Research and results

Citation

Nolan, S. (2009), "Research and results", Strategic HR Review, Vol. 8 No. 6. https://doi.org/10.1108/shr.2009.37208fab.009

Research and results

Article Type: Research and results From: Strategic HR Review, Volume 8, Issue 6

A look at current trends and data

Sara Nolan

Story 1 - Lack of focus on people management issues in M&As

European companies are losing billions by failing to address vital people management issues during the merger and acquisition (M&A) deal process. This is according to a global M&A study from HR consulting firm, Hewitt Associates. The report, M&A Transactions and the Human Capital Key to Success – Global Report, is result of a survey of 96 major international companies, representing over $568 billion of deal volume over the past two years. The companies were asked about their approach and effectiveness in closing deals and integrating new assets, with the results showing that 83 percent of European companies fail to meet key transaction goals. Ninety-two percent of all companies cited human capital challenges, such as cultural fit and leadership selection, as the primary reason for failure.

Calculations by Hewitt show that poor people management can erode total deal value by between 5.6 percent and 12.8 percent, due to losing key talent and a longer integration process. Based on this, the company estimates that European companies that responded to the study may have lost up to €12.5 billion over the past two years alone, purely as a result of poor management during and after transactions. These figures have prompted Hewitt to issue a warning to European companies on the consequences of failing to plan adequately for people issues during transactions.

Hewitt’s study revealed that European companies lag behind others worldwide in using input from HR during due diligence and integration. Following are some of the findings:

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  Seven percent of European companies frequently involve HR in target selection, compared to a global average of 36 percent.

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  Twenty-four percent of European companies involve HR in drafting the employee section of the sale or purchase agreement, versus a global average of 43 percent.

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  Forty-five percent of European companies involve HR in the integration planning phase, versus a global average of 73 percent.

Retention of key employees is a core M&A challenge and one that Hewitt believes is significantly eroding deal value. The study revealed that 34 percent of European companies have seen an increased rate of attrition post-deal. Furthermore, a quarter of all companies noticed that, if poorly managed, key talent is inclined to leave the company more quickly post-deal than non-critical employees.

For more information

Copies of M&A Transactions and the Human Capital Key to Success – Global Report are available from infoeurope@hewitt.com

Story 2 - Employee engagement to feature more in reward programs

A study from the Hay Group and WorldatWork finds that 57 percent of companies plan to increase their focus on employee engagement in measuring their reward programs during the next two to three years. Sixty four percent will also increase their future focus on the motivational value of reward programs. The majority of organizations plan to increase their focus on improving the pay-for-performance orientation of their reward programs, with a strong trend towards achieving a better balance between financial management and motivational aspects of reward.

According to the Reward Next Practices Survey, current reward program performance metrics are more heavily weighted toward financial performance than employee engagement, with companies reporting a current focus of 71 percent on using financial performance measurements and 40 percent on employee engagement. Other performance standards, such as customer satisfaction, innovation, talent management and employee engagement, are all at less than 40 percent of current focus by organizations. Of all of these metrics, organizations report a more intense future focus (57 percent) on employee engagement performance. The study found that 57 percent of companies plan to ramp up their future focus on regularly measuring the return on their total reward investment, while only 20 percent of respondents currently regularly measure the return on their reward investment.

Other key findings include:

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  Close to half of the respondents (44 percent) plan to increase their future focus on using reward to reinforce a culture of creativity and innovation, while creativity and innovation is a current focus for only 25 percent of companies.

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  Two-thirds of respondents will focus more on improving the ability of their line managers to effectively manage the overall pay-for-performance relationship with employees, and on the role of line managers in communicating total rewards to employees.

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  Fifty-seven percent will increase their focus on managing pay holistically at a total remuneration level (as opposed to managing reward elements separately and independently).

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  Leveraging important non-financial rewards, such as career and development opportunities (60 percent greater focus), improving work climate (53 percent greater focus) and non-financial recognition (52 percent greater focus) will be key components of the reward programs of the future.

For more information

Visit: www.haygroup.com or www.worldatwork.org

Story 3 - Skills shortage ahead for European companies

Only 15 percent of European companies plan their workforce more than three years in advance, suggesting that many companies may soon face key shortages in skills as the “double whammy” of falling birth rates and rising numbers of baby boomers entering retirement shrinks the size of the workforce, This is according to a study carried out by The Boston Consulting Group (BCG) and the European Association of People Management (EAPM). The report, Creating People Advantage: How to Tackle the Major HR Challenges During the Crisis and Beyond, analyzes the results of a survey that asked HR and other executives in 30 countries to rate the future importance of 21 HR topics.

The report found that 47 percent of European companies do not plan their workforce requirements more than a year in advance. Companies that have been forced to cut costs and reduce head count during the recession may struggle to find the people they need when growth eventually returns. Companies therefore need to consider the long-term impact of their actions, even – or especially – in times of crisis.

Rainer Strack, a co-author of the report and senior partner in BCG’s Düsseldorf office, comments: “In ten years, the scarcest resource for a company will be people. Companies should understand how their work force will develop, which job categories drive the business, and how demand will evolve. With the uncertainty prevailing today, the human resources department should analyze different scenarios to figure out whether and how to find, hire, retrain, outsource or lay off employees.”

Strategic workforce planning required

In March 2009, BCG and the EAPM published a White Paper, Creating People Advantage in Times of Crisis: How to Address HR Challenges in the Recession, that summarizes the survey results as they relate to the recession. The results revealed that one-third of European companies were planning to lay off full-time employees. The paper encourages companies to follow a 12-point HR plan to cope with the recession and safeguard their long-term prospects.

The full report builds on that theme and lays out an approach, strategic workforce planning, that allows companies to prepare for the future. Companies need to calculate how different strategic scenarios will affect the demand for specific job categories, and they need to determine whether there is an adequate supply of employees – either internally or in the job market. Strategic workforce planning, however, requires fundamental changes in HR practices. Jean-Michel Caye, a co-author of the report and a partner in BCG’s Paris office, says: “Besides engaging in strategic workforce planning, companies should also tightly link their overall corporate strategy with their HR practices and rely on metrics that track and prove the performance of people and HR processes.”

For more information

Visit: www.bcg.com or www.eapm.org

Story 4 - Study examines public sector rewards

A study by SDA Bocconi’s Public Administration Human Resource Community (PAHRC) shows that the majority of Italian public sector managers and employees receive the maximum possible bonuses and assessment scores, without an adequate evaluation differentiation of their performance. The results, based on data from OECD countries, are published in the paper, “Stimulating productivity and rewarding those responsible: the main international trends”. One of the most important findings of the research is the need to correctly differentiate assessments.

The study, coordinated by Nicola Bellé, Professor of public management and policy at SDA Bocconi, drew from two main sources of data: scientific documentation on pay-for-performance (PFP) in the public sector and data sets provided by governmental and intergovernmental institutions such as the OECD and the Italian Ministry of Finance.

According to the PAHRC study, 93 percent of OECD countries have adopted performance evaluation systems of their civil servants and 80 percent of OECD governments have introduced performance-related-pay schemes to link civil servants’ compensation and promotions to results. On average, PFP amounts to some 10 percent of public employees’ base pay. This percentage doubles in the case of management positions.

The link between performance and rewards (i.e. raises and promotions) is the strongest in the United Kingdom, Australia, New Zealand and Sweden. It is fairly strong in Germany and the US but it is weaker in Spain, Italy and France. The relationship between results and rewards tends to be stronger in countries where human resources management is more decentralized to peripheral government organizations.

For more information

Visit: www.unibocconi.eu