Leading HR delivering competitive advantage_8 pot

252 Vodafone: Creating an HR Architecture for Sustainable Engagement just management rhetoric. Such a view can be immensely counterproductive and can only be countered if the employees believe that the strategy has actual meaning, with the required backing from people who matter. Vodafone is not standing still, despite what it has already achieved with its employee engagement strategy. It is operating in a very fluid business sector that is constantly reinventing itself almost on a daily basis. Change is the norm, and its employees will need to always stay ahead of their field to stay competitive. An engaged workforce will be more ready to change and adapt because it understands the realities of their market and the challenges that their leaders face. NOTES 1 Vodafone Annual report for the year ended 31 March 2008. 2 Arkin, A. (2009) Fully charged. People Management. 4 June 2009, pp. 21–23. CHAPTER 13 The Future Scenario for Leading HR ANTHONY HESKETH, PAUL SPARROW, AND MARTIN HIRD 13.1. Introduction Future scenarios for Leading HR Headline issue: People issues will lie at the heart of most strategy execution problems, but in the world we are moving into, strategies are only going to get more sticky, complex, paradoxical, and people-centric. If HR does not manage its own destiny, either events or aspiring competitors will manage it for them. How should the HR function evolve, what will the market require from their services in future years, and at what price, and will market logics be the only dominant show in town? Strategic imperative: HR needs to look at the complete set of business models that might impact the sector the organization is in. It needs to analyze, in real time, which models require HR investments now as an insurance premium, consider what capabilities are needed to get the chief executive officer (CEO) into each business model, but also to then get them out of it. It needs to be direct commissioners of service rather than simply being direct providers of service. HR needs to understand how it is enabling the organization to achieve its goals, and working with different people across different organizations to improve businesses and how organizations manage and broker relationships with other organizations. It needs to determine what should be commoditized or customized and what will remain key. It needs to decide whether it, or other specialist houses, should be the ones to develop skills in risk mitigation alongside smart ways of analyzing, detecting patterns in, predicting, integrating, and modeling the relationship between the competitive environment, business, and people data Must-win battle: What will remain of the future HR function once stripped of many traditional service lines? Can HR demonstrate the foresight to take control of the many people-related issues that may be solved through action outside the function? 253 254 The Future Scenario for Leading HR In covering these issues, there are a number of key messages: The key messages that emerge from this chapter 1. The future of the HR function in modern and future organizations is in a precarious position, a position not of its own making, and certainly not under its own control. 2. The HR function will transform in size, scope, and content over the coming decade. 3. Against the dramatic scaling back of the HR function’s workforce there have been a number of debates: Should HR be at the table rather than on it? Should HR remain inside organizational structures? Or should HR be insourced to a shared service center (SSC) delivery centre with its own P&L? 4. As organizations break up and redeploy their service lines to realize cost efficiencies, and release new value streams, many service lines are returning to the functions from whence they originally came, or they are being scaled and leveraged by third-party providers. 5. In asking whether this situation will change in the future we have to ask whither: labor markets, trust, and economic factors with regard to future sourcing options, and the reputation of HR? 6. Whilst many labor market trends are clearly evident, and will be played out over the next decade, in terms of macro HR issues, there must remain much uncertainty over how trust will affect future labor market behavior. Societal mindset (the factors on which employee behavior will depend) can change where there are significant shocks to the system, such as collapse of the financial system or the symbolic actions of organizations. 7. HR functions are also having to second guess what the market will require from their services in future years, and at what price. Organizations will continue to seek both price and quality differentials aided by the standardization of a global understanding and benchmarking of quality assurance. 8. New service delivery platforms will lead to a new economy of access to information market places. This access and the quality of information will be negotiated and jealously guarded by either host organizations and procurement third-party constellations. 9. The outsourcing of HR services will rise from 30 per cent of organizations currently to a much higher proportion. Although caution is advised, some estimates have suggested the figure could approach as high as 75 per cent. Ultimately, the level arrived at depends on the extent to which you believe organizations are driven by economic logics, or by s trategic leadership and end-user behaviors. 10. The strategy curve is simultaneously increasing in both frequency and amplitude. Economic cycles will have little impact on this imperative. The future of HR is less a debate about the standing of the function, but much more about HR’s capability to meet the challenges of strategy execution. Anthony Hesketh, Paul Sparrow, and Martin Hird 255 So what should we expect to see as we look forward to the next decade? Let us begin with the charge that we are seeing the death of HR. 13.2. The death of HR? I think all this change signals the end of the HR empire, not the end of HR activities. The senior HR executive is not endangered, but the HR depart ment is; and that senior executive might not even be a “professional” or specialist in HR, just a savvy leader who knows how to connect people and strategy. There will continue to be high-level executives dedicated to people and strategy. There will continue to be high-level executives dedicated to people or to workplaces or to culture and values, but there will be a shrinking department under them, and a lot of specialists once in HR but now reporting to finance, IT or corporate relations. Rosabeth Moss Kanter 1 Some have managed these tr ansitions particularly well, others less so. This is perhapsaswellsummedupasanybodybytheoldTalk in g Hea ds song “Once in A Lifetime.” The song depicts an individual – a man in this case – awakening from a deep sleep to find himself in a beautiful house, with a beautiful wife. Impressed with his seemingly new surroundings our hero asks himself, “Well, how did I get here?” Dedicated followers of HR fashion have been asking themselves the same question. Most appear to agree on the same sing le causal factor: relevance. The question then turns to what might make HR relevant not just now, but in the next decade or so? In this chapter there must be an inevitable amount of crystal ball gazing. Some will want to challenge our view, whereas others may question the evidence-base on which we make our claims. Long-term predictions have the luxury of being free from empirical scrutiny. But the flip-side of prediction is also in play: without cast-iron evidence, leaders are less likely to transform their HR functions on the predictions of several academics. Therefore, we pull together much of the thinking we have undertaken for the Centre for Performance-Led HR member organizations. Inevitably, these organizations, too, have invested time and considerable resource into anticipating the future direction of their markets and the concomitant required changes in the HR function. The ultimate test will arrive in 2020, which is an interesting hypothesis, given Rosabeth Moss Kanter’s observation that many HR functions will have been eradicated by then! Prediction Number 1, then, is that HR will undoubtedly be living in interesting times! Much of the debate about the potential “Death of HR” stems from the questions asked about value and the management of this value across different sourcing choices. Chapter 1 argued that articulating how HR contributes to the creation, improvement, and leveraging of value, especially through the reconfiguration of business model change, represents the central challenge for today’s HR Directors. The future of the HR function in modern – and also future – organizations is in a precarious position, a position not of its own making, and certainly not under 256 The Future Scenario for Leading HR its ow n control. The HR function has seen its numbers slashed, with the traditional benchmark of one HR person per 100 destined to fall to as many as 1:500 by the end of the decade. 2 Five years ago BT openly talked of moving their HR function through the “hop, skip, and then jump” transformational process of first shared services then to a third-party provider where 600 HR staff could deliver the company’s global HR services to its 108,000 employees, where 14,500 previously did so. 3 As the economics of HR service delivery continues to change, moving forward to 2020, the HR function will not be that which has brought us to today. Of course, predicting the preferred or actual level of future outsourcing is problematic. There are contrasting prognoses whereby: 4 some industry analysts and media pundits translate the findings into painful trade-offs: cost savings vs. growth, speed vs. quality, and organisational cohesion vs. knowledge and innovation. Others suggest outsourcing is in a death spiral a decline fuelled by structural risks, questionable cost savings, and multiple complexities Others point to: lucrative outsourcing deals, impressive benefits and uncapped growth projections” and “level[s] of strategic and operational flexibility unattainable through other means. Judgments are therefore being made by senior managers about cost reduction, risk reduction, and capability building. These judgments are based on the existing perceptions about what should be classified as commodity-like and esoteric activity, and what should be replaced by more value-adding activity. Drivers such as cost savings, improved service quality, IT investment and access to technology, improved process efficiencies, global process harmonization, strategic reorientation of HR, and improved business agility are driven by both economic and p olitical arguments, 5 with one driver being given precedence over another at one point in time, as senior managers learn about their future business models and threats to organizational performance. Four core sourcing strategies 1. In-country insourcing describes the situation where the supplier–customer relationship is still formalized and contracted, and activities are sent to an overseas location (generally for reasons of cost efficiency), but the activities are still performed in-house, such as in one of the organizations’ own subsidiaries or a service center. The responsibility and delegation of tasks to the service provider means that the service center is still what is called an internalized “client-entity.” 2. Global insourcing describes the situation where the redesign and reconfiguration of activities and processes to become more efficient and effective allows some geographical flexibility over the location of the activity. For economists, ownership of Anthony Hesketh, Paul Sparrow, and Martin Hird 257 10 per cent of offshore operations constitutes direct foreign investment between a parent operation and an affiliate. 3. Outsourcing describes situations when a third-party provider is used to carry out the activity, with the production of services purchased externally, but still within the same country. Higher profitability may be achieved by using fewer in-house resources. It is defined as “ a discontinuation of internal production (whether it be production of goods or services) and an initiation of procurement from outside suppliers.” 6 HRO involves “ the purchasing by an organisation of ongoing HR services from a third-party provider that it would otherwise normally provide by itself.” 7 4. Offshoring describes a particular type of specialization in which the production of services or goods is moved overseas. Offshoring involves a broad range of tasks that are executed by a firm in another country, ranging from the establishment of a foreign subsidiary to a relatively arm’s length relationship with another firm. 8 More arm’s length relationships tend to involve a more explicit practice of contracting with individuals or companies in foreign countries to perform work that might reasonably be conducted domestically. Offshoring is best defined as “ the act of transferring some of a company’s recurring internal activities to outside providers, who are located in a different country and market economy, under a formal service contract.” 9 Offshore transactions also typically involve two parts: a transfer of responsibility for the operation and management of part of an organization; and a guaranteed provision of services to the client organization by the vendor for a time period. Given the distances involved in offshoring, the factors of production are rarely transferred to offshore sites, but the services, processes, and decision rights are. Theory, however, rarely aligns with the pragmatic judgments that are made by strategic actors – the CEOs, Finance Directors, Operations Directors, and HR Directors. The challenge they face is that: The extent to which each (core competence) is singularly both necessary and sufficient to justify the choice has never been satisfactorily squared Ambiguity still reigns on how to establish what, and what not, should be seen as core. Is it what we do best? Is it what creates value? Or is it related to the strategic importance of the activity in relation to changing industry requirements?. 10 Current responses are therefore complex. Each of the forms – and indeed the hybrid combinations of these forms that are pursued – offers a different contribution to parts of the value chain. 11 Differentiated decisions Organizations currently make very differentiated decisions, involving choices about 1. sourcing (for example, cosourcing with one or multisourcing with multiple vendors); 258 The Future Scenario for Leading HR Differentiated decisions: (Continued) 2. different support strategies (for example, fix-and-keep in-house, rehabilitate and retain, enable capability building within t he client or indeed the vendor operation, outsourcing with a reverse option, through to complete divestment) 3. contractual arrangements, which may be benefits based (whereby payments are linked to realized benefits) or may be cosourced (where vendor revenues are linked to client performance); and 4. location of resources, which may be distributed (where the vendor has teams both on shore and offshore) or dyadic (independent client and vendor operations). HRO arrangements come under multiple regulatory regimes (referred to as contract complexity or density), and attention is therefore given to the nature of governance and risk mitigation that accompanies any particular outsourcing solution 12 in order to mitigate opportunistic behaviors by the vendor, avoid over-dependence on the vendor, and allow flexible responses to changes in the environment. Governance arrangements are based on two control mechanisms: 1. Formal contractual relations in the form of bundles of obligations, incentives, rewards, and penalties. Does the chosen governance arrangement mitigate against all the potential contrac tual hazards? 2. A range of complementary social mechanisms such as trust, reputation, and what has been termed “the shadow of the future.” 13 Does the specter of potential future economic trends and scenarios act to coalesce attitudes around alternative futures, which can then act to ensure self-regulation? There are also global differences, which show geographical differentiation in HRO expenditure and market volume, different preferences for insourcing versus outsourcing across geographies, cultural differences in service perception (and so different pull factors with regards to use of services), and different institutional contexts that surround the attractiveness of sourcing and shoring options. 14 Despite this complexity, we believe the underlying trends that will shape the path to 2020 are already evident. Against the dramatic scaling back of the HR function’s workforce there have been a number of debates: 1. Should HR be at the table rather than on it? 15 2. Should HR remain inside organizational structures? 3. Or should HR be insourced to an SSC delivery center with its own P&L? 16 Many have viewed the SSC as merely being the precursor to full-blown outsourcing of the HR function as in the case of BT, and then P&G, BAE SYSTEMS, Dupont, and Unilever. Data from HRO advisors, Equaterra, estimated Anthony Hesketh, Paul Sparrow, and Martin Hird 259 that even by 2007 in excess of 4 million employees were being supported by third-party HR providers with a total contract value in excess of $20 billion. 17 Despite such scaling back, conversely we have seen the expansion of the HR function into a number of areas previously the domain of other functions such as payroll and pensions (from Finance & Administration [F&A]), IT-enabled HR systems or Enterprise Resource Planning Systems (ERPs) from the IT function and now procurement, and occupational health and a w hole raft of different “back office” services. Therefore, as organizations seek to break up and redeploy their service lines in ways that enable them to realize major cost efficiencies, and release new value streams, many of these service lines are returning to the functions from whence they originally came, or they are being scaled and leveraged by third-party providers. This has raised significant questions concerning what now remains of the future HR function, once stripped of all of these service lines? 18 Is this situation going to change in the future? To answer this we have to ask 1. whither labor markets? 2. whither trust? 3. whither economic factors with regard to future sourcing options? 4. whither the reputation of HR? 13.3. Whither labor markets? Current forecasts anticipate the following developments, each of which will challenge future HR provision: 1. Increased granularity of the labor market: Top-end professional jobs will be knowledge and intellectual capital based, creating a three-tier workforce: workers will either be innovating, producing, or selling. Some refer to this as the “innovation-production-implementation continuum” or the distinction between knowledge work and knowledge worked. 19 2. Asearch,ifnotawar,forTalent:Traditionally this has very much been waged on the field of the high-value-added skills of knowledge workers, but similar intense levels of competition are being waged by organizations for middle-ranking and some lower-level skilled labor. This has been intensified by the global explosion of human capital acquisition in both developed and developing economies. For example, in the United Kingdom it has been accepted that long-run productivity has more to do with intermediate level skills development. 20 Nearly 20 per cent of the productivity gap between Germany and the United Kingdom is explained by the skills gap, and 10 per cent of the gap with France. Most of this gap occurs at intermediate skill level and not high talent, and there are strong regional cluster effects for productivity. Skills supply strategies will need a stronger focus on 260 The Future Scenario for Leading HR intermediate level skills and organizational investments in human capital will become focused around productive hubs, not spread around. 3. Understanding new pools for talent: Demographic realities are forcing organizations to focus on strategies designed to retain older, skilled, and more experienced workers, and compete for scarce talent at the top end of younger labor markets, including graduates from emerging markets with a relatively high capability-low cost tag, or a mobile graduate elite who encourage organizations to compete for their services. Attention has been drawn to changes in both supply and demand factors such as: 21 the volume of migration; the shift toward skills-related immigration systems; the globalization of a number of professional labor markets (such as healthcare and information technology); an increase in demand for skilled expatriates to help build emerging international markets, even as the world economy is in general decline; temporary and short-term access to specialized talent to assist the execution of overseas projects and to develop emerging markets; and the need for highly mobile elites of management to perform boundary-spanning roles to help build social networks and facilitate the exchange of knowledge necessary to support globalization. These all provide renewed energy to talent issues, but seen through an increasingly global lens. 4. New skills to manage global capability and knowledge: Whereas old traditions saw International HRM merely as an extension of the conventional HR agenda, a new agenda points to different ways in which skills issues, and their management, will be handled by firms at the transnational level. The opportunity for skills arbitrage now extends to the whole of the labor force. The process of skills creation and skills utilization is complex and will lead to “skill webs,” where organizations will relate to their suppliers, generate levels of trust in the relationships they establish, may seek to protect their core capabilities, or may share them with suppliers in order to improve their performance. 22 Multiple skills supply strategies w ill be pursued, ranging from: contract expatriates; assignees on short-term or intermediate-term foreign postings; permanent cadres of global managers; international commuters; employees utilized on long-term business trips; international transferees moving from one subsidiary to another; self-initiated movers who live in a third country, but are willing to work for a multinational; international employees active in cross-border project teams; immigrants actively and passively attracted to a national labor market; domestically based employees in a service center but dealing with overseas customers, suppliers, and partners on a regular basis; and skilled individuals working in geographically remote centers of competence or excellence that is, ser ving global operations that may be remote, but through the use of talent and expertise that has been internationally mandated. 23 5. Shifts in the power of employer brand: Many people are simply eschewing less intrinsic or less “branded” forms of employment in favor of more workable and aesthetically pleasing working conditions and environments. As organizations continue to build global customer-facing brands, they will 24 Anthony Hesketh, Paul Sparrow, and Martin Hird 261 address pressures to meet international governance standards, transfer best practice, and develop global performance standards and HR business processes that can be adapted to technological solutions and outsourcing, then they use employer branding as a tool for creating a sense of “corporateness” among often decentralized operations and as a key means of differentiating themselves in domestic and overseas labor markets. This process will see changes in the balance of global integration toward local authenticity and maximum employee voice. 6. Radical redesign of work: This has continued to unlock productivity, value-adding, and innovative processes and practices, with a dramatic reduction in working hours and increased empowerment with wider adoption of the European model for empowerment through learning and development. 7. Digital Taylorism: In this, the processes of reengineering and process scaling and commoditization will increase the value curve toward jobs currently seen as secure. 8. The emergence of the boundaryless or portfolio career: Here, the average US citizen has already worked for nine separate organizations by the age of 32. For many, periods of engagement and disengagement with an organization are becoming shorter duration and more surface-level. Demise of the permanent contract, where employees will increasingly have, simultaneously, more than one work role, more than one employer, and multiple main sources of income. Identification and engagement with any one employer will become more problematic. 9. An economy of experience (soc ial capital): This economy has emerged for market-savvy executives and managerial elites who can now command significant salaries for acutely scarce skills and capabilities, and for the possession of networks and reputation within this network. 10. Transparency of financial information means that more employees will be able to cost the value of their (or their teams’) contribution: The short-term salary-depressing effects of economic recessions aside, this will continue to force idiosyncratic/ market-breaking deals at ever-lower and broader levels of the organization. 25 Unlike the debate at the beginning of the decade, however, the pressure now will be to prove the benefit/ performance manage such deals whilst balancing perceptions of fairness (a major predictor of employee engagement behaviors) in the majority. 11. Increased positional competition: As more employees acquire requisite levels of human capital, individuals’ labor market strategies are evolving, making recruitment processes and their transparency and accuracy more important. 12. Shift to team-level management reward: In order to incentivize speed, firms will need to pace the performance of more and more strategic teams with shared/gainshare rewards and wealth packages. Fast-paced project teams (in areas where innovation is important) are well aware of their business benefit. Already more detailed and decentralized finance and information systems [...]... understand Leading HR, we must give consideration to three things: the range of business issues that are leading HR into new roles and new contributions; the Leading HR processes and practices that need to become embedded into the business; and the ability of HR Directors to lead HR as a function or as a capability within the organization We have addressed the question of strategic capability throughout... benefits for component HR processes They will have advanced up the value chain, offered HR system and process design 272 The Future Scenario for Leading HR affording modularized levels of employee-intelligence, integrated HR- IS-Finance services, and will have more global capability They will face the challenge of advancing entry-level HR skills up through meaningful career paths, but these HR careers will... applied further up the HR value chain, as technology enables the quality and speed of 266 The Future Scenario for Leading HR Figure 13.1: Emerging markets in value, complexity, and HR interactions High Overall HR strategy 1 Corporate Strategy (Reflexive HR/ O) In-business HR Labour relations strategy Compensation and benefit policy design Strategic workforce planning and analysis HR policy Value added... addressed and unraveled a series of key HR capabilities that have to be built in order to establish a Leading HR function Chapters 6, 8, and 9 described three key activities and capabilities that we see as necessary for Leading HR The first of these concerned the traditional issues of power, reputation and influence We outlined what we called a Golden Triangle between HR Directors, CEOs, and CFOs The second... corporate-level HR Cynics describe such a process as the devolvement of HR activity to the line and employees themselves in order to reduce the costs of delivering transactional HR services Advocates of this approach will point to a new cadre of middle and senior managers capable and prepared to handle people issues supported by powerful, yet highly centralized e-enabled system of HR This new “push to pull” HR. .. the HR issues (beyond employees this means governments, CEOs, business functions, individual talent, and unions) The power of each of these stakeholders will wax and wane over the coming years, but any one of them may have the power to dethrone HR 13.7 Conclusions What have we said throughout the book about the current challenges facing HR? Chapter 1 established the agenda that we returned to throughout... Hierarchies of processes through which additional value can be realized and structural and operational risks can be mitigated by HR services delivered in “extended organizations.”35 The bottom line here is that HR will need to enable Enterprise First Behaviors The HR function itself now needs to be direct commissioners of service rather than simply being direct providers of service HR needs to understand... domains, be they IT, Finance, Procurement or, crucially, HR Figure 13.2 above shows that comparisons are made between the capabilities of different teams in HR and Finance and Administration, there is little to choose between them HR leaders can currently draw some comfort from the observation that the only significant difference between HR and F&A lies in HR s greater orientation to performance However, closer... of HR service delivery? Not dissimilar to futures in the financial market place, HR functions also find themselves having to second guess what the market will require from their services in future years, and at what price.28 The future price of HR services is uncertain The only certainty is that the cost per transaction is falling, both in terms of the people costs that HR services attract – largely through... proactivity within the HR function However, few HR functions, at the present time, would have “mastery” of all the capabilities outlined We have also drawn attention to general trends in labor market behavior, the way that future trust might impact such behavior, the economics of HR service delivery, and the reputation of HR, that will have independent and combined effects on the future of HR On all this we . the death of HR. 13.2. The death of HR? I think all this change signals the end of the HR empire, not the end of HR activities. The senior HR executive is not endangered, but the HR depart ment is;. interaction 1. Corporate Strategy (Reflexive HR/ O) 2. Internal Consulting (HR/ O Business Partner) 3. HR F2F Delivery (eHR) 4. HR Back Office (One2Many) High Low In-business HR Labour relations strategy Compensation. the HR value chain, as technology enables the quality and speed of 266 The Future Scenario for Leading HR Figure 13.1: Emerging markets in value, complexity, and HR interactions Overall HR strategy Corporate governance services High Low Value