Aligned at the Top

How business and HR executives view today’s most significant people challenges—and what they’re doing about it.

Geert VercaerenDirector Human CapitalDeloitte Consulting

- 2 -- 2 -

About the survey

“Aligned at the Top” is a global survey of business, people, and HR issues, trends and challenges

Objective was to understand the connect or disconnect between senior business executives and HR leaders on the people and HR agenda

Conducted by Deloitte Touche Tohmatsu and the Economist Intelligence Unit

Since the first survey in 2002:

– People and HR issues have continued to rise on the business agenda

– HR functions have made significant strides to improve their efficiency and service delivery

Yet key questions remain:

– What are the people issues that keep executives awake at night?

– How are these issues being addressed, and what is HR’s role?

- 3 -- 3 -

Methodology

Global survey of 531 HR and non-HR executives representing 468 companies

Written survey responses: 481

Personal interviews: 50

HR leaders and senior business executives: 259

– Responses from HR leaders: 40%

Companies of every size, from every major region and industry

- 4 -- 4 -

Agenda

About the survey

People at the top put peopleat the top

People challenges that keepexecutives awake at night

Rising to the challenge

- 5 -- 5 -

People are critical to performance

Senior business executives and HR leaders agree that people are vital to all aspects of performance

More than 85% of all participants consider people “vital” to every aspect of their organization’s performance

- 6 -- 6 -

Agenda

About the survey

People at the top put peopleat the top

People challenges that keepexecutives awake at night

Rising to the challenge

- 7 -- 7 -

People issues are increasingly strategic

Both senior business executives and HR leaders view people issues as becoming more and more strategic

Today

– More than 60% of senior business executives already consider people issues “very significant” or “highly significant” to strategic decision-making

– 50% of HR leaders agree

In the future

– 90% of senior business executives believe people issues will be “very significant” or “highly significant” to strategic decision-making in three to five years

– 86% of HR leaders agree

- 8 -- 8 -

The key people challenges are clear…

HR leaders and senior business executives agree the most critical people issues are:

– Leadership development and pipeline

– Talent management

– Creating a high-performance culture

– Training and development

- 9 -- 9 -

. . . but HR’s role is still being defined

“People” and “HR” are often treated as separate conversations

– People issues are considered “strategic”

– HR issues are perceived as “administrative”

When senior business executives talk about strategic people issues, the HR function is rarely even mentioned. But to achieve desired results, HR leaders and senior business executives must work side-by-side, forming a new collaboration to tackle the company’s most pressing people issues.

People Issues (Strategic)

Examples:

• Leadership development and pipeline

• Talent management

• Creating a high-performance culture

• Training and development

HR Issues (Administrative)

Examples:

• Compensation and benefits

• Performance evaluations

• HR operating efficiency

- 10 -- 10 -

Regional variations

Issue Similarities Differences

Importance of people People are “vital” or “extremely vital”

People issues will be increasingly important

North America rates people issues highest

HR effectiveness HR considered “moderately effective” North America rates HR highest

Western European rates HR lowest

Sources of talent Top source of talent is development of existing personnel

Asia Pacific shows the strongest interest in overseas recruitment

In North America and Western Europe, demand for overseas recruitment is small, but rising quickly

Role of HR HR increasingly viewed as a strategic value-adding function

HR activities most commonly outsourced:

– Asia Pacific: training

– Western Europe: payroll

– North America: benefits administration

Survey results were very consistent across all three regions, with a few minor exceptions

- 11 -- 11 -

Industry variations

Industry Typical challenges Typical responses

Retail Hiring large numbers of entry-level sales associates

Rapid turnover

Need for quality service at low cost

Additional training for store managers

Minimal training for low-level staff

Banking HR considered “moderately effective” Additional training for low-level staff

General training about the banking business

Energy Ageing workforce

Tarnished public image

Increased recruiting investments

Every industry faces a talent shortage

Specific challenges — and responses — vary by industry

Examples:

- 12 -- 12 -

Agenda

About the survey

People at the top put peopleat the top

People challenges that keepexecutives awake at night

Rising to the challenge

- 13 -- 13 -

Top people issues

How can HR leaders and senior business executives work together to address a company’s strategic people issues?

Leadership development and pipeline

Talent management

Creating a high-performance culture

Training and development

- 14 -- 14 -

People challenge #1: Leadership development and pipeline

Rated as the top people issue

Grooming the next generation of leaders is every leader’s responsibility

Leading companies are pushing advanced leadership training down to middle management– Provides a steady pipeline of leadership candidates

– Helps develop skills and capabilities consistent with the company’s strategic direction

– Shows talented people they are valued

Keys to results– Collaborate with business schools and other third

parties to develop and deliver the training

– Have senior executives help develop and deliver the training

“It’s the responsibility of managers throughout the

company to identify leaders and develop them.

Every manager needs to be able to point to two or

three people underneath him or her who have the

potential to move up, and then provide experiences

that makes that possible.”

— Director of HR at a mid-size technology company

- 15 -- 15 -

People challenge #2: Talent management

Two-thirds of senior business executives consider “skills gaps” one of their most significant workforce challenges

Chronic talent shortage beingdriven by:– Baby Boomer retirements

– Declining birth rates

– Shifting educational patterns

Requires a comprehensive and balanced approach to talent management

Keys to results– Align with business strategy

– Don’t rely solely on financial incentives

– Focus on critical workforce segments

– Create an inventory of skills

– Collaborate with universities

– Use offshore talent

- 16 -- 16 -

People challenge #3: Creating a high-performance culture

Corporate culture and employee behaviour have a significant impact on performance

More than 60% of all respondents said the CEO is most responsible for influencing culture and values

Culture and behaviour are also driven by critical workforce segments and key events

Keys to results– Target critical events

– Target critical workforce segments

– Use HR practices to shape culture and values• performance evaluations• compensation structures • improved communication and coordination

– Link behaviour to strategy

“It’s not just building a high-performance organisation,

it’s about how you build passion. How do you engage

people and have them bring more than just their basic

competence, which is just enough to collect a pay

check?”

— CEO at a privately held manufacturer in the United States

- 17 -- 17 -

People challenge #4: Training and development

Executives view “development and training of existing personnel” as their most valuable source of talent

Leading companies are focusing more effort on training and development

– Improves employee productivity, loyalty,and performance

– Provides the critical skills that companies need

– Is one of the few competitive factors a company can control

Keys to results– Tailor development programs to individual needs and

interests

– Make training part of everyday operations

– Continuously reinforce the training

- 18 -- 18 -

Agenda

About the survey

People at the top put peopleat the top

People challenges that keepexecutives awake at night

Rising to the challenge

- 19 -- 19 -

The gap between HR capabilities and business needs

Senior business executives wantHR to be more effective

– Only 4% describe HR as highly effective in addressing the needs of the business

– 60% described HR as only moderately effective

- 20 -- 20 -

Getting strategic about people

HR is often out of the loop on strategic issues– Percentage of companies that “rarely” or “never”

consult their senior HR team on key business issues• Mergers and acquisitions (63%)• Compliance and regulation (26%)• Talent (25%)

Only 14% of HR leaders believe HR is currently perceived as a strategic, value-adding function– At large companies, the figure is even lower (less

than 10%)

– However, 40% expect perceptions to improve in three to five years

Senior business executives have high expectations– 95% expect HR to be perceived as a strategic, value-

adding function within the next three to five years

What is HR doing to close the gap?

And will HR’s efforts go fast enough — or far

enough — to satisfy the company’s needs?

- 21 -- 21 -

HR must continue to improve and streamline its operations . . .

HR outsourcing on the rise

– 29% of all respondents already outsource recruitment, training, and payroll

– Another 18% expect to outsource these and other HR activities in the next three to five years

Other ongoing improvements– Shared services centers– Centers of excellence– Self-service– Offshoring

Potential Benefits– Reduce HR costs– Improve efficiency

– Enable HR to focus on strategic business issues

“Administrative processes have been outsourced to the fullest extent possible. Now you might believe we were treating HR as an afterthought and you’d be right. But the way it’s turning out, that’s really a world-class approach. We’re not in business to administer HR.”

— VP of finance and business development at a small, privately held bio-tech company

- 22 -- 22 -

. . . while building new skills and capabilities . . .

CHROs needed

– Companies need HR staff who can think and act like a CHRO — at every level of the company

HR staff must be business people, not just administrators– Deep understanding of the business

– Hands-on experience

– Ability to work closely with business leadersto address complex problems

Improvement begins at the top– 52% of all respondents do not have a Chief

Human Resources Officer (CHRO), Chief People Officer (CPO), orother C-level executive who is dedicated to people issues

– 68% expect to have such a position within the next three to five years

“HR people have to understand the business first. Career HR managers are useless except in a purely administrative sense. To be a CHRO, you have to be a business person first, and then an HR executive second. You absolutely have to know how HR fits into the business, and you can’t know that unless you know the business.”

— CHRO at a global power development company

- 23 -- 23 -

. . . and measuring results in business terms

What you measure says a lot about what you value

Old HR metrics (administrative focus)

– Total payroll

– Total compensation

– Training costs

New HR metrics (business focus)

– Time spent on managing people issues

– Time to efficiency for new managers and employees

Potential Benefits

– Improve HR’s business focus and impact

– Help HR shed its “touchy-feely” image

- 24 -- 24 -

Thank You