1. Aligned at the Top
How business and HR executives view today’s most significant people challenges—and what they’re doing about it.
Geert Vercaeren
Director Human Capital
Deloitte Consulting

2. About the survey
“Aligned at the Top” is a global survey of business, people, and HR issues, trends and challenges
Objective was to understand the connect or disconnect between senior business executives and HR leaders on the people and HR agenda
Conducted by Deloitte Touche Tohmatsu and the Economist Intelligence Unit
Since the first survey in 2002:
People and HR issues have continued to rise on the business agenda
HR functions have made significant strides to improve their efficiency and service delivery
Yet key questions remain:
What are the people issues that keep executives awake at night?
How are these issues being addressed, and what is HR’s role?

3. Methodology
Global survey of 531 HR and non-HR executives representing 468 companies
Written survey responses: 481
Personal interviews: 50
HR leaders and senior business executives: 259
Responses from HR leaders: 40%
Companies of every size, from every major region and industry
About the survey
Deloitte and the Economist Intelligence Unit collaborated on this study. Senior business executives and HR leaders from 468 companies participated in the research. Data was collected in the form of 481 written surveys and 50 interviews. Participants represented every major region and industry, and companies varied in size from more than $10 billion in revenues to less than $125 million.

4. Agenda About the survey People at the top put people at the top
People challenges that keep executives awake at night
Rising to the challenge

5. People are critical to performance
Senior business executives and HR leaders agree that people are vital to all aspects of performance
More than 85% of all participants consider people “vital” to every aspect of their organization’s performance
HR and business executives were closely aligned on the importance of people.

6. Agenda About the survey People at the top put people at the top
People challenges that keep executives awake at night
Rising to the challenge

7. People issues are increasingly strategic
Both senior business executives and HR leaders view people issues as becoming more and more strategic
Today
More than 60% of senior business executives already consider people issues “very significant” or “highly significant” to strategic decision-making
50% of HR leaders agree
In the future
90% of senior business executives believe people issues will be “very significant” or “highly significant” to strategic decision- making in three to five years
86% of HR leaders agree
HR and business executives also agree that people issues will be increasingly important in the future.

8. The key people challenges are clear…
HR leaders and senior business executives agree the most critical people issues are:
Leadership development and pipeline
Talent management
Creating a high-performance culture
Training and development

9. . . . but HR’s role is still being defined
“People” and “HR” are often treated as separate conversations
People issues are considered “strategic”
HR issues are perceived as “administrative”
When senior business executives talk about strategic people issues, the HR function is rarely even mentioned. But to achieve desired results, HR leaders and senior business executives must work side-by-side, forming a new collaboration to tackle the company’s most pressing people issues.
People Issues
(Strategic)
Examples:
Leadership development and pipeline
Talent management
Creating a high-performance culture
Training and development
HR Issues
(Administrative)
Examples:
Compensation and benefits
Performance evaluations
HR operating efficiency
The survey results suggest that “HR” and “people issues” are often two entirely separate conversations.
When business executives talk about HR, they focus on things like benefits, performance evaluations, and HR operating efficiency.
But when those same executives talk about people issues, they focus on strategic challenges such as leadership development, talent management, development, and culture -- and in many cases the HR function isn’t even mentioned.

10. Regional variations
Survey results were very consistent across all three regions, with a few minor exceptions
Issue
Similarities
Differences
Importance of people
People are “vital” or “extremely vital”
People issues will be increasingly important
North America rates people issues highest
HR effectiveness
HR considered “moderately effective”
North America rates HR highest
Western European rates HR lowest
Sources of talent
Top source of talent is development of existing personnel
Asia Pacific shows the strongest interest in overseas recruitment
In North America and Western Europe, demand for overseas recruitment is small, but rising quickly
Role of HR
HR increasingly viewed as a strategic value-adding function
HR activities most commonly outsourced:
Asia Pacific: training
Western Europe: payroll
North America: benefits administration
Overall, companies in Asia Pacific, Europe, and North America are strongly aligned on the importance of people to business performance and growth. However, some of the key challenges and approaches vary from one region to the next.
Similarities:
Respondents in all three regions generally agree that people are either ‘vital’ or ‘extremely vital’ to all aspects of performance. They also agree that people issues will be increasingly important over the next three to five years.
The majority of respondents in every region believe the perception of people management as a strategic value-adding function will dramatically increase over the next three to five years.
Companies in all three regions also agree that the most valuable source of current and future talent is development of existing personnel.
Differences:
The majority of respondents in all three regions rate their HR function as “moderately effective.” However, HR tends to receive its highest marks in North America and its lowest marks in Europe.
Similarly, 60% of North American respondents rate people issues as ‘significant’ or ‘highly significant’ to strategic decision making, compared to only 49% in Asia Pacific and 48% in Western Europe.
North America appears to be the first region to be hit hard by shifting demographics. Almost half of North American companies already consider demographic shifts to be a major challenge – twice as many as in Europe or Asia Pacific.
Nearly half of respondents from Asia Pacific already view overseas recruitment as a valuable source of talent. Demand for overseas recruitment is currently much lower in North America and Europe; however, the practice is expected to gain ground in both regions, particularly in Europe[C2].
In Asia Pacific, training is the activity that is most commonly outsourced. In Europe, payroll is at the top of the list. And in North America, benefits administration is the activity most likely to farmed out to a third party.

11. Industry variations Every industry faces a talent shortage
Specific challenges — and responses — vary by industry
Examples:
Industry
Typical challenges
Typical responses
Retail
Hiring large numbers of entry-level sales associates
Rapid turnover
Need for quality service at low cost
Additional training for store managers
Minimal training for low-level staff
Banking
HR considered “moderately effective”
Additional training for low-level staff
General training about the banking business
Energy
Ageing workforce
Tarnished public image
Increased recruiting investments
Companies in every industry are concerned about finding and developing the next generation of leaders. However, other key people challenges vary from one industry to the next. For example, companies in the retail industry require large numbers of entry-level associates to man the sales floor, which means they must find ways to control costs and maintain service quality in the face of constant turnover. “With associates, it’s all about better, faster, cheaper,” says one executive from a leading North American retailer. “Turnover is very high. But what we’ve found is that pouring more money into training at the associate level doesn’t help. It’s better to train the store managers.”
In contrast, a number of companies in the banking industry are placing greater emphasis on training their entry-level employees. “We increased the funding for training so staff had more opportunities for learning,” says the HR Director at a large North American bank. “Now some of this is very basic stuff, but you’d be surprised how little a large segment of people understand about the banking business. So if you’re going to work at a bank, it’s very helpful if you can understand the overall scheme of things.”
For energy companies, one of the main people challenges is to replace an ageing workforce whilst overcoming the bad press they have received from incidents such as the Enron scandal, accusations of price gouging at the gas pump, and concerns about global warming. “Recruitment of the best and brightest is definitely one of our greatest challenges,” says the senior VP of research at a large energy company. “We don’t exactly have a great reputation on college campuses. ”

12. Agenda About the survey People at the top put people at the top
People challenges that keep executives awake at night
Rising to the challenge

13. Top people issues
How can HR leaders and senior business executives work together to address a company’s strategic people issues?
Leadership development and pipeline
Talent management
Creating a high-performance culture
Training and development

14. People challenge #1: Leadership development and pipeline
Rated as the top people issue
Grooming the next generation of leaders is every leader’s responsibility
Leading companies are pushing advanced leadership training down to middle management
Provides a steady pipeline of leadership candidates
Helps develop skills and capabilities consistent with the company’s strategic direction
Shows talented people they are valued
Keys to results
Collaborate with business schools and other third parties to develop and deliver the training
Have senior executives help develop and deliver the training
“It’s the responsibility of managers throughout the company to identify leaders and develop them. Every manager needs to be able to point to two or three people underneath him or her who have the potential to move up, and then provide experiences that makes that possible.”
— Director of HR at a mid-size technology company
Today’s executives view leadership development as their top priority, rating it far more critical than traditional HR issues such as compensation, benefits, and HR operational efficiency.
“I make it my business to know who’s next in line,” says the VP of operations at a large manufacturer in the United States, “and I make it my managers’ job to be able to tell me who’s next in line and so on, and we make sure they’re ready before we need them to be ready.”
In the past, advanced leadership training was usually reserved for top executives. But now, more and more companies are pushing this training down to the next level of management. This expanded approach has a number of significant benefits. One, it provides the business with a steady pipeline of qualified leadership candidates. Two, it helps ensure that these future leaders develop skills and capabilities consistent with the company’s strategic direction. Three, it fosters loyalty by letting talented people know their value is recognized and that the organization is willing to invest in them as individuals.
Companies often hire top business schools and other third-parties to develop and deliver advanced leadership seminars and workshops. However, our experience suggests that the best results come from having the company’s senior executives directly involved in the training effort. It’s fine to capitalize on the knowledge and expertise of outside experts, but in the end there’s no substitute for direct contact with top executives who have personal experience leading the company’s troops.

15. People challenge #2: Talent management
Two-thirds of senior business executives consider “skills gaps” one of their most significant workforce challenges
Chronic talent shortage being driven by:
Baby Boomer retirements
Declining birth rates
Shifting educational patterns
Requires a comprehensive and balanced approach to talent management
Keys to results
Align with business strategy
Don’t rely solely on financial incentives
Focus on critical workforce segments
Create an inventory of skills
Collaborate with universities
Use offshore talent
Two-thirds of senior business executives say “skills gaps” are among their greatest workforce challenges, so it’s no surprise that they consider talent management a top priority.
“Talent is getting tougher to find at home, tougher to keep and more expensive,” says the CTO at a mid-size technology company. “It’s cheaper overseas but it’s the same story -- it’s getting more expensive and it’s tough to retain.”
Although retention problems are often the first signs of trouble, they are really just symptoms. In many cases, the business is looking for a quick fix. But what it really needs is a comprehensive talent management strategy that provides sustainable relief to a deep-rooted socio-economic problem.
“One of our big initiatives is retention,” says the VP of HR at a large manufacturing company. We’re doing a lot in terms of reviewing our payment practices for engineers and we’re starting to pay salaries more akin to what you might find in a larger city. We’re also providing more incentives to stay, [such as subsidized tuition].”
The ideal talent strategy varies from one company to the next and is inextricably linked to business strategy. For example, a commercial bank that is pursuing a premium service, high-touch strategy requires different skills than a bank that intends to provide efficient, low-cost services to the mass market.
Different companies with different strategies will also have different critical workforce segments – groups of employees who are particularly crucial to the business, and who make an extraordinary contribution to shareholder value and overall performance. According to the survey, recruiting, retaining and developing these critical pools of talent is a top strategic priority -- even more important than replacing retiring baby boomers or finding talent overseas.
An effective talent management strategy strives to help all employees achieve their full potential; however, it focuses extra attention on the individuals and groups that matter most. For example, the United Parcel Service (UPS) considers its delivery drivers a critical workforce segment since they are the primary point of contact with customers and a key factor in service quality and timeliness. Drivers sometimes complained that the worst part of their job was waking up early each morning to load up the truck. The company responded by hiring entry-level staff to handle the loading, so drivers could focus their energy on timely deliveries and exceptional customer service.
Other companies are taking similar steps. “We are taking a harder look at high potential and high value people,” says the VP of HR at a mid-size technology company, “and we’ve agreed it’s critical that we begin making sure we’re addressing their concerns and (managing) their work/life/career balance. We’re not taking it easy on them, but we’re not killing them either.”
As demand for critical skills continues to outstrip supply, companies must constantly look for new sources. “It’s taking longer to fill positions than it once did,” says the VP of Finance and Business Development at a privately-held bio-tech firm. “So we’re expanding the net so to speak, creating more relationships with more schools. We’re working with [a nearby university] to create a course that specifically introduces what we work on here, an applied genomics course, and we’ll be providing some of the curriculum and taking on several interns per semester.”
Companies are also making a greater effort to track and manage the talent they already have. “We have developed certain highly advanced rosters of capabilities, a database if you will, where searches can be conducted to identify individuals with desired experience or capabilities,” says the Finance Director at a major European life sciences company. It’s a means of accessing knowledge with precision and timeliness.”
All of these techniques can help a company overcome the skills gaps that threaten to undermine growth and productivity

16. People challenge #3: Creating a high-performance culture
Corporate culture and employee behaviour have a significant impact on performance
More than 60% of all respondents said the CEO is most responsible for influencing culture and values
Culture and behaviour are also driven by critical workforce segments and key events
Keys to results
Target critical events
Target critical workforce segments
Use HR practices to shape culture and values
performance evaluations
compensation structures
improved communication and coordination
Link behaviour to strategy
Corporate culture and employee behaviour have a huge impact on overall business performance. But where does culture come from -- and how do you shape it to improve business results?
Our research shows that while values and cultural attitudes provide a foundation for employee engagement, in order to drive performance and results there must a clear link between executable strategy and behaviour. Achieving this link is a top priority, and in most cases the CEO – not HR -- appears to be leading the charge. According to the survey, more than 60% of HR leaders and non-HR executives say their CEO is most responsible for influencing the organization’s culture and values.
Of course, CEOs aren’t the only individuals who have a major influence on corporate culture and its link to performance. Our experience shows that people throughout the organization can have just as much impact as the person at the top. In every organization, there are critical events and critical workforce segments that have a disproportionate impact on sales, innovation and customer service. Identifying and reinforcing the right behaviours in these critical areas can have a major impact on profitability and competitiveness.
For example, the culture at a technology-oriented company is often strongly influenced by the designers and engineers who are the primary source of product innovation that fuels business growth. Yet, at a consumer goods company the link between behaviour and performance may be driven by the marketing managers who oversee each product and product line, and by the behaviour of front line sales associates
The best way to change and improve an organization’s culture is to target these critical behaviours and workforce segments. Focus on linking critical behaviours to business strategy and the results will follow.
HR’s influence on culture
According to our survey, the majority of HR executives (52%) believe they play a significant role in shaping a company’s culture. However, other business leaders don’t necessarily agree. Among non-HR executives, only 32% view the CHRO or HR director as a major contributor in this area, while 24% say the CHRO or HR director does not contribute to company culture and values at all.
However, these perceptions are likely to change if HR’s role expands into strategic areas such as talent management and workforce productivity. For example, a small manufacturing company in Latin America recently assigned its CHRO to work with the board’s HR committee to enact a cultural transformation. Principal challenges include improving communication and coordination, and revising performance evaluation and compensation structures. These tactical initiatives can have a significant influence on employee values and behaviour -- helping to improve the company’s culture and performance.
“It’s not just building a high performance organization, it’s about how you build passion”, says the CEO at a privately-held manufacturer in the United States. “How do you engage people and have them bring more than just their basic competence, which is just enough to collect a pay check?”
“It’s not just building a high-performance organisation, it’s about how you build passion. How do you engage people and have them bring more than just their basic competence, which is just enough to collect a pay check?”
— CEO at a privately held manufacturer in the United States

17. People challenge #4: Training and development
Executives view “development and training of existing personnel” as their most valuable source of talent
Leading companies are focusing more effort on training and development
Improves employee productivity, loyalty, and performance
Provides the critical skills that companies need
Is one of the few competitive factors a company can control
Keys to results
Tailor development programs to individual needs and interests
Make training part of everyday operations
Continuously reinforce the training
Many companies continue to base their talent strategies on traditional approaches such as increased recruiting investments, or big salaries and signing bonuses. These quick fixes might provide a little short-term relief. However, they won’t be good enough to overcome the chronic talent shortage we currently face, which is driven by deep-rooted factors such as baby boomer retirements and shifting education patterns.
Fortunately, a growing number of companies are figuring out that the best way to tackle a chronic talent shortage is to grow their own. These companies view development and training of existing personnel as their most valuable source of talent – both now and in the future – and have made it a top priority. “If we had to hire these people or replace these people,” says the regional CEO of a Chinese manufacturing subsidiary, “the costs would be so much greater than the investment of keeping the people and developing them in the first place.”
Training and development also have a direct impact on overall performance. “In terms of training, we find that constant reinforcement of what is expected delivers improvement,” says the VP of Marketing at a major European retailer.
Perhaps the best reason to invest in training and development is that it’s one of the few competitive factors you can actually control. You can’t stop the workforce from aging or go back in time to change what people studied in school. And you can’t control the actions of your competitors or the overall economy. But by investing in training and development, you can boost employee loyalty and performance while fostering the critical skills your business needs to compete and thrive.
The key to success is tailoring development programs to fit a person’s specific needs and interests. “We make a great effort to know our people, to help them recognize their strengths and weaknesses, and align all of that to our needs,” says a senior VP of research at one of the world’s largest energy and chemical companies. “People here understand where they can go and they’re encouraged to make choices and take actions to get what they want -- and what we need.”
To be effective, training and development can’t be relegated to a special department. “Every manager has to be committed to engage in this process and drive the program -- and we measure the engagement,” says the regional HR director for a wholesale distributor and retailer in China.
Training and development must also be fully integrated into daily operations -- and constantly reinforced. “What you will not see is people being discussed as our most important asset only once a year in some annual evaluation,” says the VP of HR at a major life sciences and healthcare company. “It drives our dashboard, every day.”

18. Agenda About the survey People at the top put people at the top
People challenges that keep executives awake at night
Rising to the challenge

19. The gap between HR capabilities and business needs
Senior business executives want HR to be more effective
Only 4% describe HR as highly effective in addressing the needs of the business
60% described HR as only moderately effective

20. Getting strategic about people
HR is often out of the loop on strategic issues
Percentage of companies that “rarely” or “never” consult their senior HR team on key business issues
Mergers and acquisitions (63%)
Compliance and regulation (26%)
Talent (25%)
Only 14% of HR leaders believe HR is currently perceived as a strategic, value-adding function
At large companies, the figure is even lower (less than 10%)
However, 40% expect perceptions to improve in three to five years
Senior business executives have high expectations
95% expect HR to be perceived as a strategic, value-adding function within the next three to five years
What is HR doing to close the gap?
And will HR’s efforts go fast enough — or far enough — to satisfy the company’s needs?
At most companies, HR largely remains an administrative function with limited involvement in strategy.
According to the survey, only 14% of HR executives believe HR is highly valued by senior business executives. At large companies, the number is even lower (10%).

21. HR must continue to improve and streamline its operations . . .
HR outsourcing on the rise
29% of all respondents already outsource recruitment, training, and payroll
Another 18% expect to outsource these and other HR activities in the next three to five years
Other ongoing improvements
Shared services centers
Centers of excellence
Self-service
Offshoring
Potential Benefits
Reduce HR costs
Improve efficiency
Enable HR to focus on strategic business issues
More and more companies are outsourcing selected HR activities, and the trend is expected to continue for the foreseeable future. Among the surveyed companies, 25% already outsource recruitment, training, and payroll, while another 15% expect to outsource these and other HR activities in the next 3 to 5 years.
In addition. many HR organizations are shifting their administrative transactions and other non-strategic activities to a shared services centre or outsourcing vendor. In theory, this allows the retained HR organization to focus more attention on strategic business issues.
“Administrative processes have been outsourced to the fullest extent possible. Now you might believe we were treating HR as an afterthought and you’d be right. But the way it’s turning out, that’s really a world-class approach. We’re not in business to administer HR.”
— VP of finance and business development at a small, privately held bio-tech company

22. . . . while building new skills and capabilities . . .
CHROs needed
Companies need HR staff who can think and act like a CHRO — at every level of the company
HR staff must be business people, not just administrators
Deep understanding of the business
Hands-on experience
Ability to work closely with business leaders to address complex problems
Improvement begins at the top
52% of all respondents do not have a Chief Human Resources Officer (CHRO), Chief People Officer (CPO), or other C-level executive who is dedicated to people issues
68% expect to have such a position within the next three to five years
To be a true strategic partner, HR staff within the business must be capable of assessing people challenges and devising executable solutions. In many HR organizations, these advanced skills and capabilities are in short supply and must be developed.
Companies need more people who think like a CHRO -- at every level of the organization. People with deep business experience who understand business issues and can work with business leaders to solve complex problems.
The process of transforming HR into a strategic function begins at the top. As it stands, most companies (52%) still do not have a chief human resources officer (CHRO), chief people officer (CPO), or other C-level executive who is dedicated to people issues.
Sixty-eight percent of the surveyed companies expect to have such a position within the next three to five years. However, that may not be fast enough given the critical people challenges that businesses already face.
Moreover, the creation of a senior-level HR position is only one step in a long and challenging journey. To really make a difference, HR staff at every level must improve their understanding of the business, and then develop new HR capabilities to help the company address its most pressing issues.
“HR people have to understand the business first. Career HR managers are useless except in a purely administrative sense. To be a CHRO, you have to be a business person first, and then an HR executive second. You absolutely have to know how HR fits into the business, and you can’t know that unless you know the business.”
— CHRO at a global power development company

23. . . . and measuring results in business terms
What you measure says a lot about what you value
Old HR metrics (administrative focus)
Total payroll
Total compensation
Training costs
New HR metrics (business focus)
Time spent on managing people issues
Time to efficiency for new managers and employees
Potential Benefits
Improve HR’s business focus and impact
Help HR shed its “touchy-feely” image
What you measure says a lot about what you value. In the past, when HR was strictly an administrative function, it tended to focus on measures such as total payroll and total compensation. But as HR becomes more strategic, it is starting to focus on performance-driven measures such as time spent on managing people issues and time to efficiency for new managers and employees.
A rigorous approach to performance measurement can help HR improve its performance – and help eradicate HR’s “touchy feely” image. “We have a strategy of measurement and we use control groups,” says the group human capital manager at a large company with sales in excess of $5 billion. “For example, where we use one method of (applicant) screening versus another, does the person hired bring in significantly more revenue? We also did this for some of our sales training programs where we measure the impact. It’s hard core, but we’re doing the analysis and feeding it back into our processes.”
This new approach to performance measurement is a clear sign that HR is serious about increasing its strategic impact on productivity and performance.

24. Thank You