UK middle market companies failing to deliver on<br>key people issues

Despite claims by middle market CEOs and FDs that investing in people is one of the top two areas of investment that would improve their competitiveness, the latest Business Insights survey from PricewaterhouseCoopers LLP reveals many business leaders are failing to practice what they preach.

An annual survey, this yearsí Business Insight has focused on HR/people issues, and involved interviewing over 500 CEOs, FDs and HRDs. It identifies several areas - including training, succession planning, workforce communication and the role of HR within the company hierarchy - where, unless major improvements are made, businesses will struggle:

Many companies face a significant problem in resolving who is responsible for training - HR or line managers. Over half (58%) of the companies identified learning and development as the key to improving people performance. However, almost half the business leaders (49%) believe their line managers do not spend enough time helping to train their people, while only 5% of CEOs and FDs see training as the primary role for their HR function. There is a real need for clarity on this issue.

Failure to develop succession planning for senior roles will have a major impact on almost two-thirds of companies, with 22% having done little on this front and a worrying 41% doing nothing at all.

Despite the fact that 88% claim effective communication has a direct impact on the bottom line, a staggering 92% use the unreliable ëgrapevineí as a means of communicating, believing it more successful than a formal system of e-mails and memos, while use of staff surveys is low.

Many business leaders appear to place limited importance on the role of HR, with 52% of CEOs spending less than 10% of their time with the most senior person responsible for people related issues. Ominously, 51% of companies describe the primary role of their HR function as that of ëan administration centreí, yet 73% of HR directors see their role as strategic ñ a clear misalignment on understanding HRís role and value within the organisation.

Isabel McGarvie, Human Resource Services partner PricewaterhouseCoopers LLP said:

ìThese findings show a considerable gap between corporate rhetoric and action. Saying you are going to invest in human resources is easy, but turning good intentions into profitable business practice is the real test, and is one that does not appear to be delivering optimum results. In this yearís review, 75% of companies state that they are in growth and expansion mode and that improving the performance and productivity of their people is vital to deliver that growth. CEOs clearly understand the fundamentals of good HR/people practice but many appear reluctant, or unable, to implement them.

ìThe issues raised by the research are not all about soft HR; if companies get people policies right, the impact on the bottom line is positive and there will be less fighting in the market place for increasingly scarce talent. The sooner the rhetoric turns into hard focussed activity, the sooner bottom line impact will come through.î

The review also looked at how companies identify rising stars, why people leave or stay, and how firms establish the views of their staff.

Nearly 70% of companies identify future stars through performance appraisals. Although this may be better than intuition it is a limited approach, as appraisals are, by their nature, retrospective and do not assess future potential.

Despite the fact that 52% of companies believe they offer their people challenging job opportunities and 32% that they have effective reward arrangements in place, lack of career progression (42%) and salary considerations (46%) were cited as the two main reasons people leave. Although in the last year 85% of respondents have reviewed their strategic business plan, it is apparent that matching people policies and behaviours to that plan is low priority. The results show that over 80% of annual bonus schemes, and between 50% and 70% for other longer term incentive plans, have not been reviewed within the past two years.

Establishing employeesí views is also poorly handled by many businesses, despite stating that they are focusing on gaining employee commitment (37%) and improving individual performance (41%) to increase productivity. The reality is that only 41% carry out staff surveys, while 40% have never used them. There is huge scope for a more effective approach to employee communication and staff engagement.

Isabel McGarvie continued:

ìSuccession planning should be a key focus of any business plan, as should reward. Companies should look at how well they have aligned their reward schemes with their business strategy and also study the link between reward and staff commitment and loyalty. Higher pay is often cited as a reason for leaving a company when other factors are really at play.

ìFurthermore, if companies improve how they identify their future stars, fewer will leave to get their career aspirations fulfilled elsewhere. PricewaterhouseCoopers Saratoga people benchmarking data shows that it costs between six months and one yearís pay to fill a job via the external market. Recruitment is expensive, risky and takes time. Retention not only provides continuity and assists with succession, but it also reduces expenditure.

ìCompanies need to make sure their staff know where the business is going, whatís expected of them, how success will be measured and what their reward will be in terms of pay and career progression. Good communication is vital.î

The study also reveals that many CEOs and FDs continue to find HR a business area where it is hard to measure success and improvement. However, CEOs, FDs and HR directors all agree that introducing metrics would help to structure people effectiveness and the delivery of HR services. For their part, HR directors want to be seen as strategic contributors and 69% say they want to introduce metrics to help improve people and HR effectiveness.

Michael Rendell, lead partner HRS PricewaterhouseCoopers LLP said:

ìA properly structured HR function has the potential to deliver significant benefits to the business. However, it requires strong clarity of roles and responsibilities, as well as Board Room influence, if people are to be taken seriously as part of the business growth plans.î