Don’t always blame the CEO

CEOs say it's investors who don’t care about the quality of the workforce.

HR professionals regularly complain about CEOs who don’t appreciate the value of good human capital management. In fact CEOs do — it’s investors who are the problem.

Chief executives want to have great talent and invest in human capital, but they feel when they do they are unfairly penalized by the markets, said Joel Kurtzman, a partner with PricewaterhouseCoopers, which surveyed more than 1,100 CEOs from around the world.

“CEOs are very predisposed to invest in their people and very frustrated by the fact the market doesn’t value that highly enough,” he said. More than 80 per cent of respondents said workforce quality and retention is an important indicator of company value, but only 51 per cent of responding CEOs believe investors take the quality of a workforce into account when assessing an organization.

Half of respondents also said they had laid off staff and 46 per cent report having outsourced non-core functions in response to current economic challenges.

Meanwhile, another survey of Canadian executives reveals that recruiting and retaining top talent remains an important priority but they are most preoccupied with reducing costs and improving customer satisfaction (see chart).

Business leaders are faced with a dilemma, said Mark Boudreau, a partner with Accenture, the firm that conducted the study of more than 300 Canadian business leaders. They have been trying to do things cheaper and cheaper and feel like they can’t cut anymore, yet shareholders are still demanding they go even further to be more competitive, he said.

“The only way they can make money is not to do the same job cheaper, but to do the job differently.”

Pressure to improve performance may force leaders to look at fundamentally changing their business through large-scale outsourcing, he said. While business process outsourcing has increased in popularity in recent years, in most cases the outsourcing has been done on a limited tactical level. Business transformation outsourcing represents a strategic change in the way a business operates to actually drive value and improve performance as opposed to just cutting costs.

“Companies are not taking knee-jerk reactions to respond to current economic pressures. They are making strategic decisions — keeping their R&D programs intact, for example, while making long-term adjustments to the sizes of their workforces and outsourcing non-core functions,” said Samuel DiPiazza Jr., CEO of PricewaterhouseCoopers.

He also said companies should do more to educate investors on why factors like workforce quality and retention are important.

“If a company invests in technology it might get a positive response from the market but if they spend an equal amount on people the market doesn’t respond to that. That is the type of thing that frustrates CEOs,” said Kurtzman. Typically that is only because people don’t understand how important those factors are in creating value.

Current corporate reporting models completely exclude human capital measures except as an expense. Most of the big consulting companies have also called for changes to financial reporting to include non-financial measures like investments in human capital. Studies have shown how good training and good retention rates benefit the organization and drive value. The business leaders know about this but investors don’t, Kurtzman said.

According to the Accenture study, most Canadian senior managers (64 per cent) view cost savings as the biggest advantage of outsourcing and more than 90 per cent report some experience with outsourcing. They also say their experience, and therefore expertise, is limited.

And while 68 per cent predict outsourcing certain functions, processes or entire organizations will be a priority for 2002 and 2003, they are also reticent about sweeping outsourcing arrangements, expressing fear about the loss of control, as well as the effects it may have on corporate culture and the changes in management style it entails.

Many organizations have plans for large transformational projects to jump start performance but they simply don’t have the money to do it and so they stay on the shelf, said Boudreau. In other countries — Australia, New Zealand and the United States — it’s been proven that business transformation outsourcing, where organizations focus much more closely on their core business, can bring sweeping positive change with much smaller up front investment, he said.

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