progress /ˈprəʊgrɛs/ 1 forward or onward movement towards a destination 2 development towards an improved or more advanced condition
your organisation
all change – reshaping the talent map why trust and shareholder value are incompatible
your role
it’s people, not process owning organisational effectiveness
your career
moving on or missing out training your brain to make better decisions
Issue 1: January 2014
2 Published by Corporate Research Forum, PARC and Strategic Dimensions One Heddon Street Mayfair London, W1B 4BD t | +44 (0) 20 7470 7106 f | +44 (0) 20 7470 7107 crforum.co.uk parcentre.com strategic-dimensions.co.uk
your organisation
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All change – reshaping the talent map
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Why trust and shareholder value are incompatible
@C_R_Forum @StratDimensions
No part of this work may be reproduced, stored in a retrieval system or transmitted in any form or by any means including copying and recording, without written permission from the copyright owner, application for which should be addressed to Corporate Research Forum, PARC and Strategic Dimensions. Opinions expressed in Progress magazine are not necessarily those of Corporate Research Forum, PARC and Strategic Dimensions. Whilst every effort has been made to verify statements of fact by contributors, no responsibility is accepted for errors or omissions by them. © 2014 Corporate Research Forum, PARC and Strategic Dimensions
Robin Bew, Managing Director and Simon Baptist, Chief Economist | Economist Intelligence Unit
Anthony Hilton | City Editor | Evening Standard
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It’s people, not process: Aligning HR strategy with the business Pat Wright | University of South Carolina
Owning organisational effectiveness Ed Lawler | University of Southern California
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Moving on or missing out
Dan Caro | Director | Strategic Dimensions
Training your brain to make better decisions Dr Steve Peters | best-selling Author and Dean of Sheffield Medical School
3 Welcome to our new e-magazine – ‘Progress’ During the past 20 years, Corporate Research Forum (CRF) has made progress such that it is now the membership organisation of choice for senior HR executives wanting access to practical research and discussion of issues which matter in delivering outstanding organisational and personal performance. CRF and its sister business Strategic Dimensions, have watched as many fads, fashions and latest ‘breakthrough models’ have been followed by the HR community, often with little thought to their suitability, relevance and application. CRF was founded to be the antidote to such thinking and we pride ourselves on our intellectual rigour and the excellence of our associates and faculty. Likewise, Strategic Dimensions has established itself as the ‘go to’ organisation for HR executive recruitment due to our knowledge, expertise and exclusive focus on the HR function. Progress, which we intend to be a regular communication with our wider network, will address a range of topics contributed by renowned academics, prominent journalists and leading economists with whom we have worked in the past and know well. We trust this publication encourages you to take a wider, outward-looking perspective rather than a narrower functional view. Commercial acumen and a well-rounded view of the political, economic and
technological landscape which impacts high-performing organisations and people are all essential pre-requisites for outstanding personal effectiveness. Our international reach continues to grow and our annual international conference held last year in Madrid was again a resounding success under the expert chairmanship of Michael Portillo. In 2014 we shall be in Berlin exploring the theme of the executive trinity of ‘Managing, Directing and Leading’ – initially through a case study based on ‘The Battle of the Somme’ but quickly moving from the military imperatives of 1914 to the business imperatives of 2014. We hope you will be able to join us in October, with the conference chaired by Dame Tessa Jowell DBE MP. Whilst we don’t expect Progress to give you all the answers we do believe that in this, and subsequent issues, you will find a range of articles which will stimulate your interest in the wider context in which you, your teams and your organisation operate. Do let us know what you think of Progress by contacting nicola@crforum.co.uk.
Mike Haffenden Founder and Director
Mairi Bannon Director
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progress
your organisation After five years of gloom, 2014 will mark the beginning of a clear global economic recovery.
all change reshaping the talent map
The fruits of this will not be evenly spread: US, China and the UK are looking particularly sprightly, while much of the eurozone will see only modest improvements and some large emerging market economies, like Brazil, are facing big challenges. But we should, nonetheless, be in for a better year than for some time. This economic recovery will interact with two major trends for business during 2014: wage competitiveness and the operating environment. In both areas, we expect businesses to find their staffing strategies and compensation schemes pressured by divergent trends across developed and emerging economies. We expect wage growth to outstrip inflation in most countries during 2014, with the notable exception of the eurozone economies, those emerging markets undergoing an economic crisis (Venezuela, Argentina and Egypt) and those countries where inflation has got out of hand (India and Pakistan). One key
This economic recovery will interact with two major trends for business during 2014: wage competitiveness and the operating environment.
5 implication of this will be the need for firms to review their offshoring policies — hiring in the eurozone is starting to look much better value than a few years ago.
Chinese wages are rising quickly compared to western markets (we expect wages to rise 8% faster than inflation in 2014). Another important wage trend is the way compensation is outpacing productivity improvements in some important markets. A leading example is China: Chinese wages are rising quickly compared to western markets (we expect wages to rise 8% faster than inflation in 2014). But firms have traditionally found that they could squeeze efficiency improvements from their workers sufficient to offset that price premium. But that has changed — every year, China is becoming slightly less competitive for labour intensive industries, along with other markets as diverse as Singapore and Russia. Instead, firms are starting to look at new potential operating locations such as Indonesia, Nigeria and the Baltic States. In these places, wage growth is rapid, but efficiency gains more than compensate. The footprint of multinational firms will start to change as a result. Of course, wages are not the only thing companies consider when deciding where to operate. In recent years firms have become increasingly concerned at the burden of regulation they face when managing their businesses. Indeed, regulatory overreach is one of the reasons some formally fast-
growing emerging market economies, such as Brazil, are struggling at the moment. In 2014, after a period of inaction and complacency, many emerging market governments are realising they have to take active measures to improve the investment climate. Pressure is especially acute in India, Indonesia, Mexico and Turkey. Some of these reforms will directly impact on labour markets, particularly in countries which are driven by a divide between the typically older workers in secure employment with good conditions, and a mass of youth unemployment and workers on temporary contracts. This problem is particularly marked in the rich world, especially Japan, Italy and Spain, where addressing the issue is critical for future growth prospects. So far only Spain seems to be making progress. Those countries which do make headway will be far more attractive places to hire than those which remain trapped in an ossified set of labour laws. Overall, The Economist Intelligence Unit expects 2014 to be a brighter year for the world economy, although we are not forecasting a boom or anything close to it — and for some countries conditions will remain difficult. But the advent of recovery, and the changing balance between emerging and developed economies, will push wages, productivity and reforms in new directions.
Multinational firms will need to take note and respond. Robin Bew, Managing Director & Simon Baptist, Chief Economist, Economist Intelligence Unit @RobinBew | @baptist_simon www.eiu.com
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How trust and shareholder value are incompatible It is widely accepted among psychologists that the more regulation you pile on the worse you can expect people to behave. It is something to do with people obeying the spirit rather than the letter of the rules or perhaps that could be better put as reflecting the fact that regulation allows people no longer to accept moral responsibility for their own behaviour in delivering a service or carrying out an activity. They instead abdicate it to the outside rule maker, which then leads to the belief that if some action is not specifically forbidden then it is acceptable.
It is an important finding that imposing external standards can undermine rather than engender trust. There is nothing new in this. The philosopher Baroness Onora O’Neill referred in the Reith lectures more than a decade ago to how targets and inspections
destroyed rather than created trust – which is another slant on the same issue. Seven years ago, The Work Foundation undertook a study which concluded that the most effective regulation, in terms of making organisations trustworthy, was selfregulation followed by peer pressure, then market forces and finally, least effective of all, government regulation. It is an important finding that imposing external standards can undermine rather than engender trust but on another level it simply reflects what happens when someone says “trust me.” The fact that they feel the need to say it raises suspicions.
Trust is incompatible with shareholder value as it has been taught by business schools over the past two decades. This shows in fact that you cannot build trust – it is something given to you voluntarily not under compulsion and not to order. It is rarely given wholeheartedly – and it is rarely given by everybody. The most an individual or company can do is to try to make it trustworthy but it is entirely up to other people to decide whether or not they will respond by trusting it. Creating a trustworthy organisation requires it to deliver the best possible customer outcome but this in turn requires a revolution in management techniques. There are two essentials in a trustworthy organisation. The first is that employees are empowered to put the customer first and the second is that the customers feel they have power over the organisation.
7 Join CRF’s first event of 2014 ‘Organisational Respect – What Trust & Engagement Really Means’ at crforum.co.uk.
The current top down system of targeting destroys work satisfaction and therefore the desire and ability to satisfy customers. The focus is entirely on discrete individual targets, so that the reason the business is there in the first place – in the case of the NHS, caring for sick people – gets lost. It is why targets in organisations like the NHS have been a disaster, and why outsourcing companies like G4s and Serco are unravelling. A by product is that as employees are disempowered and no longer allowed to do their job the way they think it should be done, work becomes less and less satisfying, morale and team spirit erodes and outcomes become even worse. The other side of this is that you never really get trust until you empower customers. People trust Marks & Spencer because they know they can take those socks back and exchange them with no questions asked. The organisation has ceded real power to its customers but that is something most businesses never do.
The bigger truth which people will eventually have to confront is that trust is incompatible with shareholder value as it has been taught by business schools over the past two decades. Its mantra is that the interests of everyone – customers, employees, communities, governments, and suppliers - have to be subordinated to the interests of shareholders.
So that being the case, why would you trust a business to treat you fairly? Anthony Hilton, City Editor, Evening Standard
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people, not processes aligning hr with business strategies
In my studies of Chief HR Officers (CHRO) over the past 10 years a few things repeatedly appear as themes. First, one of the critical reasons that CHRO’s may become former CHROs stems from an inability to align HR and the business strategy. As one CHRO told me, when interviewing for the CHRO role at a new company, the CEO stated that the HR function had some of the state of the art tools and processes. However, he was looking for a new CHRO because the former one had built these great processes that were in no way supporting the firm’s strategy. Second, each year my survey of CHROs reveals that the clear priority that CEOs have for CHROs and the HR function is the delivery of talent. At best the variance in responses might be regarding whether leadership talent, technical talent, or executive talent is the priority, but to be seen as valuable by CEOs requires HR playing a critical talent role.
9 Third, every year’s survey also reveals that the people in the HR function act as the critical obstacle to meeting the CEO’s expectations for HR. Often they are described as lacking business acumen, lacking confidence, or being too risk averse.
Often they are described as lacking business acumen, lacking confidence, or being too risk averse. Let me put these three themes together. CHROs may lose their jobs if they are not aligning the function with the business. Aligning the function requires delivering talent necessary to the business. Delivering talent requires an HR function made up of assertive, accountable, business people. Clearly, the weak link in this chain stems from the quality of the people in the HR function. Most recent models for aligning HR and business strategy focus on identifying the firm’s key capabilities, ascertaining the key talent pools upon which those capabilities depend, and then ensuring that the right people with the right skills are in the jobs comprising those talent pools. This requires a rigorous approach to attracting, developing, motivating and retaining the critical talent. The question is, while HR does that in the organisation, does it do the same with regard to its own business? For years I have heard of firms “transforming” their HR functions, and much of this transformation focuses on the skills of the people in the function (in addition
to technology and processes). Yet, I still hear about the need to “transform” HR today as much as I did 15 years ago, so obviously this transformation has not gone so well. Any transformation requires some balance between buy (bring in talent that has the right skills) and build (try to increase the skills of existing professionals). However, at this stage I would suggest that the buy strategy will increasingly lead to bidding up the prices for a limited supply of talent in the labour market. Thus, HR leaders should invest more time, energy, and money in building the skills of those currently in their organisations. The internal customer-facing roles (strategic partners, in particular) need the greatest priority. If they cannot speak the language of the business, translate business challenges into talent discussions, and provide solutions, then the best tools in the world won’t save the CHRO’s job.
CHROs may lose their jobs if they are not aligning the function with the business. In light of the story of the CEO feeling the processes, while state of the art, did not align with the business, I have always wondered whether the problem was the HR processes or the HR people. In seeing what the new CHRO did to transform the function, I would suggest his greater leverage point stemmed from changing the people than from changing the processes. Patrick M. Wright, Darla Moore School of Business, University of South Carolina
Download CRF’s report ‘Developing a Strategic HR Approach’ from crforum.co.uk.
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owning organisational effectiveness What should the role of HR be in a corporation? The answer is obvious. It should take responsibility for providing input, advice, direction, and execution with respect to organisation effectiveness. Increasingly, what makes organisations effective is how they organise and manage their talent. Modern organisations are dependent on complex systems and the knowledge of their employees. Yes, it is important for organisations to have the right financial capital and hard assets, but it is the soft assets that are increasingly the difference makers. Critics of the HR function have pointed out that HR is more of an administrative unit than a strategic player. Recent articles and books have claimed that HR has changed and has become a player when it comes to organisational effectiveness and business strategy. In our book, Effective Human Resource Management: A Global Analysis, John Boudreau and I present data from 1995 to 2010, which shows little to no change in how HR spends its time. It also shows that HR spends less than 15% of its
time on strategy. My research also shows that spending more time on strategy leads to better company performance, so it is the right place for HR functions to operate. Unfortunately, my research suggests that HR rarely plays a major role in the development and implementation of business strategies. When I look at whether HR’s role in strategy has changed in the recent years, the answer is, “No.� HR seems to be about as involved in business strategy today as it was a decade ago. The failure of HR to be the player it should be with respect to business strategy, raises the question of how it can become more of a player in corporate strategy development, implementation, and organisational change?
HR seems to be about as involved in business strategy today as it was a decade ago. Clearly, HR should be eager and ready to take on assignments having to do with HR practices and policies, but that may not be the best route to being a major player in business strategy. The best route may be through a focus on talent and its procurement, development, retention, and motivation. Talent is clearly an area where CEOs and senior executives need help, recognise they need help, and often look to HR for advice and counsel.
Spending more time on strategy leads to better company performance, so it is the right place for HR functions to operate.
11 It is not a matter of just being a provider of good talent; it is a matter of identifying the critical talent that makes a difference in organisational effectiveness. If HR can identify key talent areas and provide coherent, well-developed plans for obtaining, developing, and managing critical talent, it can open the door to being a major strategic player.
Focusing on strategy may be the key to changing the HR function to the organisational effectiveness function. A major advantage of establishing credibility in the talent area is that it naturally leads to discussions about organisational design, rewards systems, strategy and change management. All of these areas need to be dealt with in order to create an effective organisation, and should be part of any discussion about talent development, procurement and what the critical positions in an organisation are. Focusing on strategy may be the key to changing the HR function to the organisational effectiveness function. Today most organisations are not prepared to create an organisational effectiveness function that includes talent, organisation design, change management, and information technology, but they ought to be. Edward E. Lawler III, University of Southern California
Download an introduction to CRF’s report – Emerging Approaches to Organisation Design – from crforum.co.uk
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Why the optimism?
moving on or missing out The environment we all operate within has been described by many as VUCA (volatile, uncertain, complex and ambiguous). The executive recruitment market is no different and whilst we have seen periods of intense activity (second half of 2012 and 2013) we have also experienced quieter periods (Q1 in 2013). However, as we move into 2014, we are cautiously optimistic that the outlook is positive and, more importantly, sustainable.
With the improving economic conditions, organisations are starting to look at investment and growth rather than cost control. This is directly leading to reviews of their people strategy and questioning have they got the right talent in the right roles for the right market conditions? The HR function itself is no different. We have seen the oil and gas sector at the forefront in significantly increasing global recruitment with pharmaceuticals, technology and telecoms sectors also showing signs of increasing demand. A further positive indicator of growing organisational confidence is the increase we are seeing, across all sectors, in senior resourcing, development and OD roles which are key to supporting growth. We anticipate, experience, knowledge and specialism in this area will be a much sought after capability over the forthcoming months. Unsurprisingly, we have also seen a significant demand for senior reward roles too. This is all a marked departure from our experiences in 2012 where tactical, operational generalist roles were in greatest demand. With a more ‘buoyant’ market, the ‘power’ has started to shift from employer to candidate. Some clients are more alive to this than others and are responding accordingly, however we encourage all organisations to keep the following in mind when hiring:
13 What should clients do differently?
Speed
Simply being quicker than the competition often wins the day. Moving quickly through the recruitment process also keeps the relationship warm and avoids having to reinvigorate candidates between stages.
Engagement
Maintaining engagement and close contact with preferred candidates through the process has been shown to make the difference between a successful hire and a rejection.
Attractive offer
Be aware good candidates are receiving multiple offers and, for the first time in a number of years, ‘counter offers’ from their existing employer.
Realistic expectations
Good candidates are in demand and hiring for potential always comes at a premium. Don’t focus purely on experience. Keep potential, development and succession in mind.
Competitive market
Clients need to be aware of the need to compete for good talent. Assuming candidates are only considering one opportunity is naïve and realisation may come too late that the candidate has a preference for another role.
Honesty
Candidates are expecting transparency, clarity and, most importantly, honesty about the organisation, role, culture and strategy. Trust needs to be built at an early stage in the process and remember, through social media and extended personal networks, candidates can easily find out if something is being covered up.
advice for candidates • People want to know what you have done and where you made a difference, all evidenced with hard commercial data that demonstrates an understanding of the business. • A CV that draws out the achievements, not tasks, and relevant experiences appropriate to the role. • Displaying honesty and integrity, self-confidence and self-awareness are essential. • Contributing strategically whilst showing the preparedness to roll sleeves up, get stuck in and deliver. • Depth in a specialist area is attractive. • LinkedIn and other social media channels are exceptional tools but nothing beats a personal, face-to-face connection. • Be open-minded about what you are presented with. Put yourself in a position to be considered for roles.
What’s next?
Whilst competition is tough, if the market remains positive things may return to a full candidate-driven market. We experienced this pre-downturn and it is important to remember that the last six years have not been ‘normal’. However, the experiences over the last six years will shape the thinking and business for the next six in an environment which, undoubtedly, will remain VUCA. Dan Caro, Director, Strategic Dimensions | @StratDimensions www.strategic-dimensions.co.uk
Developing Commercial Acumen for the HR Function - watch senior business leaders and experienced practitioners share their views at crforum.co.uk.
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training your brain to make better decisions
When it comes to decision-making, neuroscience can offer a complex but sadly incomplete understanding of what is really going on in our heads. The picture is that several different systems and areas of the brain come into play and try to work together in order to reach a decision. Depending on how we perceive the importance of that decision, and the potential consequences of making it, will dictate which areas will have the most say in the decision-making process. One of the problems we encounter is that there are at least three apparently distinct systems
15 One of the problems we encounter is that there are at least three apparently distinct systems using very different methods of working using very different methods of working in order to offer their input. One system works predominantly with feelings and impressions, whilst the second system works predominantly with facts and ‘truths’. A third system works on previous experience and has fairly set behaviours to act with. Let me offer an example with some possible outcomes. For practical reasons I will drastically simplify the process in order to demonstrate an aspect of the way in which we think. Let’s say that we receive some very startling news. The area known as the orbito-frontal cortex can perceive that something has happened and it alerts the rest of the brain. However, it can’t tell whether this news is good or bad and it can’t distinguish whether it is extremely important or just worth knowing. Therefore, if we were to act with this part of the brain we may get things out of perspective only to calm down later and realise we have over-reacted! An area in the centre of the brain called the anterior cingulate gyrus then picks up the message sent out. This area can help to distinguish between good news and not so good news. So it tempers the news and gains some perspective. Another area of the brain called the dorso-lateral cortex has come from a very different perspective and has selected out from the original message the relevant facts that have been presented and organised these. If this part of the brain were to work first then it is likely that we would remain calm and work rationally with the message.
Many other areas also contribute but the process followed and the decisions made will depend on a mixture of all input and which systems get the upper hand. From my perspective, which is working with people to try and optimise their quality of life, it would be helpful if they could learn to operate their mind by allowing whichever system they chose to get the decision-making power. The question is, ‘can this be done’? My experience has been a definite ‘yes’, however, there is a ‘but’! It is a choice to learn the skill of how to operate with your particular mind (as we are all unique) and how to maximise your potential. This takes time and effort and needs maintenance. You have to be serious. As it is a skill, some people learn faster than others but we can all learn and improve. I chose to introduce the ‘Chimp Model’ because I felt the need to offer a simplified explanation of the neuroscience of the mind that would be accessible to all. However, there are many other excellent models and self-development approaches available.
Do you owe it to yourself and others around you to make the effort to understand yourself better and get the quality of life you deserve? Professor Steve Peters, Consultant Psychiatrist and University Senior Clinical Lecturer www.chimpparadox.co.uk
Steve is keynote speaker at CRF’s 2014 Summer Lecture. Visit crforum.co.uk for more details.
16 and finally… …We suggest four New Year’s resolutions you should consider; Be curious
Seek out new ideas and fresh thinking that will support your business. Take time to meet new contacts and share perspectives. Networking is at its most powerful when conducted face to face and ‘500+ contacts’ on LinkedIn doesn’t necessarily mean you are well connected. Development comes from many sources however exposing yourself to new ideas and having the know-how to apply it to your own situation is key.
Be commercial
Having commercial acumen is a fusion of inquiry, attitude, knowledge, experience and skills. Think about your business holistically, the environment you are operating within and how the external forces are, and will, affect your future strategy. Focus on activities that add most value to your business and drive them through relentlessly.
Be decisive
Have confidence in your decision making, ensuring it is rationale and not emotionally grounded. Support your decisions with robust processes in all areas from recruitment to development. Think about your own next career move when you are in a position of strength – avoid the comfort zone.
Be progressive
To be ‘good’ is no longer good enough with your business and potential future employers demanding more. Constant improvement must be sought in everything you do to be successful. Push yourself to go beyond ‘good’ in order to progress to the next level.
17 Corporate Research Forum
Established in 1994, Corporate Research Forum (CRF) is a membership network for organisations looking to develop their people strategy and organisational effectiveness. As a focus for research, discussion and the practical application of contemporary topics arising from people leadership, learning & organisational development, CRF remains at the forefront of the HR industry. CRF has over 135 member organisations, including more than a third of the FTSE 100. Our members gain value from regular research, monthly events, advisory groups and, importantly, the opportunity to share knowledge, experiences and good practice with each another. For more information please contact Richard Hargreaves, Commercial Director, on 020 7470 7104 or at richard@crforum.co.uk. www.crforum.co.uk | @C_R_Forum
Strategic Dimensions
Strategic Dimensions was established in 1995 to fill a clear market need for talented HR practitioners across all disciplines. We place senior HR professionals into a range of business sectors in the UK and internationally and have established an unrivalled network across the HR community and with consultants, businesses leaders and academics. Recognising that the world is very different today, we work hard at understanding the changing business landscape and ensuring that we are in tune with the issues facing our clients. Client and candidate care is our primary concern and the endorsements we have received over the years are testament to our focus on exemplary service levels. For more information please contact Dan Caro, Director, on 020 7470 7106 or at dan.caro@strategic-dimensions.co.uk. www.strategic-dimensions.co.uk | @StratDimensions
PARC
PARC was founded in 2004 to provide a centre of excellence for the development and management of high-performing organisations. Through the provision of informative and challenging research and briefings, PARC enables HR & Reward Directors to engage with leading thinkers, expert practitioners and each other on the key issues affecting today’s organisational performance, reward and governance agenda. For more information please contact Richard Hargreaves, Commercial Director, on 020 7470 7104 or at richard@parcentre.co.uk. www.parcentre.com
One Heddon Street | Mayfair | London W1B 4BD | United Kingdom T + 44 (0) 20 7470 7104 | F + 44 (0) 20 7470 7112 www.crforum.co.uk | @C_R_Forum | www.parcentre.com www.strategic-dimensions.co.uk | @StratDimensions