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With optimism in the air in anticipation of better days, companies are making concerted efforts on building their employer brand and becoming attractive to prospective hires. However, joining the mad rush to hire people may not be the best HR practice during economic recovery. In a period of growth immediately after a downturn, there is more competition for talent, making hiring more expensive. Hence companies require to post superlative performance to arrive at similar levels on return on human capital investment. Corporations that take the bolder course of taking bets on the existing teams can see marked productivity increases and improved returns on human capital investment. Tapping into geographical diversity and using predictive analytics can help global corporations make these "right bets".
PwC's recent Saratoga data (database of people and performance metrics) shows that while promotion rates and learning and development investment fell in the slowdown years, companies joined the race to hire people at the first sign of recovery.
At the same time, disaffected employees are starting to leave, with same data showing a higher exit rate for both high performers as well as high potential talent. To take an example, resignations among high potential employees in the US increased from 2.4 per cent in 2011 to 4.4 per cent in 2013. The trend is similar in India.
Companies across the world go on a recruitment drive during economic recovery on account of two factors. One, to compensate for the cutbacks in workforce during recession, and two to fill in the gap arising out of a higher rate of churn post-recession. Quick recruitments, however, come with their own sets of problems. It could lead to poor hire quality, with more people resigning in their very first year. The impact on productivity can be assessed without difficulty. The first-year-of-service turnover rate in the US, for instance, increased from 21.5 per cent in 2011 to 24.1 per cent in 2013 suggesting a poor fit between talent and jobs. The average three month turnover rate in India increased from 3.22 per cent in 2011 to 4.24 per cent in 2013.
In such a context, following a smart growth strategy can help companies post higher profits per employee. This is where predictive analytics comes into play - to understand talent supply and accordingly make informed hiring and talent management decisions. However, it is not enough to use metrics on their own as they can sometimes give misleading messages. For example, revenue per full-time equivalent often rises in the early stages of a recession because the workforce is depleted. These metrics therefore need to be studied carefully in conjunction with other relevant data to get to the meaning behind them.
Smart growth is about doing more with the same, and then moving on to doing more with more. Work-force increases need to happen incrementally and in tandem with increases in revenue. Rapid recruitment can be tricky since it lowers overall productivity - smart growth suggests increasing work-force productivity first and then adding to the headcount. A recruitment plan should be backed by a thorough analysis of the skills that the organisation needs at the time of hiring. Additionally, the plan should take into account what the organisation would desire for its growth in the future. This may require taking hard calls on turning down "pedigree" talent that does not fit in the new order of things.
In essence, recruiting more efficiently, matching people carefully to their roles and encouraging greater productivity by paying attention to engagement and training can help organisations outmanoeuvre competition as they come out of the downturn.
Our data shows that the learning and development investment as a percentage of compensation is 1.50 per cent in best quartile companies against 0.90 per cent in median quartiles.
The role of diversity and trust
Over the next couple of decades, diversity will become a necessity rather than an objective. We expect that there will be a 50 per cent increase in global mobility by 2050. While there is a lot of effort at promoting diversity, there is a vast difference between being a more diverse organisation and making diversity work. Our own data shows no direct correlation between gender diversity and returns on human capital investment, proving that there is a difference between simply employing people and using them well.
Building trust has a huge role to play in creating inclusive workplaces and fostering the benefits of a diverse workforce. Our understanding is that Indian CEOs value diversity much more than their global counterparts. In such a scenario, human resource teams in India need to work on building diverse and inclusive workplaces where an atmosphere of trust prevails. Indeed, building a trusted employer brand has huge payoffs: Our Saratoga research shows that a 1 per cent increase in the Talent Brand Index can generate a 1.5 per cent increase in the acceptance rate and a 1 per cent decrease in short term resignations. However, the essential nature of trust is changing, given that the modern workplace offers a more fluid environment with flexible work practices and situations where colleagues may never meet in person. The real value of trust comes through when the atmosphere of mutual trust becomes ingrained in everyday behaviour.
In sum, the human resource function today plays a far more business-focused and strategic role in most organisations. We could all sit back and watch another talent war unfold, or we could chose another path - smart growth. Fostering trust in the workplace will go a long way in boosting engagement and productivity.
Padmaja Alaganandan
Leader, people & change, PwC India
