By Shin Sung-pil
The globalization of business does not grab news headlines anymore. These days, it is an essential prerequisite for the survival of any company.
In this context, many prominent firms have globally integrated their management system with global business strategies and objectives. It is not difficult at all to see these activities: global group purchasing, global standardization of production, global account management, global finance and global accounting system, which are necessary for an integrated global management system on the surface of a firm’s value chain.
Analogous issues are also arising in the area of HR management. How can we manage HR in a globally integrated way? Can anyone provide some sufficient and effective solutions to do this? Aon Hewitt’s Global HR Study has analyzed the challenges and solutions for integrated HR based on the experience of leading global organizations.
What does it mean to be a global HR organization? As large and small companies continue to expand their “global footprint,” the question strikes at the heart of every HR function. Aon Hewitt’s Global HR Study explores this fundamental question, as well as many others, to explain how HR organizations are evolving to meet the needs of a global business and workforce. Eighty-five global companies participated in the study from North America, Europe, and Asia-Pacific.
■ Being global is about having a global mindset and capability, not just structures or systems.
■ Depending on where work is done at global, regional, and local levels, companies are taking a “portfolio” approach based on specific criteria.
■ Increasingly, a company’s most critical global capabilities (e.g., leadership) are managed through a global, centralized approach to drive consistency, focus, and effectiveness.
■ Regional hubs are emerging as a way to drive both strategy and efficiency in diverse, complex organizations.
■ Talent management is still managed primarily at a local business unit (BU) level _ but for many companies, global integration of these programs is a top priority.
■ In many instances, HR is leading rather than lagging the business in terms of developing and building global HR strategy and structures.
■ Many companies are focused on upgrading the capabilities of their HR staff to effectively support global business. In some organizations, we’re seeing a shifting in the roles of HR centers of expertise (COEs) and business partners to better respond to business needs.
■ HR is playing a growing role in the shaping of corporate ethics and social responsibility, serving as a steward of organizational values.
■ Progress has been made to drive standardization and efficiencies in HR; however, significant opportunities remain in both program management and service delivery.
■ A rigorous approach to HR governance, including establishing clear metrics, plays a vital role in managing risk and maximizing HR effectiveness on a global basis.
Business globalization, cross-border trade and investment have accelerated over the last decades. Since 1950, world trade has increased 20 fold. There is no doubt that the current economic slowdown is affecting the pace of how companies are globalizing, but most experts believe globalization will continue.
Aon Hewitt’s Global HR Study further illustrates this globalization trend. Three-quarters of participants characterized their company as “international” or “transitioning to global,” while a smaller number (15 percent) identified themselves as “global.”
The implications for HR are significant in terms of both managing the global workforce and operating as a global function. Results confirm that few HR organizations are operating on a truly global basis. Rather, many are taking a portfolio approach, where work is done at global, regional and local levels, depending on the needs of the organization. When managing global HR, leading companies address four disciplines, with a clear rationale for each on the degree and scope of global influence. These disciplines will be explored in greater detail in this report.
Most organizations struggle with developing a global HR strategy that meets the diverse needs across businesses and geographies. While 93 percent of organizations reported having a clearly defined strategy, in many cases this strategy applies to their primary operating region. Only 49 percent of respondents indicated that their strategy spans all of their operating regions.
Results indicate that many organizations conduct program strategies and design based on a two-pronged approach. There is a core set of programs managed primarily at the global level. Typically, these programs focus on a critical segment of the population or involve strategic principles that require enterprise-level oversight. Other programs are managed predominantly at the local country level and may have specific legal or regulatory mandates that require more local involvement. Still, the relatively high predominance of activities occurring at the local level suggests that many organizations have not taken significant action to manage programs on a more standardized basis.
While each company’s HR strategy is unique, top global organizations use a decision framework to determine the appropriate balance of global, regional, and local HR roles. The trend among organizations is to shift program strategies and design from the local country level to regional or global levels ― to drive a more strategic approach and to take advantage of economies of scale.
Our research indicates that in many instances, HR is leading rather than lagging the business in terms of organization design. This is driven in large part by the growing recognition that the company’s most critical human capital priorities require a consistently global approach in strategy and design.
■ Thirty percent of companies described their HR organization structures as “global” (defined as global COEs who manage program strategy and design, and a global HR operations group that manages centralized/regional HR service centers and/or outsourced providers).
■ The largest percentage of companies (43 percent) described their HR structures as “two-tiered” (defined as specific accountabilities that reside at corporate, such as leadership development, and others that reside at the divisional or regional level, such as compensation).
■ The fewest number of companies described their HR structures as traditional functional departments, replicated by either region or division (13 percent and 11 percent, respectively).
Many organizations are facing significant capability gaps in HR, so there is a concerted effort to upgrade the skills of both business partners and COEs. Interestingly, the skills and expectations of these two roles are converging as HR tries to better support business leaders and their urgent talent needs. Aon Hewitt’s research reveals a significant degree of overlap in the capability gaps identified for HR business partners and COE/corporate staff. Skills such as strategic thinking, influencing leaders, and managing change are expectations of both roles.
While the HR function has made significant progress in driving efficiencies in service delivery, most of this activity has occurred within companies’ main operating regions. Fewer organizations have been able to achieve service delivery efficiencies at the regional or global level.
While the current economic situation has prompted organizations to drive efficiencies through improved service delivery, there are still significant opportunities for greater standardization. Overall, participants reported great variability in the way they administer programs; however, the most prevalent approach to program administration is still at the local country level. HR efficiency and costs vary considerably by region.
Despite the economic slowdown, companies continue to invest in and deploy global HRMS and talent management technology. There are significant differences in the perceived effectiveness of these systems, as the graph below indicates. While 78 percent of respondents reported their HRMS to be Mostly or Very Effective, satisfaction for talent management systems decreases to 67 percent.
A key factor driving this lower effectiveness is the lack of integration of talent management processes that feed into these systems. Integration of these processes is a top priority for many organizations over the next one to two years.
Effectively managing the complexities of a global HR organization requires a concerted focus on governance. Our findings indicate that the vast majority (83 percent) of respondents have a clearly defined governance model in place for HR. Yet, only 39 percent of respondents have governance solutions that span all their regions. The prevalence of specific activities and their global reach is outlined in the graph to the left. For leading companies, governance goes beyond HR councils and leadership meetings. Best-in-class governance is tied to business outcomes and focuses on making critical decisions regarding fiscal discipline, risk management, and policy creation.
Leading companies maintain their human capital edge by using workforce analytics to monitor progress and drive decision-making. Yet, among many organizations, there is a continued struggle to track consistent, meaningful measures. While 88 percent of respondents in our Global HR Study track key workforce-related metrics, only half are doing this on a global basis. For the most part, the metrics that are being tracked are very traditional. However, a smaller subset of organizations is tracking more outcome-related metrics, such as new hire performance ratings and high-performer turnover. This is an encouraging sign of a more robust approach to human capital analytics.
Many HR professionals focus their activities primarily on data collection and dissemination. While 83 percent of participants said that HR reports key workforce metrics to senior management on a regular basis, only 24 percent are actually helping leaders use those metrics to make business decisions on a global basis. To be effective, HR professionals need to shift to data interpretation and consultation to help business leaders make effective human capital decisions.
While it’s clear that companies are well along the journey toward HR globalization, this study reinforces the notion that “going global” is not the panacea for all of HR’s challenges. As the complexity of globalization increases, HR will need to be more deliberate and focused on critical areas that provide the greatest impact for business. The questions that follow provide a good starting point to understand where your organization stands versus the four global disciplines reviewed in our study. At any stage of globalization, HR organizations can and need to think about how to enhance their global capability for today and the future. Opportunities will vary depending on whether a company is just starting to expand beyond headquarters borders or well immersed in globally integrated operations.
The results of this global HR study provide the following implications to the Korean companies with a global presence.
■ Understanding the meanings and needs of global HRM
A number of Korean companies are conducting their business outside of Korea, making them globally recognized. Global strategies and objectives and various activities that are necessary for a globally integrated business system are easily observed by them. However, it is not easy to find a Korean company that is managing HR on a global scale.
■ Getting aware of the global HRM model and its key areas
Korean companies can learn from the experience of the global companies when it comes to introducing and operating the Global HR System.
At the same time, it also raises challenging questions that need to be answered as the following:
■ Does the company have the intention of managing their HR system on a global scale?
The understanding of global HR is a necessary condition for a successful HR operation. But that is not enough. Continuous investment of Global HR is also needed with ongoing management. Korean global firms’ investment in regards to time, effort and finance on Global HR has been seen and this is truly a very encouraging trend. The trend is expected to become more common among the Korean corporate community.
■ Does the HQ have the appropriate mindset and competency?
There is one more thing to be considered, in addition to the intention and investment on Global HR. It is the HR organization’s mindset and its global competency. A change in mindset ― having a global perspective both in HR initiatives and activities - is needed because locally focused HR is different to Global HR. On top of that, the competency to shape and activate the plan is definitely required as well. However, this competency is not obtainable within a day. In order to manage HR on a global scale, the organization needs to expand its HR Department both in quality and quantity.
This article was contributed by Aon Hewitt.