet demand.

The Economist Intelligence Unit Global Talent Index measures the ability of countries to produce talent and let it fulfill its potential. In the 2015 rankings, the BRIC countries (Brazil, Russia, India and China) all finished between 31st and 38th place (out of 60 developed and developing countries).

Their absolute scores are well below those in developed states.

In such an environment, not only is hiring difficult, retention and engagement are also substantial ongoing issues. EY surveys show that in each of the BRICs, labor-cost inflation is a significant cost pressure for firms — a clear sign of the difficulty of holding on to good people.

Cultural differences

Companies that operate in diverse global regions also encounter cultural differences that affect talent. Finding ways to deal with cultural differences is a complex day-to-day challenge for talent managers.

“From a talent management perspective, it would be good to operate in a global playground.“

Philipp Zimmermann, Head of Talent and Leadership, Evonik Industries

Consider something as basic as a performance evaluation. “In an Asian culture, a typical employee does not want to stand out from the crowd,” Collings says. “Accordingly, he might receive a lower standing in a standardized evaluation than one from North America, even though he’s just as talented.” Finding and rewarding talent across borders requires dealing with hundreds of such issues.

While global companies face the worldwide challenges of cultural diversity and the talent shortages of major emerging markets, economically developed economies present a growing problem of their own — an aging population.

According to United Nations Population Division projections, the proportion of the population in the world’s more developed countries aged 65 or over will rise from 17.6% in 2015 to 23.0% in 2030. In some major markets the shift is already more advanced. In Germany, for example, the equivalent figures are 21.2% and 28.0%, respectively.

What millennials expect

Meanwhile, the millennial generation poised to replace those reaching 65 brings challenges of its own. As Storey puts it, “A consumerist, self-serve generation has grown up with its members expecting to be treated as individuals, almost as a workforce of one.”

Substantial debate exists over just how distinct the attitudes and aspirations of these millennials are from earlier generations.

Collings notes that “the research is mixed,” but there is real divergence from the past groups.

In terms of engagement, for example, he reports that millennials place a higher emphasis on how well an organization is aligned with their own personal goals and expectations than did previous generations.

They also focus less purely on remuneration.

“These employees are sufficiently distinct that we have to change how we lead,” says Lisa Wadlin, Chief Tax Officer of Wal-Mart Stores Inc. based in Bentonville, Arkansas.

Expectations vary by country

The aspirations and expectations of the young also differ by country — sometimes substantially. A recent survey conducted by the French business school INSEAD, for example, found that millennials in North America, Western Europe and Africa want managers who are a source of empowerment for their employees.

Millennials in Central and Eastern Europe placed more value on technical expertise in their managers, and in Latin America, a manager’s ability to act as a role model was the most prized.

The lack of women in leadership roles also remains an area of concern.

A recent International Labour Organization (ILO) analysis of 49 countries found women make up more than 40% of senior or middle managers in just six — all small, usually developing economies.

These figures were for the economy as a whole. Given the use of gender quotas by many governments, the ILO warns that the figures in private enterprise were probably lower.

The changing nature of work

Finally, the increasingly complex, multidimensional chessboard of talent appears to be bringing into existence a greater diversity of playing pieces than in the past. Part-time work is increasing.

And in some countries, older workers are staying on full- or part-time after traditional retirement ages.

Among members of the Organisation for Economic Co-operation and Development (OECD), for example, the proportion of workers aged 65–69 increased to 25% in 2014 from 16.1% in 2000. And those workers aged 60–64 who are currently employed are more likely to keep their jobs after age 65 than in the past.

The reliance on freelancers instead of full-time employees is also on the rise in developed countries. In the United States, these represent more than one in eight workers, nearly as many as those with traditional part-time jobs.

This independent workforce presents new challenges to those in charge of talent.

Although using freelance workers saves companies money, Dallas-based Mary Elizabeth Porray, EY’s Global PAS Performance Leader, notes that if that person is not an employee, “how do you get their best work?”

Making talent management a strategic actor

For Evonik’s Zimmermann, the most diverse challenges involve understanding national or regional conditions and addressing them accordingly.

The bigger task for talent managers remains creating a strategy that aligns with and supports the business’s wider goals in the midst of current, and likely future, conditions.

This represents a substantial shift from the not very recent past. Sadjady notes, “HR has traditionally been more focused on transaction, compliance and reporting activities.

Now there is a lot more requirement for them to become proactive, to work with the business, to understand its strategy and to develop a people strategy to support it.”

The change should be radical, says Zimmermann.

Talent management, and human resources as a whole, has to move from being a provider of talent development as a service to a function that enables the entire organization to play a role as each worker takes ultimate responsibility for developing their own talent.

Zimmermann estimates that, when the system works correctly, an individual achieves 70% of such development from working their day-to-day job, 20% from manager feedback and networking and only 10% from traditional talent programs.

Working together

Evonik’s twice-annual global talent succession conference is a good example of how HR can be a facilitator, rather than owner, of talent management.

During these internal events, Zimmermann explains, HR executives from all global regions meet to discuss vacancies in key posts from various Evonik functions that will occur in the short to medium term.

At the same time, they have to look at the existing talent pool to not only consider who might be appropriate to fill them but also to create further opportunities where business leaders meet with talent.

Conference participants are held accountable to follow up, and impacts are measured.

Zimmermann notes that this gives executives a better idea of the company’s current talent worldwide and fosters succession and development.

This can be particularly important for more specialized roles, such as taxation positions, where the internal pool of talent is usually limited.

Not an easy feat

Whatever the organization-specific solutions employed, says Sadjady, “most HR functions are trying to adapt and adjust” to the need to be more strategic. He adds, however, it is a big leap: “That has not been a natural role for most of them.”

In DDI’s Global Leadership Survey, just 20% of non-HR executives believed that their HR departments had become what the study calls “Anticipators” or providers of future-oriented information of strategic value.

Thirty-seven percent were at least able to partner on current issues of common interest to the function and the organization, but 43% were still “Reactors” who simply verified compliance with existing policies and responded to business needs when asked.

In contrast, HR professionals were more likely to see themselves as further advanced along this road than their peers in the rest of the organization — a sign of an ongoing failure of some to truly understand the needs of the business.

The potential of big data

Technological innovation offers one tool that might be key in speeding up HR’s transition into a more strategic competency.

Increasingly sophisticated data analytics tools open up the opportunity for human resources departments to draw valuable new insights from data already collected, or potentially collectable, on personnel and the organization’s activities.

Storey recalls a natural resources client that, when matching up safety records with basic individual data, found that miners over a certain height were more likely to be involved in accidents. Special training for such individuals might therefore be valuable.

Tax consulting firms can undertake an analysis of employees’ time reports to determine if an appropriate level of learning and development is being undertaken. Organizations are adjusting traditional methods of training and development in response to time pressures and technology.

Such scattered insights are the tip of the iceberg.

Says Storey, “We are probably going to see more change in talent management in the next 10 years than we have in the last 30 — fundamental shifts in the way people are sourced, hired, motivated, managed and paid — and it all has to do with analytics.”

“If (change) is successful, HR’s old job should be redundant.“

Philipp Zimmermann, Head of Talent and Leadership, Evonik Industries

How to harness analytics

Again, the exploitation of analytic technology will require significant cultural change. “The whole function of people management has not been as data intensive as others,” Sadjady explains, and as a result, the thinking underlying policy has frequently not been as robust.

Moreover, some countries place restrictions on what data about personnel can be retained by employers, which creates another important barrier to the use of analytics.

HR departments have also been slower to adopt big data than other functions. Storey says while those responsible for talent at many large companies are investing in data analytics, many are “still feeling their way rather than finding anything that will shake up what they do.”

Nevertheless, some potential uses for analytics are already clear.

Twelve-month retention rates, for example, have the potential to reveal important lessons when compared with data points relating to recruitment, onboarding and management practices.

Zimmermann believes that analytics, especially at large organizations, will give a much better overview of talent and workforce needs and planning — all key information requirements for a more strategic function.

Global strategy, local responsibilities

As technology-enabled talent management at an increasing number of companies takes on an increasingly strategic role, it will have to deal with an unavoidable split. Organization-wide talent requirements point toward a multinational or global focus of activity even while unavoidable compliance and tax issues drag it back toward the local.

Porray explains that companies have to perform on both levels simultaneously. “The world is becoming smaller and smaller. Strategies need to happen at the global level, but what happens at the local level will not change. There is no substitute for an HR professional talking with an employee.”

In general, only certain aspects of talent management are part of organization-wide strategy in this field.

Typically, these tend to relate to the availability, development, deployment and succession of managers, especially senior leaders.

Even for less senior employees, says Storey, training and certain administrative tasks, such as payroll, can have a more global focus.

Other elements of talent management, the traditional fundamentals of HR, such as compliance with tax and labor law requirements, have usually remained local.

While it makes conceptual sense to elevate what has organization-wide relevance to the level of global strategy and leave the rest to local considerations, things are not nearly so neat in practice.

“From a talent management perspective, it would be good to operate in a global playground,” Zimmermann explains. “You don’t want to look at legal entities when it comes to joint multinational projects or teams. The tax people, though, ask about where value is created. From their perspective it is not a global effort. This is where the complexity lies.”

How senior leaders see HR – how HR see themselves

Click the image to view the full infographic

Inherent tension

Similarly, even something as basic to management of corporate leadership talent as expatriate postings or just extensive business travel has local implications.

Wadlin of Wal-Mart Stores Inc. explains that “anytime you have somebody moving around, there are tax and compliance issues.”

Some tension between the global and local is inherent in talent management at any organization. Finding ways to address it will therefore be essential if HR is to make a more effective strategic contribution.

One possible solution is to separate, as much as possible, the purely transactional from the strategic. A large multinational technology company took this step to its logical end.

Since 2012, its Global Business Services — a shared services provider — executes benefits, learning and staffing policies set by HR. This allows the latter to focus more on personnel and talent strategy.

Closer cooperation

Observers also suggest those in charge of talent strategy work together more closely with relevant business partners in a way that is parallel to HR’s increasing role in overall strategy.

For example, notes Collings, mobility services tend to have a very limited role in shaping talent strategy, even though they are an essential part of talent development in global companies.

Such a wider lens would help talent managers create stronger strategies in support of the business.

As Wadlin puts it, “Tax can provide great insights and help the strategy for talent management” from the content of training itself to how to structure processes and policies in the most tax-effective way.

Talent management needs to transform in the face of growing demands from the business and challenges of its own. In particular, it needs to align its own strategy better with that of the organization as a whole.

This will involve not only engaging with business partners to understand the organization’s needs, it will also mean cooperating with relevant functions to strengthen its own contribution to the business.

The change will be as dramatic as it is necessary. “If it is successful, HR’s old job should be redundant,” says Zimmermann, as it becomes an enabler of the best use of talent.

Key action points

Those responsible for talent management need to:

  • Move away from a siloed focus on transactions and compliance toward greater interaction with the rest of the business and a more strategic approach.
  • Understand the needs of the business better and align talent strategy with business strategy.
  • Adjust how talent is managed to take account of national and regional skill shortages, population aging in key countries, the distinct requirements of managing millennials, the ongoing lack of senior female managers and the rise of diverse employment preferences.
  • Be more active in investigating the potential of data analytics to improve talent management.
  • Work more closely with other relevant functions, such as tax and mobility, to strengthen talent strategy.

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