The Current State of Ill Preparedness in HR

We have all experienced irrational thinking and are all guilty of doing it from time to time, but as we prepare to move into a new year there is no greater threat facing global companies than irrational thinking in the HR function.  Like many of you, we tend to contemplate about all that has happened this past year as the New Year dawns.  In looking back, one thing was glaringly obvious…more companies than ever before realized just how ill-prepared they are for the emerging labor climate.  All throughout 2008 stories emerged from iconic organizations detailing just how out of touch they had become.  Oddly enough, many of the organizations making startling realizations were organizations that had been recognized as best practice firms in recent years.  To help illustrate the drastic position many organizations are in, consider these three examples:

Example One

This global manufacturer of consumer goods counts among its assets one of the most recognized brands in the world.  They operate in more countries than many US high school graduates even know exist.  For decades they have been recognized as a leader in innovation and as a company that invests in its people.  More than 90% of all managerial positions are occupied by someone who was developed internally.  Like many global manufacturers they have tightly managed supply chains, six sigma quality control processes, and produce a massive stable of products as efficiently or better than any competitor.  As you might imagine, profits are stellar as is stock performance.

While all seems great, beneath the surface of the organization lies a minefield of workforce issues that have been brewing for nearly a decade that nobody noticed or paid attention too.  Average tenure is 26 years, 41% of all managers in the US are already eligible for retirement, 64% of the total workforce will be eligible for retirement in 2010, voluntary turnover has been creeping up for years and is approaching 10%, the organization suspended college hiring between 2001 and 2005 due to a weak economy following 9/11 and as a result has a huge hole in their entry and mid level management succession plan, and recent attempts to hire have generated feedback by candidates that the company is dated, closed minded about change, overly restrictive and boring!  Less than 1:7 offers for professional, engineering, and scientific roles is accepted.

The organizational structure of this organization is highly decentralized and has been for decades.  Each division runs their own recruiting function and little coordination or infrastructure is provided from corporate.  Except for analytics produced via audit, there are no metrics to speak of.  Contract recruiters employed by different divisions’ trip over one another contacting candidates multiple times for competing jobs.  Each division operates its own recruiting process and procures its own technology.  Movement from one division to another is rare and requires employees to apply just as any stranger of the street would. 

Looking forward, this organization will need to hire 9,000+ functional professionals, scientists, and engineers in 2009 just to maintain the size of the organization let alone fuel growth initiatives which are robust.  If 2008 spending on staffing across all divisions were to remain flat, each of those 9,000 hires would need to be brought into the organization via a process and channel that cost less than $148/hire.

Example Two

This privately held company is one of the world’s largest producers of frozen, canned, and dried food products.  Like many packaged food companies they have seen consistent revenue growth year after year as more and more consumers migrate to packaged foods versus fresh and the population has grown.  During the strategic planning and budgeting processes completed earlier this fall the executive committee announced that funding for the HR function would be maintained despite a deteriorating economic climate.  The funding would be maintained due to growth initiatives that would grow headcount by nearly 30%.  As hiring in other corporate functions would be limited to conserve resources, the VP-of-HR proposed no other changes to the budget, assuming that the growth hiring could be accommodated by repositioning existing resources which had always proved successful in the past.  The budgets were finalized and all in HR were happy that no layoffs would take place.

A month later as executives pushed forward planning processes to execute growth plans, several business unit leaders began to question whether or not the organizations existing approach to recruiting and development would be able to produce the volume of talent needed on the timeline proposed.  When questions were brought to the attention of HR, a response was quickly generated that indicated the function had always performed to expectations, and that the recruiting process in place was similar to that of other competing organizations.  Not happy with the response, the Vice President of Sales began working with the recruiter that managed his requisitions to “flow model” the capability and capacity of the recruiting function.  Using historical data and data gathered from an audit process, it was revealed that if the current hiring model and resources allocated remained unchanged, the organization would only be able to generate one third the new hires needed when needed, and that growth plans would be severely impacted.

Example Three

Chances are that nearly every home in America and a growing percentage of homes around the world have at least one electrical appliance manufactured by this global company under their roof.  For more than 100 years they have been innovating products that have championed significant changes in how people live, work, and play.  Earlier this year the executive committee met to discuss achievements related to the strategic plan as they do each quarter.  While informal, every executive takes the hot seat to present their accomplishments and bring up issues that cross functional line.  The HR scorecard looked great; all metrics were trending above target.  However, a single question raised by the CEO derailed the entire session.  If all was so good why did more than 70% of the leaders in the room not have a viable successor in waiting, and why had several growth initiatives been postponed because talent was not available to lead the efforts?

The question was powerful and telling.  This organization, like many had gotten trapped in a loop of continuous improvement, making processes that were effective last year just a little bit better this year.  Because nearly every process measure was trending up, things looked really good on paper.  Unfortunately, the entire function was essentially following a mapped course to an old destination. 

One of the most startling changes that impacted the organization that had not been factored into the HR infrastructure was the contraction of the product life cycle.  Historically this company had developed talent from within, hiring throngs of entry level talent that could be molded by successive jobs to produce talent with broad knowledge of the organization and its internal processes.  Up until the late 1990’s the company had operated with an average product lifecycle of nearly 12 years, which allowed plenty of time for employees to master several jobs within a single products lifecycle.  However, as consumer demand around the world ramped up and new competitors popped up, the demand for innovation increased and the product lifecycle shrunk from 12 years to just four years.  The pace of organizational growth and innovation far outpaced the ability of the organization to adequately develop and promote talent within to fill all vacant roles.  As a result, more and more people were being promoted before they were ready, external hires were coming in that failed on the job because they came from outside, and product quality rates were dropping.

Each of these three examples may seem extreme, but based on our experience the issues identified here are relatively common.  The situations arise because years of irrational thinking have gone unchecked.  Some of the most common drivers of irrational thinking in HR and elsewhere include:

  • Nostalgia – People often take significant pride in programs and practices they devised long after said programs or practices proved useful. 
  • Concept popularity – It seems that a bad idea embraced by many isn’t really a bad idea.
  • Gut feeling – Often nothing more than personal biases manifesting themselves in non verbal ways.
  • Research taken out of context – It worked there so it must be good for here or when asked this is what people said they would do.
  • Coincidence – Assuming that because the desired outcome occurred following implementation of a new program or practice that the program or practice was the cause.  This fallacy is so common it even has its own name, “Post hoc, ergo propter hoc” (After this, therefore because of this).

Moving Forward, No Reprieve

Despite night after night of negative economic news around the world, the vast majority of global companies (70% according to the most recent Gallup research) were actively trying to maintain or grow their workforce in December.    Another study from Duke University and CFO Magazine reported that more than 60% of CFOs expect that the US economy will rebound by mid-2009 and as a result are holding off on large scale reductions in force and hiring freezes, opting instead to fund recruiting top talent in key jobs while executing smaller, more strategic cuts throughout the year.  The Duke study reveals that overall CFOs are planning to reduce funding for US workforces by just 1.6% in 2009.  If the CFOs are good at predicting, the net loss of jobs will be dwarfed by aging workforce issues that could see some organizations loosing up to 23% of their current workforce to age related attrition according to the AARP. 

It seems that in nearly every geography there are jobs to be had; unfortunately they are jobs that the vast majority of the unemployed are incapable of filling.  Despite burgeoning unemployment, demand for top talent in skilled and professional roles is as tough as ever.  Global growth (China’s economy while slowed by the economic downturn in the US will continue to expand at double digit rates) combined with profound labor force demographic changes impacting more than 85% of the developed world are keeping competition for top talent fierce.   While recruiters understand the challenge of recruiting today, and senior leaders understand the demand for continued investment, the vast majority of HR leaders appear to be doing business as usual.  Studies in the US, Australia, New Zealand and the EU all demonstrate high level awareness of demographic issues, but low level awareness of organization specific impact. Global software maker SAP estimates that only 18% of their customers have analyzed the likely impact of the aging workforce on their organization and developed a strategy to mitigate labor shortage risks. 

Are You Prepared?

Are you in an organization like one of the three mentioned above, or do you have evidence based evaluation processes in place to make sure your HR initiatives are helping move the organization in the right direction?  The near future requires robust and prescriptive action that cannot be influenced by irrational thinking.  Do your measures reflect reality, or rather the perception you want others to have regarding your efforts?  Are you comfortable standing up and saying the ship is already taking on water and a change in course is needed?  These are the kind of questions VP’s need to be asking right now.  For every major strategic initiative, as well as all core deliverables, you should have objective evaluation processes in place that prove beyond a shadow of a doubt that your efforts are effective.  (Efficiently producing the wrong results is not and should not ever be the goal!)

Three Things You Should Be Doing

While every organization has different strategic priorities and will undoubtedly work to achieve them in differing ways, there are three things that every world-class HR organization should be doing, including:

1.     Prioritizing mission critical and key jobs.  For far too long HR professionals have equated the terms equitable and equal.  All jobs do not impact the organization the same when performed well, below average, or left vacant.  To employ broad sweeping programs and practices that treat all jobs the same is ridiculous.  While politically difficult, organizations must find a practical and accepted way to define mission critical and key jobs, and then to prioritize HR deliverables towards those roles and the talent that occupy them.  When done well, most organization find that mission critical jobs make up less than 1.5-3% of the workforce and that key jobs comprise another 9-12%.  Once identified, it’s a lot easier to deliver world-class service and demonstrate a profound impact on the business.

2.     Macro level workforce planning.  Too many organizations that have tried to implement workforce planning programs have gotten bogged down in the complexities that arise when the focus is too granular, i.e. every role, every employee.  Granular workforce planning produces too much data and makes it easy to get lost in the statistics.  Workforce planning programs should be actionable in nature, they should help answer several high level questions that establish whether or not the workforce in moving in the right direction to support the future needs of the organization and at the right pace. 

3.     Leveraging robust analytics and process yield modeling approaches to prove impact.  With mission critical and key roles identified and macro level workforce planning initiatives in place, the next practice firms must focus on is yield modeling transformative processes such as development efforts and staffing programs.  Any process or program that is employed to help move the organization from Point A to Point B must be evaluated to determine:

a.       Is it effective?

b.      What is the maximum capacity or volume of change it can produce per period of time

Many organizations have lots of metrics, they just don’t tell you anything!  When managers ask what it will take the organization to get to the next level, HR professionals need to be able to respond with precise plans that include cost, timeline, and resources needed.

Final Thoughts

While the US is currently in the midst of a recession, now is not the time to sit back and focus on just maintaining the status quo.  A perfect storm of environmental factors is lining up to make the next ten years very difficult with regards to recruiting and retention of top talent, not just in the US, but around the world.  How organizations act know will determine how well they fare the storm.

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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