Transforming HR in an Uncertain Economy: Priorities and Processes That Deliver ROI

© 2009 Towers Perrin

Transforming HR in an Uncertain Economy

Priorities and Processes that Deliver ROI

Cynthia DeFidelloRob LamsonRobert Millar

February 24, 2009

2© 2009 Towers PerrinProprietary and Confidential

Not for use or disclosure outside Towers Perrin and its clients

Last time…

What is the optimal structure for HR during a period of prolonged economic uncertainty?

Where should HR apply most of its focus for maximum effect?

What are key HR roles that cannot be compromised?

How do you deliver HR services for less cost but still effectively and efficiently?

How do you determine the most effective use of limited money for new technology investments, if at all?

What are the change management implications?



Last time…the best companies use tough times to build advantage

Savvy companies may indeed need to change the way HR is organized, or the way they deliver HR services

Organizations that will “win” will be those that build or acquire additional capacity to support the changes required with speed

HR will return to the basics:Understand emerging business strategy, and the implications of that strategy for the workforce Identify and quantify short- and medium-term activities that generate immediate savings and/or support essential business strategyFocus on rapid optimization

3© 2008 Towers Perrin



Today’s discussion

High value initiatives that can create immediate ROI

Consider specific changes to keep HR transformation alive amid challenging timesStaying aliveUnconventional wisdomHR of the Future



Past recessions tell us responses can be crude: some examples

Pure concentration on cost reduction – top-down cutting of staff

Small or zero pay increases applied uniformly

Increased base pay to mitigate incentive plan loss

Failing to manage the features of performance programs – base pay, incentives, long-term incentives

Blanket recruitment and training freezes

Turning away graduates already recruited

Voluntary redundancy exercises

Reducing the effort on communications

Inappropriate signals about cost-cutting: “Cut out taxis – use one of the chauffeurs”

Failing to cut hard enough first time round leading to ‘death by a thousand cuts’



There are three main sources of savings

However, there are many high value initiatives that can deliver immediate ROI

Cut current costsSalary reductionsVoluntary/involuntary 4 day work weeksInvoluntary unpaid vacationsEnd sabbaticalsRedesign jobs to use part timers

Reduce future costsTarget “spend”Re-design total rewardsCustomized incentivesSeveranceTuition reimbursement

Improve return on investmentRe-calibrate performance standardsRe-mix total rewardsResearch perceived valueCommunicate value of total rewards



HR function cost reduction

There are three main sources of savings when we focus on HR workforce size and volume

Reduce volume of workPrioritize vs criteria (e.g. strategic value, cost, time) and identify work to stopReduce demandStreamline processesMove work to managers, employees

Reduce HR FTEApply ratios, spans of controlRedesign structure – refineRedesign structure - radical

Reduce cost of providing servicesReduce use of suppliersRenegotiate supplier termsIncrease use of outsourcingIncrease use of offshoringIncrease use of service centers



Step-up leadership visibility

Keep focused on the external market

Build confidence

Keep focused on mission, vision and values

Laser-like sharpness on capabilities and resources needed to weather and win – use this as the basis of cuts

One deep cut, well done, keeping conscious of the impact on the brand

Focus on critical talent

Focus on improving existing programs to execute better, especially performance management

Continued strategic recruitment

Staying Alive:The strategic story from leadership



PREPARATION IDENTIFICATION VALIDATION REALIZATION

Context/desired outcome:

Size of savings

Speed

Risk appetite

Approach:

‘Top down’

Broadinvolvement

Identify required internal data

Obtain internal data

Benchmark

Qualify potential savings

Examinesources of savings in detail

Prioritize

Develop action plan

Execute changes

Staying Alive:Our overall approach for taking action



Staying Alive: Identification

INTERNAL DATA SOURCES BENCHMARKS COMPARISONS EXAMPLE SAVINGS

Metrics That Provide Insights

Ratio: total head count to HR FTEsHR function costs per headHR function costs as percent of net operating costsTime spentDegree of self-serviceCost per processRatio of total head count to HR generalistsHR outsource ratioVendor costs

Sources

Towers Perrin HRSD & HRO SurveysTowers Perrin Human Capital MetricsSaratogaEverest Research

Types of Comparison

By company sizeBy industry typeBy geographyBy sub-function

Moving from median to LQ in total HR cost per total FTE would save:

3414.8

In 50,000 person co.

3910.7


272.39


200.70

In 5,000 person co.

% of HR Costs$



Illustrative exampleFragmented work:Over 200 staff touch “International Assignments” (FTE=12)340 staff touch “exits” (FTE = 27)

Managing HR data is a huge burden14% of all HR time170 FTE

Time spent on strategic work is low:27% for HRBPs15% for compensation and benefits specialists

Significant differences in time allocation:14% - 30% for “Staffing”

Staying Alive: IdentificationUnderstanding activity can reveal opportunities



Staying Alive: Validation

17.0011.25TOTALS

Stretch TargetHigh confidence

3.00

1.50

2.50

1.00

2.00

1.25

Cost reduction ($m)

4.00

2.00

4.00

2.00

3.00

2.00

Move from classroom to e-learning

Recruitment supplier consolidation

Increase HRBP manager ratio

Reduce distributed specialists

Extend self service

Simplify data management

Possible Actions

FUTURE YEARS

IMMEDIATE

CURRENT YEAR

IMMEDIATEReduce cost of providing services

IMMEDIATE

Reduce HR FTE

CURRENT YEAR

Reduce volume

TimescaleRiskEaseSources of Saving

Illustrative example (20,000 person company)



Staying Alive: Realization

Produce business case for changesMove work to existing SS, offshoreConduct RFP for outsourcing

Renegotiate with suppliersConfirm potential for greater use of existing shared services, offshoringIdentify potential for selective / broader outsourcing

Reduce cost of providing services

Redesign structureDefine new rolesDevelop staffing principlesConduct selection processManage redundancy process

Develop staffing principlesApply top down targetsManage redundancy process

Reduce HR FTE

Identify priority processes (cost, value etc)RedesignDesign and implement ESS and MSS

Engage with key managersAgree what to stopCommunicate and stop

Reduce volume of work

MEDIUM – LONGER TERM ACTIONSSHORT-TERM ACTIONSSOURCE



Staying Alive: Insights

Increasing manager and employee self-service can actually be welcomed!

Top down reductions, intelligently applied, can be required to break inertia

Size thresholds for HR shared service centers are coming down

Shared services are rarely fully exploited

Multi-country HR shared services are feasible

Outsourcing often does not save money (although may help with capital)



Is stepping away from strategic HR a viable option?

Unconventional Wisdom:Stepping away from strategic HR

True Story:

Senior HR executive under pressure to let go three director level “doers”

Severe pressure to lower costs puts development and strategic HR on hold

Rather than fire three doers, the senior HR exec decides to fire herself thus saving the jobs of those needed to deliver the basics



Unconventional Wisdom: The strategic story from leadership

The business is under intense cost pressure

Only those critical to customer and product quality functions will be continued at staffing levels consistent with volume and revised sales goals

Other functions should move to “essential services” only



Focus on GeneralistsEliminate most strategic supportRemaining generalists focus on downsizing/restructuringTrust managers to do the right thing and hold accountable

Focus on SpecialistsEliminate most specialist supportReplace with external “contract”resourcesRemaining specialists focus on implementation of policy changes

Focus on AdministrationMaintain administrative capability to deliver basic servicesTake advantage of vendor consolidation of vendors and other low-hanging opportunities

Unconventional Wisdom:Stepping away from strategic HR

There are three main sources of savings



Does this represent an opportunity for resetting the HR strategic role?

Unconventional Wisdom: Identification

% of time spent on strategic workBy “strategy-focused” players (generalists and specialists)By administrative players

% of time strategy-focused players spend on admin

% of fragmentation caused by strategy-focused players

% of strategy-focused players “fully competent” in role

% of strategy focused players “needing development” to achieve full competence



Unconventional Wisdom: Validation

5.002.00TOTALS

Stretch TargetHigh confidence

(1.00)

1.00

0.00

2.00

Cost reduction ($m)

(1.00)

3.00

0.00

3.00

Procure specialist services (when necessary)

Reduce specialists

Refocus remaining generalists

Reduce ‘operational’ generalists

Possible Actions

CURRENT YEAR

IMMEDIATE

CURRENT YEAR

Focus on Specialists

IMMEDIATE

Focus on Generalists

TimescaleRiskEase

Sources of Saving

Illustrative example (20,000 person company)



Unconventional Wisdom: Realization

Redesign structureRedesign retained roleDevelop marketplace and vendor management capabilitySource ‘external’ specialist services when necessary

Identify ‘external’ specialist servicesAgree targets for retained (policy and vendor management) rolesDevelop staffing principlesApply principles and manage redundancy process

Focus on specialists

Redesign structureRedesign retained roleEnsure line managers equip themselves

Reaffirm line people management responsibilityAgree targets for retained rolesDevelop staffing principles for retained rolesApply principles to achieve targetsManage redundancy process

Focus on generalists

MEDIUM – LONGER TERM ACTIONSSHORT-TERM ACTIONSSOURCE



HR of the Future: A preview

There is no doubt that the HR function of the future willBe much leaner than todayBe more focused on the strategic people agenda in the businessPlay a more enabling and facilitating (rather than delivery) roleBe more flexible and dynamic than the hierarchical structures of todayRely much more on external specialist and operational capabilityBe more customer-focused; addressing business issues in innovative ways



HR of the Future: The potential

Dynamic facilitatorOversight and compliance

Virtual teamsOrganizational units

Focused scopeBroad scope

Project teamsHR functional groups

Enable and engageCommand and control

Tailored solutions“One size fits all”

Knowledge-based systems, wiki’s, - collaborative environment

Transactional, administrative systems

NewTraditional



Moving forward:How does your company progress from today?

Where are opportunities?IDENTIFY:

potential opportunities fast

Are the opportunities ‘real’?

VALIDATE:opportunities and

considerations

Decided where to cut?REALIZE:

achieve change effectively

You How Towers Perrin Can Help

How much do you need to save?

PREPARE:how to approach



Questions?

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215.246.7284

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215.246.4818

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Transforming HR in an Uncertain Economy: Priorities and Processes That Deliver ROI