Challenges for human resource management and global business strategy

Challenges for human resource management and global business strategy

Companies must navigate the choppy waters of a complex global economy, and position themselves to attract and retain the workers they will need on this journey.

As this paper has shown, firms will face several challenges from both the future workforce and from the changing nature of work itself. As a result, HR managers will need to get ahead of the game by understanding these major future demographic, technological and societal shifts, and then preparing themselves accordingly.

The Nature of the worker

HR challenge: Adapting to a rapidly changing worker profile

Sweeping demographic changes across both the developed and developing world will place greater pressure on both the government and private sector to initiate and implement creative solutions to educate, integrate and retain a rapidly changing and diverse working population.

With hundreds of millions of women predicted to pour into the global workforce in the coming years, and temporary and part-time workers a significant and seemingly permanent fixture, companies need to adapt further to a new breed of employee. When you add the issues of a multi-generational workforce and growing cultural diversity, it is no surprise that people management is cited to be by far the most substantial challenge facing companies over the next five to ten years, according to a 2013 survey of 636 C-level and senior executives by The Economist Intelligence Unit, sponsored by the SHRM Foundation.

Ageing populations across the globe will continue to pose a challenge for businesses. On the one hand, experienced employees are departing the workforce, leaving a leadership void. On the other hand, many older workers, particularly those in the US and other industrialized countries, plan to carry on working well past the traditional retirement age. Many will simply need to continue earning, as social safety nets, pensions and other benefits will no longer be adequate or available. But HR will need to establish more targeted incentive structures to keep less committed older workers in the workforce. Companies will also need to
anticipate and assess which new skills and training older employees will require, particularly in the realm of technology where they may feel less comfortable than many of their younger colleagues.

Even if more babyboomers can be persuaded to stay around for longer, many companies will feel vulnerable as they leave the workforce in droves over the next few years. Companies will need to manage the successful transfer of experience and knowledge to younger generations at the outset of their careers. If demand continues to outstrip supply for certain positions, companies will also need to rethink how to hire junior workers into positions requiring more tenure and experience, and determine what additional training will be necessary.

Preparing the world’s youth for the workplace will certainly present challenges. In countries with high youth unemployment rates, there are increased concerns that many young people will leave the workforce permanently, producing a lost generation. Meanwhile, the skills and education of the millennials who remain in the workforce must always be relevant and attractive to employers. As we see below, governments, companies and educational institutions will need to create solutions that reform the educational system, and prepare the future workforce for employment opportunities.

Companies have so far struggled to maximize the potential of women, who are dramatically under-represented at the top of major companies. A mere 13 out of the largest 500 companies in the world by revenue had women CEOs in 2012, a proportion of just 2.6 percent.65

Nine of these CEOs were in the US, where, nevertheless, women occupied just 16.9 percent of corporate board seats in Fortune 500 companies in 2013.66 In Southern Europe, in countries such as Greece, Portugal and Spain, that figure is comfortably within single figures.67

The standard reason given for female under-representation at the top of the business world is the fact that women often take time out of the workplace to look after a family. However, around one in four American graduate women is now childless in their mid-forties,68 reportedly rising to one in three in Germany.69 Clearly, other factors, such as the lack of female role models and the challenges of breaking into a male-dominated club, also play a part. Whatever the cause, the result is a waste of the talent that companies maintain is so difficult to find.

This issue has been embraced by politicians keen to curry favor with the female half of the electorate. Pressure from governments is set to increase. Despite opposition from certain countries, a plan to increase the minimum proportion of female non-executive directors in public companies across Europe to 40 percent is winding its way through the EU legislature.70

With the tide turning, companies will feel they need to seize the initiative before political interference imposes unwanted changes. Mentoring from senior female executives to their younger counterparts and the early identification and rapid career development of high-potential women are both essential aspects of a proactive approach.

Perhaps most importantly, companies will need to find a way to keep these high-potential women in the fold, committed and interested, if and when they take a temporary break from full-time work due to family commitments. Continued dialogue with mentors, and involving them in discrete, but strategically important, home-based projects with senior management access, may both help.

More broadly, HR will have to meet women’s demands for equal pay and promotions in addition to customized benefits and perks like daycare, flexible hours, maternity leave and child healthcare. With employee benefits, one size does not fit all. The incentive systems of the past no longer satisfy all employees, especially with the labor force expanding to include a more varied and international workforce.

HR challenge: Understanding the subtleties of workers’ qualifications

As the definition of work continues to evolve, the range of skills that employees need have not necessarily been provided by traditional educational systems. In the 2013 EIU/SHRM Foundation survey, executives reported that the current disconnect between the skills fostered by education and those they actually need will represent a very considerable obstacle in the coming years.

This makes it difficult for HR to assess applicants’ qualifications properly. To complicate matters further, there is lack of standardization in education, especially in a global context. As businesses expand and hire beyond borders, the need for HR to scrutinize job qualifications carefully becomes ever more important. Major disparities exist between various regions and institutions in individual countries, as well as between countries. The ability to understand these differences will enable HR to make more informed hiring decisions. Through collaboration with other functions of the organization, HR can increase its understanding of qualifications and skill sets to ensure that hired employees are capable of executing their functions.

Population decline, due to lower birth rates, along with stagnant educational reform, have prompted many organizations to fear future skills shortages, particularly in certain roles. A 2012 Economist Intelligence Unit survey of senior executives throughout the world revealed that the most problematic recruitment challenges, by a substantial margin, relate to technical/engineering roles, and to the strategy and corporate-development function.71

Strategic vision and the ability to handle complexity were cited to be the most difficult skills to find among senior executives, presumably also the reason why strategic roles are deemed so problematic to fill. Companies are clearly struggling to recruit those with the apparently rare ability to guide them through an unpredictable and competitive external environment.

For positions lower down the organization, executives are particularly perturbed by a lack of soft skills, such as creativity, adaptability and good interpersonal communication.

The lack of advanced soft skills appears particularly acute in Asia Pacific, causing concern to the many global companies seeking a rapid expansion in the region. In an executive survey conducted for the 2011 Global Talent Index, written by the The Economist Intelligence Unit and published by Heidrick & Struggles, 52 percent of Asia Pacific respondents said that “limited creativity in overcoming challenges” was a primary shortcoming among candidates, compared to 37 percent in Western Europe and 36 percent in North America.72

Without these skills, vast swathes of the graduate population in some emerging markets are deemed unemployable. How do companies overcome these twin shortages of technical and engineering skills on the one hand, and soft skills on the other? A multi-faceted approach is necessary, as companies take a more proactive role in securing the qualifications they are looking for.

First, companies will need to foster a close relationship and dialogue with educational institutions and governments. “Access to STEM talent is integral to our success in the next three to five years,” says Brian Silva, Chief Human Resources Officer and Senior Vice-President of Administration at Fresenius Medical Care, which specializes in the production of medical supplies. “We need to partner with educational institutions to change the way courses are being taught, ensuring they address contemporary business issues and future business strategy.” This collaboration could prove pivotal in equipping the future workforce with the necessary skills to bridge the labor-market gap. Organizations can influence the material being taught through redesigning curricula with policymakers, and developing creative education solutions.

Indeed, they may explore potential partnerships with universities to provide technical and vocational-skills training, or continuous education opportunities. One Indian-based education and training company, Global Talent Track, has been based on this principle of collaboration between various stakeholders. It is funded by Intel Capital, Helion Ventures and Cisco Systems, with its founders emanating from industry, academia and technology. By 2015, it seeks to equip 500,000 aspiring students with the vocational skills that they will need in the workplace.73Another example in India is the public-private partnership (PPP), The National Skills Development Corporation, which promotes skill development by catalyzing the creation of large, high-quality, for-profit vocational institutions. These types of initiatives give raise to the broader policy question: Who should bear the burden of educational investment in workforce-skills development—individuals themselves, corporations or governments?

Another method of counteracting any deficiencies in the educational system is to establish an efficient internaltrainingand development system. For example, the Indian IT industry has instituted what the entrepreneur and academic, Vivek Wadwha refers to as “a surrogate education system”.74 The IT services company Infosys is reported to have the largest corporate university in the world, having trained around 100,000 graduate recruits in writing software codes and formulating algorithms since it was first established in 2002.75

HR challenge: Retaining and engaging a changing workforce

As the demographic composition of the workforce changes, their motivations and expectations evolve too. It is imperative that HR understands what is most valued by these workers. Is it compensation, or prestige, or perhaps autonomy at work? In many cases, HR will have to adapt their incentives, benefits policies, and retention strategies for workers that are not just driven by financial compensation. It is not enough simply to recruit able staff. Companies have to make sure that their people are committed, productive, and do not leave after a short period, incurring substantial turnover costs and wasting all previous training invested in them.

This will be no easy task. Much of the workforce is not engaged in their work. According to Gallup’s latest 142-country study on the global workforce, only 13 percent of workers worldwide are “engaged,” meaning that they are psychologically committed to their jobs. The bulk of the working population—63 percent—are “not engaged,” indicating that they lack motivation. A substantial minority—24 percent—are “actively disengaged,” unhappy and unproductive and liable to spread negative attitudes to co-workers.76

Generation Y, as they are commonly known, are reputed to have low organizational loyalty and are eager to make an impact. Even if these younger, skilled workers are committed, retaining them is a major challenge and HR will have to explore varied retention techniques, adapted to the preferences of the relevant individual.

Companies have sought to respond to millennials’ needs according to their size. Smaller companies, in particular, have cottoned on to the idea that modern-day workers are more likely to crave freedom from micro-management. Nearly half of the sample of the smallest companies in a 2012 Economist Intelligence Unit survey grant autonomy to workers as a talent-management tool, a percentage that decreases as the company becomes larger and more bureaucratic. One company in this smaller category is Zensar Technologies, who solicits opinions from a diverse cross-section of their workforce, not least as a means to increase employee engagement (see the Workforce motivations section for a case study on Zensar).

The largest companies in the Economist Intelligence Unit survey are likely to use the size of their organization as a motivational tool, offering varied assignments in different parts of the world to workers with high potential. This policy serves a dual purpose. It allows companies to plug any skills gaps in certain parts of the world, while also providing opportunities that many younger employers are seeking. A 2011 PricewaterhouseCoopers (PwC) survey found that 71 percent of Generation-Y workers expect and want to complete an overseas assignment during their career.77

Motivational strategies for younger workers are particularly necessary in regions of the world where there is intense competition for candidates with the right skills. With multinational companies expanding, local companies multiplying and the number of 15- 24-year-olds entering the labor force expected to fall by almost 30 percent during this decade,78 China is likely to be an exceptionally harsh battleground. A 2012 McKinsey study reported that senior managers working for the China divisions of multinational firms switch companies at a rate of 30 to 40 percent a year— five times the global average.79 Keeping salary costs down to a commercially acceptable level will be a challenge. Average salaries are predicted to increase between 6 and 10 per cent in China in 2014.80

Retaining the older workers who wish to delay retirement over the coming years may be less of an issue. However, getting the best out of them might be. A 2010 Economist Intelligence Unit survey found that they are the hardest group to motivate. Of respondents, 47 per cent believed that, of all groups in the workplace, it is hardest to engage “long-serving or experienced staff,” with only 25 percent citing “employees under 25.”81

The Nature of work

HR challenge: Aligning technology best practices to global management strategy

In the last 20 years, new communication technology, such as email, mobile phones and web and videoconferencing has not only facilitated closer contact with clients in distant lands, it has allowed multinational companies to form cross-border teams, where colleagues can communicate with each other constantly, despite not being located in the same place. In short, technology has enabled the international expansion that companies seek.

Saving on business travel and relocation costs for individual workers have been other major benefits. Virtual teams also significantly enlarge the pool of available knowledge. Individual team members can offer extensive experience with different markets and an understanding of geographically disparate customer demands and sensitivities. An overwhelming majority (83 percent) of executives in a 2014 Economist Intelligence Unit report agreed that a diverse workforce improves their company’s ability to capture and retain a diverse client base.82

Culturally diverse virtual teams also stimulate innovation and creativity. Groupthink—decision-making within a group, characterized by uncritical conformity—is more likely within a team composed of people from the same background.

Technology’s evolving role in redefining what work means will require firms to come up with new and innovative strategies to manage their increasingly mobile workforce. These strategies will need to help mobile workers remain engaged and connected to the wider organization they serve. An improved ICT infrastructure and increased usage in developing nations will certainly continue to expand the availability of local talent for recruiters and HR managers. However, challenges will persist, as many potential labor-market participants will lack access or adequate technological literacy. HR departments within major global firms will need to engage with local governments, universities, community colleges and vocational schools to offer ongoing training for all existing and new employees as technologies change.

With companies now engaging with a flexible and mobile workforce, performance measures will have to be revamped. Once managers prioritize outcomes, and not just productivity or process, new evaluation models will be necessary. HR will also need to assess the most effective methods for managing and communicating with teleworkers, particularly across borders.

HR challenge: Managing the risks of a global operation

Despite their clear benefits and growing importance, managing remote, cross-border teams presents management challenges that the corporate world is still learning to tackle. A 2009 Economist Intelligence Unit executive survey reported that one-third of virtual teams are thought to be badly managed.83

There are some obvious practical obstacles in running a virtual team. For example, all the members must feel comfortable using all the various communication technologies. Time differences can also complicate organization and co-ordination.

Human interaction may be less smooth without face-to-face communication. Natural social bonds are more difficult to develop when people only meet virtually. This makes building an environment of trust and cooperation more problematic, resulting in regular misunderstandings. When disagreements do arise, the less frequent contact makes them harder to resolve.

However, a 2009 Economist Intelligence Unit survey found that it is cultural and linguistic differences that present by far the most pressing challenge for virtual-team managers. Differences in culture appear in a broad range of attitudes and values, greatly increasing the potential for a breakdown in team cohesiveness. Such differences span a wide range of areas, including attitudes toward authority, teamwork and working hours.

Cultural and linguistic misunderstandings, both internally and with prospective clients, can be very costly. Another Economist Intelligence Unit survey, this time from 2012, found that one-half of companies admit that communication misunderstandings have stood in the way of a major cross-border transaction, incurring significant losses for their company.84

The failed 1998 merger of two car manufacturers, Germany’s Daimler-Benz AG and the American Chrysler Corporation, provides a prominent illustration of the economic costs of cultural conflict. Several commentators have suggested that Daimler’s formal and hierarchical structure clashed irreconcilably with Chrysler’s more relaxed and less differential approach, resulting in defections of key personnel and the eventual breakdown of the relationship.85

Cross-border teamwork is so important to companies’ performance that it cannot be left to individual managers to grapple with by themselves. They will need assistance and guidance on how to approach a very different managerial challenge from those they have faced with traditional co-located teams.

Adequate financial resources will need to be allocated to the IT infrastructure, which is such a crucial element in the proper functioning of a virtual team. Leadership training in topics such as the resolution of conflict, instilling purpose, and how to ensure mutual trust and clear communication within a far-flung team are essential. Organizations also need to advise managers on the selection of team members for a cross-border team, with a greater emphasis on the ability to handle cultural differences than is necessary for traditional teams. A 2010 Economist Intelligence Unit survey of executives with international experience discovered, for example, that “cultural sensitivity” was by an overwhelming margin the most important attribute of a successful expatriate.86

Over the next five to ten years, employers will need to implement more sophisticated recruitment policies as the global talent pool expands and operating risks (geopolitical, legal and financial) become more complex. They will also need to build a common work culture, encompassing similar ethics and values, among people who hail from very different cultures.

HR will need to become better integrated into their firm’s overall risk-management and business-continuity planning. Specifically, it will have to be more involved in assessing, and preparing for, disruptive events, such as natural disasters, IT-system or operations outages, and interruptions to increasingly global and complex supply chains. With regard to supply chains, HR will have to be more attuned to corporate social-responsibility practices. As the number of global suppliers and subcontractors increases along both the production and distribution chain, HR will need to understand and anticipate the types of risks (such as use of child labor, toxic or substandard components, bribery or other illegal business practices) that could have a negative impact on the firm’s brand and company image.

For employers, many investment and hiring decisions are contingent on a stable regulatory framework. However, motivated by the financial crisis of 2008 and political considerations, many governments have introduced unexpected labor regulations. One example is the sudden introduction in the US of the Family and Medical Insurance Leave Act of February 2014, which will supply up to three months of paid leave in certain defined circumstances. The payment would be limited to 66% of the employee’s income, up to a maximum of US$1,000 per month, and would be funded through a system of regular small additional contributions by employees and employers.87

Higher employee termination costs in China in the past six years have surprised many foreign investors in the country.88 Meanwhile, some OECD countries, such as France and Spain, have sought to make their traditionally rigid labor regulations more flexible. Taken as a whole, the rising unpredictability of public policy in the context of global economic hardship may persuade some companies to think twice about potential investment and hiring strategies.

As mergers and acquisitions (M&A) activity increases around the world, HR will also have to be equipped with the right business intelligence to conduct cultural, organizational and legal due diligence when going through the acquisition process. This is especially true for US firms that acquire companies across Asia, Latin America and other parts of the developing world, where firms operate very differently. Currently, there is no standard HR playbook or HR Sarbanes-Oxley to oversee the integration process. Instead, different country rules in respect of pensions, benefits and severance make it very challenging for HR managers to stay abreast of the latest laws and regulations. This means that HR leaders will need to expand their knowledge base and shift from being nationally focused to a more global perspective.

As other regions become more attractive for investment, companies will look beyond traditional destinations for outsourcing or operations. HR will have to get up to speed quickly on human-capital issues in these potential markets. However, given insufficient knowledge about labor markets in developing countries, HR cannot always make informed decisions. Unfortunately, there is a severe lack of hard data and qualitative insights at the occupational, education and skills levels. Companies, therefore, face the question of who will be responsible for supplying this data to HR departments. Will it be governments or third-party providers? Whatever the source, HR managers will need to find sufficiently reliable data and analytics to make sound strategic business decisions, and minimize risk.

At the crossroads: Conflicting expectations of workers and the workplace

HR challenge: Hiring and retaining talent while lowering labor costs

Large labor-productivity gains over the past few decades have not been matched by comparable wage gains. While both increased technology adoption and globalization contribute to this phenomenon, companies’ increased focus on maximizing shareholders’ value has also been a substantial factor. Furthermore, looser labor laws and decreased union rates have decreased workers’ bargaining power. While this trend has been in existence for a while, pressure across corporations to curb labor costs has only become more acute with the latest global financial crisis.

Retention of talent will prove challenging, as employees feel that stellar performances are not being rewarded appropriately. While their employers continue to have higher work expectations, employees’ efforts are not necessarily translating into compensation they deem to be satisfactory. This is creating a challenge for HR as turnover rates increase. Finding and hiring talent will not prove any easier, as firms continue to decrease their labor investment. On a day-to-day basis, workers may not be as motivated and engaged. HR will have to continue to explore retention strategies and benefits models that focus on factors beyond financial compensation.

Companies may often prefer to have flexible arrangements with employees and avoid costly employee benefits by hiring non-traditional workers. However, developing and engaging the legions of part-time, temporary and freelance workers at all levels of the company is a growing issue for companies. As we have seen, many part-time staff, and most temporary staff, would rather be working on a more long-term footing. To complicate matters, as a recent paper by Cappelli and Keller89 discusses, temporary workers often find themselves in “triangular arrangements,” where it is unclear whether their organizational loyalties lie with temporary agencies or the hiring organization. The costs of less engaged staff with lower organizational loyalty—poor customer service, less attention to quality, little commitment to the company, and higher levels of turnover—threaten to be more substantial than the savings incurred by resorting to flexible employees.

Individual managers will, therefore, need overarching guidance on how to get the most out of non-traditional staff. Making them feel part of the company, getting feedback from past workers on how to improve the nontraditional working arrangement, and ensuring that the recruitment process is equally rigorous for all staff, whatever the nature of their contract, may all form part of any co-ordinated approach.

HR will find it difficult to reward high-performing part-time and flexible workers, and will have to explore methods to offer benefits or incentives to retain them in the pipeline for future work. Given that such contracts often specify work outcome, rather than the process itself, there is less ongoing engagement between a manager and contractor. This makes it more difficult for managers to review work using traditional performance-review systems.

HR challenge: Winning the war for talent

People migration, both cross-border and within countries, adds another layer of complexity to the labor market. Governments play a big role in determining and controlling that flow of labor. However, as organizations continue to expand globally and face skills shortages locally, many require a more mobile workforce. Therefore, organizations and governments alike will seek to understand and gather data on how migration patterns are affecting the composition of the labor market, and how educational attainments and skill sets are shifting.

Governments are often torn between the need to import the necessary skills for the economy, and populist pressure to curb immigration. But that pressure normally focuses on unskilled immigrants, and the associated strains on public services and the benefits system. Many companies are devoting more resources to lobbying for a relaxation of curbs on the most skilled workers. A research group, Center for Responsive Politics, reported that the total number of companies lobbying on immigration in the US Congress rose to 355 in 2012, with technology companies the most active.90

Where more stringent migration laws exist, HR may have a limited talent pool from which to hire, often making it challenging to hire the right people. In countries with looser policies, HR will have to define hiring strategies and outreach programs to be able to tap into the larger workforce pool.

As well as integrating different cultures and nationalities into their workforce, HR will have to grasp the intricacies of migration legislation to ensure that its employees are allowed to participate legally in the workforce. Getting acquainted and abiding by migration laws is not only a costly process, often requiring the hiring of many lawyers and exorbitant visa fees, but often a very complex one, with both policies and national sentiments continuing to fluctuate.

To incentivize employees to work overseas, HR needs to redefine mobility strategies and meet deployment demands, including access to schooling and medical facilities, and comparable standards of living to those experienced in their home country. Research shows that the inability of an expat’s family to acclimatize to a new environment is the most frequent cause of the failure of an employee assignment abroad. Companies will need to provide imaginative support to spouses and children, as well as their employees, if they are serious about global mobility.

As businesses expand to countries with more politically unstable environments or with higher levels of risk, businesses may find it difficult to find employees who are willing to move to these locations. The proper security measures must be in place.

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  2. Catalyst, “Catalyst 2013 Census of Fortune 500: Still No Progress After Years of No Progress”, Dec 10 2013. (
  3. The Financial Times, “Quotas for female board members look like a toad too far,” Jan 9 2014. (
  4. Pew Social Trends, “Childlessness Up Among All Women; Down Among Women with Advanced Degrees,” Jun 25 2010. (
  5. The New York Times, “In Germany, a Tradition Falls, and Women Rise,” Jan 17 2010. (
  6. The Financial Times, “Quotas for female board members.”
  7. The Economist Intelligence Unit, “Plugging the skills gap,” 2012. (
  8. Heidrick & Struggles, “The global talent index report: The outlook to 2015,” 2011. (
  10. Foreign Policy, “Chinese and Indian entrepreneurs are eating America’s lunch,” Dec 28 2010. (
  11. Silicon India News, “Infosys has trained 100,000 graduates at Mysore campus,” May 31 2012. (
  12. Gallup, “Worldwide, 13 per cent of employees are engaged at work,” Oct 8 2013. (
  13. PwC, “Millennials at work: Reshaping the workplace,” 2011. (
  14. The Economist, “Socialist workers: Is China’s labour market at a turning-point,” Jun 10 2010. “
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  18. The Economist Intelligence Unit, “Values-based diversity: what it means and why it matters,” 2014. (
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  21. See, for example, The Economist, “The DaimlerChrysler emulsion”, Jul 27 2000. (
  22. The Economist Intelligence Unit, “Up or out: next moves for the modern expatriate,” 2010. (
  23. The Huffington Post, “It’s time for paid family and medical leave to empower working women and modernize the workplace,” Feb 5 2014.
  24. The New York Times, “China passes a sweeping labor law,” Jun 30 2007.
  25. P. Cappelli and J. Keller, “Classifying work in the new economy,” Academy of Management, 2013
  26. Open Secrets blog, “Special interests battle over immigration reform,” Mar 4 2013. (