Thriving in an era of unprecedented volatility
Pressure to Drive Growth. Rapid Technology Changes. Extraordinary Risks.
These forces are converging to create an era of unprecedented volatility and we are seeing organizations start to recognize just how critical their people are to their success and the future of their businesses.
In fact, Aon’s Global Risk Management Survey 2017, the failure to attract and retain top talent was listed as one of today’s top risks. Somewhat unsurprisingly, nearly every top 10 risk identified was directly or indirectly related to human capital.
People risk is beginning to dominate the business and news cycle. Nearly every day we hear about cyber breaches, banking controversies and sexual harassment violations – incidents that are unlikely to abate in 2018. Technology also continues its dizzying pace with few organizations truly keeping up with the rate of change.
Top 10 Risks of 2017
- Damage to reputation/ brand
- Economic slowdown/ slow recovery
- Increasing competition
- Regulatory/ legislative changes
- Cyber crime/ hacking/ viruses/ malicious codes
- Failure to innovate/ meet customer needs
- Failure to attract or retain top talent
- Business interruption
- Political risk/ uncertainties
- Third party liability (inc. E&O)
Organizations have a stark choice: They can continue to wade through its volatility, as they have in the past, or start migrating their people risk.
As human capital continues to be a top business priority for businesses, the question becomes, “How are organizations prioritizing their people?” We interviewed leaders from across Aon, as well as a few close clients, to determine what we see as the upcoming people trends for 2018.
Top Business Priorities
- Human Capital & Talent Management
- Profitable Growth
- Customer or Client / Service Relationship
- Revenue Growth
- Infrastructure / Operational Efficiency
- Organizational Structure
- Global Expansion (Tie)
- M&A (Mergers & Acquisitions) (Tie)
Workforce & Organizational Design
The Tightening of Borders
Recent changes to immigration policies around the world are already impacting the flow of talent from country to country and we anticipate this trend will continue in 2018. These types of policy changes are making it more challenging to hire the critical roles, which could result in a skills deficit for companies in the upcoming year.
Take Brexit, for example. Although its impacts will be felt in 2018, few businesses are prepared for the shift. As we discussed in our Divided Workforce paper, many organizations have yet to adopt strategic workforce planning measures to set up contingencies for the future.
The M&A Paradox
The mergers and acquisitions market has seen four years of solid growth worldwide, a trend that is expected to continue in 2018. However, in the United States, the aggregate transaction value has decreased by almost 20 percent, from $1.95 trillion in 2016 to $1.58 trillion in 2017 – and the total number of deals has decreased by 10 percent, from 13,100 in 2016 to 11,800 in 2017. Adding to this, valuations of deals are at an all-time high. We have seen clients become increasingly skittish about the deals they undertake, concerned about possible government intervention that may stifle their efforts. The implication therefore is that HR must act as the voice for employees from both organizations. Organizations risk missing their overall M&A goals as well as future organic growth opportunities by ignoring the human capital element of M&A.
Employees will face heightened demands for productivity and profits in 2018, according to our experts and clients – but basic technology and productivity infrastructure continue to be a problem. In fact, enabling infrastructure was one of the top engagement opportunities identified in our 2017 Trends in Global Employee Engagement study. Specifically, employees lack the tools they need to do their jobs effectively, and inadequate technology often is hindering their ability to work efficiently. In 2018, we expect organizations to prioritize employee infrastructure and increase spending on software and hardware.
43% of respondents indicated that Brexit would likely have a negative effect on their ability to move throughout the organization
What’s the People Risk?
- Gaps in critical skills & roles
- Difficulty with inorganic growth
- Decreased productivity over time
- Create multiple workforce planning scenarios
- Leverage talent from across the organization to solve issues
- Prioritize enabling infrastructure
Talent Acquisition & Development
Fluidity in Hiring
While contingent workers, especially in the technology sector, are now commonplace in most organizations – as we found from our Radford Talent Pulse research – we anticipate that organizations from other sectors will adopt this hiring practice with increasing frequency. The process for hiring, training, and deploying full-time employees can be costly, especially if the employee base is experiencing rapid turnover. Flexible staffing allows organizations to quickly pivot to temporary and seasonal changes without the need to hire and lay off full-time staff when the busy season winds down.
If organizations intend to continue using contingent workers, talent acquisition and onboarding must keep pace with an increased rate of hiring and turnover. At many organizations, talent acquisition is still a slow and painful process – one that does not always result in hires who are well matched to their positions. In 2018, we expect to see the talent acquisition process speed up, using more efficient automated systems that provide a first pass at screening employees.
Using Simulations to Paint a Picture
On websites like Glassdoor and LinkedIn, job candidates are potential brand ambassadors or detractors. It seems reasonable, then, for organizations to want to make their interactions with candidates easy and fun.
Organizations are starting to improve the candidate experience by simulating an actual day on the job to assess their capabilities and ability to manage. Virtual reality technology can make that experience even more real.
This has a two-fold benefit. Organizations benefit by making employee selection more accurate, and candidates benefit by getting a more realistic representation of the job, making it easier to “self-select” if the job isn’t what they were expecting. Assessment leader Ernie Paskey explains that from a recruiting perspective, virtual reality technology is able to give applicants a much better view of the company – as well as the duties of the particular job they would be taking.
80% of employee turnover is due to bad hiring decisions and can cost companies over $8,000 a day
Equipping Managers for the Future
One problem we see, particularly as Millennials take on people management responsibilities for the first time is the lack of the tools and resources managers need to develop their teams. While we see organizations encouraging managers to have more performance conversations with their subordinates, many managers are provided with little or no direction to guide the conversations effectively. Little is being done to prepare managers for difficult conversations, and many simply aren’t equipped or trained to do their jobs well. We expect this trend to reverse as managers push back on the demand for performance unless they are given adequate guidance and training.
45% of managers in Financial Services sector don’t have the right tools and resources to discuss performance management
What’s the People Risk?
- A mis-match of skill demand and supply
- Hiring employees who lack an accurate understanding of the actual job
- Managers unable to translate organizational strategy into team actions
- Examine your hiring process from the inside out
- Make your recruitment process fun and engaging
- Ensure your managers have the appropriate tools & resources
Flexibility in Rewards
As the quest to find top talent becomes increasingly competitive, organizations are looking at alternative methods to attract the best and brightest. Emerging trends include paying back an employee's student loans and mainstreaming benefits such as compassionate care benefits, autism benefits (e.g. diagnostic services and behavioral therapies), and employee recognition (e.g. length of service awards or on- the-spot rewards for exemplary performance)'
We see rewards being segmented according to the importance of the role itself. Positions that are mission-critical to organizational growth and require in-demand skillsets are incentivized with additional benefits. Organizations are also starting to customize rewards for growth-oriented roles, based on demographic factors such as age and marital status, and then using these profiles to build benefit packages. For example, a mid-20's software programmer living in a city would likely not need vehicle insurance, but a late 50's leader would likely need both vehicle and homeowner insurance.
There are over 44 million borrowers with $l.3 trillion student loan debt in U.S.
Conversely, organizations are minimizing customization to erase biases associated with gender and ethnicity. Many organizations are performing pay equity analytics to ensure they are getting pay mix correct, and we expect this trend to become mainstream in 2018_
Rounding out total rewards is the focus on wellness outside the workplace. In addition to health wellness, we expect more organizations to offer financial wellness programs aimed at helping employees plan their futures. Many are moving to social wellness programs that utilize physical and digital social networks, and we believe more organizations will utilize these emerging programs in 2018.
In 2017, 76% say the overall total rewards program is the same as or better than others, down from 84% in 2015
What’s the People Risk?
- Rewards that are not meaningful to employees
- Preventable mental / physical illnesses that take away from productivity & create systematic business continuity risks
- Benefits that do not provide appropriate value for your investments
- Take a ‘total rewards’ approach to pay & benefits
- Identify areas of opportunity for wellness programs
- Segment employees based on needs and life-stages
The world is more volatile now—and so far, leaders have been keeping pace. One emerging trend we see, particularly In the technology space, is the adoption of agile methodologies that allow leaders to act as enablers rather than gatekeepers. For example, this occurs among teams that focus on getting a product to market by breaking down the work into manageable tasks. Research on the nature of intact teams shows that work today is far more fluid and ad hoc. For the sake of speed, leadership must simply get out of the way and leave decision making up to the team. We expect to see more structured assessments of leaders to ensure "fit" for future organization needs.
Tightening Up Succession Planning
Too often succession planning a check-the-box exercise done once a year and then forgotten. However, with heightened scrutiny on leadership— both internally and externally via regulators— organizations are starting to re-examine their succession planning programs. Succession planning is now on the agenda for boards of directors and, in turn, organizations are now thinking of succession planning in the same way as scenario planning. These advanced succession plans Include a pool of successors with different capabilities based on possible future scenarios. Many organizations are utilizing metrics to ensure their leaders are prepared for their next role, and they are integrating diversity analytics into tracking mechanisms. The best companies are integrating other human capital programs, such as strategic workforce planning, into their succession planning metrics.
4 out of 10 employees are uninspired by leaders about the future
Calculating Leadership Risk
Nearly 30 percent of firms do not have sufficient pipeline for critical roles, which, if ignored, has been proven to have detrimental financial impact. We are starting to see organizations examine the risk that is inherent in leadership behaviors, similar to how they weigh a competitive or environmental risk. Leadership can also model behaviors that put the organization or its customers at risk, which could affect the bottom line. Thus, we see an increased focus on specific leadership behaviors and the possible risks that leaders pose to the external reputation of the organization.
29% of firms do not have sufficient talent pipelines for their CEOs
What’s the People Risk?
- Leadership styles & preferences that are a mismatch with business needs
- Leadership gaps during times of volatility & uncertainty, which can directly impact the bottom line
- “Cults of personality” built around leaders that could backfire
- Lack of succession pipeline that leads to business continuity issues
- Assess leadership’s ability to lead agile teams
- Test new decision-making processes within teams
- Reexamine your succession planning process and the mechanisms to track leadership gaps
Culture, Engagement, & Employee Value Proposition
Creating a Culture of Inclusion
Sexual harassment cases are all over the news, and organizations are taking strides to amend the Situation. However, some forward-thinking organizations are turning inward to determine if there are Issues inherent within their own cultures. using research on toxic work environments, many organizations are taking a hard look at contributing conditions. Feedback mechanisms that encourage employees to speak up without fear of retaliation are a step in the right direction, but there is much work to be done to stamp out damaging behavior in the workplace.
Managing Digital Brand Unpredictability
Social media has given organizations a voice, but goes two ways. An online presence must be actively managed so that this powerful feedback mechanism remains civil. lob boards and hiring review websites like Glassdoor provide a look into your organization from a hiring standpoint, but they also offer an unvarnished reflection of culture. Key priorities for 2018 should involve taking these sites seriously and acting on the feedback.
Continuous Listening with Continued Support
Ad-hoc pulse-taking and increased frequency of engagement measurement are two big topics in the HR realm While these are positive improvements, organizations must ensure their employees are not fatigued by endless surveys. Forward thinkers are instead utilizing advanced listening methods like sentiment analysis, taking action based on survey results, and communicating their findings to employees. Engagement surveys can ring hollow without action.
High-growth firms are 2x more likely to focus on culture than average growth firms
What’s the People Risk?
- Damage to brand & reputation from negative employee behaviors
- Negative brand impressions that can turn away the best talent
- Annual surveys that only give a “slice in time” view
- Examine the negative aspects of your culture to determine opportunities for improvement
- Communicate the results of engagement surveys as well as actions taken in response to employee feedback
- Proactively manage your employer brand & ensure consonance with overall brand
HR Embracing Technology
Marketing and Finance have welcomed new technologies into their everyday lives, yet HR seems to be stuck at the entryway to digitalization. While HR departments have bought and integrated new systems to improve their ability to run analytics and collect metrics, few have the actual people capacity or capability to get this work done.
Shift in Capabilities
HR needs to self-reflect and determine where its skill gaps emerge. Depending on the results, HR generalists may need to move into a more consultative role within their functions. There may also simply be a need for more data-heavy skill sets within the function. Overall, HR must ensure that has strong digital leadership to meet increasing demands from other parts of the business. For more information on the digitalization of HR, please read our white paper.
Self-Reliance in HR
We have heard from a number of clients that want more out of their HR functions. Forward-thinking organizations are breaking HR tasks down into buckets- what can be done in-house, outsourced, or automated – and then are taking steps to improve their own functions. More self-service in HR has reduced the number of administrative tasks, meaning that many professionals may need to rethink their roles and the value they bring to the function. We see more organizations using their increased bandwidth to connect people data to larger business results, and we expect this trend to continue into 2018. HR practitioners are also looking at ways to make HR more “consumer-grade” – fundamentally revisiting HR’s role in the company.
61% of employees say work hour flexibility would be the most meaningful program offered by any employer
What’s the People Risk?
- HR’s inability to grow out of its traditional role as a support function
- A lack of human capital representation for business decisions
- Over-reliance on tools to discover insights and provide intelligence
- De-fragment the work of HR professionals to ensure that leaders are not taking on administrative work
- Break down HR’s role into tasks so the function can look for opportunities for automation and optimization
Conclusion: Volatility Is the New Normal
2018 feels uncertain, even more so than in previous years. However, uncertainty itself seems to be a trend. Last year we predicted uncertainty and volatility, and It seems like acceleration in volatility is the new normal. The question now becomes: "How will organizations react to change?" Will they continue to wait and watch as some did in 2017? Or will they take this opportunity to reflect and radically change how they operate?
Although volatility can be destructive, it also creates opportunities in the form of technology disruption and market changes. Businesses simply must be ready and willing to adapt when necessary, and treat failure as an opportunity to improve on past mistakes—and perhaps most importantly, to create a 2018 where everyone is accountable to make the future a better place.
CHROs and HR professionals have an opportunity to play a role and help their organizations explore ways to cope with these new complexities. The right people strategy can not only mitigate the uncertainties and pervasive risk businesses are facing, but also inspire a culture that discovers and capitalizes on opportunity.
Aon is here to guide you along our journey. Our HR experts are ready to assist you through any roadblocks you experience, and our data-backed solutions will help you move forward with confidence.
Workforce & Organization Design
- The Tightening of Borders
- The M&A Paradox
- Redefining Infrastructure
Acquisition & Development
- Fluidity in Hiring
- Using Simulations to Paint a Picture
- Equipping Managers for the Future
- Flexibility in Rewards
- Addressing Disparity
- Total Wellness
- Agile Leadership
- Tightening up Succession Planning
- Calculating Leadership Risk
Culture, Engagement & Employee Value Proposition
- Creating a Culture of Inclusion
- Managing Digital Brand Unpredictability
- Continuous Listening with Continued Support
- HR Embracing Technology
- Shift in Capabilities
- Self-Reliance in HR