The benefits of best-in-class people management are indisputable, yet companies struggle to translate their ambitions for their HR practices into concrete actions.
For this year’s Creating People Advantage report, The Boston Consulting Group, in partnership with the European Association for People Management (EAPM), used an empirical approach to quantify the differences between companies with high capabilities in managing people and those with low capabilities.
In this way, we identified specific practices, in TEN Broad HR Topics, that can lift companies’ people management to a higher level. The report presents these specific practices in full detail, as well as some overall trends that we observed across most people-management areas.
First, companies must align their HR strategy with the overall company strategy along the complete HR value chain. Long-term strategic workforce planning, recruiting, performance management, and employee development require a holistic approach and systematic investments. The gears that drive HR activities need to mesh effectively.
Second, companies should break down the silos and ensure that business units and regions do not act on their own. Instead, they need clear governance and a structured HR model. Steering HR activities in a consistent manner across the complete organization calls for the proficient use of HR communications, including social media.
Furthermore, companies should continually monitor their HR activities and ground their decisions in objective data. They need to build predictive models on the basis of data that give an accurate picture of workforce supply & demand and that track HR KPIs. In this way, they can develop and channel their talent effectively and adjust their recruiting and training efforts to match business needs.
Root Causes of Success :
A key difference in this year’s report is that on the basis of empirical analyses, we sought to identify the root causes of people management success among highly capable companies across all ten of the survey’s HR topics. In this discussion, the topics are arranged by order of the identified need to act.
Within each topic, we asked survey respondents who reported very high or very low current capabilities for their company—which also correlated with a high versus low return on effort invested—to provide more specific answers about sub-components of that topic. (For details about the methodology) The results—shown graphically for each topic in the following section—establish a clear demarcation between highly capable and low-capability companies and highlight the activities that most clearly differentiate these groups. These activities represent the most effective drivers of success: the processes and functions that HR leaders should focus on to trigger meaningful improvements in people management performance and to increase their return on efforts invested. Exhibit 4, gives an overview of the most promising drivers of high capability in each of the examined sections.
For each of the TEN HR and people-management topics, we provide detailed descriptions of the key differentiators between highly capable and low-capability companies.
Talent Management and Leadership :
Talent management and leadership activities are used to identify highly capable employees and develop them for more senior positions of greater responsibility. It is a key means by which companies improve retention and fill their leadership pipeline. This topic showed the highest need to act and also the lowest return on effort invested. In our examination of highly capable companies, we identified the actions that companies should take in order to increase their capabilities and the return on effort invested in this area. (See Exhibit 5.)
Break down the silos. When asked whether their talent-identification processes were transparent, efficient, and enterprise-wide, respondents of highly capable companies showed an average degree of agreement of 74 percent, compared with just 23 percent among low-capability companies.1 Highly capable companies succeed in breaking down the silos of business units and locations, thereby enriching their talent and leadership pipelines. In this way, talented employees are not proprietary assets for individual managers; rather, these employees support the organization as a whole. In addition, everyone should have a fair shot at rising to leadership roles, and the evaluation and decision processes should be perceived as transparent and unbiased.
Plan your talent for the long term and invest. About 60 to 80 percent of a company’s leaders are typically promoted from within, and, in general, it takes 10 to 12 years for talent to rise to top-leadership positions. Because of this long development process, it is key to strategically plan talent and leadership needs on a long-term basis instead of simply reacting to ad hoc short-term trends. Highly capable companies have predictive models in place for planning for their talent needs at least five years into the future—by business unit, expertise, and location. This allows them to manage their talent proactively and, for example, to modulate the career pace of certain employees to prevent temporary oversupplies or talent gaps. Société Générale’s approach makes clear that planning for the long term also implies maintaining talent development programs in times of crisis.
Make talent, not war. Best-practice companies analyze the experiences that a future leader requires in order to succeed, and they systematically develop their talent by offering the right trainings, opportunities, and programs. By motivating talented employees to migrate to strategic, high-growth zones (for example, through rotation and international-mobility programs), companies can proactively develop their talent according to their needs instead of being forced to buy talent.
Walk the talk through consistent leadership criteria. Highly capable companies have clearly defined leadership criteria that pervade the HR value chain. By systematically applying their leadership criteria in all selection, promotion, and reward processes, these companies give transparent guidance to their employees and make sure that the talent that best fits the company’s strategy makes it to the top.
HR Analytics: Strategic Workforce Planning and Reporting :
We define HR analytics as those activities that companies use to forecast workforce supply and demand and to track and report HR and workforce KPIs. Implicit in this activity is the analysis of data to make predictions, as well as the monitoring and improving of HR and people management processes.
This topic showed the second-most-urgent need to act, as well as a low return on effort invested. In digging deeper into the results, we identified the key actions that companies should take in order to increase their capabilities in HR analytics.
Engagement, Behavior, and Culture Management :
Engagement, behavior, and culture management includes the degree to which the organization can establish company-specific norms and behaviors for employees, engage and retain them, and give them the sense that they are contributing to something meaningful.
With high ratings of future importance and only moderate current capabilities, this topic also shows a high need to act. We identified several key activities for companies that want to improve their capabilities in engagement, behavior, and culture management and to increase their return on effort invested.
Be proactive in shaping your culture. Best-in-class companies realize that the right corporate culture does not simply grow organically. Instead of waiting to see whether employees’ behaviors might destroy value, they invest significantly in developing their culture. Although many leaders think that shaping the culture is mainly a communication effort, success requires actively changing the environment in order to embed cultural shifts and make behaviors stick. In many cases, this is a big investment and can mean transforming processes that have a strong impact on the company’s culture, such as budgetary oversight and control, strategic planning, capital expenditure controls, and performance and career management. And generally, it is the leaders themselves who must change their behavior. For example, a leader who wants to foster an entrepreneurial culture must not micromanage his employees.
Measure how much value your culture is creating. Highly capable companies have measurement tools in place that gauge the impact of culture initiatives and their influence on employee behavior. Leaders should implement systematic and recurring surveys with a very long reach (such as engagement and culture surveys) to assess how changes to the culture affect the bottom line and to identify negative trends. With the emergence of Web-based surveys, it is much easier to do this today than it was in the past.
Use a clearly defined management cascade. Best-in-class companies use a management cascade process to improve engagement and steer their culture in the desired direction. Although senior managers need to be on-board and supportive of culture initiatives, they are too far removed from front-line workers to succeed in delineating specific steps. It is crucial that management use the right mix of communications channels, which should include leader-led face-to-face discussions through organized management cascades (extending down at least four or five management levels). Furthermore, when they undergo cultural-change processes, many successful companies use a co-design, or “middle out,” approach to make sure that middle managers really care about the organization rather than that they are simply conveying the change. The middle managers can also adapt initiatives to local peculiarities.
Performance Management and Rewards :
Performance management and rewards includes the assessment of how employees work, along with the effectiveness of incentives to improve performance. This involves activities such as monitoring employees’ performance, providing constructive and timely feedback, and using a compensation model that links rewards to key behaviors that the company seeks to foster.
Although this topic received high ratings of future importance, the return on effort invested is very low. We identified the key aspects that companies should focus on in order to advance from good to great performance management.
Look beyond financial performance. Our results show that competitive monetary and non-monetary offers have relatively little effect in differentiating highly capable and low-capability companies. This result is in line with earlier BCG findings showing that employees generally look far beyond a mere compensation package and benefits. In our experience, employees are willing to forego a significant component of their salary if other aspects of the work experience are positive. Besides money and benefits, the “total offer” is being assessed according to the work environment, the job’s development opportunities, and the employer’s reputation.
HR Communications and Social Media :
HR communications and social media includes activities aimed at consuming, sharing, and creating information and knowledge from within the HR department. Implicit in this category is the use of different communication channels, including digital media.
On average, companies’ current capabilities in HR communications and social media were lower than for any of the other HR areas we analyzed. As Exhibit 9 shows, highly capable companies in this area focus on several activities. With the increase in digitalization and the entry of Generation Y into the job market, these activities should be high priorities for companies—especially as our analysis of return on effort invested shows that such investments seem to pay off.
Training and People Development :
The training and people development topic includes all activities aimed at helping employees improve their performance and learn new skills that will prepare them for new roles within the company. This area comprises a broad range of programs, such as formal classroom training, job rotations, and tuition reimbursement for self-directed learning.
Companies devote the most effort to training and people development, and this area shows the highest average capabilities. With the third-lowest return on effort among all ten HR topics, however, there is a lot of room for improvement,
Use training as a way of engaging employees in the company’s strategic agenda.Highly capable companies use learning and development activities to generate strategic insights. Some companies have approached the challenge by forming corporate universities. While in the past, corporate universities were used primarily to deliver specific training to employees, many today serve as strategy platforms and actively support the development and execution of the company’s strategy.
Diversity and Generation Management :
Diversity and generation management includes managing employee differences in gender and age as well as, for example, social, cultural, and religious disparities. Globalization and demographic shifts have increased the relevance of this topic in HR, and that trend is likely to continue for the foreseeable future.
The surprisingly low rating of the future importance of diversity and generation management—in fact the lowest of all ten HR topics—shows that many companies do not grasp a core aspect of diversity. Such measures are not about being “nice” or complying with regulations. Instead, they are tools for generating better business results and will be even more important as the workforce ages and Europe’s talent supply decreases. The high return on invested effort that we identified in our analysis should motivate companies to intensify their comparatively weak efforts.
Tap the senior talent pool. Best-in-class companies do not just attract and develop young talent: they also systematically invest in building senior employees’ capabilities. The extremely high rate of early retirement in Europe—in some countries more than one out of two employees retire before the statutory age—shows that most companies are neglecting the potentially high value of senior employees. Because they have critical expertise, they are a valuable resource. This is especially important given current demographic shifts: people are living longer, and the talent shortage is growing. Companies that foster lifelong learning and take steps to attract, develop, and motivate senior talent will turn this demographic change into a competitive advantage.
Recruiting: Branding, Hiring, and Onboarding:
Recruiting includes the complete process of people sourcing—from employer branding to recruiting strategy, recruiting process, onboarding, and retention. As our results show, on average, companies rate their capability comparatively high in recruiting.
Labor Costs, Flexibility, and Restructuring :
Labor costs, flexibility, and restructuring includes the company’s ability to react to a changing business environment. Our results indicate that companies do not see a high need to act on their capabilities in labor costs, flexibility, and restructuring. However, given heightened economic volatility, organizations often have to scale up and down in dramatic fashion, adapting the workforce size and capability set much more rapidly than in the past.