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Hewitt research shows that quick responses to a downturn in
economic activity designed to achieve short-term financial
goals often leave organizations facing a range of human capital
constraints later on. These constraints, in turn, make it harder for
organizations to respond to improved conditions down the track. |
In today's environment, organizations are looking
for opportunities beyond head count reductions
to achieve sustainable improvements in employee
efficiency. Hewitt's Business Performance
Improvement (BPI) consulting team is currently
working with clients confronted by a mix of
performance issues linked to the economic
downturn. In this article the team shares some key insights
from its work.
Chief among these is the observation that organizations
with a more balanced medium-term perspective tend to
deal with short-term issues in ways that help prepare their
businesses for the next wave of economic prosperity.
At the center of this approach, we see the level of
employee efficiency in any organization being impacted by
a mix of management practices that can be grouped around
three core drivers: how people are organized, how people are
utilized, and how HR programs are managed. (see figure 1)
FIGURE 1: Three core drivers of employee efficiency
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Driver #1: How people are organized
Of course, the way the business is organized and structured
is a primary driver of cost for any organization. We are
finding it important to re-emphasize with organizations that
structure must maintain a strong alignment to strategy, while
also being agile enough to respond to short-term changes in
market conditions.
When looking for efficiency improvements, it is important
to ensure that the current structure reflects market
opportunities and that the business has the right presence
in the right place at the right time. In addition to core
efficiency drivers such as channel mix, corporate centre and
support function costs, locations and span of control, issues
such as limits of authority and other governance and control
mechanisms can also impact employee efficiency, and impede
speed to market.
The following issue framework guides our analysis of
structural efficiency (see figure 2):
FIGURE 2: Analysis of structural efficiency
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Achieving Efficiency and Continuing to Grow |
Case example
Consider a major insurance provider in China. Despite similar
finance, HR, and insurance underwriting processes, each
location did things differently following years of expansion.
The organization found itself operating what amounted to
a number of separate businesses across the market as each
successive geographic expansion was underpinned by the
development of a different management structure operating
in relative silos.
Some key problems were identified:
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The basic alignment of the organisation in terms of
department naming, role naming, and headcount allocations
varied significantly from location to location, resulting in an
inability to measure and compare performance |
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There was a misalignment between the headquarters
and branch offices, resulting in ambiguities over
accountabilities and causing very basic operational
difficulties |
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Perhaps most significantly, there was a duplication
of supporting and operational functions across each
location, resulting in both a cost burden and a barrier to
governance and risk management. |
Some key solutions included a re-calibration of the
role of headquarters to a more strategic level (direction
setting, common policy and procedure definition), and the
consequent re-alignment of accountabilities to the Branch
functions to assume greater ownership for executing policies
and processes and improved limits of authority. In this way,
decisions could be made faster.
Hewitt proposed a shared services delivery model for
HR, Finance, and Operations that would see these functions
consolidated into a single location serving the entire market.
Given the company's future growth forecasts, it was apparent
that the excess staff created by the implementation of shared
services over the coming few years could, in fact, be absorbed
by future business requirements.
Driver #2: How people are utilized
The way people are utilized and deployed in their roles is a
key driver of efficiency and productivity for any organization.
When looking for improvement opportunities, it is important
to understand the value of activities performed, and the
time and effort taken throughout. 'Employee Value Chain
and Activity Analysis' techniques are effective in identifying
low value activities being performed, and looking at ways to
refocus time and effort toward higher value activity. |
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Case example
For a client in the financial services industry, Hewitt was
asked to look at how staff were spending their time to
determine opportunities to re-focus and re-allocate resources.
Using an online survey, over 3,000 staff allocated their
time across nine activity categories including strategy work,
delivery work (e.g., day-to-day routine work), internal service
(e.g., ad hoc issue resolution), department management, etc.
The results revealed two main issues:
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In essence, senior levels were focused on very operational
and relatively low value-add work, and were not
sufficiently focused on defining forward strategy or
managing and coaching their people to deliver the results. |
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At lower levels, it was apparent that delivery work across
so many people meant a lot of routine work that was
ripe for consolidation across multiple locations, and the
opportunity to re-deploy excess staff towards revenue generating
functions. |
As a result of this analysis, the company is currently
restructuring itself in two main ways. Firstly, it is redefining
the roles and responsibilities of its head office to ensure
that business function leaders are more focused on longterm
strategy rather than short-term issues. This will require
re-calibration of decision making authority levels and a
change in management style for these senior leaders who
are typically used to diving into day to day issues and will
now have to manage more through their managers rather
than over them. Secondly, the duplication in common
business processes is being addressed by the design
and implementation of a shared services delivery model,
both for support processes like finance and HR, as well
as core business processes like processing new customer
applications. The preliminary business case suggested
potential savings of around RMB130m over a five year
implementation horizon.
Driver #3: How HR programs are managed
The efficiency and effectiveness of HR programs often goes
untested, with the traditional focus resting on best practice
alignment or the achievement of key benchmarks or norms.
This is an opportunity!
By combining some core business analytics with
traditional HR diagnostics, we can start to develop a deeper
understanding of the true impact that specific HR programs
are having on specific key drivers of business performance. |
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Achieving Efficiency and Continuing to Grow |
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When assessing HR program efficiency, it is important to ask:
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How much is being spent on HR programs? |
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Is it being spent in the right way? |
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What's the impact on the business, and are you receiving
a reasonable or better return on the investment? |
Case example
Hewitt was asked to review a client's customer call centre
operations. The company, a global retail bank, had over
700 agents in this location, representing a fairly sizeable
call centre business. With high staff turnover, declining
performance against key performance indicators, and an
overall desire to transform the centre from mostly inquiries
towards more of an out-bound sales force, the stage was set
to understand what was going on inside the call agent teams.
As part of the review, we took a look at its performance
management and training programs.
Our analysis of performance management suggested
that programs were fragmented and misaligned to rewards:
agents with the same performance ratings were receiving
wildly different bonus payments. In fact, with a correlation
coefficient of 0.3573, an agent's performance only explained
around 35 percent of their bonus payment.
Such a misalignment is de-motivating for the better
performers. It is also a potential misallocation of resources
on a large scale since, with more than 700 staff, this call
center's bonus pool represented millions of dollars each year.
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In training and development, analysis revealed that
training was heavily focused on product knowledge but little
attention was given to service quality and, for promoted
agents, to team management skills.
The outcome of these analyses included a simplified
performance scorecard for agents that proposed a "gateway"
mechanism for basic performance (call volumes, call quality,
etc.), after which bonuses would be paid on the amount of
sales generated by the agent on no more than four products.
"Sprint" programs were proposed which allowed centre
management to drive a focus on a particular product if sales
were lagging half-way through the month.
In training programs, it was proposed that the overall
curriculum be shortened and more focused so that new
agents were "floor-ready" sooner. Experienced agents took
on a larger training role and were rewarded for doing this.
Increased efficiency means more than just
cost savings
Traditional responses to a decline in economic activity have
centered on reducing head count and labor costs quickly.
In some cases, this is an unavoidable act reflecting the
economic challenge facing a business.
However, in other cases, it is possible to generate an
equal or larger amount of cost saving by tackling some of the
broader employee efficiency issues. These include improving
levels of structural efficiency, optimizing the utilization and
deployment of staff, and improving the impact versus the cost
of HR programs.
Efficiency gains identified in these areas could not only
offset the need for head count reductions, but they also
position an organization for steady profitable revenue growth
as the downturn subsides.
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 Jason White, Hewitt's Asia Pacific Business
Performance Improvement practice leader and
can be reached at jason.white.2@hewitt.com |
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Non-traditional expatriates lead the pack
China has a more diverse and rich pool of expatriate talent
spurred largely by the availability of strong foreign talent
already residing in China, the increasing interest among the
Chinese residing abroad to return home, and a general in-flow
of foreign talent.
The study reveals that "traditional expatriate", or Western
expatriates, are mostly hired for the top executive and senior
manager levels, whereas "non-traditional" expatriates, such
as China-hired foreigners and returnees (who traditionally
were not a part of the foreign talent pool in the 1980s when
China opened up its economy to the outside world) form a
majority at the lower levels. (see Figure 1)
This diversity has led to multiple reward packages being
designed for different groups of expatriates. Managing
multiple reward packages of the "non-traditional" expatriate
group has led to several challenges, and organizations are
struggling to streamline this.
However, despite the effort, a variety of market practices
still exist for this group.
Hire globally and pay locally
The study reports that most organizations feel it is essential to
send over senior leaders from the country of origin to extend
the company's vision and safeguard its philosophy.
This is a big change in direction from the trend a few years
ago in which organizations actively started hiring locals in
place of the expensive expatriate talent.
Organizations have returned to recruiting expatriates
but are doing so by "localizing" the compensation packages
offered - reducing the benefits and perquisites component in
traditional expatriate packages, and hiring "non-traditional"
expatriates at lower pay packages.
According to the study, 42 percent of participating
organizations in 2007 reported having a formal localization
plan in place or planned to implement one in the upcoming year.
The talent market for "non-traditional" expatriates is fairly
new and is still evolving.
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Foreign organizations that have been in China for a long
time tend to design compensation and benefits packages
that are more aligned to local packages in terms of size and
program features. Foreign organizations that are fairly new
to China or in a rapid-growth phase still tend to bring over
expatriates from overseas, while those organizations that are
more established, coupled with steady business growth (and
across more progressive industries like hi-tech), tend to seek
more "non-traditional" expatriates.
Higher increase for global experience and local skills
Despite "localization" of compensation packages, the annual
salary increases awarded in China have been high. In
Hewitt's salary Increase survey 2006-07, the overall local
salary increase in China has been the third highest in Asia at
8.3 percent.
The China Expatriate Compensation and Benefits 2007
study further revealed that expatriate salary increases were
highest among "China returnees", who received an average
increase of 7.3 percent (see Figure 2). "China returnees"
often have strong technical skills, especially in research and
development, which, when coupled with their language and
cultural skills, make them highly valuable.
It is interesting to note that in the "China returnee" group,
employees at the senior professional, supervisor and director
levels received the highest salary increase. This is due to the
shortage of leadership and technical skills in China.
Reaping the benefits.or not?
According to the study, fewer organizations are offering
costly expatriate benefits packages as in previous years.
Traditionally, organizations in China used to award three
types of premiums to expatriates: foreign-service premiums,
hardship premiums, and cost-of-living adjustments (COLA).
COLA packages can vary, but they are offered as a fixed
percentage of base pay. COLA is the most common expatriate
premium.
In 2007, of those companies that offered premiums,
traditional expatriates hired with a global package were
offered 15.5 percent of base pay as COLA, 12.6 percent of
base pay as hardship, and 13.6 percent of base pay as a
foreign-service premium.
Expatriates on regional packages were offered 13.4
percent of base pay as COLA, 10.5 percent of base pay as
hardship and 9.0 percent of base pay as a foreign-service
premium.
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However, expatriates are not necessarily offered all three
of these amounts, as companies offered a nearly 24 percent
average aggregate premium to global packages and nearly
23.7 percent to regional packages.
Of the various types of premiums, hardship premiums
are disappearing the fastest, followed by the foreign-service
premium. China's explosive growth of suburban villas and
other high-end real estate is one reason why China can no
longer be considered a hardship posting. Adverse pollution
levels and cultural differences, however, can still justify a
need for this premium in some cases. COLAS have been
consistently maintained by organizations.
Although the prevalence of premiums has experienced little
change in global and regional packages, the value of these
premiums has reported a dip. However, China-hired foreigners
and China returnees experienced a drop in both the prevalence
and value of the total premiums offered. (see Figure 3)
Housing continues to be one of the largest components
in expatriate pay. Consistent with findings from previous
years, the majority of organizations still provide housing
assistance to expatriates. |
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However, the budget varies quite significantly. Expatriates
who enjoy global packages have the highest housing budget,
ranging from US$4,000 to $7,000 (median) per month, while
the housing budget for China-hired foreigners and China
returnees ranges from US$1,000 to $3,000 (median) per
month.
During the past few years, there has been no significant
change in housing assistance practices. However, housing
assistance is most likely to be reduced significantly if
"localization" of packages continues to become more
widespread.
Organizations will, at some point, be inclined to do
away with direct housing reimbursement and offer a fixed
housing allowance, which may well be lower than the housing
reimbursement currently offered.
Tax equalization is the most popular tax assistance
practice for expatriates who are hired by regional or global
headquarters. However, organizations do not provide tax
assistance for China-hired foreigners and China returnees.
Most organizations expect them to bear the individual income
tax themselves. (see Figure 4)
Education assistance is a very popular benefit for
expatriates assigned by global/corporate or regional/ Asia-
Pacific headquarters. This factor alone can sometimes be a
deal breaker, especially if the expatriate has a large family.
Private international education in China does not come
cheap, and can sometimes equal the tuition fees of U.S.
universities. Options for education for foreign children
are limited. Also, in most cases, the prevailing medium of
instruction is Mandarin Chinese. As a result, the majority of
organizations provide private education assistance to help
cover the tuition fees of international schools for expatriate
children across all expatriate categories. The policies are
flexible enough to accommodate different kinds of school fees,
especially tuition and transportation, as long as the costs are
within a reasonable amount. |
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While benefits such as educational assistance continue
to be offered to mostly all assigned expatriates, more than
half of the organizations surveyed said they do not offer this
to all China-hired foreigners. Only top executives within this
group are eligible to receive this. For PRC returnees, most
organizations do not include education assistance as a critical
part of the benefits package because their children are more
likely to adapt to the local education system.
Some of the benefits that are being phased out include
home leave and Rest and Relaxation (R&R) leave assistance.
Fully reimbursed R&R trips to Phuket or Bali no longer form a
part of the benefits package. R&R leave is a thing of the past,
and special home leave is less common, too; most companies
offer only standard annual leave. |
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A world of opportunity has opened up for talent in China.
Although immediate shortages of talent pose a threat,
organizations are making continuous changes in their people
processes to more effectively attract, engage, and retain
talent.
The projected economic growth is going to make
overcoming people issues even more challenging in the future
if the right steps are not immediately taken by organizations.
The changing face of expatriate pay is a testimony to
China's efforts in realigning current talent strategies. |
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Lindsay (Oliver) Klump
is a senior consultant in
Hewitt's compensation
and benefits practice in
Shanghai. To learn more
about Hewitt's upcoming
2008 expatriate, China
Hire and Returnee
Compensation and
Benefits study that was
released in November,
please contact Lindsay.
oliver@hewitt.com or
+86 21 2306 6916. |
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Hewitt Quarterly Asia Pacific
is made possible through the combined skills and experience of Hewitt consultants from across the Asia-Pacific region.
For further information please contact:
Hewitt Associates
2601-05 Shell Tower
Times Square
Causeway Bay
Hong Kong
Tel: (852) 2877-8600
Fax: (852) 2877-2701
editor-hqap@hewitt.com |
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