Building a Change-Ready Organization: Critical Human Capital Issues 2013

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1 Strategy Leadership Talent Culture Market Globa Building a Change-Ready Organization: Critical Human Capital Issues 2013 An i4cp Report

2 Critical Human Capital Issues 2013 About i4cp i4cp focuses on the people practices that make high-performance organizations unique. Years of research make it clear that top companies approach their workforces differently. At i4cp, we work with our network of organizations to: Reveal what high-performance organizations are doing differently. The five domains of high-performance organizations Identify best and next practices for all levels of management. Provide the resources to show how workforce improvements have bottom-line impact. Through our exclusive, vendor-free network in which peers collaborate to drive strategic research and share tools and insights i4cp provides a unique, practical view of how human capital practices drive high-performance. Visit i4cp.com to learn more. About this report Change is in the air for 2013, and while a challenge for organizations at all performance levels, analysis of this year's critical issues survey data reveals that high-performance organizations are taking a more proactive approach to preparing their workforces for what's to come. Help set your organizations' human capital priorities for the coming year and find out how promoting leadership and organizational agility, effectively managing talent, and developing superior workforce planning and workforce analytics can transform change events from problems into opportunities. About the Market Performance Index (MPI) i4cp s Market Performance Index, or MPI, is based on self-reported ratings encompassing an organization s performance in four key areas: market share, revenue growth, profitability and customer satisfaction as compared to the levels achieved five years previously. The average of the four ratings determines MPI score. In this report, the issues with the strongest links to performance were identified by filtering high MPI scores to isolate those activities that show a clear relationship with higher market performance.

3 Contents The Critical Human Capital Issues of Change is Pervasive, Problematic and Pursued Very Differently... 1 Agility and Preparedness are Key to Managing Change Effectively... 2 Agile Organizations Require Agile Leaders and Workers... 2 Preparedness is Enabled by Effective Management of Talent... 4 Managing Talent Begins with Workforce Planning... 5 Wider and Deeper Capabilities are Needed to Manage Talent Well... 6 Conclusions and Recommendations... 8 Authors and Contributors... 9 About the Survey... 9 About the Critical Issues Index... 9 References Institute for Corporate Productivity (i4cp) Use of all results, analysis and findings requires explicit permission from i4cp.

4 Critical Human Capital Issues 2013 Time-to-full-productivity The Critical Human Capital Issues of 2013 The main theme emerging from i4cp s Critical Human Capital Issues 2013 research study is the increasing urgency of dealing with change. Indeed, three of the top 10 critical issues cited by organizations deal directly with change, including the ability to manage and cope with change, which has steadily increased in importance from #3 in 2011 to #2 in 2012, and finally #1 in In fact, while the significance of these three issues continues to grow, the ability of most HR organizations to effectively deal with them has stalled or deteriorated. While change is neither new nor newsworthy, the way that high-performing organizations (HPOs) and lowperforming organizations (LPOs) go about dealing with it most certainly is. As you will read throughout this report, HPOs plan for change and use effective talent management practices to support and shape the future, as well as metrics and analytics to measure progress and to pinpoint gaps that impede effectiveness and impact. In contrast, LPOs, which also place great emphasis on change, focus mainly on short-term fixes and reactive initiatives. These result directly from uncertainty of the business strategy. As a result, low performers are unable to align the efforts of the workforce with any longer-term organizational objectives, and lack the leadership and resources to see them through. Change is Pervasive, Problematic and Pursued Very Differently Six of this year s top 10 issues (among a list of 70) have remained the same over the past four years. This is a reflection of myriad factors, most predominately the increasing uncertainty and complexity that has resulted from economic instability, legislative and regulatory change, the shortage of critical skills in key markets, demographic shifts and increasing expectations among customers. Moreover, these issues are a consequence of the consistently ineffective attempts of many organizations to anticipate and respond to change. However, when viewed through the lens of HPO versus LPO, the top critical issues take on starkly different meaning. In fact, 2013 Institute for Corporate Productivity (i4cp) Page 1 Proprietary

5 Building a Change-Ready Organization only three of this year s top 10 issues are shared among both groups two of which center on change and the other focuses directly on leadership development. LPOs continue to view change traditionally as in what s happening to them in the present and focus on the basics of how to deal with change through better management of culture and communications. They are reactive instead of proactive. HPOs on the other hand, are far more adept at dealing with change nearly three times more effective at managing and coping with change, and over four times better at managing organizational change. They also outperform LPOs by a factor of four times in getting the current culture to embrace change. What, then, accounts for the variance in abilities of HPOs and LPOs to meet the change challenge? Agility and Preparedness are Key to Managing Change Effectively i4cp defines agility as the ability to move quickly, decisively, and effectively in anticipating, initiating, and taking advantage of change. When it comes to change, CEOs want to know how to get their organizations to be proactive and anticipate change instead of functioning purely reactively. They grapple with questions such as: How can I create a more flexible, decisive organization in which change is initiated and embraced rather than approached with fear and skepticism? And how can I get everyone to impartially evaluate performance on business metrics and plan accordingly? In short, how can I instill agility into my organization? The answer to these questions can be boiled down to a single word: preparedness. To be agile, organizations must be prepared. HPOs prepare for change better by approaching it both strategically and tactically. They take a longer term view of their business, including the forces that affect it and the capabilities necessary to deal with it. HPOs work simultaneously from the inside-out (applying knowledge of readiness in terms of current supply of human capital versus anticipated demand) and from the outside-in (using knowledge of external factors, including what the market demands). This level of preparedness is also a reflection of the strength of its leaders. Agile Organizations Require Agile Leaders and Workers Agility must be purposefully developed in leaders and employees. i4cp research (in a joint study with leadership expert William Joiner) revealed nine practices for increasing the agility of an organization s leadership (shown in the sidebar on the opposite page). Increasing the agility of the leadership team often requires creating a new culture within that group. A purposeful approach involves assessing the pace of change and degree of inter-dependence to determine the level of agility desired and the team s current and optimal agility levels. Once this is done, a plan to increase leadership agility can be formulated it should emphasize reflective action and utilize methods such as one-on- Proprietary Page Institute for Corporate Productivity (i4cp)

6 Critical Human Capital Issues 2013 Time-to-full-productivity one coaching, workshops, and action learning programs. It should both work simultaneously from the insideout and from the outside-in, and break agility down into practical, manageable questions, practices and nextsteps with strong focus on follow-through and results. i4cp s research shows that teaching change management is one of the more important competencies in the development of agile global leaders. However, our research also reveals that while HPOs are four times more effective at it than LPOs, the effectiveness among the majority of organizations with this critical competency is abysmal and getting worse. Forthcoming collaborative research on global leadership development from i4cp and the American Management Association will reveal additional insights on developing leaders ability to better manage organizational change. Agility can also be instilled into the broader workforce by promoting talent mobility, which refers to the ability to move workers within an organization across functions and roles, across businesses or business units, and/or across countries in order to address critical business needs. When done right, talent mobility allows greater organizational agility by quickly filling near-term talent needs as well as developing talent to fill critical job roles longer term. It also results in greater levels of engagement and retention among key talent by providing exposure to the broader business as well as the organization-wide career opportunities available to them. One VP of human resources for a global food retailer with many different businesses recounts how the company is changing its development model and career planning to ensure and reward a more holistic understanding of the business. Specifically, they are laying out a framework that supports if you want to be promoted you need these types of experiences (category manager, merchandising roles, etc.), and if you want to eventually run one of our divisions, you're going to also have both Operations and Merchandising experience across more than one of our businesses. This commitment to talent mobility builds not only the organization s capacity to take advantage of change through growing its talent but also builds individual agility and resilience by encouraging staff to take on new roles and challenging developmental experiences Institute for Corporate Productivity (i4cp) Page 3 Proprietary

7 Building a Change-Ready Organization Preparedness is Enabled by Effective Management of Talent The level of agility in an organization is greatly affected by how talent is managed. There is a subtle but important distinction between talent management and management of talent. In practice, talent management often represents an HR-centric, inside-out view of the policies, procedures and processes associated with managing the employee life cycle. Management of talent, on the other hand, is a business-centric, outside-in view of the capabilities needed to maximize talent performance. Talent management is activities-based; management of talent is results and outcomes oriented. Talent management, while necessary, will be far from sufficient unless it fully enables the management of talent by the business. This important distinction is further corroborated by i4cp s research study The Future of HR: The Transition to Performance Advisor; in which the HR organizations of HPOs were found to be focused on equipping line managers to be better managers of talent. To this end, i4cp s Talent Management in the Trenches research suggests that a few foundational elements are essential to move the focus from talent management to the management of talent: Senior business leadership must view the organization s talent management strategy as a business issue, not an HR issue. The talent management strategy is created as an integral part of the overall business strategy. In essence, all business operational strategies must incorporate a talent strategy. Functional process or elements of talent management (e.g. recruiting, performance management) must be planned and executed as part of an integrated talent management strategy. This grows increasingly imperative as organizations seek to utilize human capital data for planning purposes, as well as gain more visibility into the performance and potential of their enterprise workforce. Unfortunately, a majority of organizations are ineffective in employing important talent capabilities. As a result, the workforce is not performing to its potential and gaps in leadership and critical roles exist due to failure to develop adequate bench strength and ineffective development of leadership competences throughout the organization. In contrast, with their focus on the management of talent, HPOs are vastly more effective at equipping the business to anticipate and deal with change. For example: HPOs demonstrate an advantage of two and a half times in performance management by employing a purpose-driven approach that fuses strategic and tactical approaches to managing organizational performance. This ensures that the day-to-day execution of strategies is tied to overall objectives and goals. (See i4cp's upcoming report, Purpose-Driven Performance Management in High-Performance Organizations, for more on this high-performance approach). Proprietary Page Institute for Corporate Productivity (i4cp)

8 Critical Human Capital Issues 2013 Time-to-full-productivity More than three and a half times as many HPOs as LPOs indicate effectiveness in succession planning, and driving it further down in the organization, thus ensuring better ability to quickly fill leadership gaps when they arise with qualified candidates. HPOs are nearly three times more effective than LPOs in leadership development, which given the increasing focus on line manager accountability (see Talent Management in the Trenches) results in an organization that is better equipped to not only align the workforce with where the business is headed, but to anticipate and respond more proactively to change. Managing Talent Begins with Workforce Planning The right people with the right skills in the right place at the right time this is often cited by many managers as the ideal workforce scenario. If this is the goal, the most effective starting point is via knowledge of what you need as compared to what you ve got. To this end, workforce analytics and workforce planning rank #2 and #3, respectively, in terms of critical issues among HPOs, while these are nowhere to be seen among the top 10 critical issues of LPOs. In general, HR organizations are not keeping up their ability to measure, analyze and draw insights from workforce data and quantify the value and ROI of human capital, both top 10 issues. More than 60% of HR groups indicated workforce analytics as important but only 14% indicated they had an effective capability. The ability to measure human capital value and performance was not much better 57% indicated it was important but only 16% were skilled in doing it. This suggests that many HR organizations are doing little more than guessing at the workforce drivers of business performance and how to better manage talent. Unfortunately, an inability to measure and plan stifle HR s capacity to respond effectively to change. With regard to workforce planning, i4cp s research reveals three levels that are important to pursue and have strong impact on a company s ability to improve market performance: The HR function provides a lot of data but not information. You've got to be able to provide data, but also to tell people how to make educated decisions. That's information. Business leaders want information they don't want more data. Skip Spriggs CHRO, TIAA/CREF Operational - the majority (including 62% of HPOs and 48% of LPOs) of organizations focus on operational workforce planning. In essence, this is what s needed to run the business from a current headcount perspective (e.g. headcount forecasting to staff shifts); Tactical - a more strategic level of workforce planning is referred to as tactical. This focuses on what s needed to manage the business (e.g. staffing plans to accommodate seasonal demands or new store openings). Only 38% of HPOs and 30% of LPOs indicate they pursue this level of workforce planning Institute for Corporate Productivity (i4cp) Page 5 Proprietary

9 Building a Change-Ready Organization Strategic the most elusive level of workforce planning, yet the most impactful on market performance, is strategic workforce planning. This typically looks 18 months out or longer (three-to-five years) and focuses on what is needed in order to lead the business and ensure the organization is best prepared to anticipate and adapt to change. Nearly twice as many HPOs (32%) than LPOs (17%) are doing the strategic level of workforce planning. High-performance organizations are especially rigorous in their approach to workforce planning. These organizations: 1. Define what the business needs to look like over the next three-to-five years; what products/services will be added/retired, what markets will it enter/leave, and what skills/competencies will be required. 2. Gain deeper understanding of talent segments and risks. They start by conducting talent reviews in order to identify high-potential employees, as well as understand the organization s critical and pivotal talent segments. Critical roles are ones essential to the organization s success and require skills or competencies that are difficult to find or develop. Pivotal roles are those that are not prohibitive by skills or competencies, but can make incremental impact on key business measures such as customer satisfaction. The goal of talent segmentation is to identify roles first, then skills, then individuals. Wider and Deeper Capabilities are Needed to Manage Talent Well In addition to workforce planning, five of the top 10 critical issues among HPOs deal directly with managing talent (performance management, succession planning for both executives and non-executives, leadership development, and coaching). Only one of these (leadership development) is ranked among the 10 most critical issues for LPOs. Once an organization has defined its critical roles, it must plan to fill them. This requires orchestration among an organization s learning, performance management and leadership development functions, along with its talent acquisition function (i.e. integrated talent management). Nearly nine in 10 HPOs (89%) indicate succession planning is important to their organizations in 2013, as compared to only 56% of LPOs. However, an even more revealing finding is how HPOs are taking their succession planning initiatives to layers below the executive level. In fact, more than one-half (54%) of HPOs are expanding the reach of this process, whereas only one-third (34%) of LPOs indicate the same. Extending this process to Proprietary Page Institute for Corporate Productivity (i4cp)

10 Critical Human Capital Issues 2013 Time-to-full-productivity non-executive job roles reinforces the notion that critical roles are not ones that are isolated to the executive ranks, and also prepares the organization to adapt more quickly and effectively to change. i4cp s research on the performance management practices most strongly correlated to market performance shows that several are also important contributors to the organizational agility. For example, ongoing goal review and feedback provides opportunities to recognize new realities and shifting priorities and to make necessary adjustments in goals and methods. Developmental plans for each period ensure focus and progress on acquiring new skills and experiences. This creates a mindset of continuous learning and ongoing development, which are both critical enablers of individual agility and resilience. Goal setting for the upcoming timeframe ensures that individual goals change and adapt to major shifts in the business environment. (See i4cp s Nine Keys to Performance Management white paper for more information). An exemplar of effective performance management in practice is Corning. The leadership team at the company is highly involved in the PM process and participates in competency identification, calibration sessions, goal alignment, critical metrics discussions and progress reviews in open forums. Practices such as these, along with virtual town hall meetings or Q&A lunch sessions, enable employees to see and hear that leaders back PM s importance. Furthermore, top executives recognition of employee success stories and customer accolades help to connect personal efforts with key corporate success measures Institute for Corporate Productivity (i4cp) Page 7 Proprietary

11 Building a Change-Ready Organization Conclusions and Recommendations Change is the dominant theme of the HR agenda in This alone is not significant, but what is worrisome is how consistently unprepared and ineffective many organizations have been in managing change. Based on the trend over the past four years, the situation will likely worsen unless new strategies for building capabilities are implemented that enable organizational agility. The research findings and insights presented in this paper suggest the following actions to increase organizational preparedness and ability to respond to change: 1. Shift the focus of HR from talent management to managing talent Promote a business-centric, outside-in view of the capabilities needed to maximize talent performance. Make sure they are tied directly to measures of market success. 2. Develop agility in leaders and workers Individuals at all levels of the organization can be trained to think and behave in ways that promote agility. Invest in specific training initiatives such as one-on-one coaching, workshops and action learning programs. Promote talent mobility to build experience with change and increase the organizational flexibility of talent deployment. 3. Build strategic workforce planning capabilities This should include operational workforce planning to support day-to-day activities, tactical workforce planning to manage the business and strategic workforce planning to ensure the ability to anticipate and respond to shifts in market demand, as well as mitigate business risk. 4. Focus on critical roles and performance throughout the entire organization This will require an expansion of succession planning focus and capabilities in many organizations. Define key roles wherever they exist in the organization, not just at the top. Once completed, focus on the critical skills needed for these roles, and lastly the individuals that currently demonstrate them or have the capacity to develop them. Performance management should be adjusted to promote agility. Review and feedback must be frequent to help staff stay in tune with shifting priorities. Sight lines of development plans should be short to enable frequent adjustments if needed. Strategic and tactical goals need to be constantly checked to ensure alignment. Proprietary Page Institute for Corporate Productivity (i4cp)

12 Critical Human Capital Issues 2013 Time-to-full-productivity Authors and Contributors Tony DiRomualdo VP of research, and Kevin Martin chief research and marketing officer, authored and oversaw development of the findings discussed in this report. Additional analysis and input was provided by Jay Jamrog SVP or research. Lorrie Lykins managing editor and director of research services, edited this report and Eric Davis senior editor, provided graphic design. About the Survey This report provides analysis of the results for i4cp s 2013 Critical Human Capital Issues Survey, which was conducted in December 2012 and had 313 respondents. Previous iterations of this survey formerly titled the Major Issues Survey have been conducted by i4cp over the past three decades and provide rich longitudinal perspective that informs our research and, in turn, aids our members in setting organizational priorities. Data for this study have been filtered for organizations with 1,000 or more employees. Breakouts by organization size, industry and other demographic factors are available in the interactive data workbook for this study, which is available to all member organizations through the i4cp website. About the Critical Issues Index The Critical Issues Index (CII) is calculated by multiplying the mean score for the importance of an issue by another number related to effectiveness. Issues with a high CII score are considered prime areas of focus that could, if addressed well, result in the greatest boost to organizational performance. References Institute for Corporate Productivity. (2010). Organizational and Leadership Agility Survey. Institute for Corporate Productivity. (2011). The Critical Human Capital Issues of Institute for Corporate Productivity. (2012). Talent Management in the Trenches. Institute for Corporate Productivity. (2012). The Best Get Better: Critical Human Capital Issues of Institute for Corporate Productivity. (2012). The Future of HR: The Transition to Performance Advisor. Institute for Corporate Productivity. (coming in 2013). Purpose-Driven Performance Management in High-Performance Organizations Institute for Corporate Productivity (i4cp) Page 9 Proprietary

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