HR’s priorities and roles in the New Economy (even in South Africa!)
A Higher calling by the Corporate Leadership Council
1. The new economy
Many fundamental changes are at work in the world's economy. Sweeping developments are affecting most, if not all, industries. As a result, business leaders no longer have the luxury of maintaining a "business as usual" stance. The phenomena at work here include:
# RAPID ADVANCE OF INFORMATION TECHNOLOGY: The past decade has brought significant gains in computer hardware and telecommunications capabilities. Processing speeds and computing power has increased dramatically, while the costs of computers and data storage have plummeted. The potential applications for, and impact of information technology has increased substantially in recent years.
# E-ENGINEERING: many corporations are applying Information technology as a way to radically redefine work processes and to transform relationships with both suppliers and customers. This
e-engineering is resulting in increasing rates of productivity growth and lower operating costs for many corporations.
# DEREGULATION: The pace of deregulation around the globe has been accelerating across the past decade. As government restrictions to free trade fall, competition intensifies. For some corporations, deregulation translates into new business opportunities. For others, the move to free trade results in new competitive threats.
# GLOBALISATION: As transaction costs decline, and as regulatory barriers fall to the pressure of market economics, the potential market for anyone company's goods or services increases substantially. Again, the result is a general increase in the level of competition.
# RISE OF THE INTERNET AND E-COMMERCE: By any estimation, the Internet and e-commerce are taking the world by storm. In the U .5., total annual sales via the Internet are expected to reach $1.5 trillion by 2003. The Internet is already forcing many corporations to reexamine their business models and their corporation's place within their industry's value chain.
For some corporations, these five factors appear to be working together. However, there also appears to be some trouble in paradise. Many companies are now beginning to experience the most challenging aspect of the new economy: rapid and unpredictable change. Some of the changes that corporations are now experiencing as a result of the new economy (and the rise of e-commerce in particular) include:
# REDEFINITION OF SALES CHANNELS: The Internet and e-commerce are making it easier for corporations that are "upstream" in an industry value chain (e.g., manufacturers and suppliers) to sell directly to those farther "downstream" (e.g., end users), as opposed to selling through middlemen. The Internet is also facilitating the emergence of myriad "virtual" competitors now competing directly against "real world" incumbents. Both retail and business-to-business sales channels are being affected.
# UNBUNDLING AND REBUNDLING OF PRODUCTS, SERVICES AND INFORMATION: The Internet is leading to the wholesale redefinition of many value chains and industries. In some cases (for example, the stock brokering industry), the information that was once considered integral to the traditional service offering is being cleaved off as a separate product offering. In other cases, the ability to aggregate information is giving rise to new services (for example, on-line mortgage brokers). Nearly every industry will be affected in some way by the enhanced availability of information that the Web brings.
# INCREASED BUYER POWER: The Internet leads to lower "search costs" for a buyer. It is becoming far easier to identify potential suppliers and then to compare their prices. As a result, suppliers' profit margins will likely decline. Given that nearly all corporations will be a buyer in some transactions and a seller in others, the net effect of enhanced buyer power to a corporation's bottom line will depend on a number of factors. Based on these changing buyer-seller dynamics, most corporations now face the need to redefine their relationships with both their suppliers and their customers.
# INCREASED EMPLOYEE POWER: ln much the same way that the Internet results in increased buyer power for purchasers of products or services, employees are gaining greater power in the employment relationship as a result of increased availability of information about employment opportunities. Employees now have instant access to nearly unlimited job openings from everywhere around the globe. Employees can also easily make themselves "visible" to potential employers through Web-based resources-hence the notion of the "effortless job search."
2. A new strategic agenda for business
These broad changes in the competitive landscape are leading many business leaders to define a new set of strategic priorities for their corporations. The Council believes there are at least six imperatives that should be on the agenda of any corporation's senior executive team:
A. REDEFINING THE CORPORATION'S BUSINESS MODEL: In order to adapt to an e-commerce business environment, many corporations will have to completely rethink and redesign the way they do just about everything.
B. REDUCING CYCLE TIME: As product and industry cycle times become shorter, corporations must be able to move more quickly to take advantage of emerging opportunities. The goal here should be faster decisions and faster time-to-market for new products and services.
C. FOSTERING LNNOVATION: The challenge here is to create a culture that encourages risk taking and embraces (the learning from) failure as a way to become a market leader. As technology continues to evolve rapidly, the winners will be those corporations that can quickly test large numbers of new products or services and then learn from and build on each individual experience.
D. SECURING TALENT: While the competition for talent has intensified generally (in an EE and AA context), a new challenge for has emerged: attracting and retaining those individuals required to lead new e-commerce initiatives. For at least the next several years, the demand will significantly outstrip the supply. An additional related challenge for many incumbent corporations is having to simultaneously manage both new e-commerce ventures and traditional operations within the same corporation.
E. STRATEGIC PARTNERING: As the pace of change accelerates, it becomes harder for individual corporations to adapt organically to this change. Thus, a corporation that cannot build a critical new capability will instead have to buy-or partner with-a company that already possesses that capability. Another driver of strategic partnerships is the unpredictable nature of value chain evolution-it is often difficult to predict which technologies or capabilities will be necessary in the future. In order to "cover all bases," the best strategy often is to forge many relationships with a range of other corporations that may provide some of the capabilities essential for competition in the future.
F. REDEFINING THE ROLE OF CORPORATE HEADQUARTERS: The emergence of the Internet and e-commerce raises a new set of questions as to what the proper role of the corporate center
should be. For many companies, the corporate center will have to lead the identification and pursuit of new business opportunities that do not neatly correspond with traditional industry and business unit definitions. Other principled roles for the corporate center in the new economy includes coordinating e-business investments, stewarding channel migration and brand management.
3. New Imperatives for the Human Resources Function
Each of the six imperatives identified on the previous page has implications for the HR function:
# As a part of the redefinition of a corporation's business system, HR will need to play a prominent role in organisational design and in managing the effects of change. HR will also be tasked with communicating changes in strategy to the rest of the organisation.
# As corporations strive to seize first-mover advantage, HR needs to help prepare the organisation to move faster and to shorten the time-to-market for new products and services. In addition, the HR function must be prepared to adjust everything for which it is responsible-from salary adjustments to leadership development-to a fast-cycle business environment.
# Fostering innovation demands a culture that embraces risk-where failure can be learned from and built on. The questions of what that culture should look like, and how the corporation transitions to it fall squarely within HR's purview.
# In securing talent, HR must step up its efforts to understand what constitutes a compelling employment offer and then build an employment brand that stands out in the labor market.
# Strategic partnering demands integration strategies and skills. In addition, the potential exists for HR to playa prominent role in the identification of new strategic partners and business opportunities.
# Finally, as cycle times decrease and as change becomes more frequent and less predictable, someone within the corporation-arguably HR-must ensure that the organisation's values remain both explicit and aligned with the demands and expectations of the company’s customers.
4. Redefining HR priorities and roles
The competitive pressures wrought by the new economy call for a change in the role of the human resources function. No longer is being a "strategic partner" sufficient. In today's business environment, HR must become a leader in identifying new business opportunities, defining business strategy and corporate priorities, and preparing the organisation for change.
Three priorities are paramount for any HR function aspiring to fulfill this leadership role. The HR function must:
A. Become at least as focused on the company's external environment, as is the rest of the corporation. HR managers can no longer afford to wait to have change interpreted for them.
B. Be prepared and positioned to play an integral role in strategic partnerships. The success of mergers, acquisitions, joint ventures and strategic alliances most often hinges on organisational and workforce-related issues.
C. Ensure that the organisation's internal values remain explicit and aligned with the company's value proposition to its external customers.
>> APPENDIX 1: A SHIFT OF PARADIGM (AGAIN!!)<<
1. PAST: FROM THE PAST (WHICH WAS CHARACTERISED BY HR AS A LINE PARTNER)
# COMPETITIVE ENVIRONMENT
- Gradual evolutionary change
- Clearly defined industry boundaries
- Power from incumbency
- Domestic markets
- Employee loyalty
# BUSINESS IMPERATIVES
- Consistency and control
- Scale economies
- Mass customisation
- Customer-led innovation
- Workforce development
- Risk management
# HR’S ROLE
- Sell traditional HR interventions
- Serve internal "customers"
- Build individual employees' skills
- Execute business strategy
- Defend company culture
- Develop policies and program
# MEASURES OF HR EFFECTIVENESS
- Employee satisfaction
- Internal "customer" satisfaction
- HR activity levels
- Staffing levels
2. TO THE PRESENT (WHICH REQUIRES TO BE A BUSINESS LEADER IN THEIR OWN RIGHT – MOVING BEYOND THE ULRICH MODEL OF HR)
# COMPETITIVE ENVIRONMENT
- Frequent discontinuous change
- Creative destruction
- Value chain in flux
- Competitive advantage hard to sustain
- Employee free agency
# ADDITIONAL BUSINESS IMPERATIVES
- Agility and flexibility
- Digitisation and unbundling
- Customer intimacy
- Technology-led innovation
- Organisational capabilities
- Strategic partnering
# HR’S ROLE
- Support critical business objectives
- Serve the company's customers
- Build the organisation's capabilities
- Formulate business strategy
- Ensure value proposition alignment
- Develop guiding principles
# MEASURES OF HR EFFECTIVENESS
- Employee engagement and productivity
- External customer satisfaction
- Strength of organisational capabilities
- Company's internal alignment with value proposition to customers
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- The New Science of Human Capital