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

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This Towers Perrin presentation explores changes to keep HR transformation alive in challenging times.

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

Microsoft PowerPoint - Feb 24 2009 Webcast Presentation WB

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?

3 2009 Towers PerrinProprietary and Confidential

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Last timethe 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 strategy Focus on rapid optimization

3 2008 Towers Perrin

4 2009 Towers PerrinProprietary and Confidential

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Todays discussion

High value initiatives that can create immediate ROI Consider specific changes to keep HR transformation alive amid challenging times

Staying alive Unconventional wisdom HR of the Future

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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

6 2009 Towers PerrinProprietary and Confidential

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There are three main sources of savings

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

Cut current costs Salary reductions Voluntary/involuntary 4 day work weeks Involuntary unpaid vacations End sabbaticals Redesign jobs to use part timers

Reduce future costs Target spend Re-design total rewards Customized incentives Severance Tuition reimbursement

Improve return on investment Re-calibrate performance standards Re-mix total rewards Research perceived value Communicate value of total rewards

7 2009 Towers PerrinProprietary and Confidential

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HR function cost reduction

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

Reduce volume of work Prioritize vs criteria (e.g. strategic value,

cost, time) and identify work to stop Reduce demand Streamline processes Move work to managers, employees

Reduce HR FTE Apply ratios, spans of control Redesign structure refine Redesign structure - radical

Reduce cost of providing services Reduce use of suppliers

Renegotiate supplier terms Increase use of outsourcing Increase use of offshoring Increase use of service centers

8 2009 Towers PerrinProprietary and Confidential

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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

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PREPARATION IDENTIFICATION VALIDATION REALIZATION

Context/desired outcome:

Size of savings Speed Risk appetite

Approach: Top down Broad

involvement

Identify required internal data

Obtain internal data

BenchmarkQualify potential

savings

Examinesources of savings in detail

Prioritize Develop action

plan

Execute changes

Staying Alive:Our overall approach for taking action

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Staying Alive: Identification

INTERNAL DATA SOURCES BENCHMARKS COMPARISONS EXAMPLE SAVINGS

Metrics That Provide Insights

Ratio: total head count to HR FTEs

HR function costs per head

HR function costs as percent of net operating costs

Time spent Degree of self-service Cost per process Ratio of total head

count to HR generalists

HR outsource ratio Vendor costs

Sources

Towers Perrin HRSD & HRO Surveys

Towers Perrin Human Capital Metrics

Saratoga Everest Research

Types of Comparison

By company size By industry type By geography By 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

In 20,000 person co.

272.39

In 10,000 person co.

200.70

In 5,000 person co.

% of HR Costs$

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Illustrative example Fragmented work: Over 200 staff touch International Assignments (FTE=12) 340 staff touch exits (FTE = 27)

Managing HR data is a huge burden 14% of all HR time 170 FTE

Time spent on strategic work is low: 27% for HRBPs 15% for compensation and benefits specialists

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

Staying Alive: IdentificationUnderstanding activity can reveal opportunities

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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

IMMEDIATE Reduce cost of

providing services

IMMEDIATE

Reduce HR FTE

CURRENT YEAR

Reduce volume

TimescaleRiskEaseSources of Saving

Illustrative example (20,000 person company)

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Staying Alive: Realization

Produce business case for changes Move work to existing SS, offshore Conduct RFP for outsourcing

Renegotiate with suppliers Confirm potential for greater use of existing shared

services, offshoring Identify potential for selective / broader outsourcing

Reduce cost of providing services

Redesign structure Define new roles Develop staffing principles Conduct selection process Manage redundancy process

Develop staffing principles Apply top down targets Manage redundancy process

Reduce HR FTE

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

Engage with key managers Agree what to stop Communicate and stop

Reduce volume of work

MEDIUM LONGER TERM ACTIONSSHORT-TERM ACTIONSSOURCE

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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)

15 2009 Towers PerrinProprietary and Confidential

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Is stepping away from strategic H