www.pwc.ru/en/hr-consulting
January 2014
Future of HR: implications for Russia
How are global trends changing HR in Russia and CIS countries?
PwC
Document Overview Introduction
Future of HR PwC
4
Methodology and survey participants
5
Key survey findings
6
Change drivers for Russian HR
7
Three major HR challenges
12
Future HR skills and knowledge
17
Appendix. Five global trends: implications for Russia
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Contacts
30
3
Introduction In 2013, PwC published the research findings from several global scale surveys (the 16th Annual Global CEO Survey, Talent Mobility 2020 and Beyond, etc.) that highlighted HR challenges on the agendas of top CEOs. The Russian economy is also strongly affected by these challenges. With megatrends affecting our business, new conditions have emerged in areas such as demographics, information technologies, population concentration in megalopolises and climate change, which all have started to reshape HR in Russia. The purpose of this study is to understand the local impact of environmental pressures on HR. Guided by the belief that major changes will appear following the theory of “five megatrends�, we have defined the six change drivers that are already forming specific conditions for Russian HR professionals and are dramatically affecting their work. Thus, we were eager to uncover the reasons behind two research questions:
To what extent global trends will impact HR management in Russia? How will Russian HR change in the near future?
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Methodology and survey participants Survey timeframe: September through November 2013
Method: quantitative
Target group: HR professionals, firmly established companies operating in Russia
Specifically:
150
68% Companies operating in most Russian regions
HR directors and professionals, providing a view of both local and foreign companies
65%
Companies that are growing in terms of total turnover by more than 5% (in comparison to last year)
52%
By origin: Local companies
Multinational companies
48%
By industry:
21% Industrial production
11%
10%
Oil&Gas, Utility&Mining
Financial services
10% FMCG&Retail
Other industries
By size:
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54%
Less then 2,500 employees
24%
2,500 – 10,000 employees
13%
10,000 – 50 ,000 employees
9%
More than 10,000 employees
5
Key survey findings Our approach This study is based on the concept of the five megatrends (see Appendix) that companies face globally. These trends have shaped the drivers that are expected to have crucial impact on HR’s role and functions in the future. We applied this theory to the specifics of Russia and surveyed 150 HR professionals working in Russian and multinational companies in order to verify the validly of this theory and understand how HR will generally change in Russia in the future. Key drivers •
Demographic shifts
•
Social media
•
Digital technology
•
Global mobility
•
Social responsibility
•
The generation gap
Top HR challenges HR professionals cited leadership development, employee engagement and productivity as top challenges.
Impact of change drivers on HR
The most crucial set of skills for HR
All respondents believe that change drivers will have a greater impact on HR processes, while having less of an influence on the knowledge and skills essential for HR professionals or the organisation of the HR service's operations or the general role of HR. Interestingly, multinational and domestic companies in Russia differ in their estimates of the drivers' impact on HR functions and concur only when evaluating demographical challenges and social responsibility. For instance, 58% of multinationals noted the impact of social media on the HR service's operations material compared to 35% of the Russian respondents.
Change management will be a priority HR skill. Organisational learning, transfer of knowledge and employee development will be also important.
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Employee involvement in implementing change Most of the respondents admit that they are now attentively studying the societal and environmental impacts on HR and are tying to help their companies implement changes for the future.
6
Change drivers for Russian HR
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Drivers shaped by global trends have an impact on HR in Russia
Based on the Global Annual Survey*, we asked respondents to assess the impact of these drivers on both our future and the future of our clients over the next ten years. The respondents assessed the impact of these drivers on HR services as follows:
Shift in global economic power
Demographic shifts Demographic challenges
22%
Social media
Corporate responsibility
16%
18% Accelerated urbanisation
Global mobility
9% Climate change and resource scarcity
Digital technology
19%
(*) Global Annual Review 2013: Building trust in a time of change
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The drivers are closely interwoven and whenever one of them changes, it prompts changes in all the others.
The generation gap
16% Technological breakthroughs
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Theses drivers impact HR in all the companies, no matter what their size or industry or turnover may be. The respondents believe that the change drivers identified will have a greater impact on HR processes, while having less of an impact on the knowledge and skills essential for HR professionals, HR service structure or HR’s general role.
Impact of change drivers on certain HR issues
36%
Impact on HR processes
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23%
Impact on HR knowledge and skills
22%
Impact on the functional organisation of HR
19%
Impact on HR’s role
9
Russian and multinational companies have varying assessments of the drivers impacting of HR services Demographic shifts
Impact
Social media
Multinational companies
69%
Corporate responsibility Digital technology The generation gap
58%
56%
52%
46%
Demographic shifts Digital technology
Impact
Corporate The responsibility generation gap
Russian companies
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60%
58%
44%
44%
Social media
35%
Demographic shifts. Although there are differences between multinational and local companies, all companies admit that the decline in the share of working population in their prime years between 18-60 will have a crucial impact on the work of HR professionals.
10
56% Digital technology will materially change HR approaches.
68% Extensive use of digital technology will transform key HR processes.
values. Here, HR’s objective is to ensure effective work cooperation among various groups of employees, which may call for adjustments in HR systems themselves.
Rising expectations for corporate social responsibility Social responsibility as an integral part of business will drive
Digital technology transforms the key HR processes. Such processes encompass HR administration, recruitment, performance management, learning and development, bonus and benefit management, etc.
Impact of generational differences on competencies Managing workforce diversity, particularly generational differences, will be a new key area where additional knowledge and skills will be required. HR departments will manage certain categories of the personnel with various working methods, preferences and even
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These recent changes demand that HR professionals not only understand their customers and their values but also treat employees as clients by building policies and practices that will support the delivery of brand promises, both internally and externally.
44% 36%
Digital technology
Furthermore, societal expectations will also have a strong impact on the methods multinationals employ for organising their HR functions.
Social responsibility is changing HR’s role.
The generation gap is the key driver that will change competences.
the changes in HR’s role and the way it is organised. This is particularly the view held by multinational companies operating in Russia. Most of the respondents indicated that the society’s expectations about how products are manufactured, what they stand for, the way they serve to customers and labour standards that they follow are more and more changing the role of HR professionals in the CIS.
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Three major HR challenges
Future of HR PwC (*) The data reflects the opinions of study participants
December 2013 12
Leadership development
Employee engagement
Productivity
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Leadership development
Building leadership capabilities is a major challenge for 55% of companies operating in the CIS. Although management is gradually gaining a better understanding of the importance of leadership development and effective HR investments, these are still challenges for both Russian and multinational companies. Compared to 51% of local companies admitting such challenges, 58% of multinationals operating in Russia and CIS countries acknowledged the same.
Table 1. Leadership development challenges by industries
Pharmaceuticals healthcare Pharma and and Healthcare
100%
Technology andTelecom telecom Technology and
69%
FMCG and retail FMCG & retail
67%
Oil Oiland andgass gas
57%
Industrial production Production Industrial
47%
Financial services services Financial
45%
Professional services services Professional
33%
Not % Notatatallall%
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Partly %% Partlychallenging challenging
Highly challenging % Highly challenging %
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Employee engagement
50% of HR professionals consider achieving a high rate of employee retainment to be extremely difficult. In this regard, multinational companies experience slightly less challenges than domestic companies. This can be explained by their long-standing HR practices with respect to employee involvement and engagement. Furthermore, western multinationals usually enter a market with a relatively high brand awareness and good image as an attractive employer, which may positively influence employee engagement at its early stage.
Table 2. Employee engagement challenges by industries Technology andTelecom telecom Technology and
77%
Industrial production Industrial Production
71%
Pharma andHealthcare healthcare Pharma and
57%
FMCG and retail FMCG & retail
53%
Financial services Financial services
45%
Professional Services Professional services
33%
Oil Oiland andgass gas
29%
Not % Notatatall all%
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Partly challenging %
Highly Highly challenging %
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Productivity
For 47% of HR professionals, supporting line managers in order to improve employee productivity is still a top HR challenge. The growth of competition, on one hand, and slowdown in economic growth, on the other, has highlighted the importance of costs and business restructuring.
Table 3. Employee productivity challenges by industries FMCG & retail FMCG and retail
60%
Financial Financialservices services
50%
Industrialproduction Production Industrial
47%
Technology Technologyand andtelecoms Telecom
46%
Professional Services Professional services
42%
Pharmaand and healthcare Healthcare Pharma
14%
Oiland and gas Oil gass % Not at all all%
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14% Partly challenging Partly challenging % %
Highly Highly challenging challenging % %
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Future HR skills and knowledge
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The importance of developing certain HR skills We asked all respondents to name the future skills most important for the future of HR, as well as areas for improvement. The opinions were split as follows:
69% 89%
Managing change
59%
84%
Organisational learning/ knowledge transfer
59%
85%
Employee development
56%
84%
Performance management and reward
55%
Restructuring business/ Organisational design
36% Planning staff headcounts
30%
76% 77%
67%
Recruitment
Prior importance Needs improvements PwC
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Drawing on the above responses, we can name the skills that will undoubtedly be in high demand for future HR functions:
1
Managing change
HR professionals indicated that the current turbulent environment demands quick and wide-ranging managerial changes from them every day. This is even more important for local companies and this illuminates a growing trend for greater business restructuring. The need to improve the skills is just as high for local companies as it is for multinationals.
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2
Organisational learning and knowledge transfer/ Employee development
There is a greater demand on HR to help organisations create systems that can ensure the transformation of tacit knowledge into explicit understanding. This will help organisations to retain knowledge regardless of employee turnover. In order to share and transfer knowledge throughout operations and between employees, Russian HR should not only use IT systems, it will also need to built supportive organisational cultures, as well as encourage organisations to cultivate their own capabilities. Managing employee development will become equally important for HR as it is significant for line managers. HR will also need to support managers in improving these skills.
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HR professionals' engagement in implementing change
HR professionals in Russia are developing cases for change while also raising awareness about the current environmental and the social impact on HR.
20%
34.5%
Not Involved
Building awareness
18%
22%
Multinational companies
Russian companies
30% Participate in actions driven by others
31% Multinational companies
28% Russian companies
34%
36%
Multinational companies
Russian companies
15.5% Initiate and drive actions
17% Multinational companies
14% Russian companies
One fifth of the HR professionals are not involved in initiatives that address changes.
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Appendix. Five global trends: implications for Russia
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1
2
Shifts in global economic power
Demographic shifts
3
4
Accelerated urbanisation
Climate change and resource scarcity
5
PwC Future of HR
Technological breakthroughs
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Demographic shifts
1
Explosive population growth in some areas of the globe against declines in others parts has been contributing to everything from shifts in economic power to resource scarcity to the changes in societal norms. This trend is not only global, it is also visible in Russia. Over the last 13 years, the Russian population declined by 2%. The country’s population is expected to fall from 143mn in 2010 to 132mn in 2030, which would mean a population decline of 8%.
Annual growth rate 2010-2050*
1% Population growth for average working age until 2030 (% per annum)
Growth rate 2000-2050.
18% 18% of the population of the Russian Federation in 2030 who will be older than 65 years An ageing population restricts Russia’s ability to increase its share of world GDP over the long-term as is the case with other large emerging economies.
Even factoring in the rise of the immigrant population, Russia’s population will still fall by 21mn.
143mn
2013
-3mn
2020
-11mn
140mn
132mn
2030
The population will decline below the 1975 level by 2030. This will create a huge talent gap in the country’s future economy. PwC
* Russian Federal State Statistics Service (Rosstat). The estimated Russian population size by 2030.
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Shifts in global economic power
2
The focus of global growth has shifted towards emerging markets and Russia. By 2050, Russia will rank as the sixth largest economy by GDP. Emerging markets will host the majority of corporate headquarters with some of them in Russia, which will change the business models of many companies.
GDP of G7 and E7 countries in USD PPP
USD 29tr GDP
G7
USD 20.9tr GDP
E7
2009 USD 69.3tr GDP
G7
2050
(USA, Japan, Germany, UK, France, Italy, Canada)
USD 138.2tr GDP
E7 (China, India, Brazil, Russia, Indonesia, Mexico, Turkey)
Competition will increase and be generated by multinationals coming from emerging markets, including from those of Russian origin. They will also become international players, which, in turn, will have many implications for HR.
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Source: PwC Global Annual Review 2013: Building trust in a time of change
25
Accelerated urbanisation: Moscow and other large cities
3
Rapid urbanisation and concentration of people in the cities will increase and, by 2030, the proportion of people living in cities will have surged from the current 30% towards 60%. The UN estimates that, by 2025, Moscow will be amongst 37 megacities1, ranking 27th.
Percentage of population in urban areas, 2030
Moscow will see a minor rise in its population by late 2025, up to 12.2mn people. The population in the Moscow Region will also increase. This population will have grown by approximately 600,0002 by late 2025.
12.2mn 11.9mn
2025
80 and over 60-79 40-59 20-39 <20 Not estimated
2014 The Russian population in urban areas will have risen by 2% by late 2025 (up to 76,3%)2.
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26 1 United Nations Organisation. World Urbanization Prospects The 2011 Revision. 2 Russian Federal State Statistics Service (Rosstat).
Climate change and resource scarcity
4
Scarcity of resources and the impact of climate change are of growing economic concern. Demand for energy is forecast to increase by as much as 50% by 2030 while water withdrawal will likely go up by 40%. The need for sustainable solutions may well be at odds with the demand for resources to fuel growth and feed populations. Time-honoured traditions will be challenged by changes to the physical environment. Although Russia will not be amongst these countries, it will still impact on doing business in the country. Climate change and resource scarcity trigger change in business models, as well as the behaviours and values of both customers and employees. As a result, this will have a very major impact on corporate social responsibility.
The Food/Water/Energy Nexus
It takes 1,200 l of water to produce 1 kg of grain
Water
7% of global energy consumption is used for delivering water
Food
Energy
1-2% of cropland is needed to produce biofuels
With a population of 8.3 bn people by 2030 , weâ&#x20AC;&#x2122;ll need...
50% more energy
40% more water
35% more food
Source: OECD; Dan Hammer, Center for Global Development
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Technological breakthroughs
5
@
57%
of Russian on-line shoppers use social media every day, which is above the global average. This is a significant target group with higher disposable
The combination of the Internet, mobile devices, data analysis and cloud computing will continue to transform Russia. Many companies in all sectors are grappling with how these developments will affect consumer expectations, as well as how to interact with their customers and the underlying business models that support this.
Technological breakthroughs and digitalisation of the world will also change workplaces and enable new forms of work. For instance, we already see remote working and virtual teams, more flexpatriates and changes in working practices. Access to systems and information should help management models to flatten out their organisational structures. Furthermore, new competitors will emerge as technology and innovation create new competitive advantages and increase productivity across sectors and geographies.
income1.
61.1mn > 52% The number of Internet users in Russia1 PwC
1 PwC Global multichannel survey 2012 â&#x20AC;˘ Survey Summary and Business Implications, April 2013.
People use the Internet at least once a month
49 % People use the Internet on weekly basis 28
Contacts Ruxandra Stoian Partner Human Resource Consulting Services Tel: +7 (495) 967 6169 E-mail: ruxandra.stoian@ru.pwc.com
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