Survey report

HR Transformation in EMEAA Mercer study

1

Transformation 2010 .............................................................................................................................1

Why does HR transformation remain of such interest? ...........................................................1

HR’s evolving signifi cance ....................................................................................................................2

Engaging with the business .................................................................................................................4

HR perceives itself as a strategic partner ...................................................................................4

Day-to-day realities: a different story .................................................................................................6

HR’s role in a post-recession economy .......................................................................................7

HR’s strengths and weaknesses ..................................................................................................8

Measuring HR effectiveness .......................................................................................................9

A closer look at ‘transformation’ .......................................................................................................10

HR organisational structure ......................................................................................................11

HR technology initiatives ..........................................................................................................12

HR processes ..............................................................................................................................13

HR capability ..............................................................................................................................13

Enhancing the HR role: barriers and opportunities ................................................................14

Maximising HR’s potential as a strategic business partner .............................................................17

Table of contents

About this survey*

Responses were collected in 2010 from over 500 organisations representing more than 15 industries and 39 countries across the Europe, Middle East and Africa (EMEA) regions – this was the highest response rate since the survey began in 2003. Among the respondents, 61% were from Western Europe (UK and Ireland included), 23% were from Eastern Europe and 16% were from the Middle East and Africa.

Twenty percent of the participating companies were global headquarters, 14% were regional headquarters and 31% were country subsidiaries of a foreign multinational. An additional 27% were domestic private companies and 9% were domestic public sector/government organisations.

Thirty-three percent of respondents were from organisations with 5,000 or more employees, 27% were from organisations with 1,000 to 4,999 employees and 41% were from organisations with less than 1,000 employees.

The survey was completed by HR professionals from a wide breadth of industries, including:

■ Manufacturing, durable and nondurable (17%)

■ Services, for-profi t (16%)

■ High-tech/Telecommunications (12%)

■ Finance/Banking/Insurance (8%)

■ Retail/Wholesale (7%)

■ Transportation (7%)

■ Chemicals (6%)

■ Energy (5%)

■ Health care (5%)

■ Holding company (3%)

■ Government/Public sector (3%)

■ Entertainment/Hospitality (3%)

■ Construction/Real estate (2%)

■ Services, nonprofi t (1%)

■ Agriculture/Forestry/Fishing (1%)

The collected experience and views of these HR executives present a number of key fi ndings and commonalities that should be useful as your company assesses its HR function.

* Note: Percentages in this report may not total 100 due to rounding.

1

This report presents the results of Mercer’s 2010 Europe, Middle East and Africa (EMEA) HR Transformation Survey, which is conducted on an ongoing basis by Mercer, and is a follow-up to the 2003 and 2006 surveys. Participation in the 2010 edition of this survey has nearly doubled since 2006, demonstrating that this subject remains high on the agenda of HR practitioners in the region.

Each survey we have conducted illustrates how HR functions are responding to external market pressures and business needs; as businesses adapt to market shifts, HR transfor-mational efforts also continue to evolve. This 2010 report indicates that, in the wake of the recession, HR is focusing its efforts on business and workforce alignment while continuing to enhance its own service delivery model through more effi cient and effective processes.

Why does HR transformation remain of such interest?

The increased participation rate in this year’s Transformation Survey confi rms that HR transformation remains a priority for HR practitioners in the EMEA. In particular, a signifi cant rise in participation (almost 40%) was noted in the region’s emerging markets.

Most functional transformations typically begin with a need that develops into a future-orientated vision focused on enhancing its contribution to the business. For the HR function, the key driver for transformation efforts is based on the requirement to partner strategically with the business by establishing a best-practice approach to service delivery and by demonstrating value in areas of HR that contribute to improved business outcomes.

Recognising the critical importance of human capital management practices to business success, business leaders are asking their HR functions to play an increasingly strategic role in achieving business objectives. At the same time, they are looking to wring excess costs from HR service delivery, as well as manage programme spend, in order to redirect those funds to other business imperatives.

The HR function has been in a process of transformation for nearly 20 years, with varying levels of success. The 2010 survey results show that HR transformation is still a process that organisations are undertaking at similar levels to the 2003 and 2006 surveys.

The desire to transform remains high, with organisations either planning to transform or already undertaking steps to transform in Western Europe (54%), Eastern Europe (49%) and the Middle East and Africa (52%).

Transformation 2010

Exhibit 1 Status of HR transformation

42%

16%

10%

22%

10% Currently in the midst of a transformation process

No current plans to transform HR

Completed an HR transformation more than 12 months ago

Completed an HR transformation in the past 12 months

Plan to begin a transformation within the next year

2

Exhibit 2 HR transformation drivers

Part of a broader organisation-wide transformation process

CEO/business leader mandate for changein the HR and/or other staff functions 5%

HR not adding valuein its existing role

Change in domestic marketenvironment or regulation

4%

2%

Response to changesin the organisation

Company-wide costreduction mandate 14%

HR awareness to transform itself, to subsequentlydrive change across the organisation 14%

Leadership changesin the HR function 10%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

27%

19%

HR’s evolving signifi cance

Over the years, respondents have transformed their HR functions to varying degrees and at different paces. Survey results show that some transformation initiatives are now complete; however, where transformation efforts are still underway or launching, two primary reasons are cited:

■ An increased focus on performance monitoring and continuous improvement

■ Post-recession re-evaluation of HR’s role in the business

The desire to transform HR is typically driven by a number of factors, including:

■ A change in business strategy that requires HR to react by providing new or different services to the organisation, such as globalisation of the workforce, M&A activity, product offerings that require new employee skill sets, etc.

■ HR’s own awareness of the need to elevate its role in partnering with the business

■ As a response to the substantial increase in fi nancial management constraints

3

HR transformation is therefore embedded in the changing context and demands of the business.

In our experience, many triggers for transformation programmes are driven by complexity and/or technology. For example:

Complexity-driven transformation programmes tend to focus on helping the HR function address:

■ Inadequate involvement in the execution of the business strategy

■ Failure to devote suffi cient effort to align HR strategy with business strategy

■ Inability to deploy programmes and policies adapted to different business areas, geographies and other considerations

■ The current effi ciency of HR operations not following market standards

Technology-driven transformation programmes tend to focus on:

■ Leveraging technology to eliminate cost from the current delivery model

■ The technical and functional instability of the current technology platform

■ A need to provide the business with key human capital information and insights that require more access to data

■ Providing more integration, automation or fl exibility in the execution of HR processes, eliminating excessive manual interventions in routine administrative transactions

2010 key themes

■ HR’s strategic intent: The self-perception of HR’s strategic contribution is diminished by the focus of its efforts and the reality of the transactional activities it still undertakes.

■ Talent and culture of performance: Management of key talent and embedding a culture of performance remain a priority for HR.

■ HR service excellence: There is a commitment to continuous improvement, renewal and performance monitoring.

■ HR effectiveness evaluation: In light of business and workforce changes in this post-recession environment, organisations have a renewed focus on evaluating HR.

■ Capability-driven success: To bridge existing gaps in people-management skills, HR staff must be appropriately trained or, if this is not possible, managed out of the organisation; HR must make tough decisions about its own talent and how it can most effectively be deployed to meet business needs.

4

Engaging with the business

HR perceives itself as a strategic partner

Unsurprisingly, debate continues over the term “strategic partner”. Some will regard the term as a cliché, but it remains a primary focus of HR and an area of high interest. Approximately 66% of respondents said their HR function views itself as a strategic partner, yet only 38% said HR fully participates in strategy decision making. Twenty-eight percent of those who completed the survey said that although HR participates in strategy discussions, it does not have decision-making responsibilities. Just over 25% of respondents indicated that although HR isn’t yet a strategic partner, it is increasing its infl uence in this area. Finally, only 8% said that HR is not seen as a strategic partner.

The view that HR is perceived as a strategic partner is evidenced through its contribution to strategic business-led discussions such as:

■ Discussing signifi cant business-wide issues (73%)

■ Translating business strategy into a human capital strategy for the business (68%)

■ Driving and developing methodologies to drive change in the organisation (63%)

■ Participating in business operations planning (57%)

■ Being brought in early to signifi cant business issues and opportunities (55%)

Compared with the survey results of 2006, these fi ndings indicate a slight decline in the proportion of respondents focusing on the above activities. We apportion this to the increase in the representation of Eastern European and Middle Eastern organisations within the respondent profi le. Functions in these locations appear to be more concerned about managing talent shortages than are their Western European counterparts, where establishing strategic partnering is a higher priority. Western European counterparts have largely put in place talent management practices and are more focused on moving the HR function forward through strategic partnering. Even so, fi ndings indicate companies across the region appear to be making inroads in HR’s strategic contribution by building relationships with business leadership and positioning HR and human capital as a source of value.

The data also show that in Western Europe, HR is seen more as a strategic partner, while in Eastern Europe and the Middle East, HR is increasing its infl uence as a strategic partner.

5

In Western Europe, after retaining key talent, the second top priority is developing an environment that drives and supports a culture of performance.

Exhibit 3a Top human capital challenges

% of participantsTop challenges

Retaining key talent 51%

Increasing workforce productivity 31%

Driving cultural and behavioural change in the organisation 30%

Identifying and building leadership capability 30%

Increasing line-manager capability to handle people-management responsibilities 25%

Developing an environment that drives and supports a culture of performance 33%

Aligning HR strategy and programme design with the organisation/business strategy, operating model and customer requirements 30%

Aligning workforce plan/requirements with organisation and business needs 24%

Increasing workforce profile to align with organisational performance requirements 22%

Acquiring key talent/lack of available talent 39%

Exhibit 3b Top regional human capital challenges

Retaining key talent 58%46%

Acquiring key talent/lack of available talent

Developing an environment that drivesand supports a culture of performance

0% 10% 20% 30% 40% 50% 60% 70%

44%35%

26%39%

Eastern Europe, Middle East and Africa Western Europe

6

Day-to-day realities: a different story

A closer examination of the work and activities undertaken by HR does not fully corroborate HR’s self-perception. Our survey found that the amount of time HR devotes to direct strategic activities is only 15%. However, respondents also indicated the function would like to be able to allocate even more time – up to 25% – to strategic activities. This suggests that, while some organisations have achieved their strategic alignment goals, others feel there is room to expand this further.

Encouragingly, compared to previous surveys, the most prominent shift has occurred in the allocation of overall time for transactional and recordkeeping activities, dropping from 28% of total responsibilities in 2006 to only 18% in 2010. This is a promising indication that HR is making a concerted effort to pull away from time-intensive transactional activities to instead focus on more value-added contributions. Interestingly, HR’s growing focus on internal management (14%) could point to a desire to “get their house in order” and focus on developing internal skills and capabilities.

We believe that over time, as HR capabilities grow and HR service delivery models evolve, organisations will increasingly invest in developing line managers’ people-management skills to ensure this key workday interaction is appropriately managed.

Mercer’s view is that HR should partner with the business on human capital issues. Employees are owned by the business – not HR. HR therefore needs to continue to work through the top human capital challenges with the business in order to bolster the perception of HR as a strategic partner.

Exhibit 4 Percentage of HR staff’s time currently spent performing HR activities

15%

18%14%

14%

12%

27% Delivering HR services

Transacting/recordkeeping

Strategic partnering

Designing HR programmes or systems

Internal management

Compliance/auditing

7

HR’s role in a post-recession economy

A salient difference from previous surveys is HR’s perception of its role. The 2010 responses indicate a greater focus on the role that HR plays in leading organisation-wide change initia-tives. In our view, this can be explained by a requirement from the business for HR to deal with the aftermath of the restructuring and redundancy programmes that companies were forced to implement as a result of the recession. As businesses slowly begin to emerge from the economic downturn of 2008 and 2009 and respond to shifting market demands, HR has maintained a strong focus on retaining and acquiring key talent. This will be key to business success as companies grapple with dips in employee engagement resulting from harsh cost-cutting initiatives.

Exhibit 5 Top roles for HR in the post-recession economy

Establishing transparency inemployee communication 23%

HR owner of leadership development 31%

Understand market conditions to react quickly and help organisation differentiate its

capabilities to influence the bottom line42%

Aligning talent to roles and drivingproductivity via workforce planning 26%

0% 10% 20% 30% 40% 50% 60%

HR leading organisation change initiatives 54%

Strategic focus on retaining key talent aswell as opportunistic talent acquisition 47%

8

HR’s strengths and weaknesses

Mercer’s previous HR transformation surveys explored HR’s performance and ability in traditional areas such as interviewing, customer service and recordkeeping. This time, the 2010 survey sought to also capture emerging areas of HR’s capability, refl ecting the evolution of the scope of HR responsibilities. A contradiction in the fi ndings is that, while most organisations believe their HR capabilities are suffi cient to meet the needs of today’s business environment, respondents also indicated that a key opportunity for improvement is the enhancement of the skills and competencies of HR staff.

HR’s ability to be a partner in terms of consulting and labour relations is the strongest area for improvement. The three weakest areas reported are:

■ Leadership

■ Talent management

■ Organisation development and effectiveness

Partnering (e.g. consulting,labour relations)

Work-enabling competencies (e.g. adaptability, communication)

Leadership

Technical – learningand development

Technical – talent management

Technical – compensationand benefits

Technical – organisation development/organisation effectiveness

Exhibit 6 Skills within the HR team that tend to be viewed as only sufficient

0 10 20 30 40 50 60 70 80 90 100

Strong Sufficient Weak

14% 19%68%

11% 22%67%

8% 24%68%

11% 26%63%

12% 32%56%

14% 19%66%

21% 13%66%

9

Following are some of the overarching themes that surfaced from the survey results:

■ Cost management and programme effectiveness remain consistent, which, given the current economic climate, is to be expected.

■ There is a changing focus away from employee satisfaction and towards engaging with line managers – this indicates a bolder outlook on customer satisfaction.

■ HR is focusing less on benchmarking – as evidenced by the decline in the prevalence of HR staff/employee ratios as targets – and more on measuring the effectiveness of the function, demonstrating the function’s greater awareness of the importance of evaluating its contribution to the business, rather than implementing a metric with little regard for context.

■ Now that HR is aligning itself with the business to help drive productivity and infl uence the bottom line, it is relying substantially less on employee satisfaction as a measure of effectiveness.

Exhibit 7

HR effectiveness measures

Customer satisfaction 34%

How do you measure the effectiveness of the HR function? % of respondents

HR staff/employee ratio 36%

Line-manager effectiveness as people managers 39%

Processes in place to lead/facilitate organisational change 34%

HR cost management 55%

HR programme effectiveness 55%

Impact on business operations/outcomes 38%

Workforce productivity 35%

Shift in staff time spent on higher value-added activities 20%

Employee satisfaction 76%

Line-manager feedback on effectiveness of HR programmes and service delivery 69%

Meeting stakeholder requirements 42%

Communication of workforce expectations 30%

No specific measures 5%

42%HR operational measures

32%Increased customer usage of HR staff for more strategic interventions (rather than using external providers or building capability outside of HR)

Measuring HR effectiveness

At the core of any HR transformation is the ability of the function to measure its activities. Recognising the changing role of HR and evolving business needs in the new economic and business landscapes, Mercer introduced several new HR effectiveness measures to the 2010 survey.

10

A closer look at ‘transformation’

This survey shows that the assessment of HR effectiveness remains steady with trends in the past. Transformation is still clearly on the minds of most executives. Plans for transformation were fairly consistent across Western Europe, Eastern Europe, and the Middle East and Africa. More than half of the survey participants indicated that they continue to engage in transformation efforts or are planning to commence efforts within the next year. Approximately one-third of respondents indicated that they had completed their transformation. Only 16% of respondents said they had no current plans to transform HR.

Decentralisation of selectedprogrammes in the business

18% 68%14%

Audit of current HRIS technology 24% 54%23%

Strategy for attraction/retentionof HR staff 24% 65%11%

Assessment of HR customers’needs/requirements 29% 46%25%

Evaluation/implementationof new HRIS technology 32% 52%16%

Implementation of a newHR organisational structure 32% 39%29%

Implementation of new HR roles,responsibilities and competencies 35% 38%27%

Assessment of HRfunction effectiveness 37% 44%19%

Talent development strategyfor improving skills within HR 39% 48%13%

Design of a new strategyfor delivering HR services 39% 34%27%

Redesign of HR work processes 42% 36%21%

Identifying environment, market, businessand organisational implications on HR 22% 56%22%

Review of external vendorsor sourcing strategy

19% 72%9%

Changes in rewardstrategy for HR staff 22% 69%9%

Outsource any partof the HR function

15% 76%9%

Exhibit 8

Initiatives undertaken during HR transformation

0 10 20 30 40 50 60 70 80 90 100

Planning to complete (short/medium term)

Completed

No actions planned

11

Based on 2010 responses to the survey, fewer transformation activities are planned compared with 2006. Before embarking on the next phase of the transformation journey, organisations may be pausing to let the impact of previous initiatives take effect or to realise the benefi ts or returns on previous investments. The ramifi cations of the recession should also be considered – in a cost-sensitive environment businesses will tend to shed investments in “non-core” functional areas such as HR.

Regardless of rationale, the nature of activities planned implies that HR is committed to continuous improvement and performance monitoring, particularly in the areas of HR strategy processes and talent. The top plans cited in the 2010 survey included a redesign of HR processes (42%), new strategies for delivering HR services (39%), talent development strategies for improving skills in HR (39%) and assessment of HR effectiveness (37%).

HR organisational structure

The survey responses indicate that the majority of organisations in the EMEA region are continuing to adopt the three-pillar model, which consists of HR business partners, HR shared services and HR centres of expertise. Sixty percent of respondents are now using a centre-of-excellence model, which leverages and centralises critical talents.

However, today’s HR service delivery model is failing to deliver on its promise to the business. Mercer has found that the reasons for this include:

■ Flawed implementation relating to how individuals within HR will support the newly transformed landscape

■ Insuffi cient HR skill set

■ Failure to provide top-notch transactional services

■ Limited satisfaction in self-service by employees and managers

■ Lack of support for line managers

■ Insuffi cient geographic focus

Exhibit 9

HR business partners reportingto the business unit leader

52%

HR service centre/sharedservice operations 52%

HR business partners(reporting to corporate HR) 51%

0% 10% 20% 30% 40% 50% 60%

HR centres of expertise 60%

HR programme alignedHR functions 56%

■ Appointment of an HR controller (40%) or specialist transformation implementation teams (51%) emerged across all regions

■ Equal number of participants indicated business- vs. HR-driven decision-making protocols

12

HR technology initiatives

Survey responses show very little difference between 2006 and 2010 in the rate of HR technology initiatives undertaken by HR. A wide range of initiatives has been under way, and for good reason: the effi cient and effective use of technology enables HR functions to do more with less – for example, by automating transactional processes and minimising costs associated with manual intervention – an important advantage in these uncertain economic times.

For instance, 51% of companies use an intranet for the online publication of HR policies and processes, providing employees and managers alike with easier and more immediate access. And 46% have implemented entirely new HR systems.

As with transformation, we see the implementation and deployment of technology as a journey of continuous improvement. Companies have implemented technology to a greater or lesser extent depending on multiple factors, ranging from availability of resources to organisational appetite to business priorities. Some companies are focusing on “getting the basics” right – for example, by implementing HRIS or revamping intranet sites/HR portals or by seeking to expand existing functionality. In the next study we will seek to explore this continuum further and more closely examine where organisations fi nd themselves on this journey.

0

35%36%

51%

46% 46%

6%

Exhibit 10

Main technology initiatives in the previous three years

% r

esp

on

den

ts

10

20

30

40

50

60

Use o

f intra

net fo

r HR

policies

and p

roce

sses

21%

Use o

f intra

net fo

r HR tr

ansa

ctions

28%

Use o

f man

ager

self-

serv

ice

16%

Deplo

ymen

t of i

nterim

non-auto

mat

ed so

lutio

ns

13%

Knowledge m

anag

emen

t sys

tem

Use o

f cas

e man

agem

ent

tech

nologies

Implem

enta

tion o

f HR sy

stem

Use o

f em

ploye

e self

-serv

ice

HR porta

ls fo

r com

munica

tions

Deplo

ymen

t to sp

ecifi

c functi

onal

tools

(e.g

. rec

ruitm

ent),

which

are s

epar

ate

from

but i

ntegra

ted w

ith th

e core

HR sy

stem

13

HR technologies have been implemented with varying degrees of success. More than three-quarters of survey participants indicated that previous HR technology implementations did not entirely meet expectations. The main reasons cited for the lack of success in this area included:

■ Insuffi cient planning

■ Functionality not meeting expectations

■ Limited collaboration between IT and HR

■ Poor implementation

■ HR managers’ continuing involvement in transactional work

Too often, organisations overlook the functionality required of technology to match their vision. Technology is not a panacea, but a tool to deliver on business strategy. Successful selection of HR technology is achieved by appropriately scoping the functionality needed to optimise the HR service delivery model and by looking critically at the role technology can play in assisting HR with the fl awless delivery of operational activities (for example, through automation). This will help inform decisions on whether to use the functionality offered by core HR technology vendors or if best-of-breed systems are needed to support key people processes (such as talent management).

It is also crucial not to underestimate the change-management effort required to successfully deploy HR technology and shared services, for it has ramifi cations not only for how HR operates (for example, where resources are deployed to support administrative processing), but also for how employees and managers interact with the function via online “self-service”.

HR processes

Approximately one-third of respondents have completed major work on the redesign of their HR processes. Emerging from the recession, in 2010 the rate of completion doubled from 2006. More than half of respondents (52%) are currently in the midst of an HR process redesign or see it as a requirement for the next 12 months. HR process redesign is essential to continuous improvement and renewal of the HR function – rather than a one-off exercise. HR processes must be revised regularly, taking into account any changes to the operating model, and are subsequently an integral step to any HR transformation initiative.

HR capability

As HR looks to the future and considers how to change the business perception of HR’s value and its ability to infl uence the workforce, it forecasts a dramatic increase in capabilities required to achieve this goal. But rather than look externally for these capabilities, HR transformation plans are relying heavily on training existing HR staff, according to the survey responses. The top three plans to improve HR capabilities are:

■ On-the-job structured training for existing staff

■ Assessment of current HR staff skills to identify improvement opportunities

■ Face-to-face training for existing staff

14

Enhancing the HR role: barriers and opportunities

As all practitioners know, good people management can be achieved only through the presence of an effective HR function informed by high-quality inputs from operational line managers. Ultimately, the results show that the business perception of the value that HR can bring to the organisation is both a barrier and an opportunity to enhancing HR’s performance.

Leadership capabilities are often cited among the core issues relating to HR barriers and opportunities – survey respondents identifi ed the capability and skills/competencies of both line managers and HR as the two most critical barriers to success. Addressing these issues may prove a challenge in an age of organisation-wide cost constraints, limited resources and other day-to-day service delivery challenges, all of which restrict the time HR has to manage capabilities and undertake internally focused performance management.

In response to a similar question about the major barriers and opportunities for the function going forward, respondents also noted that the skills/competencies of HR staff are of chief importance, as is the business perception of the value HR can bring to the organisation. Technology investments and HR leadership are other major parts of the opportunities equation.

13%

36%

34%

13%

18%

12%

40%

Rotate line staff to HR roles 54%33%

Assess current HR staff skills toidentify improvement opportunities 19%45%

Face-to-face training for existing staff 14%52%

Rotate HR staff to line roles 50%38%

Use outsourcing/external suppliersto supplement internal capability 48%34%

56%32%Replace or augment

current staff with new hires

On-the-job structuredtraining for existing staff 18%43%

Exhibit 11

0 10 20 30 40 50 60 70 80 90 100

Moderate intent Major intent Little or no intent

0

Exhibit 12 Barriers

% r

esp

on

den

ts

10

20

30

40

35

25

15

5

40% 39%37%

31% 31%

19%17%

14% 14% 14%12% 11%

7% 6%

Skill

s/com

pete

ncie

s of H

R st

aff

Cost

cons

trai

nts

Attit

udes

of l

ine

man

agem

ent

Busin

ess l

eade

rshi

pTe

chno

logy

Unio

ns

Dive

rse

wor

kfor

ce

Regu

lato

ry co

nstr

aint

s

Natio

nal/c

ultu

ral d

iffer

ence

s

Avai

labi

lity

of so

lutio

ns

in lo

cal m

arke

t

HR fu

nctio

nal l

eade

rshi

p

Avai

labi

lity

of re

quire

d sk

ills

Repo

rtin

g st

ruct

ure/

HR

orga

nisa

tion

stru

ctur

e

Busin

ess p

erce

ptio

n of

valu

e w

hich

HR

can

brin

g

Capa

bilit

y of

line

man

ager

s in

man

agem

ent o

f the

ir pe

ople

4%

0

Exhibit 13

Opportunities

% r

esp

on

den

ts

10

20

30

40

50

47%

Skill

s/com

pete

ncie

s of H

R st

aff

44%

Busin

ess p

erce

ptio

n of

valu

e w

hich

HR

can

brin

g

32%

Tech

nolo

gy

32%

HR fu

nctio

nal l

eade

rshi

p

30%

Busin

ess l

eade

rshi

p

25%

Capa

bilit

y of

line

man

ager

s in

man

agem

ent o

f the

ir pe

ople

21%

Repo

rtin

g st

ruct

ure/

HR

orga

nisa

tion

stru

ctur

e

19%

Attit

udes

of l

ine

man

agem

ent

15%

Avai

labi

lity

of re

quire

d sk

ills

13%

Dive

rse

wor

kfor

ce

8%

Cost

cons

trai

nts

6%

Avai

labi

lity

of so

lutio

ns

in lo

cal m

arke

t

4%

Regu

lato

ry co

nstr

aint

s

3%

Natio

nal/c

ultu

ral d

iffer

ence

s

3%

Unio

ns

15

16

Next-generation HR: how the HR operating model needs to change

For HR to be successful in its transformation, the human capital and HR strategies need to be aligned with the overall business strategy. The strategy will need to encompass the following:

■ People strategy – How will the organisation manage and motivate a workforce that can execute the business strategy?

■ HR function strategy – How will the HR function support the people strategy, deliver expected value and contribute to the organisation in support of the business priorities?

– What HR programmes and initiatives (for example, talent management, rewards, learning and recruiting) are required?

■ HR operating model

– Sourcing – What activities will the function do itself versus outsource?

– Infrastructure – What internal capabilities are needed to fulfi l the HR function strategy?

– Governance – How will the function be led, and how will related investments be managed? How will success be measured?

The new model will require several key changes. First, HR will need fewer business partners playing different roles. Next, centres of expertise must shed transactional services to drive new thinking. And shared services and outsourcing will be key to achieving the strategic model. Ultimately, business success will depend on line managers, and HR will need a different set of skills and capabilities to ensure success as well.

Several key changes:

HR needs fewer business partners playing different roles

Centres of expertise must shed transactional services to drive new thinking

Shared services and outsourcing are key to achieving the strategic model

Business success depends on line managers

A different set of HR skills and capabilities is critical

Tier 0Tier 1Tier 2

HR casemanager

HR geographymanager

HR shared services

HRIS

HR business partners

HR leadership

People development

managers

Line managers

HR centre of expertise

17

Based on our survey fi ndings, we can conclude that, in the wake of the recession, the HR function needs to focus on both effi ciency and effectiveness in order to develop its maximum potential contribution.

HR operations must be as effi cient as possible in order to contribute to business results. While HR seeks to set the strategic tone for people management and shape business decisions, it can only do this effectively once operational aspects of delivery are in order. It can do this by:

■ Where possible, deploying homogeneous, measurable and predictable HR processes throughout the organisation that appropriately balance the workload and the responsibilities of all players

■ Maintaining a low “cost of ownership” of the necessary technology to reduce operative risk (including technical risk), increasing effi ciency and realising the benefi ts of past technology invest-ments. This is also a key factor in developing the business case for future technology investments.

Having a more effi cient management of day-to-day service delivery operations will free up HR’s time to focus on the more value-added activities that defi ne its strategic business contribution.

HR services, programmes and policies must be closely linked to the business strategy in order to be as effective as possible and develop a productive and engaged workforce. This will allow HR to:

■ Create programmes and policies that contribute directly to the business strategy, taking into account the diverse needs of various business units

■ Prioritise its efforts on deploying those services and programmes that provide the most impact and value to the organisation

Maximising HR’s potential as a strategic business partner

18

Mercer’s concept of HR transformation is that it is a never-ending journey that must be supported by a culture of continuous improvement and that sometimes needs new impulses in the form of transformation programmes – whether motivated by technological changes to give a major boost to effi ciency or motivated by the urgent requirement to handle more complex practices for people management.

Our main recommendation, in view of the data in this report, is for organisations to simply take the time to refl ect on two fundamental aspects of management of the HR function:

1. Assessing the contribution the function makes to the business, the effi ciency of operations and the effectiveness of HR programmes. This will allow practitioners to detect early on the eventual arrival of “burning platforms” that might impair HR’s strategic contribution.

2. Focusing on the development of internal capabilities that will enable the function to drive continuous improvement. This will allow the function to be appropriately equipped with the skills it needs to transform the HR function, at the required speed, and to provide a suitable response to changing business needs and thought leadership on HR service delivery.

Finally, we encourage organisations to refl ect on these items through the lens of the entire HR operating model, taking a holistic view to examine the following interconnected factors: sourc-ing of activities, infrastructure (including processes, technology, talent and organisation) and governance.

Creating a strategic partnership between HR and executive management is not an organic process; rather, it is the result of defi ned goals that refl ect HR’s awareness that the fi rst busi-ness of HR is the fulfi lment of the organisation’s business objectives.

The organisations that achieve successful HR transformation are those that have secured a commitment upfront to travel this new path.

For more information, please visit www.mercer.com/HRTransformationEMEA.

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Portugal

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Taiwan

Thailand

Turkey

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United Kingdom

United States

Venezuela

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