Are you prepared for the <i>real</i> new economy?

Study predicts different business landscape by 2003 and HR needs to be ready

Finally getting costs under control and maximizing efficiency? Well hurry up — it’s time to move on.

A new study reveals that companies with the brightest futures have already moved beyond cost containment and fine-tuning operating efficiencies to focus on innovation, developing new products and a superior customer value proposition, and exploring new growth opportunities.

“The dust is still settling, but already there’s a whole new breed of company emerging,” said Jim Murta of the management consulting firm Towers Perrin and a member of the team that conducted the study. “We’re seeing a fundamental shift in business strategy towards top-line revenue generation through such means as innovation and customized new product development.”

In other words everything until now was prologue and the study suggests businesses probably only have a couple of years to change their models — and consequently HR practices — or risk falling behind.

Canadian firms may have felt like they were struggling, and maybe even succeeding in adjusting to the new economy, and without question it has been a difficult few years, what with remarkable technological advances and a frustratingly small labour pool.

But according to the international study of global businesses, by Towers Perrin and business analysts The Economist Intelligence Unit, most firms have been using old thinking and programs to improvise makeshift solutions rather than implementing the fundamental changes the new economy will inevitably wrought.

Technological advances create enormous opportunities for growth by opening up new markets, distribution channels and relationships with customers as well as the opportunity to develop different products and services. The new economy isn’t just about doing what you do better, it’s about doing new things.

“You can’t grow by simply driving down the costs,” explained Murta. Cost containment and efficiencies will obviously continue to be important but priorities will shift to generating new streams of revenue.

“This has significant implications for operating models, and particularly for how companies organize their people and motivate them to contribute to business success,” he said.

In particular, by 2003, business leaders believe there will be a far greater need for multi-skilled, entrepreneurial people who are e-literate and who demonstrate a real commitment to innovation. (see chart page 1.)

And leading companies have also put a much greater focus on their people. In this regard, the study found leading-edge companies share a number of common features, they:

•believe their employees have a superior understanding of how their day-to-day decisions and actions affect business results;

•recognize the critical role leaders play in engaging employees in the business;

•place greater emphasis on career-enhancement opportunities, challenging work and company brand as ways to focus employees on delivering business results;

•make greater use of pay for performance programs;

•structure reward programs to meet the needs of individual employees; and

•concentrate on developing an internal employment brand that supports desired workforce values.

However, three challenges will loom large for companies in the next couple of years:

•attracting and retaining the right people;

•ensuring employees have the skills to support the company’s value proposition; and

•motivating people to invest time, effort and creativity in the business.

Participants in the study expressed a real concern about a gap between the effectiveness of current offerings like career advancement, challenging work, learning and development programs, and variable pay and their future importance.

Through the survey of 227 senior managers at global corporations from around North America, Europe and Asia, as well as a series of discussion groups and personal interviews as well as financial and demographic analysis, the researchers concluded that top-performing firms — those in the 90th percentile in terms of shareholder return over the last five years — have already embraced the new model and are focusing on the strategic drivers necessary for success in the next couple of years.

The study Business, people and rewards: Surviving and thriving in the new economy reveals that prevalent concerns of improved profitability, cost management and growth by acquisition will give way by 2003 to a greater emphasis on innovation, e-commerce sales solutions and new products and services.

Murta himself has seen indications that organizations are getting serious about aligning people practices with the changing imperatives of the business world.

Suddenly clients are looking for help to change HR programs when just 18 months ago they were much less willing to believe an overhaul of their HR would be necessary to attract and retain employees in order to remain competitive.

One participant in the study, a new president at a large American pharmaceutical firm, explained that his role would be significantly different from his predecessors in that their old command and control structure was gone for good. Instead he will be preoccupied with putting the right people in the right position and bringing them along with the vision for the company.

“What we need to do is market to our employees what we are about. If we do a good job of that the company will perform better,” he said. “We need to respond to employee needs.”

Towers Perrin research has shown that engaged employees will lead to better financial performance and therefore HR is going to have a bigger role to play, said Murta.

For years the kings of most corporations have been the shareholders, but increasingly shareholders are going to realize that it is in their best interest that employees are treated well and are happy, predicted Murta.

“It sort of shifts the balance of HR’s role in this whole thing,” said Murta. “Their importance in the organization should really go up.”

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