PWC Transforming HR

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                                                                          on Transforming HR*
                                                                                                                              March 2010



  Reconnecting HR                               As companies emerge from the
                                                current recession, business leaders
                                                                                              How HR can help the bottom line

  to the bottom line                            are demanding more value from
                                                human resources (HR).
                                                                                              1.	 Build	the	brand. An HR department
                                                                                                  serves the dual role of supporting
                                                                                                  the external brand and internally
                                                First, most HR departments are still              promoting the desired corporate
                                                not equipped to help grow the bottom              culture. By aligning approaches and
                                                line, quantify talent needs, find and             practices with how HR wishes to
  Highlights:                                   hire the best candidates, and develop             be perceived externally, companies
                                                and retain the highest performers.                can successfully use HR to
  • More than 75% of HR work hours are                                                            enhance corporate reputation.
    spent on administrative transactions.1      Second, the crisis of the past two
                                                years wasn’t just about subprime              2.	 Align	talent	and	corporate	strategies.	
  • Business leaders are increasingly           mortgages and overleverage.                       HR professionals find the pivotal talent
    demanding that HR departments focus         Stronger performers placed in the                 that can help turn strategy into reality.
    on strategic human capital issues.          right critical positions proved a
                                                crucial differentiator between those          3.	 Develop	talent.	By all means,
  • The link between talent and business        companies that emerged from the                   save costs on HR back-office
    results was never more apparent than        height of the recession in reasonably             operations. But excellent HR
    during the financial crisis, as pivotal     good shape and those whose                        departments add value through talent
    employees proved the difference at          brands and bottom lines were                      and leadership development and
    many firms.                                 badly damaged.                                    creation of a performance culture.

  • HR must be both strategically driven        The key to transforming HR resides            4.	 Measure	success.	The holy grail is
    and administratively flawless.              in reconnecting the HR model to                   for HR to not only measure its impact
                                                the business in four key areas:                   on business results, but also enable
                                                brand, corporate vision, financial                the business to predict talent needs
  1 PwC HR activity analysis
                                                performance, and employee                         in the right place at the right time.
                                                performance.
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   At a glance                           Transaction-oriented performance
                                         measurements of the past
                                                                                                     Outcome-oriented performance
                                                                                                     measurements of tomorrow

                                         • HR costs per employee served2 and HR                      • Overall impact on the business: Is HR
                                           full-time-employee (FTE) ratio                              both effective (producing a return on
                                                                                                       talent) and efficient (managing costs)?
                                         • “How many activities did I perform or
                                           take part in?”                                            • “What is the outcome of the work I am
                                                                                                       doing, and how is it adding value to the
                                         • Number of training hours per employee                       organization, customers, and investors?”

                                         • Cost of a company’s workforce                             • Time to promotion

                                         • HR compliance metrics                                     • Corporate performance based on return
                                                                                                       on talent
                                         • Compensation metrics
                                                                                                     • Revenue and profit per FTE

                                                                                                     • The cost of a company’s workforce
                                                                                                       compared with the productivity of
                                                                                                       its workforce




                                         2 According to PwC Saratoga’s 2009/2010 US Human
                                           Capital Effectiveness Report, the average organization
                                           invests $1,462 per employee in the HR function.
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  01

   Enhancing the                         An untapped opportunity to promote
                                         the brand externally
                                                                                       Promoting authenticity

   brand and building                    An untapped source of value within
                                                                                       Internally, HR must repair its current
                                                                                       image of merely providing personnel
   corporate culture                     HR lies in its twin missions of external
                                         outreach and internal organizational guide.
                                                                                       and compliance administration by
                                                                                       actively developing trust throughout
                                                                                       the organization, from first-year
                                         A world-class HR team can serve as a          workers to experienced departmental
                                         valuable proxy for the entire company.        business leaders.
                                         Interaction with recruiters is often one
                                         of the first encounters that potential        Here’s just one example of building
                                         employees have with an organization, and      organizational authenticity: If flexible
                                         HR professionals who creatively personify     work arrangements are available for staff,
                                         the brand help attract top-tier talent.       HR can serve as an active proponent in
                                                                                       providing options for an employee seeking
                                         To remain relevant stewards of the brand      flexibility in a pivotal role. That role of
                                         externally, HR professionals need to          employee advocate is just one way for HR
                                         embrace and creatively employ leading-        to break out of its compliance role.
                                         edge tools, whether it’s announcing job
                                         fairs on social networking Web sites,         HR can further distinguish itself as
                                         twittering a company’s newest product         a steward of the brand by creatively
                                         launches, or publicizing important new        promoting internal and external activities
                                         hires in the industry press.                  that reflect the brand. These could
                                                                                       include leadership development, diversity
                                         By aligning HR messages and recruitment       initiatives, community service, and
                                         policies with those attributes for which      wellness programs for employees.
                                         a company wishes to be known, HR
                                         becomes a powerful force for attracting
                                         talented employees with the right ethos
                                         for the company.
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  02

   Aligning talent                       Bridging strategy and execution                Two strong halves of HR

   strategy with                         It’s the job of HR professionals to
                                         understand the business strategy and
                                                                                        The right to be heard, however, carries
                                                                                        with it the responsibility for HR leaders to
   corporate goals                       employ the pivotal talent that can bring
                                         that strategy to reality.
                                                                                        prepare themselves for a more strategic,
                                                                                        big-picture outlook.

                                         In many companies, however, HR has             That means fully educating themselves on
                                         not earned the right to sit at the strategy    the industry, the challenges within each of
                                         table. Without this access, they may not       the company’s various business or product
                                         appreciate the specific skills needed to       lines, the important core skills and job
                                         keep pace with changing strategies. In         positions in different parts of the company,
                                         fact, according to PwC’s 13th Annual           the relative strength of the company’s
                                         Global CEO Survey, 79 percent of CEOs          collective core skills compared with the
                                         intend to refocus on how they manage           competition, and whether the company’s
                                         people through change, suggesting a            long-term goals can be supported by
                                         fundamental need to align HR strategies        labor market demographics.
                                         with the overall business strategy.
                                                                                        In the end, HR must offer two kinds
                                         Deprived of HR insights, senior executives     of value: the strategic ability to
                                         may not properly consider the labor            find and motivate the right talent,
                                         market, educational trends, and other          and the administrative know-how
                                         talent-related factors when crafting the       to correctly allocate employee
                                         corporate vision. The potential result         resources and manage costs.
                                         could be crucial, fundamental flaws in a
                                         company’s talent strategy. For example, a
                                         failure to anticipate the changing business
                                         model in publishing can at least partly
                                         explain why so many media companies
                                         had to decrease the size of their
                                         workforces over the past year.
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  03

   Improving the                                    First, understanding the bottom line
                                                    Corporate leaders are demanding that
                                                                                                   where HR fits in. As of early 2010,
                                                                                                   reducing HR operation budgets has
   bottom line                                      today’s HR executives truly understand the
                                                                                                   been necessary at many companies, but
                                                                                                   truly sustainable HR contributions to the
                                                    company’s financials and business goals.       bottom line must involve far more than
                                                                                                   belt-tightening.
                                                    To respond to this demand, many com-
                                                    panies have initiated HR transformation        For example, HR can use technology
                                                    efforts designed to link HR investments        to focus in on the best recruits, provide
                                                    and capabilities with business strategies.     higher-quality service for employees,
                                                    Renowned HR expert Dave Ulrich and his         and produce more actionable human
                                                    co-authors of the new book, HR Transfor-       capital data. Dramatically improved HR
                                                    mation, state, “When HR transformation         software applications from such innovators
                                                    connects to the context of the business,       as Oracle, Taleo, Success Factors,
                                                    it is more likely to be sustained because it   Workday and SAP can help managers
                                                    responds to real needs. This means linking     and executives make better and faster
                                                    HR efforts directly to the business strat-     human capital decisions.
                                                    egy and to the environmental factors that
                                                    frame the strategy.”                           With the help of these tools, companies
                                                                                                   can shift time and attention away from HR
                                                    The solution lies in a truly integrated        administration to the more value-added
                                                    relationship between HR leadership and         aspects of HR, such as talent strategy.
                                                    senior management. Companies find              For example, in the financial services
                                                    this common ground in various ways,            arena, savvy smaller players have been
                                                    such as establishing rotations for HR          recruiting top loan producers from big
                                                    leaders in other parts of the business and     banks, greatly increasing loan volumes.3
   “What you do in this environment is              encouraging key business unit leaders to
    add to your talent base to be more              take leadership roles in HR.
    suited to the challenge ahead.”
                                                    Then, affecting the bottom line
    Michael I. Roth
    CEO, Interpublic Group                          Once HR executives develop that deep           3 Feb. 8, 2010; WSJ; “Firms Poach Top Talent from
    PwC’s 13th Annual Global CEO Survey             understanding, they can better decide            Recession-Weary Rivals,” Dana Mattioli
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  04

   The good to great                                               As the economy picks up speed in 2010,
                                                                   a singular opportunity exists for HR.
                                                                                                                    Surprising insights

   HR journey                                                      Corporate leaders today realize that they
                                                                   do not need HR to be simply “good”
                                                                                                                    Viewing talent from new perspectives
                                                                                                                    often elicits surprising insights about
                                                                   at administrative transactions. Instead,         a company’s return on talent. For
                                                                   companies need HR executives to engage           example, an increasing number of
                                                                   business units as true partners, helping         studies suggest a link between the
                                                                   execute the overall business strategy by         number of women in management and
                                                                   getting the most out of the organization’s       superior corporate performance.5
                                                                   talent. In other words, they need “great”
                                                                   HR performance.                                  One underutilized metric of corporate
                                                                                                                    performance is profit per FTE, which
                                                                   Fact-based effectiveness measures                upends the formula traditionally used for
                                                                                                                    measuring a company’s ability to create
    Fact-based	HR	effectiveness	metrics4
                                                                   The challenge for corporate leaders is to        wealth. Instead of focusing on return on
    Labor cost per business unit per demographic group as a        somehow quantify both the success of             invested capital, this yardstick measures
    percentage of revenue                                          individual employees and the firm’s overall      a company’s success by the cumulative
                                                                   return on talent, or what it’s getting in        value created by its employees.
    Return on compensation and benefit programs
                                                                   return for its total investment in its people.
    Training hours per employee and comparison to                                                                   While accounting for intangibles like
    performance management ratings                                 All too often, though, HR departments            employee knowledge, corporate
                                                                   produce just a few, standard cost and            reputation, and customer relationships
    Retention and promotion rates                                  activity measures, such as recruiting            is a bit trickier than standard financial
    Employee productivity compared with peers                      cost per employee and requisition-to-            reporting, it can provide additional insight
                                                                   hire days. Instead, HR, in concert with          into how a company creates value.
    The process by which employee ideas are gathered and           management, should develop fact-
    funneled to management                                         based HR effectiveness metrics, which
    Retention of high performers and talent in pivotal positions
                                                                   will provide more and better information
                                                                   about an organization’s return on talent.
    “Voice of HR customer” feedback


    4 PwC Saratoga                                                                                                  5 10Minutes on Managing Diversity, PricewaterhouseCoopers, 2009
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   Upcoming                              From crisis mode to
                                         sustained efficiency
                                                                                       Creating value
                                                                                       through transparency
   10Minutes topics                      With the strength of the recovery remaining
                                         uncertain, companies have yet to ease up
                                                                                       In today’s complex and often uncertain
                                                                                       economic environment, organizations and
                                         on cost-reduction measures. In fact, many     their stakeholders are seeking greater
                                         are going to the next level, re-thinking      insight into and assurance around their
                                         operating models and structures to see        own financial performance, operations, risk
                                         how various functions can deliver even        management, and corporate responsibility
                                         more value at lower cost. 10Minutes looks     practices, as well as greater transparency
                                         at how companies are embedding lessons        into those of their business partners
                                         from the crisis into more disciplined         and providers. 10Minutes explores how
                                         management of corporate performance.          companies are giving their stakeholders
                                                                                       the insight and comfort they need, in areas
                                                                                       beyond traditional financial reporting, to
                                                                                       encourage investment and enhance trust
                                                                                       in business.
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   How PwC                                                           To have a deeper discussion on
                                                                     transforming HR, please call
   can help                                                          Bob Moritz
                                                                     US Chairman and Senior Partner
                                                                     PricewaterhouseCoopers LLP
                                                                     Phone: 646-471-8486
                                                                     Email: robert.moritz@us.pwc.com

                                                                     Duncan Harwood
                                                                     Principal
                                                                     PricewaterhouseCoopers LLP
                                                                     Phone: 214-754-7244
                                                                     Email: duncan.harwood@us.pwc.com




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