Understanding various risks associated with people becomes a top priority for business leaders and policymakers

By Rick Payne and Tabitha Lim

If there is one important lesson learnt from the global financial meltdown, it is inadequacy in managing risk.

Evidently, Asia has suffered less than Europe and the U.S. in the global financial crisis. Some attributed that to luck: financial institutions in Asia simply had less exposure to subprime products and hence suffered lesser consequences. Another explanation makes more logical sense: Asian countries had less exposure because of lessons learnt during the 1997-98 Asian financial crisis that allowed them to put in place better risk management policies and measures.

What transpires in Asia is a great example of how people learn from past mistakes and become better in managing future risk. In the same way, the “people risk” of a city, across all levels of professions and economic sectors, will be reduced as human capital is continuously being developed in a direction that complements the needs of the city.

People are a key source of risk; but they are also the ones who manage risk and provide solutions. With risk management being the fundamental driver to sustainable success, understanding the various risks associated with people becomes a top priority for business leaders and policy makers.

In this article, we share five key lessons on the people risks for the Asia Pacific region.

Lesson 1: Financial resources are important, but so is the ability to attract and retain skilled talent

The advancement of economic development has enabled low risk cities such as Tokyo and Sydney to reduce their overall people risk with more investment in human capital development and infrastructure. However, economic resources alone may not be sufficient to differentiate the levels of people risk, in particular among higher income cities.

In this study, we found that an important factor that contributes to the lower people risk of a city was its ability to attract and retain people. At similar level of per capita GDP, the overall people risk for Singapore is considerably lower than Tokyo and Sydney. A large part of this outcome can be attributed to Singapore’s willingness and ability to attract foreign talent that complements its own native workforce. Hong Kong also appears to enjoy a similar advantage over Seoul with a more cosmopolitan living environment.

Lesson 2: Corruption, bureaucracy and government inefficiency

Among the twenty-five people risk factors included in the PRI, government transparency and corruption stand out as one of the most important factors that affect the overall level of risk. In terms of risk related to the control of corruption, the five cities with lowest people risk in Asia Pacific have an average risk of 1.6 on a scale of 1 to 10; whereas the five cities with highest people risk have a rating of 9.6 out of 10.

Another closely related factor is the efficiency of government agencies in dealing with human resources issues. Once again, Singapore stands out as the most efficient government among Asia Pacific cities. This provides the city state with an added competitive advantage against competing cities in the region such as Sydney and Tokyo. Transparency in government practices and an efficient government regime reinforce each other and create a stable and conducive business setting for both employers and employees.

Lesson 3: Education, education, education

Human capital and people risk are two sides of the same coin. As expected, this study found that, where the human capital development of a city is better planned and implemented, the people risk is correspondingly lower.

Human capital development comes in two major parts: formal education, and workplace training and development. Both are equally important to the overall people risk.

On formal education, our analysis shows that cities that have invested more in their education systems generally have lower people risk. Interestingly, financial investment does not necessarily guarantee educational achievements. Compared to Taipei and Seoul, Singapore and Hong Kong have managed to achieve a better educational performance in relation to the amount of dollars spent on education. Similarly, the overall people risk of Chengdu is substantially lower than Phnom Penh, partly thanks to a far better education achievement despite a similarly low level of per capita educational spending.

Lesson 4: Training, training, training

The second major part of human capital development is the training and development that employees receive at work. The availability and quality of training and development resources of a city define the level of commitment that the city has to human capital development. Once again, our analysis shows that the lowest risk cities (i.e. Singapore, Sydney and Tokyo) have among the best employee development resources in the region. On the other hand, employee training resources are scarce in the high risk cities and the quality of the training facilities is also less satisfying.

Companies operating in cities with poor employee training resources need to consider investing in in-house training facilities in order to upgrade the level of skills and knowledge of their employees. The challenge in employee development is likely to be more critical to knowledge intensive professions as well as leadership positions.

Lesson 5: The power of a meritocratic culture

The wealth of human capital is more beneficial to a company when it can be translated into higher productivity and a better bottom-line. In order to attract, retain and engage its talent, the employment practices of a company should be based on fairness and a meritocracy rather than bias and favoritism.

Our analysis shows that workplace favoritism is indeed a major contributor to people risk. There is a strong correlation between the perception of workplace bias and favoritism, and the overall people risk for the 32 Asia Pacific cities. For instance, while Hong Kong and Singapore are on par with regards to employee development resources, the meritocracy culture in Singapore has allowed the city state to further enhance its position as the least risky place for companies to operate. Companies should be aware of the local culture and put in place programs that educate their employees on proper managerial conduct where necessary.

Conclusion

As the global economy growth continues to shift from developed markets to emerging ones in the Asia Pacific region, companies are seeking more localization in their people strategy to capitalize on the faster growth opportunities in these markets. This means there will be more presence in the emerging markets and hence more hiring of talent from, and deployment of talents to them. The better a company understands the people risks of local markets the better they will be in realizing business opportunities.

With a clearer understanding of the risk profile, companies can then adapt their HR policies to mitigate the risk. For instance, they can adapt orientation and training policies to the Talent Management risk profile of different locations. Similarly, rather than adopting a “one size fits all” global HR policy, they can localize global principles to meet local risk conditions.

The People Risk Index helps simplify this task by identifying locations with similar risk profiles where common policies and practices may be applied. HR practitioners can also be pro-active in addressing the local people risk.

For example, understanding the people risk profile allows companies to proactively prepare incoming staff more thoroughly where education levels are lower, develop strategies to deal with different levels of availability of training, and prepare manpower plans that cope with impending skills shortages.

Through a pro-active approach to people risk management, HR practitioners can play a critical role in driving investment and taking initiatives required to succeed. While people are a key source of risk, they are also the ones who manage risk. By understanding people risk, companies are able to deal with it and turn the risk into opportunity.

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