Challenges currently facing European personnel/human resources managers were at the core of a combined Chartered Institute of Personnel and Development (CIPD) and European Association for Personnel Management (EAPM) conference, held in Ireland in May 2005. Under the theme 'European workplace of the future - flexible and competitive', attendees at the three-day event heard that human resources can make a real strategic contribution to organisational performance.
The Chartered Institute of Personnel and Development (CIPD) / European Association for Personnel Management (EAPM) held a joint conference, entitled 'European workplace of the future - flexible and competitive', in Dublin on 11-13 May 2005. Ireland was chosen as the location for the event because of its unique position between the USA and Europe, according to the CIPD Ireland director, Michael McDonnell. He said that Ireland is one of the few places where it can be demonstrated that managing people and human resources (HR) can have strategic advantages, 'therefore people are interested in how we approach HRM [human resources management] in Ireland and achieving the sort of economic growth we have without too much adversarial industrial relations'. Indeed the strategic role of HR and its standing in the management hierarchy generally was at the root of many of the presentations. HR has been said to have an 'inferiority complex' and many speakers addressed this concern both directly and indirectly, with others highlighting a growing need for measuring HR performance.
Lisbon blueprint challenged
Les Hayman of SAP Human Resources challenged the European Union's Lisbon strategy, launched in 2000 (EU0004241F), which is aimed at making the EU 'the most dynamic and competitive knowledge-based economy in the world' by 2010. 'We are now halfway to this and we are almost nowhere. The conditions for European business have become less competitive,' stated Mr Hayman. As a result, he said, major European companies are coming together to drive change. SAP and the Economist Intelligence Unit have conducted a survey of 4,500 chief executives, coming up with five key findings:
- over the next few years consolidation will continue - resulting in fewer larger 'players';
- companies will need to be more flexible and agile - both of which are 'cultural issues' for HR;
- innovation and customer retention pressures will speed up. HR managers have traditionally believed that this area has nothing to do with them, it is claimed, but they are wrong;
- there may be less of an emphasis on elements of technology and more focus on cost-cutting and getting value; and
- a 'war for talent' will heat up, especially as there will be fewer larger companies, making finding and retaining talent more difficult.
Mr Hayman stated that when he was a chief executive he did not have high expectations of HR and he was not disappointed. HR professionals did not expect to play a part in strategic decision-making, but this had since changed. Companies have focused on cutting costs, with chief executives coming under pressure to release money for investment. Another critical issue for HR, according to Mr Hayman, is that it needs to shift from a 'run the company' function to a 'change the company' one. The transition HR needs to make is a four-staged one, he argued, expressed simply as 'from polite to police to partner to player'. However, some areas are best left alone, he said - for example, finance departments should be left to police employee expenses, as that is their area. Mr Hayman stated that unless strategy is tied into culture, then it is impossible to execute the strategy successfully. HR managers must also show that their function has a measurable value, like any other function. For example, the proportion of promotions come from within the organisation is an indication of good HR.
War for talent
On the so-called 'war for talent', Mr Hayman stated the SAP view that 'people who join your company should leave as managers'. What Europe could learn from the USA is a need to build a culture of management as a profession, not as some add-on to another function, he argued. Innovation, Mr Hayman believes, is not based largely on brilliance, but on culture. While training employees is important, accounting for 10% of what is needed, and 'mentoring' is also significant (at 20%), most of the emphasis (70%) should be on giving people challenges on the job. Hard, focused work is the real basis of innovation, he argued, and it is not just a question of genius. There is, Mr Hayman states, a growing understanding among chief executives and company boards of the role of HR - as well as pressure from analysts to measure 'human capital': 'Investors need to know if the company is growing human as well as financial capital. Within five years, we will see a unified standardised form of measuring human capital in the same way that today we measure financial capital.'.
Costing human resources
'How many people work in organisations where the CEO views people as assets?' asked guest speaker Andrew Mayo, director of Mayo Learning International and the author of several books dealing with the connection between employees and overall business performance. In his view, 'we know all the costs of our 'human resources', but we don’t know how to balance the costs with a quantitative measure of their value'. With this in mind, he referred to a famous quotation from Albert Einstein: 'What counts can often be counted - and what can be counted often does not count.' Finance departments came in for some pointed criticism: 'Financial controllers and accountants will look at you with goggle eyes when you ask about intangible assets. However, employees are not simple 'headcount' costs walking around on legs. We won’t solve the problems in organisations by thinking like accountants.'
What is required, Mr Mayo asserted, are 'regular human capital statements alongside our financial statements'. To date, there has been 'movement in this direction in Britain and especially, in Denmark, the country that is most advanced when it comes to getting people on the map'. However, much work needs to be done: 'Most organisations have some bits and pieces of measures. They often lack any length of time for evaluating trends, they are usually stand alone and unconnected, and it is rare indeed for people to tackle the question of valuation of their human capital.' Mr Mayo said that managers should be asking the question: 'How do we maximise the value of the people available to us? And by this is meant, not just people on the payroll. Human capital includes subcontractors, consultants.'
Mr Mayo stated that each firm should, for example, compile an 'index of personal value' and a 'human asset register'. Such an index could be made up of four key components: performance and potential; leadership and values; business knowledge and experience; and mobility (in the sense of willingness to go anywhere for the organisation). Each of these factors is given an overall weighting and the employee is marked on each one. The assessment figure is multiplied by the weighting - for example, under the heading of 'performance and potential', a performance rating of 7 x 0.35, the weighting, to produce a 'contribution' outcome - 0.245, in this case. This is added to the measured contribution under the other three headings: for example, an employee may be given an assessment of 8 under the 'business knowledge & experience' heading. This is then multiplied by the weighting, 0.2, for example, to produce a 'contribution' of 0.160.
Such measures can serve as guideposts rather than as absolutely reliable indicators, Mr Mayo said, but 'you cannot measure people without a valuation system.'. He went on to identify four keys to maximising 'human asset value': acquisition of new people; retention; growth of one’s people; and the 'exiting' of people who are a 'liability'. 'The loss of a high-value person is as worrying as losing a big contract,' he argued. In this regard, the concept of 'employee engagement' was examined. The 'engaged employee' is see as someone willing to 'apply discretionary effort', that is, he or she 'cares so much about their job that they do more than is contractually required of them'. However, all too often, companies go about surveying their workforce in the wrong way, Mr Mayo argued: 'Too many irrelevant questions are asked. There is too much focus on enterprise-wide matters. Employees are worried about what is happening in their factory, office, or branch.'
Battling the finance department
Another speaker to focus on problems of results measurement and the sometimes fraught relationship between the finance and HR departments in organisations was Tony Hope, a professor at HEC France. According to Professor Hope, formerly Professor at the University of Manchester and the Insead Business School, 'HR and finance need to understand each other more'. A vital question to ask of one’s organisation is: 'Do HR, finance and marketing talk to each other?' He cited the example of Sears Corporation, a leading US retailer whose remarkable turnaround was said to be built around improvements in the 'economic literacy of employees'. The Sears recovery was built around the idea of 'customer intimacy' and the role of employees in delivering this. The company HR department was closely involved in the development of a vision for the group. Professor Hope also alluded to the concept of employee engagement and to studies indicating a link between engagement and financial performance. He said that the question found to have the greatest 'predictive power' in establishing this link is as follows: 'Do you have a best friend at work?' The key questions that top managers should be asking themselves are as follows: 'Is the company a product leader? Is it customer intimate? Is it operationally excellent - the last is less defining than it once was as all companies, these days, are expected to excel operationally.'
Role of HR in change
The role of HR in large-scale organisational change was addressed in a joint session by Dr Richard Whittington of Oxford University and Dr Joe McDonagh of Trinity College. Their findings were based on a survey of a total of 594 usable responses from chief executives, HR directors and other senior managers in the private and public sectors. In addition there were case studies based on 120 interviews in a variety of companies, such as Cadbury Schweppes, Lever Faberge, Marks & Spencer, Nationwide and Lewisham Borough Council. Dr Whittington identified seven steps to achieve better organisational change, which affects HR directors at least every five years. The factors found to distinguish successful from unsuccessful reorganisations were based on these seven steps. Unsuccessful change was characterised by three characteristics: tokenistic involvement; piecemeal change; and 'unsustained top support'. Successful change is based on having: an experienced team; 'project discipline'; HR involvement; and external communications. Dr Whittington said that tokenism is 'worse than no involvement at all'. Communications per se, without involving employees, make no difference. There has to be substantive involvement and consultation. Political support from the top is essential but this has to be continually re-engaged to make a real difference, he stated. External communications with stakeholders, suppliers and customers is critical. The reorganisation will always have an impact on those employees who deal directly with the customer on the 'front line'. Project management discipline is also crucial, as many organisations ignored the final evaluation and review of the reorganisation. Those who carry out formal reviews get the most success. 'There is a lot of expertise and knowledge embedded in individuals' and experience also counts, as does a team that has bonded and can work through the required change.
The next frontier?
Joe McDonagh of Trinity College asked what the 'next frontier' is for HR. He said that, for the past 40 years, HR had not played the role it should play in achieving change. In 1958, at the outset of the computing and data processing age, the evidence showed that 50% of the investment in technology was a failure, and 40% was delivered late, over budget and with significantly reduced effectiveness - leaving just 10% that could be classed as a good-value investment. Since then, he said, 28 separate studies have shown that nothing has changed. The belief that we are now more progressive is nonsense, organisations have not learned about the past failure of new technology. Essentially, the message is that organisations have not leaned how to integrate technology in such a way as to achieve the goals set for it, but that does not mean there has not been radical social and economic change. Rather, the ability to integrate seamlessly technological and organizational change has not improved. Citing the Royal Academy in the UK, McDonagh said the hallmark of modern information technology is not only its ability to transform the organisation, but also its ability to transfer systems of organisation.
Dr McDonagh said the HR and 'humanistic' aspects of organisation change are often driven underground. It is not hard to get the investment money needed for technology, but it is not a pleasant message when the HR function has to look for investment in the organisational side, to make change a real success. Studies have found that for real change to be achieved, the ratio of technological to organisational spending needs to be 25% to 75%. Dr McDonagh suggested that to achieve real change in an organisation, four different perspectives need to be combined - the 'architect', the 'humanist', the 'engineer' and the 'broker'. For all the talk about 'empowerment' today, he said, the engineering perspective is to invest in technology and actually eliminate people. The humanist does not see it this way, but the humanist’s perspective does not always wash. The broker role can be useful in a political sense but can be unpredictable, while the architect may be detached from reality, he argued. The function of HR is to evaluate technology but it often ends up adopting a strong engineering perspective. The recipe for achieving real change is to form coalitions based on all four perspectives, and this must be grounded in reality.
Reward - 'think best fit'
Steven E Gross from Mercer Consulting in Philadelphia told delegates that designing reward packages for employees was not a matter of right or wrong, but more of fitting the remuneration to what the company wants. 'Think best fit rather than best practice', he said, 'often companies say one thing and reward something else.' For example, on the choice between defined-benefit (DB) and defined-contribution (DC) pension schemes, one had to ask if the company’s approach was to buy talent or build it. DB schemes supported a 'build talent' approach, while DC schemes fostered a more 'transactional' attitude to talent. Each was correct for different companies at different times. Rather than seeing all employees as similar in motivation, a sophisticated reward policy segments them into different groups with different needs. The basis of segmentation is also important, he stated.
Mr Gross cited a case study of a hotel group that segmented staff by paying higher wages in the higher-value hotels. However, when it changed the basis of segmentation to geography, paying more in city hotels and less in rural hotels, it found that employee turnover fell. This was because workers in the city hotels had alternative employment in other hotels, while those in the rural hotels had fewer alternatives and so were less likely to move. Another case study in a telecommunications company found that it was paying sales staff 20% above the market rate, while engineers were paid below market rate. This was because of high sales revenue due to a particularly attractive deal for consumers, where services were 'bundled' together. However, here the sales staff were being rewarded not for their own efforts, but for the marketing decision to offer the attractive 'bundling' deal.
Building corporate culture
Pat Casey, the vice-president for human resources at Dell EMEA, told participants how the building of a shared corporate culture was a strategic priority at Dell, suggesting that it has contributed to the 'bottom line' of the business. Prior to Dell, Mr Casey had worked for Ford, Apple and Intel. All four companies are US-owned, but he said that Ford was a very structured company with strict job demarcations, a manual for more or less everything, and little room for innovation and creativity. Apple and Intel were very different companies, he said. For instance, Intel talked a lot about shared values and corporate culture, which was not so apparent at Ford. Mr Casey did not mention trade unions but - unlike Ford - Apple, Intel and Dell are all non-union firms espousing a 'unitarist' employee relations philosophy of shared values. There is little acknowledgment of the pluralist possibility of divergent interests between management and employees.
Mr Casey described corporate culture as a multi-level, inter-related set of visible artifacts, behavioural norms, values and deeply-held beliefs that guide the actions of members of the company. At Dell, the central tenets are said to be clearly articulated and reinforced, and are embodied in the recruitment process, there being definite guidelines for hiring the 'right' staff to fit the Dell culture. Dell is very active in seeking what it sees as the best talent available, and trying to retain that talent, he said.
Direct relationships
The thrust of the Dell corporate culture, according to Mr Casey, is to be direct in its relationships and everything it does, whether this is by communicating directly with staff, or in relations with customers. In the past, he said, Dell was very much focused on 'growth, growth, growth', and it seemed that it was never able to hire enough staff. He acknowledged that sometimes the company was seen as a 'gravy train' in the past, with people queuing up to join to make large amounts of money. In terms of the present, he said that there was a big awakening in the aftermath of the events of 11 September 2001, when there was a big shake-out in the IT industry globally, with many job losses. Dell, which was formed in 1984, had its first redundancies during this period. After this, Dell developed new initiatives, such as the 'Soul of Dell', the 'leadership imperative', and 'Tell Dell': 'The 'Soul of Dell' provides a common statement of our values and beliefs which communicate the kind of company we are and aspire to be.' A central feature of this is 'the Dell team', which places an emphasis on being direct, as well as teamwork and the opportunity for each team member to learn, develop and grow. The Dell 'leadership imperative' is focused on improving leadership training and 'developing champions' among team members, and building their capability to reach the strategic objectives of the company.
In addition, the 'Tell Dell' initiative is the major channel through which the company communicates with its employees, and receives feedback. It involves conducting two on-line employee attitude surveys per year, measuring factors such as trust in management and perceptions of managerial effectiveness. Every manager with responsibility for over five staff is assessed. The 'Tell Dell' assessment scores influence promotions and bonuses. In the last 'Tell Dell' exercise at the end of 2004, 62% of employees said that they would not leave the company even if offered a competitive position elsewhere. This still leaves nearly 40% of employees who would leave if offered a good position, but Mr Casey said that this is lower than the average. Further, 72% of employees said they receive ongoing feedback, 81% were satisfied with their work-life balance, and 77% felt that their managers were effective at managing people.
Leadership
The conference was also addressed by the British-based 'management guru', Rene Carayol. Mr Carayol sought to highlight the key difference between management and leadership in business organisations, and the key role played by 'true leaders' in motivating employees to act in the best interest of their employer. He recalled a business visit he made to the British Post Office six years previously: 'There were three ladies sitting in reception. They ignored me. In response to my request to talk to the person I was due to meet, one turned around and said: 'We’re busy'. Ten minutes later, I repeated the request and she turned around again. 'I told you we’re busy!' The person I was meeting came down, 20 minutes late. Our meeting lasted five minutes. Two years later I returned. Alan Leighton [the current chair] was now chairman. One of the receptionists said to me: 'How can we help you?' She took me up to see the chairman. I spent an hour with him. I left feeling invigorated. I had a completely different view of the organisation just by that experience in reception. Same building - different culture.'
Mr Carayol spent 20 years in the corporate world. The first three were with the electrical retailer, Dixons: 'It was not great on leadership and process, but it was a fantastic money making machine!' He moved on to spend the next 10 years with Marks & Spencer (M&S), the once all-conquering retailer: 'Everything was about procedures. You were to do as you’re told and conform. There were 17 hierarchies of management. The average length of managerial service was 27 years. Our arrogance told us that the only places in which to source outside talent were Oxford, Cambridge, Bristol [universities]. M&S had a 22-strong board of directors, 21 of whom were M&S merchandisers. The company did not have an advertising or marketing department. There was no leadership, or creativity. The organisation worked well until the market changed, when M&S just could not respond. I moved to join the board of Pepsi UK. The company spent its time wishing it was number one in its field. It allowed its people to make mistakes. There were no witch hunts, no post mortems. M&S taught me about management. Pepsi taught me about leadership.'
Mr Carayol added: 'What then is it about organisations that help them to become number one? First, leadership. Some organisations have a leadership state of mind. The right culture. Many of the big UK retailers are led by managers, not by leaders. They are sitting ducks. Next, the ability to collaborate. No one can do it on their own. The ability to attract and retain talent is also critical: I asked Alan Leighton [the Post Office chair] what he did. His reply was as follows: 'I am the chief talent officer. I recruit red hot people who recruit red hot people who recruit red hot people.' Contrast firms like BT and Harrods who are reactive, cold, inert, functional, with Lexus [the auto firm] which is alert, proactive, intimate.'
The innovation challenge
The director of Ireland's National Centre for Partnership and Performance (NCPP), Lucy Fallon-Byrne, focused on a strategy document launched in March 2005 by the NCPP-sponsored Forum on the Workplace of the Future (IE0504203F). This argues that the key to Ireland’s future economic and social prosperity lies in moving to a 'knowledge economy', based on high value-added and high-skilled activities, which requires greater innovation at workplace level. The Forum says that while Ireland has been very successful in attracting foreign-owned knowledge-intensive industries, the domestic innovation base remains weak. Much of the technology that is fuelling the Irish economy is generated overseas, which means that Ireland can be described as a 'technology taker' rather than a 'technology maker'.
The report sets out a vision of the workplace of the future based on the following nine interlocking characteristics:
- 'agile' (readiness for constant change and innovation);
- customer-centred;
- knowledge-intensive;
- responsive to employee needs (eg quality of work and learning opportunities);
- networked (external collaboration and formal and informal networking);
- highly productive ('bundles' of high-performance practices);
- involved and participatory (culture of involvement)
- continually learning; and
- proactive and diverse (promoting diversity).
The vision agreed by the Forum and its expert panel is to 'provide a benchmark for what needs to be achieved in Ireland’s workplaces in the years ahead. A critical challenge is how to make this vision a reality.'
Ms Fallon-Byrne said that 420,000 new workers will be needed in Ireland by 2010 and that diversity management will be critical in this regard. However, she said that Ireland is not good at learning and needs to do much more in the area of lifelong learning, which other European countries are stronger at. Organisations need to be agile and fit; they must oppose the 'silent killers', which are lack of communications and poor information sharing. Companies such as Medtronic and Abbott in Ireland were cited as examples of how to do things properly, with innovation and 'upskilling' built into the way these organisations operate: 'We are telling organisations that employees must be involved, they must have opportunities and they must be motivated to be involved'. Ms Fallon-Byrne also said that trade unions are regarded as an important element in the workplace of the future. As NCPP is a state-funded agency, she was reflecting an official social partner perspective in this regard. It was interesting, however, that at the same conference HR executives also heard a strong advocacy of the 'union-free' approach from a consultant, Paul Mooney.
Consultation not negotiation
Drawing a clear distinction between negotiation and consultation is vital when implementing (IE0502203F) the 2002 EU information and consultation Directive (2002/14/EC) (EU0204207F), according to Fiona Webster, a consultant with ORC Worldwide. An important difference is that, with consultation, while one should engage with 'a view to reaching agreement', and the process is not judged a failure if no agreement is reached. If those involved sometimes see issues as negotiable then, very quickly, everything on the agenda is going to be for negotiation. Consultation must be timely, sufficient information must be provided to employees and - crucially - management must await and respond to the opinion of employee representatives, she argued. Everyone’s definition of 'consultation' will vary, so the word must be very tightly defined in any company-level agreement. While consultation leaves management the right to make the final decision, companies will, according to Ms Webster, 'see the timing of decision-making extended'. Management decisions will not be overturned, but the legislation 'will slow the decision-making process'. Confidentiality is another issue that must be handled carefully. Ms Webster stated that employers can withhold some information, but this must pass some very strict tests (ie that it could seriously harm the undertaking or be prejudicial to it).
Ms Webster added that the Directive says very little about the role of 'experts' for employee representatives. This is an area in which trade unions can exercise influence on employee councils. Experts can also take the form of other professionals, such as accountants. Employers must be careful, however, to maintain dialogue with the employees rather than just their experts. Ms Webster also warned against depending on the information and consultation body to communicate with employees. 'Management has to get its own message out to the wider workforce', she told delegates, 'do you want to rely on employee representatives to get the message out?' While the UK and Ireland are seen as the EU states with most work to do in transposing the Directive, Ms Webster said that many continental EU states with existing works council legislation will also have to adjust their current laws to fit the Directive, and that many of the new Member States will face particular challenges, with much training needed.
Challenges
The director general of the CIPD, Geoff Armstrong, addressed the various pressures facing the European social and institutional model, suggesting that persistent levels of high unemployment remained a feature of much of Europe - notably in Germany and France. On EU enlargement, he noted that a number of new Member States are worried about the economic and competitive effects of being compelled to implement the EU social model. At organisational level, he said that the main challenge is for companies continually to reinvent themselves in the face of competitors by developing core competencies and 'high-performance work systems' (HPWS). The days are gone when management can enforce change through compliance-driven rules, Mr Armstrong suggested. Instead, managers will have to find new ways of securing the willing contribution and discretionary input of employees. This does not just happen, it has to be systematically designed and managed throughout the organisation, he said.
Commentary
The CIPD/EAPM conference highlighted the fact that there are many strategic challenges facing personnel and HR managers today - for instance, in terms of the necessity to tap into employees' 'discretionary talent' in order to achieve competitive advantage. It was significant that little mention was made of trade unions during the three-day conference - a signal of a drift away from pluralism (an emphasis on not only common interests, but acknowledgment of a conflict of interests between management and workers, and the role of trade unions) towards unitarism (where the emphasis is on common interests and shared values) in recent decades. (Brian Sheehan, Colman Higgins, Tony Dobbins and Kyran Fitzgerald, Industrial Relations News)