July 20, 2017 – Identifying what companies have the best HR functions is no simple task. The needs of businesses vary depending on everything from size and complexity, to the culture of the organization, to whether a company is run as one overall entity or a collection of autonomous divisions.
Egon Zehnder, the third largest executive recruitment firm in the world, contacted chief human resources officers (CHROs) from 11 of the most admired companies, picked by Fortune, looking to find the ingredients that make the great companies great when it comes to human resources. When all was said and done, despite the many differences between the organizations, common themes emerged.
In the search firm’s recent report – ‘Do the Right Thing and Do It Well, the Evolving Role of HR – Insights from Leading Companies Around the World’ – seven key areas proved to separate the best from the rest:
1) Consistent and disciplined management attention on building a pipeline of talent
“One of the first things that emerged in all of our discussions is how engaged the CEO and the leadership team are on the talent management agenda,” said the report. “This isn’t a topic that is passed down to the HR function. It is a core element of every senior executive’s professional agenda and an integral part of the annual business cycle.”
As one example, the report pointed to the management board at Nestlé, which meets twice a year, devoting one full day “to discuss the top positions and the top talent in the group.” And at its monthly meetings, the board devoted at least an hour to people issues. It is a concept, the report says, that permeates throughout the entire company.
BMW, meanwhile, gives considerable attention to ensuring that divisional leaders cross-calibrate the talent in each other’s divisions, said the report. These executives also commit to helping develop talent across the group, taking on individuals from other businesses to help enhance their experience and prospects.
“Goldman Sachs also takes care to ensure that all business leaders throughout the hierarchy feel personal responsibility for the talent in their teams and ensuring that individuals fulfil their potential,” said the search firm.
2) Listen carefully to colleagues at all levels
CHROs at the best organizations emphasize paying heed to what employees have to say. “There was a distinct stress on the need to listen carefully to colleagues, to understand not just the headlines but any underlying sentiment and change in expectations,” said Egon Zehnder.
Bosch, for example, gave its younger workers the opportunity to take on conventional thinking at the firm. “By implementing reverse mentoring on social media, they wanted the youngest generation to really help shape what the group stands for,” the report said. “This isn’t just about picking up on tactical matters that might be either of interest or an irritant to junior employees. They look to their staff to provide meaningful input into shaping the long-term strategic direction of the group.”
And L’Oréal works hand-in-hand with Glassdoor, the popular job review website, to gather feedback. It also boasts of a social media communication approach that has been lauded by onlookers from outside the company.
“Other companies listen carefully to employees to create a sense of higher purpose and connection with the company,” said the report. “For example, at Caterpillar this led to a strong culture of volunteering as part of the employee value proposition, and many colleagues support local schools and science fairs as part of their work in the group.”
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3) Support innovation
“Almost every company wants to become more innovative and almost every company also paradoxically appears to do its best to inhibit innovation,” said the firm. “This is often because a company can be schizophrenic in the messages that it transmits to its employees. ‘Be more innovative’ is accompanied by rigorous short-term targets and KPIs; failing to meet deliverables is not an option. Naturally, this discourages risk-taking and makes the innovation the company seeks to nurture almost impossible to achieve.”
HR can help resolve such conflicts. At Nestlé, the report points out, mistakes are less as a negative and more as an opportunity for learning and future innovation. “This is institutionalized not just into behavior but also into the organization’s structure,” said the Egon Zehnder report.
BMW, for its part, encourages innovation by allowing many of its employees to “experience the future,” by essentially channeling a new mindset. “Essentially, these are a combination of input and messages, all the way up to virtual reality, that allow employees to actually live through experiences that are likely to align them mentally to a new desired state and give them an energizing and upbeat feeling,” said the report.
HR can also help remove unnecessary complexity, thereby improving the opportunities for creativity. “For example, at Bosch there is a determined focus on making the necessary changes happen, starting with an emphasis on more agility and entrepreneurship at all levels,” said the recruiter. “The number of KPIs reported to the board was therefore substantially reduced and the resulting metrics were focused more intently on three areas: agility (readiness/openness for change), growth and profitability.”
4) Provide insight
“The HR function is now merging with areas that may have traditionally been devolved to other disciplines in order to provide the right level of insight to leadership across the group,” said the report. “Digital is clearly having an impact. At L’Oréal, the number of digital employees has grown from 300 to 1,000 in the space of three years; this has led to a dedicated HR function supporting this group.”
Many companies are also making bigger investments in more sophisticated employee analytics. HR function in areas like workforce planning, attraction, recruitment, potential identification and promotion, retention and employee engagement all stand to be affected.
Comcast, meanwhile, conducted a detailed review of unplanned employee absences, which provided ideas on how to regain nearly 1,000 annual job hours. “HR needs to think about the business impact and analysis of these issues that we haven’t focused on in the past,” Bill Strahan, the firm’s CHRO, told Egon Zehnder.
Asking the right questions is perhaps most important. “We’re working hard on data analytics,” Kim Hauer, the CHRO at Caterpillar, told Egon Zehnder. “We want to ask the right questions to ensure we’re going after insightful data.”
5) Support development
Change happens rapidly these days in markets, organizations and in consumer expectations about communication quality. As a result, HR functions must be more agile, responsive and sophisticated in the development opportunities offered to individuals at all levels, said the report.
“Part of the key to more effective development appears to involve moving beyond traditional training, such as providing distinct experiences that can help individuals flourish,” said the report. “For example, Nestlé set up a Digital Acceleration Centre in 2011, which allows colleagues to work on defined projects for up to 8 months. It also offers field trips to China for its emerging leaders so that they have the opportunity to meet Chinese entrepreneurs and gain a different perspective on their own worlds.”
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6) Changing approaches to performance management and compensation
“Evolution in other aspects of work means that the approach to managing performance and compensation of the past may also need to change,” said the report.
At Bosch, the performance bonus for specialists and executives is completely based on divisional and company performance, giving greater weight to work across divisional boundaries.
And at Ralph Lauren, the performance appraisal process has been made considerably less complex. Paperwork has been reduced and meaningful conversations have become more important. The appraisal form, as one example, is now just one page, compared to five, as it was before.
“At John Deere, traditional centralized approaches to topics like performance management and compensation have been moved closer to the business,” said the report. “CHRO Mark Howze said, ‘We wanted to move culture to the business so that we didn’t have headquartered teams come up with ideas that weren’t needed or wanted in the business.’”
And at Ralph Lauren, strong efforts have been made to lessen the stresses of the working life in ways that money alone cannot address. Benefits having to do with the most important life stages, such as parenthood, are getting more attention.
7) What do you look for in your HR professionals?
Egon Zehnder found many of the best HR leaders wanted talent in their own area who can make a broader business contribution first and who are HR professionals second. “We’re working harder to train people to become better strategic partners,” Kim Hauer of Caterpillar told the recruitment firm. “We rely less on functional expertise and more on critical competencies.”
Caterpillar, said Ms. Hauer, also recognizes that the HR function can find itself supporting the best talent development processes for everyone else but end up neglecting its own needs. Her department, therefore, makes sure that it sets an example for what it would expect of employees in other areas.
ABB, meanwhile, wants to build a team of broader business leaders and “rates executives according to numeracy, commercial business understanding and technical skills as well as the ability to influence effectively,” said the report. “The highest-rated HR professionals are those who are passionate about the business and the culture of the group and who are frequently seen out with the frontline on-site visits.”
“The changing nature of work also means there are some specific areas with skills shortages. The most obvious of these is around data analytics. Shell has been hiring more econometrists and applied mathematicians in HR, which has not been a traditional location that those with a statistical bent would seek to join.”
Egon Zehnder encourages CHROs who want to elevate their function to consider three main strategies:
- Ensure that ownership of the talent agenda truly rests with the P&L leaders. It should be seen as a core component of their responsibilities, and attention on the topic must be consistent and disciplined.
- Get to the root cause of issues rather than being consumed with the symptoms. This covers every part of the job, said the report, “but key areas include more intelligent analytics, listening carefully to colleagues and ensuring focused and effective development intervention.”
- When possible, keep it simple, and be willing to adapt in terms of how service is delivered. “Expectations are fundamentally different today than they were even just five years ago and are likely to continue to evolve at speed,” the report said.
“This can all perhaps be best summed up with the elegant maxim of Peter Drucker, as quoted by the CHRO of Nestlé: ‘Do the right thing and do it well.’”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Will Schatz, Managing Editor – Hunt Scanlon Media