The 2009 HR Executive's Agenda

Transcription

1 The 2009 HR Executive's Agenda December 2008 Kevin Martin, Jayson Saba, Mollie Lombardi

2 Page 2 Executive Summary Human Resources (HR) executives are under more pressure than ever to ensure that their activities are aligned with business priorities, and to deliver consistently higher performance without increasing their budget. Everyone is looking to get more from less - more from their people, their processes and their technology. This report looks at the entire suite of strategies, capabilities and enabling technologies and services that Best-in-Class Human Capital Management (HCM) organizations are using to drive business performance and build employee engagement in through today's uncertain economic conditions and into This report, a compilation of surveys of and interviews with more than 400 HR executives and line of business managers (representing all sizes, industries and geographies) provides a roadmap for any HR (or HCM) executive looking to execute on immediate business priorities without shortchanging long-term strategic objectives, while preserving key talent in tough times. Best-in-Class Performance Aberdeen used three key performance criteria to distinguish Best-in-Class organizations: Employee performance Employee engagement Employee retention Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics such as: 77% hold their employees accountable for personal development 59% have identified core competencies for all job roles 42% have an HCM strategy that is consistent across the enterprise Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, organizations must: Increase collaboration and ensure all stakeholders are on the same page pertaining to defined success criteria Focus on increasing employee engagement at all career stages Not lose sight of long-term strategies and be prepared to react quickly and effectively when the economy turns around Research Benchmark Aberdeen s Research Benchmarks provide an indepth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations "HR is in the process of reorganizing away from a generalist arrangement with HR professionals assigned to departments and to a specialist arrangement with HR divided into talent acquisition and employee relations focus areas, still assigned to departments. Separating roles should provide better focus, improve productivity and allow us to stay lean." ~ Jim Morrill, Executive Vice President, HR, MVP Healthcare

3 Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Competitive Maturity Assessment...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 Strategic HR: Now More Than Ever...4 The Maturity Class Framework...6 The Best-in-Class PACE Model...7 Chapter Two: Benchmarking Requirements for Success...12 Competitive Assessment...14 Capabilities and Enablers...15 Chapter Three: Required Actions...23 For All Organizations...23 Laggard Steps to Success...23 Industry Average Steps to Success...24 Best-in-Class Steps to Success...24 Appendix A: Research Methodology...26 Appendix B: Related Aberdeen Research...28 Figures Figure 1: Top External Pressures Driving All Organizations...4 Figure 2: Top Business Priorities for 2009 for All Organizations...5 Figure 3: Top Five Workforce Related Challenges in Figure 4: Top HCM Strategies Pursued in Figure 5: Barriers to Making the HR Function More Strategic...9 Figure 6: Percent that Rate HR a "4" or "5" in Terms of Strategic Importance...10 Figure 7: Most Widely Used HCM Technologies by Best-in-Class...18 Figure 8: Current and Planned Growth in HCM Consulting...20 Figure 9: Planned Technology Use for Best-in-Class Organizations...22 Tables Table 1: Top Performers Earn Best-in-Class Status...7 Table 2: The Best-in-Class PACE Framework...7 Table 3: The Competitive Framework...14 Table 4: Anticipated Impact on HCM Efforts in Table 6: The PACE Framework Key...27 Table 7: The Competitive Framework Key...27 Table 8: The Relationship Between PACE and the Competitive Framework...27

4 Page 4 Chapter One: Benchmarking the Best-in-Class Strategic HR: Now More Than Ever The events of the last several months have brought with them a landscape of uncertainty and caution for most organizations. The economic challenges are very real. But so is the challenge to stay focused on strategic Human Capital Management (HCM) priorities as the agenda for 2009 is set. Now more than ever, HR executives must step up and ensure the strategic value of HR to the business, and work to maintain a laser focus on organizational priorities by delivering the right talent to the right place at the right time. To uncover the most pressing business issues and decision criteria influencing HCM strategy in 2009, Aberdeen Group conducted an in-depth analysis of surveys and interviews with more than 400 HR executives and line of business managers during November and December The results from this research, as well as related analysis included in this report, not only outline how organizations plan to utilize HCM to weather the current economic storm, but also provide a roadmap to increase the strategic impact of HR during the coming year. Fast Fact 60% of executives surveyed for this research believe the current state of the economy will increase the importance their organizations place on HCM in 2009 It's About the Economy and Focus Uncertainty is the key word for The global economy is shaky at best, and it has just been made official that the United States has been in an economic recession for the past year. Not surprisingly, the economy is the top pressure facing organizations in 2009 by more than two-to-one. However, it is important to recognize that the increased competitive business landscape and decreased availability of skills are still top of mind as we enter the new year (Figure 1). Figure 1: Top External Pressures Driving All Organizations 100% 80% 60% 40% 80% 35% 34% "Our top two company-wide objectives for 2009 are HR related. HR is becoming more aligned to the business." 20% 0% Economic instability / uncertainty posed by the current dow nturn Increased competitive business landscape Lack of available skills in the current talent market ~ Director of HR, Large US Retailer

5 Page 5 Enabling Execution Excellence While the economy is the top business driver entering 2009, the top business priorities are to execute the business strategy and reduce operational costs. This will require organizations to do more with fewer resources as well as adapt quickly to change (Figure 2). Figure 2: Top Business Priorities for 2009 for All Organizations 60% 51% 50% 42% 40% 30% 29% 28% 20% 10% Fast Fact 58% of organizations rate HCM as a "4" or "5" (on a scale where 5 equals "greatest impact" and 1 equals "least impact") in terms of HCM's ability to impact business strategy execution 0% Executing business strategy Reducing operational costs (e.g. marketing, sales, etc.) Recruiting, retaining, and developing a great w orkforce Adapting to change quickly and competently The good news for HR is that 58% of organizations rate HCM as a "4" or "5" (on a scale where 5 equals "greatest impact" and 1 equals "least impact") in terms of HCM's ability to impact business strategy execution. The same percent of organizations also give equal ratings to HCM's ability to help the organization adapt to change. However, only 47% rate HCM as a "4" or "5" in terms of its ability to help reduce operational costs. No matter what the future brings to the global business climate, a talent pool that is ready to adapt, has the knowledge to execute, and is engaged with the vision and mission of the business is critical. Organizations must react, but not at the cost of delivering on their unique value proposition. The caution to HR executives is to avoid making choices in the near term that will shortchange longer term strategic intent. Talent Management Tops the List of Challenges in 2009 Talented employees always have lots of options, even in a downward trending job market. Looking ahead to 2009, the top workforce-related challenges facing organizations center on talent management - specifically the retention, development, and recruitment of top talent; with particular emphasis on developing from within (Figure 3).

6 Page 6 Figure 3: Top Five Workforce Related Challenges in 2009 (scale of 1 to 5 where 1 equals least concerning and 5 equals most concerning) Retaining top talent Developing leadership skills of existing managers Recruiting top talent Workforce productivity 3.82 Developing future leaders It may seem counterintuitive to still be talking about the war for talent given the staggering reports of job cuts in recent months. The United States (US) Labor Department reported that in November 2008 alone, US employers shed 533,000 jobs from their payrolls. However, during depressed economic conditions, the importance of an engaged and productive workforce becomes magnified. As more job prospects flood the market, the ability of an organization to know what makes for the talent that best fits its culture and is most apt to succeed in specific job roles will become increasingly more important from both recruitment and development perspectives. An example of the importance of this pre- and post-hire orchestration is reflected in the top metric organizations will assign to HCM in quality of hire (see sidebar). While on the surface this metric may appear to be recruiting-centric, it requires strong focus in both the onboarding and performance management elements of talent management. In fact, Aberdeen's July 2008 report Talent Acquisition Strategies: Employer Branding and Quality of Hire Take Center Stage revealed that Best-in-Class organizations measure quality of hire based on three key elements: 1) the time it takes to bring the new hire to a desired level of productivity / competence; 2) first year retention of the new hire; and 3) the new hire's first performance review rating. The Maturity Class Framework Aberdeen used three key performance criteria to distinguish the Best-in- Class from Industry Average and Laggard organizations: Employee retention Employee performance Employee engagement Fast Facts Metrics that matter for HCM in 2009 (ranked on a scale of 1 to 5, where 1 equals least important and 5 equals most important):: Quality of hire 4.13 Customer (non-employee) satisfaction 4.05 Employee performance 4.01 Employee retention (after 1st year) 3.79 Employee engagement 3.72 New employee retention (1st year) 3.7

7 Page 7 These Key Performance Indicators (KPIs) address the major performance areas that allow the HR organization to impact business performance. Table 1: Top Performers Earn Best-in-Class Status Definition of Mean Class Performance Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Increased employee retention on average by 31% Improved employee performance on average by 27% Increased employee engagement on average by 25% Increased employee retention on average by 4% Improved employee performance on average by 6% Increased employee engagement on average by 5% Decreased employee retention on average by 6% Worsened employee performance on average by 3% Decreased employee engagement on average by 9% The Best-in-Class PACE Model Best-in-Class HR organizations adopt a mix of strategies, capabilities, and enabling technologies and services that allow them to achieve the highest business impact. These are outlined in Table 2. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers Economic instability / uncertainty posed by the current downturn Increase employee engagement throughout the organization Focus resources to develop talent that already exists within the organization Implement programs that align the workforce with organizational objectives Employees are held accountable for their own development progress Managers are held accountable for their employee s development progress Senior leadership buy-in and support of HCM strategy HR collaborates with the line of business managers to understand business success criteria Core competencies have been defined for all job roles Core HR, benefits or payroll software Time and /or absence management software Employee self-service software (e.g. online portals) Recruiting software (e.g. applicant tracking or hiring management system) Executive / leadership development services Tests / assessments for promotion or placement Learning and development software (e.g. delivers and tracks online courses or allows for custom content creation) Performance management software (e.g. automates the appraisal /review process and tracks development progress) Manager self-service software (e.g. dashboards to assign plans and review progress) Employee or applicant selection / testing services

8 Page 8 In the face of uncertainty, Best-in-Class organizations are ready to respond with an engaged workforce that is motivated to stay with the organization through tough times and able to adapt and perform in uncertain market conditions. Though Best-in-Class organizations are more than two-times as likely as all other organizations (Industry Average and Laggard combined) to do so, only a fraction of organizations actually incorporate planning for uncertainty into their overall HCM strategy: 33% of Best-in-Class organizations have an annual plan that covers all areas of workforce planning, including contingency plans for unanticipated workforce needs Only 14% of all other organizations have a contingency ready workforce plan Best-in-Class Strategies - Engagement is Key! To address the fear, uncertainty, and doubt that the current economic climate brings, and to help employees maintain focus on the tasks at hand, Best-in-Class organizations are focused on increasing employee engagement. In an environment where organizations must do more with less, people are one of the areas to look to for discretionary effort that can produce big results - and engagement is a key strategy to ensure those performance gains. In fact, Best-in-Class organizations are 40% more likely than all other organizations (Industry Average and Laggard combined) to make this a key strategic action in 2009 (Figure 4). Figure 4: Top HCM Strategies Pursued in % 40% 30% 20% 10% 0% 42% 30% Increase employee engagement throughout the organization Best-in-Class 23% 22% 23% Focus resources to develop talent that already exists w ithin the organization All Others 20% Implement programs that align the w orkforce w ith organizational objectives "We are focusing on a holistic employee experience for the first year with complimentary self-service automation beginning with the application all the way through the employee's annual performance reviews - for the life of their career with us." ~ Director of Recruitment, USbased Regional Hospital System Fast Facts Percent of executives that describe their organization's HCM strategy as "centralized and consistent across the entire organization:" Best-in-Class - 42% Industry Average - 32% Laggard - 27% When employees are engaged and aligned with the organization, it drives performance. Aberdeen's May 2008 benchmark report Managing Employee Performance found that 54% of Best-in-Class organizations had aligned employee goals and development activities with business priorities. This

9 Page 9 same research also revealed the top two ways in which organizations measure employee engagement: scores on employee satisfaction surveys (72%); and employee performance (60%). As illustrated in Figure 3, Best-in-Class organizations are also focused on developing their current talent. In Aberdeen's September 2008 benchmark study Achieving Real Business Value with Learning and Development the top internal organizational challenge (cited by 59% of Best-in-Class organizations) addressed by learning and development programs was developing high potential / top talent. Within that research, 75% of the Best-in- Class organizations also cited integration of learning programs with the organization's overall strategic plan as their leading strategy to achieve business value. It is more important than ever for practitioners in the human capital space to make development that is aligned with organizational objectives a top priority to ensure the ability to execute and maximize productivity. Overcoming the Barriers It is clear that strategic HCM must be the goal, but the there are challenges to achieving this objective. It is imperative for organizations to overcome these barriers as they seek to move up the maturity curve. Aberdeen's research has revealed that the predominant hurdle to accomplishing this is too much time spent on tactical HR activities (Figure 5). Figure 5: Barriers to Making the HR Function More Strategic 50% 40% 30% 20% 10% 0% 46% Too much time is spent on day-today (tactical) HR activities 24% Inability to link the impact of HCM initiatives to organizational or business unit strategies All Organizations 19% 19% Lack of staff to support HCM initiatives / programs HR personnel lacks business know ledge (or acumen) to address more strategic issues Another barrier cited by nearly a quarter of all organizations surveyed is the inability to link HCM initiatives to business strategies. Given the increasing importance of focusing on execution of business strategy, overcoming this barrier will be crucial to success. However, it will also be increasingly difficult to do this when budgets for HCM programs are already being stretched. Understanding how to partner and align with line of business leaders will be a key strategy for ongoing success in Chapter Two of "HR at our organization is not strategic; there's no change, no transformation, no vision, no planning. Rather, it's completely re-active, behind the times and lacking in innovation. Our organization's HR department does not belong at the business table - it's simply a service function that processes paperwork like an old school personnel department. It's depressing when I see all the advances being made in the world of HR that our company and HR office don't want to or are unable to see how it can help." ~ Customer Service Staff Member, Large US Educational Institution

10 Page 10 this report will go into more detail on how organizations can leverage enabling technologies, external services, and internal capabilities to overcome these barriers. Aberdeen Insights Strategy A key factor to HR's ability to earn and maintain a seat at the boardroom table is to influence and execute business strategy; and Aberdeen's research shows that organizations are increasingly bought in to the strategic HR value proposition. Of the 400 executives surveyed for this research: 75% indicate that HR has become more or significantly more strategic in the last two years 60% believe the current state of the economy will increase the importance their organizations place on HCM in 2009 However, when asked to rate how strategic HR currently is on a scale of 1 to 5 (where "1" is not strategic at all - defined as HR is largely reactive, very tactical and not tied to business objectives - and "5" is the most strategic - defined as HR is very proactive and closely tied to the lines of business and business strategy) Best-in-Class organizations standout from their Industry Average and Laggard peers. Figure 6: Percent that Rate HR a "4" or "5" in Terms of Strategic Importance 100% 80% 60% 40% 20% 0% 64% 49% 34% Best-in-Class Average Laggard "The organization completed its first strategic human capital plan this year. Although the plan is aligned with the organization's strategic goals, some senior leaders have yet to see its value. HR needs to be more descriptive in presenting the ROI of the plan." ~ HR Manager, Large US Government Organization continued

11 Page 11 Aberdeen Insights Strategy While it is clear that HR organizations at all levels of maturity are making the move toward strategic partnership, those that have found a way to impact key business measures like performance and retention are making the most progress. The challenge is to continue to deliver on this strategic promise despite intense economic pressures and resource constraints. Like every other part of the organization, HCM will be required to do more with the same or less. However, as a result of HCM's strategic impact: 42% of Best-in-Class organizations expect a budgetary increase for HCM (includes processes, programs, and technology) in 2009 Best-in-Class are 55% more likely than all other organizations to anticipate a budgetary increase for HCM in 2009 In the next chapter, we will see what the top performers are doing to achieve these gains.

12 Page 12 Chapter Two: Benchmarking Requirements for Success Strategic HR transformation is a major effort, but when done effectively the efficiency and clarity it drives can deliver huge performance gains. Transformation requires organizations to focus on prioritization, a skill that is becoming increasingly critical. However, before embarking on an HR transformation journey, organizations must first identify the current state of processes, workflows, and technologies. And like every other initiative, stakeholder buy-in is critical as well. Case Study Cox Communications Headquartered in Atlanta, Georgia and a wholly-owned subsidiary of Cox Enterprises, Cox Communications is a multi-service broadband communications and entertainment company. As the third-largest cable provider in the United States, Cox Communications has over 22,000 non-union employees and more than six million total residential and commercial customer relationships. In 2002, a transformation effort began at Cox to address their less than ideal HR systems landscape. They had a large ERP software implementation, but it was only being used for payroll and some basic HR functionality. There were a variety of custom, non-integrated systems that had been built to address specific points in the employee life cycle, but most did not tie into the core HR data. In addition, there were a number of manual and non-standard processes. Without clear access to data they knew to be accurate, developing and managing metrics was very difficult. As a result, a five year plan was put in place to upgrade and streamline the HR systems, processes, and people, with an overall vision of enhancing tools for next generation employees, moving data ownership closer to the source, and mining key HR metrics data for useful business analysis. While Cox s HR organization had created a five year vision for where it wanted to go, it also knew that dictating changes in ownership of data or changing process from the center without gaining buy-in from the field systems would not work in their environment. Cox had a decentralized culture, and various groups within HR owned data and processes individually. By working toward building the case that identified what they were losing by not working together they couldn't get to metrics, processes were disjointed as employees moved through the employee life cycle, they couldn't gain self-service efficiencies they created a roadmap that everyone could support. As that roadmap came together they realized there was a lot of pent up demand and people started to understand the value of integration. continued Fast Facts 65% of Best-in-Class organizations ensure that HR collaborates with line of business managers to understand business success criteria, compared to 48% of Laggard organizations 64% of Best-in-Class organizations have senior leadership buy-in and support of the HCM strategy, compared to 46% of Laggard organizations

13 Page 13 Case Study Cox Communications "We grew as a team, and started to understand that our capital and resources were limited, so we had to be integrated to move HR forward," says Erin Govednik, Executive Director, HR Technology. Some of the key steps they took to build buy-in and drive the final decision for their ERP implementation were: Create a picture of the current state. It sounds simple, but no one had shown all of the stakeholders what the current state of disconnect looked like as a visual. By painting a picture of all of the isolated places data was sitting and how disconnected the processes were, the opportunity for improvement became obvious. Create a picture of the future and the proposed technology roadmap. Up to this point, HRMS didn t yet have a reputation for delivering value that would allow it to ask for five years of funding up front. However, with the picture of the anticipated future state, HR was able to get initial funding - which, after proof of initial small wins, grew to allow for longer term future plans. Never underestimate the need for change management. While they had a roadmap that the organization accepted, acceptance didn t mean they were ready for the change. There was still a need for change ambassadors and change management plans for individual initiatives. Engage users early. The team at Cox learned quickly to incorporate usability studies into its initiatives as the systems needed to be intuitive for users and managers. Conducting these studies also helped with buy-in as it demonstrated that HR sought to include feedback from outside the HR organization. The result was a large number of gains for the organization. Cox has been able to improve HR employee service through easily accessible data to drive more accurate decisions. In addition, it has improved employee and manager experience through self-service - which, considering its high-touch culture is a win in itself. Cox has also improved recruiting performance through increased visibility and streamlined application and requisition processes. Cox has also made impressive gains in employee engagement (in 2008 achieving the highest scores ever) - via employee opinion survey scores. Now Cox is poised for the next step in its journey as it plans to leverage the efficiencies it has gained to make for an even better organization. At the core of this next phase in Cox's transformation is its ability to truly understand and narrow down the integrated HR data that is now available and begin to incorporate actionable people metrics into critical business operations. "Transforming HR at Cox is an on-going process. The journey has not been easy, but it has been essential to provide the business with proactive recommendations based on sound judgment. From a competitive standpoint, HR at Cox needs to be able to get the right people, in the right jobs, at the right time and then keep them there as engaged productive employees able to provide the best possible service to our valued customers. ~ Erin Govednik, Executive Director, HR Technology, Cox Communications

14 Page 14 Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute their daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) enablers (the selection of appropriate tools and / or services, and the effective deployment of them); and (5) performance management (the ability of the organization to measure their results to improve their business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics. These characteristics don't necessarily reflect the most utilized processes or enablers pertaining to HCM, but rather highlight where there is strong deviation in adoption between Laggard, Industry Average, and Best-in-Class organizations. Table 3: The Competitive Framework Process Organization Best-in-Class Average Laggards Process where employees are held accountable for their own development progress 77% 61% 55% Process where managers are held accountable for their employee s development progress 67% 49% 48% Senior leadership buy-in and support of HCM strategy 64% 59% 46% HR collaborates with the line of business managers to understand business success criteria 65% 61% 48% Employees can find and communicate with other employees across the enterprise based on topics of interest 54% 39% 31% Core competencies have been defined for all job roles Knowledge 59% 57% 26% Managers have real-time access to their employees performance and development data 51% 47% 38%

15 Page 15 Enablers (Technologies and Services) Performance Best-in-Class Average Laggards The following enabling services and technologies are used: 48% Executive / leadership development services 47% Tests / Assessments for promotion or placement 42% Performance management software 41% Software to automate employee forms and tasks 40% Assessment or test building services 35% Services to build competency frameworks 30% Tools to build competency frameworks 46% Executive / leadership development services 32% Tests / Assessments for promotion or placement 36% Performance management software 27% Software to automate employee forms and tasks 28% Assessment or test building services 28% Services to build competency frameworks 22% Tools to build competency frameworks 28% Executive / leadership development services 24% Tests / Assessments for promotion or placement 34% Performance management software 25% Software to automate employee forms and tasks 23% Assessment or test building services 18% Services to build competency frameworks 19% Tools to build competency frameworks Formally review or assess the effectiveness of the organization s HCM strategy at least annually 79% 65% 55% HCM metrics have been defined and agreed to by key stakeholders 49% 32% 26% "After changing to results based management we have been able to measure key results more accurately and know areas that need improvement. Having concrete data to work from, we can more effectively assign budget dollars to the correct business needs. An integrated approach has been successful." ~ Anna Buxton, HR Development Consultant, Yukon Workers Compensation Capabilities and Enablers Based on the findings of the competitive framework and interviews with end users, Aberdeen s analysis of the Best-in-Class reveals that an advantage these organizations have over their Industry Average and Laggard counterparts centers mostly within the processes and capabilities these organizations adopt and adhere to in order to support their HCM strategies. Nonetheless, technology still plays a significant role in freeing up HR resources to become more strategic, especially in engaging and developing the organization's existing workforce.

16 Page 16 Process There are two main internal processes that set the Best-in-Class apart from the rest, both of which serve one fundamental purpose - to establish accountability for employee development plans. Best-in-Class organizations are 31% more likely than other organizations to hold employees accountable for progress against their own development plans. Furthermore, Best-in-Class organizations are 40% more likely than their counterparts to hold managers accountable for their employees' development progress. This helps to create a mutual sense of ownership and accountability in the development process. It also helps increase engagement as it maintains the critical line of communication between employees and their managers, and builds trust between both parties. Accountability for development plans and progress is essential to sustain a strong leadership pipeline and ensure continuity in the senior ranks of the organization. This is supported by findings from Aberdeen's October 2008 report Succession Management: Addressing the Leadership Development Challenge in which one-half of Best-in-Class organizations had established formal accountability processes compared to only 20% of Laggard organizations. In the short term, the current economic downturn is forcing organizations to operate more efficiently and ensure that all activities are fully aligned with business priorities. Individual accountability for personal development and manager line of sight into development performance allows organizations to identify and better track their top performers to ensure that employees have the right skills at the right time. Fast Facts Best-in-Class organizations are 31% more likely than other organizations to hold employees accountable for progress against their own development plans Best-in-Class organizations are 40% more likely than their counterparts to hold managers accountable for their employees' development progress Organization To foster greater employee engagement and align HCM's efforts with the business' overall objectives, Best-in-Class organizations place greater emphasis on organizational collaboration. For example, Best-in-Class organizations are 35% more likely than Laggard organizations to establish collaboration between HR and line of business executives, and are 25% more likely than Laggard organizations to foster collaboration between HR and IT. HR executives need to understand the financial drivers of the business and how they correlate to the organization's objectives. Also, HR executives need to understand what the organization is able to support from a technology perspective - this may drive an install versus Software-as-a-Service (SaaS) pursuit. HR also needs to be aware of the technology already available within their organization. In addition, Best-in-Class organizations seek to increase engagement via flexible and open organizational communications. For example, 54% of Bestin-Class organizations enable employees to find and communicate with other employees across the enterprise based on topics of interest.

17 Page 17 Employees are able to build relationships with others across the enterprise, share insights, and access subject matter experts who were otherwise hidden within the organization. The ability to put forth a business case is critical to gain HCM acceptance within the organization and achieve subsequent success. Due in large part to organizational communications and collaboration pertaining to HCM, Bestin-Class organizations are 39% more likely than Laggard organizations to ensure senior leadership buy-in for HCM initiatives. Knowledge Management The term "knowledge management" has traditionally been linked to content or document management. However, from a human capital management perspective, it is becoming increasingly more associated with intellectual capital - in other words, information that resides in the minds of the employees. From that perspective, there are three ways in which knowledge management will play prominently in 2009: Competency frameworks. Fifty-nine percent (59%) of Best-in- Class organizations have defined core competencies for all job roles, as compared to only 20% of Laggard organizations. Knowledge of what makes for talent that performs best within a specific organization and job role (from skills and knowledge, to attributes and behaviors) will be critical in both the pre-hire (to make sure the organization attracts and nurtures the best quality candidates) and the post-hire (to ensure that the best candidates have been identified for succession purposes and to provide development plans that map to the competency frameworks). As the economy recovers and organizations look to rebuild their workforces, an inventory of candidates that maps to the core competencies that make for the best employees will be ideal to sharpen talent acquisition efforts and improve quality of hire. "We are positioning HCM as critical to survival in a difficult and global manufacturing environment. We are finally getting attention at the top." ~ HR Manager, Small US Manufacturing Company Knowledge capture and transfer. The knowledge that employees bring to the job or have accumulated during their tenure at the organization is knowledge that must be leveraged across the enterprise. Consider the new employee who comes to the organization with an atypical background. This person not only has a lot to learn, but also has a lot to share with others in terms of unique perspective. In addition, this person can benefit from the perspective of someone more experienced in the company and industry. Also, consider the seasoned executive who has been with the organization for several years and has been involved in several critical initiatives. This person's knowledge may not be documented for others to access and can leave a large void when he / she decides to leave. In 2009, 49% of Best-in-Class organizations, plan to make knowledge from top performing employees on what makes them successful available to all who need it, and 35% of Best-in-

18 Page 18 Class organizations plan to put in place a process to identify subject matter experts across the enterprise. Knowledge of performance progress. On a scale of 1 to 5, "5" being most critical in 2009, 79% of Best-in-Class organizations rate performance management a "4" or "5." Best-in-Class organizations are 41% more likely than Laggards to provide employees with realtime access to their performance and development data, and 34% more likely than Laggards to allow managers access to their employees' performance and development data. Given the mutual accountability pertaining to development that will be adopted by many Best-in-Class organizations in 2009, visibility into progress will allow proactive assessment and adaptation where needed. Enablers - Technology Ninety-four percent (94%) of all organizations surveyed for this research automate at least one HCM program at their organization. However, the most widely used technologies for human capital initiatives, even among Best-in-Class organizations, focuses primarily on core HR processes such as payroll, benefits, and time / absence management (Figure 7). Figure 7: Most Widely Used HCM Technologies by Best-in-Class 100% 80% 60% 40% 20% 77% 64% 53% 53% "We're nine years into a total transformation of our service delivery. That includes new technology platforms, global product centers, five transactional call centers, 98% of HR processes handled online, etc." 0% Core HR, benefits or payroll softw are Time and/or absence management softw are Recruiting softw are Employee selfservice softw are (e.g. online portals) ~ Tom Hall, Vice President for Global Staffing and Onboarding, Seagate ~ Anna Buxton, HR These software tools, which have been adopted with relative parity across Best-in-Class, Industry Average, and Laggard organizations, are essential to reduce the tactical burden on HR as well as enable greater employee satisfaction and morale via accurate and timely pay and benefits administration. In fact, 36% of all organizations surveyed for this study rated "HR administration" as critical to their organization in 2009, and 12% stated they plan to adopt HR, benefits or payroll software in 2009.

19 Page 19 On the other hand, while the automation of more strategic talent management elements such as recruiting and performance management has yet to receive widespread adoption (see the Technology section of Table 4), Best-in-Class organizations lead the way in their use: Best-in-Class organizations are 62% more likely than all other organizations to use assessment and test-building software to support and / or narrow their placement and promotion efforts. Assessments during pre-hire activities are critical to improve quality of hire and help ensure the best fit candidates are brought on board. Assessments in post-hire activities help workers opt-out of unnecessary development activities, help gauge employee engagement, and enable organizations to make better decisions regarding promotion readiness to determine who is best suited to assume various job roles. Best-in-Class organizations are 37% more likely to automate employee forms and tasks - this is especially helpful with bringing new employees onboard or transferring employees within the organization. These organizations realize that not only does this help reduce manual errors and save costs (i.e. not needing to mail paper forms), but also that it helps employees become more productive sooner because they are freed from the bottlenecks and frustration that result from administrative redundancies, inaccuracies, and delays. Best-in-Class organizations are 20% more likely than their peers to utilize performance management software to standardize appraisals and increase the ability to monitor and track short-term performance as well as long-term development progress. Aberdeen's May 2008 study Managing Employee Performance also revealed that organizations that had automated all or part of their performance management process achieved 15% year-over-year improvement in the percentage of goals attained (versus 7% for those with a manual process), and also achieved 16% year-over-year improvement in employee time-to-productivity (versus 2% for those with a manual process). The HCM technologies that will see the greatest adoption among Best-in- Class organizations in 2009 are highlighted in the Technology Insight at the end of this chapter. Enablers - Services Garbage in, garbage out. This is a common phrase often heard from IT professionals relating to the linear fact that quality of output is impacted greatly by the quality of input. This certainly applies to talent management as well. Best-in-Class organizations are more aggressive than their counterparts in utilizing consulting services to focus on developing their workforce

20 Page 20 regardless of where they fall within the employee lifecycle. Furthermore, in order to devise an effective talent strategy, Best-in-Class organizations understand that they must objectively identify the profiles - the competency framework - of who to bring in and promote. Whether in the pre-hire or the post-hire stages, assessments must be tied to competency frameworks which in turn are linked to development plans. As resources continue to be strained or to gain expert insight and guidance, organizations are increasingly looking outward for consulting services to address their HR challenges. The data shows that these services are more focused on development (Figure 8). Figure 8: Current and Planned Growth in HCM Consulting 100% Best-in-Class Organizations 80% 60% 40% 20% 31% 48% 30% 23% 18% 35% 40% 42% Planned Current 0% Executive or leadership development Building competency framew orks Assessment or test building Employee or applicant selection / testing Aberdeen's research shows that Best-in-Class organizations are more aggressive than Industry Average and Laggard combined to seek service providers that enable them to successfully recruit and develop the talent that is a best-fit for their organizations and job roles. This is not surprising given the perceived complexity and the magnitude of the gains that can be achieved by bridging the gap between the existing talent profiles and the profiles of those needed to successfully respond to current and future business challenges. Performance Management Organizations will be tightening their budgets for 2009 in terms of personnel and HCM programs. However, only 12% of organizations indicated that their HCM efforts will decrease. This is another important paradox that HCM executives must balance - static resources, but an increasingly strategic role.

21 Page 21 Table 4: Anticipated Impact on HCM Efforts in 2009 Increase Remain the same Decrease Don't know Overall HCM efforts 60% 24% 12% 4% HCM strategy budget 27% 27% 37% 9% (processes, programs, and technology) HCM personnel budget 28% 22% 41% 8% HCM budgets and investments will be heavily scrutinized in Therefore, it will be imperative HR executives to document and validate HCM performance as well as be proactive with recommendations to meet the organization's changing needs: 79% of Best-in-Class organizations formally review or assess the effectiveness of their organization s HCM strategy at least annually - and are 44% more likely to do so than Laggard organizations. More specifically, however, 43% of Best-in-Class organizations review or assess the program's effectiveness more than once annually (as compared to 30% of Industry Average and only 22% of Laggard organizations). What is especially important to point out, however, is that while nearly eight in 10 Best-in-Class organizations conduct frequent HCM strategy reviews, slightly less than one-half have HCM metrics that have been defined and agreed to by key stakeholders. This naturally implies that many of these organizations are limited in their ability to accurately assess their strategy's effectiveness. The good news is that the need to define agreed-to performance metrics is recognized; an additional 36% of Best-in-Class organizations plan to have this capability in place by the end of "We have a defined HCM strategy which is consistently communicated to the organization. We have also put a scorecard into place to measure and manage our performance; this scorecard is shared with the executive management team quarterly." ~ Director of HR, Large US Manufacturing Company Aberdeen Insights Technology While aggregate analysis of Aberdeen's data shows that, in general, HCM spending will decrease on average by 17%, 27% of all organizations surveyed, including 42% of Best-in-Class, anticipate their budget for HCM strategy (inclusive of processes, programs, and technology) will increase in The top planned technology investments will focus primarily on self-service applications that empower the employee and manager, software that increases workforce productivity and develops leadership skills, and technology that enables organizations to target their talent efforts and plan with accuracy to gain better insight into workforce readiness (Figure 9). continued

22 Page 22 Aberdeen Insights Technology Figure 9: Planned Technology Use for Best-in-Class Organizations Employee self-service softw are 53% 32% Learning and development softw are 42% 38% Manager self-service softw are 42% 32% Performance management softw are 47% 26% Competency management softw are 30% 38% Workforce analytics softw are 28% 32% Succession management softw are 27% 29% 0% 20% 40% 60% 80% 100% Current Planned

23 Page 23 Chapter Three: Required Actions Whether an organization is working to shift their performance from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary improvements required for implementing effective human capital management programs in the short term while maintaining a long-term vision for growth and sustainability. For All Organizations As discussed earlier, employee engagement is HCMs primary strategic action for Engagement is critical for achieving short-term objectives, as well as fulfilling long-term strategic plans. Nonetheless, a crucial element for engaging employees is to align the human capital management strategy with business plans. To this point, all organizations must (1) define HCM metrics that are tied to overall business goals, (2) establish a scorecard to measure progress against these metrics, and (3) share performance and progress with all stakeholders. These steps increase alignment, buy-in and engagement from employees at all levels. Unfortunately, less than one-half of all organizations currently have any of these capabilities in place. Fast Facts 77% of Best-in-Class organizations hold employees accountable for their own development plans 67% of Best-in-Class organizations hold managers accountable for their employees' development progress 59% of Best-in-Class organizations define the core competencies required for all job roles Laggard Steps to Success Define core competencies. Only 26% of Laggard organizations have defined the core competencies required for all job roles - compared to nearly 60% of the Best-in-Class. In order for Laggard organizations to start realizing gains in performance and retention metrics in the short term, they must be able to make more informed decisions about what personnel to retain to help survive recessionary forces. In the long-term, it is imperative to have the skill sets of the best employees well-documented when ramping up recruitment efforts. Gain senior leadership buy-in. Only 46% of Laggard organizations have gained full senior management buy-in for HCM initiatives. It is critical in this economy - where budget cuts are on tap for virtually all departments and functions - to have this buy-in. If needed, begin with small wins. Make sure to determine success metrics, and to ensure that "operational efficiency" doesn't devour big chunks of HR budgets and compromise the focus on the existing workforce. Review HCM program effectiveness regularly. Fifty-five percent (55%) of Laggard organizations formally review the effectiveness of their HCM strategy at least once annually. Regular reviews enable organizations to achieve efficiencies within the HR function and make a case for certain budget decisions. And regular performance reviews also enable improvement of programs and

24 Page 24 services that help lay a solid foundation for sustainable growth as the economy rebounds. Industry Average Steps to Success Enable employees to find and communicate with others. Another critical element for engagement is enabling employees to find and communicate with other employees across the enterprise based on topics of interest. Only 39% of Industry Average organizations have this capability compared to 54% of the Best-in- Class. In addition to engagement, workforce networking fosters peer learning and mentoring which are key to development and productivity. Emphasize mutual accountability. Best-in-Class organizations are 37% more likely than the Industry Average to hold managers accountable for their employees' development progress and 26% more likely to hold employees accountable for their own development plans. Industry Average organizations must implement processes and mechanisms to establish this accountability for individual progress. In the short term, they can identify who the "must-keeps" are and in the long-term, they will have a strong leadership pipeline that ensures continuity and longevity during expansionary periods. Utilize assessments in both the pre and post-hire. Less than one-third of Industry Average organizations currently utilize assessments for placing and promoting employees. Assessments on the pre-hire side will help filter out undesirable candidates and improve the quality of new hires. On the post-hire side, assessment tools enable organizations to better identify existing (or highpotential) top talent and enable more targeted development and retention programs. "We restructured HR to a more service oriented model two to three years ago, becoming more strategic within our approach. In addition, we moved all tactical activities to an HR service center to provide better quality, consistency, and speed, and are now structuring a Global HR organization to rollout service center." ~ Paul Uhler, Vice President of HR and Corporate Communications, Mine Safety Appliances Corporation Best-in-Class Steps to Success Leverage knowledge across the organization. Making intelligent workforce decisions improves short-term adaptability and long-term sustainability. Less than one- third of Best-in-Class organizations leverage employee data - including performance, competency and behavioral profiles - across talent management elements. Moreover, only 30% of Best-in-Class organizations currently share the profiles of top performers with decision makers. Sharing the strengths of the best people is key to knowing who is best able to navigate certain elements during recessionary periods. In the long-term, this knowledge enables organizations to make better placement and promotion decisions. Empower employees regarding their own development. As mentioned earlier, engaging employees during through development