September, 2016
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The Next Frontier
Talent, Culture, and Risk
John Bremen, Head of Human Capital & Benefits North America
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“The best way to predict your future is to create it.”
- Peter Drucker
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If Facebook were a country it would be the third-largest
in the world.
Source: facebook.com.
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The number of text messages sent and received in one day
exceeds the population of the planet.
Source: wikipedia.com.
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Baby Boomers are retiring at the rate of
one every 9 seconds between now and 2029.
Source: USA Today Money
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The average U.S. student today will have 10 to 14 jobs
before age 40.
Source: U.S. Department of Labor.
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Percent of children entering school today who will end up in jobs that do not exist yet
65%
Source: Scott McLeod and Carl Fisch, quoted by World Economic Forum Future of Jobs Report, Davos, 2016
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Estimated cost of customers switching companies due to
poor service (U.S.) $1.6 Trillion
Source: Accenture Global Consumer Pulse Research, 2016
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Percent of industrial accidents caused by human error
90%+
Source: Willis Resilience, October, 2013
Why do we talk about Human Capital Risk?
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11 deaths Financial charges: $53.8bn 4.9m barrels of oil Significant environmental risks Brand erosion
Why do we talk about Human Capital Risk?
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Why do we talk about Human Capital Risk?
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Source: Willis Resilience October, 2013
200,000
Accidental deaths in Medicare hospitals every year
99,180 114,500
38,000 Commercial aircraft land in an unstable condition every year
22,000 Accidental deaths in Medicare hospitals every year
Documents lost by the US IRS every year
Mismatched shoes shipped every year
Cheques deducted from the wrong bank account every hour
The path to 2025
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What matters to today’s forward-thinking CHRO… Fr
eako
nom
ics
Creating the enterprise-wide leader
Neuroscience of learning and leadership
Skillset of a 2025 college grad
Technology implications on human behavior
Psyc
hom
etric
s Disruption of technology on talent markets
Creating global community in virtual environment Speed to performance
Defining a rewarding career
Five generations of talent
Work life integration
Defining the new success measures
Transparency over authenticity
Speed to innovation
“State” of the state”
Sustainable (and creative) platforms
Fixa
tion
on m
illen
nial
s Can we afford Gen Z?
Aging workforce…the perfect storm of bad
Speed/agility of making “new” happen
Profile of a 2035 college grad
The employee experience
Technology-driven cultural transformation Virtual management
What’s on the mind of HR executives when it comes to risk
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Four of top five responses involve human capital risk
Quiz time!
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1. How old are the oldest Generation X employees today?
52
Quiz time!
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36 2. How old are the oldest Generation Y
(also called “Millennials”) employees today?
Quiz time!
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Z 3. What is the name of the generation entering the workforce today?
Pace of change
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Time to reach 50 million users
Source: Attributed to Carl Benedikt Frey and Michael Osborne (Oxford Martin School, University of Oxford) and G. Kofi Annan, author; note: some figures disputed
Telephone Radio TV Internet Angry BirdsSpace
75 Years
38 Years
13 Years 4 Years 35 Days
Talent aspirations have changed…and so have the risks…
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Then Now
Skill shortages today
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What’s going on?
Percentage of companies that are having difficulty attracting talent
Source: Towers Watson Talent Management and Rewards Study, 2005 - 2015
0%
10%
20%
30%
40%
50%
60%
70%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Critical-skill Employees All Employees
Talent shortages in 2021: Not pretty for mature markets
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Global talent heat map
The gap between the growth in demand and the growth in supply of talent, 2011 to 2021
Source: Oxford Economics
Growth in the college-educated talent pool
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Source: Oxford Economics
Tertiary educated (talent): E7 and G7 countries
–1% 0% 1% 2% 3% 4% 5% 6% 7% 8% % growth, 2010 – 2021
India Brazil
Indonesia
Turkey
China
Mexico
U.S.
Canada
France
U.K.
Italy Japan
Russia
Germany
Pressures to attract and retain top talent persist in Canada
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Source: 2015 Towers Watson Talent Management and Rewards Pulse Survey #1 (Canada)
28% are reporting difficulty keeping critical-skill employees.
More than half (56%) also report having problems attracting critical-skill employees.
Talent mobility is increasing
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46% said hiring activity has increased compared to last year.
38% indicated that turnover is rising.
Source: 2015 Towers Watson Talent Management and Rewards Pulse Survey #1 (Canada)
Generational population changes are afoot
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New demographics: Generation Y has arrived — Generation X are emerging leaders — Generation Z is on the cusp
Baby Boomers
Generation X Generation Y Generation Z
Age in 2016 53 – 70
Estimated population size (Canada) 9 million – 10 million
Individualistic Loyal Career-focused
Age in 2016 37 – 52
Estimated population size (Canada) 5 million – 7 million
Entrepreneurial Self-reliant Globally minded
Age in 2016 21 – 36
Estimated population size (Canada) 9 million – 11 million
Group-oriented Idealistic Socially conscious
Age in 2016 6 – 20
Estimated population size (Canada) TBD
Realistic Aware Technology native
1946 – 1963 1964 – 1979 1980 – 1995 1996 – 2010 Z Z Z Y Y Y X X X
What will 2018 look like for your organization?
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Illustrative company demographic shift
Pre-Boomer Boomer Gen. X Gen. Y Gen. Z
2008
2013
2018
What we know: Employees are seeking a different employment relationship
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“The days of employment being the only important means for getting work done are passing.”
— Lead the Work, Boudreau, Jesuthasan and Creelman, 2015
“A career today…can mean two years or less…” — Fast Company
“Relationships with organizations are getting weaker” — Matthew Bidwell, Wharton
“When people are financially invested, they want a return. When people are emotionally invested, they want to contribute”
— Simon Sinek
“Independent workers are more engaged than most employees” — 2014 IBM Smarter Workforce Institute Study
of Independent Workers
Current outlook for Human Capital Risk:
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Four near-term trends impacting talent productivity and quality…
1 Skill
Shortages
2 Contingent Workforce
3 Alternative Work
Arrangements
4 Workforce Wellness
The emerging economy
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Technology, digital media and robotics are transforming work and jobs
Sources: Digital Media & Society, World Economic Forum in collaboration with Towers Watson; Towers Watson Research;also reference McKinsey & Co
A truly connected world
collaboration…
Hum
an & m
achine
Social and organisation
Reconfiguration
All inclusive Glo
bal t
alen
t mar
ket
Disintermediation of work is already happening…
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Industrial revolutions and work: The contingent workforce
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Source: John Boudreau, Ravin Jesuthasan and David Creelman
Second Industrial Revolution
Late 19th – early 20th century “The assembly line” Features: Underpinning for Coase’s theory of the firm Companies as social institutions Organization of work into jobs Jobs as careers
Fourth Industrial Revolution/Second Machine Age
2000s - “Uberization” Features: Mobile, sensors, AI and machine learning Companies as platforms Disaggregation of work into activities Talent on demand
Third Industrial Revolution/First Machine Age
1960s – 1990s “Nikefication” and core competencies Features: Technology enablement and the web Companies as the nexus of contracts Streamlining of jobs to enable outsourcing
Our organization is a place containing employees doing work.
Our organization organizes work and talent.
Our organization is a fixed set of functions that work together to create value.
Our organization is a malleable set of functions and deciding which ones get done inside the organization is a big part of strategy.
This will require a fundamental paradigm shift in how work and our organizations are organized
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Supply chain Manufacturing Retail stores Marketing
IT R&D
Supply chain Manufacturing
Retail stores Marketing IT R&D
R&D Retail stores
The reality: The employment relationship is changing
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It is not only coming, it is already here…what risks does it create?
Traditional employment Outsourcing
Free agents Alliance
Talent platforms Volunteers!
What is the disaggregation of work?
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Have we done this before?
Pull out work activities that can be completed outside the company at the same
or better level of skill
Data Analytics Software or Application Programming Other?
Pull out work activities that are easily completed and either time or milestone
bound?
Delivery (pay by delivery) Driving (pay for the ride) Call center (pay by the hour or the call)
The big debate on the new work: Opportunities or risks?
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Opportunities
Transportability
On-demand training
Boundary less careers
Precise work-worker matching
Rewards segmented to match needs
Worker Empowerment
Alternative work arrangements
Risks
Risk shifted to workers
Employers stop training
Death of the career
Commoditization
Rush to lowest cost
Worker exploitation
Loss of continuity
Contingent workforce: Opportunities or risks?
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Alternative work arrangements: Opportunities or risks?
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Financial wellness risks are very real for the U.S. workforce
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Percent of Gen Y saving for retirement
43%
75%
Source: Market Watch, February 17, 2016 Source: Market Watch, September 15, 2015
Those with
company- sponsored plans
Those with no
company- sponsored plans
82%
of Gen Xers said they won’t have enough
saved to retire comfortably
What do we mean by “Human Capital Risk”?
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Human Capital risk comprises risks “from” and “to” human capital, with each dependent on the other
Risks to human capital Skill shortages Competitive threats Poor
management/leadership Misaligned culture Unclear organization/roles Unclear expectations Insufficient information/tools Low motivation/engagement Physical health Financial concerns
As risks to human capital increase, so do risks created by human capital… and vice versa
Risks created by human capital Compliance Discrimination Accidents/Loss Property hazard/damage Productivity/Efficiency Quality Service Financial Differentiation/Strategy/Brand Innovation
What companies are doing
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Human Capital Risks spectrum
Fundamental risks Compliance Accidents/property loss Discrimination/
Inclusion Up-time Employee health Financial solvency/
funding requirements
Differentiation risks Discretionary effort
(“engagement”) Innovation Differentiated service Health and wellness Financial wellness Continuous improvement Proactive hazard
mitigation
Engagement risks Productivity Efficiency Presenteeism Retention/turn-over
Quality Service levels
All Companies
Most Companies
Leading Companies
What companies are doing: Human Capital factors used to mitigate risk categories
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Talent Factor
Workforce Planning
Candidate Assessment
Pay/ Rewards
Health & Welfare Benefits
Retirement Benefits
Culture/ Environment
Training
Employee Productivity/ Competitive-
ness
Quality and
Service Risk
Customer Risk Economic Risk
Compliance Risk
What companies are doing: Key practices based on human capital risk strategy
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Competitive Positioning 25th – 50th percentile Median Above Median
Selection Process General Assessment Broadly Targeted Assessment Highly Targeted Assessment
Workforce Planning Active Sophisticated Highly evolved
Total Rewards Strategy Workforce-Specific Broadly Segmented (focus on key groups)
Highly Tailored/ Segmented (with significant
employee choice)
Pay Focus Company-specific Tailored for key roles Highly tailored by role/ individual
Health Focus Ensure program access Company-sponsored healthcare
Strong focus on physical wellness and choice
Financial Focus Ensure basic financial fitness
Company-sponsored savings programs
Strong focus financial wellness and choice
Risk Culture Compliance-adherence Process-focus Strong personal accountability
Differentiation Risk Strategy
Engagement Risk Strategy
Fundamental Risk Strategy
Human Capital Factor
What are the top ten Total Reward trends broadly…
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.
.
.
Align to Worker Value Proposition
Strategic employment and alignment of programs to fit work completed
Pay for work vs. Role
Increased total rewards choice for workers
Renewed focus on financial fitness
Continued focus on wellness
Expansion of Voluntary Benefits
Leverage an integrated talent platform within the organization
More tailored total rewards
Emphasis on work environment
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Consumer-driven HR The good news: Companies already have been doing this
Corporate social responsibility
Flexible benefit programs
401(k) plans (defined contribution) Paid time off
Flexible work arrangements
Virtual workplace Voluntary
benefits Wellness programs
Private health care exchanges
1980s 1990s 2000s 2010s
Cafeteria style
What companies are doing: Key to reducing Talent Risk: Treating employees like consumers
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Percent of employees believing that their organization should understand them to the same degree that employees are expected to understand external customers
Percent of employees reporting having an employer that understands them in this way
Source: 2014 Global Workforce Study, Towers Watson
Reducing talent risk: Savvy segmentation
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Segmentation: Looking past the obvious
Generations Baby Boomers | Generation X | Generation Y
Stage Profiles Honeymooners | Seasoned Skeptics | Believers | Future Leaders
Life Stages Early Career | Family Focused | Mid-Career | Late Career
Preference Profiles Show me the work | Show me the flexibility | Show me the security | Show me the money
Boxology
Departments | Locations | Functions
Pivotal Roles
Pillars and Pipeline | Innovators | Market Makers
Business Stage
Emerging | Fast Growth | Mature | Turnaround
Behavior Profiles
Quiet Champions | Loud Champions | Outsiders | Transactionalists
Understanding the relationship between cost and perceived value
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STI—2X $67.5M
Merit Increase —+50% $6.5M
401(k) Match—$1-for-$1 to 6% $9.0M
Merit Weighting—Greater performance differentiation $0
STI Weighting—Greater performance differentiation $0
401(k) Company Contribution—6% $4.5M
Medical—Premium -20% $2.4M
Vacation—+2 days $3.1M
STI—Half ($34.7M)
Merit Increase—Half ($5.5M)
Merit Weighting—COLA $0.0
401(k) Match—$1-for-$1 to 3% ($4.5M)
Medical—OOP +20% ($1.1M)
Medical—Premium +20% ($2.4M)
STI Weighting—Based on company performance $0.0
401(k) Company Contribution—4% ($3.2M)
Vacation— -2 days ($1.9M)
Note: Modeled impacts of various reward changes on value in Total Rewards are not additive due to the “portfolio effect.” Modeled impact assumes all other programs stay the same. Changes in value of Total Rewards are point increments or decrements to current value of Total Rewards of 79.5 (from valid conjoint data only).
6.4 5.4 5.3
4.6 4.5 4.5
3.9 3.7
-10.6 -9.5
-8.4 -7.8 -7.8 -7.7 -7.5 -7.2
-5.7
Changes in Value of Total Rewards Change in
Reward Cost
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Using “big data” and workforce analytics strategically
Causal Analysis/
Controlled Evaluation
Projections/ Future-State
Modeling
Trending
Bench- marking
External Reference
Point
Directional Insight
Future Risk Management
Outcome Optimization
Return on Investment
How are we performing relative to benchmarks?
Foundational
Complex
Analytical Sophistication
How are we performing over time?
How do we predict performance?
How do we drive performance?
How are we performing today?
Internal Tracking
Dashboard/ Metrics
Reporting
Global Data
Warehouse How do we access data
to monitor performance?
Data Management
Using “big data” and workforce analytics strategically
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People productivity 1 People investment 2
Labor Cost Breakdown by Type
0
5
10
15
20
25
30
35
40
45
50
0
50
100
150
200
250
300
350
400
450
500
Q1-12 Q2-12 Q3-12 Q4-12
Empl
oyee
s ('0
00s)
Valu
e ($
M)
Profit Revenue Labor Employees
Workforce ROI Trend
Engagement by ROIP Type
Total Cost; $5
000
Total Human Capital Cost; 1
500
Labor Cost as a percentage of Total Cost
Other People Investment charts for consideration: 1. FTE vs. PTE cost by grade
2. Fixed vs. variable cost by grade
Using “big data” and workforce analytics strategically
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0% 20% 40% 60% 80% 100%
ABCDEFGHI 5+
4
3
2
1
0
Workforce Proficiency by Years
Turnover by Level
Labor Projection—Pivotal Roles
0% 5% 10% 15% 20%
ABCDEFGHI
Workforce Mobility
Overall Talent Flows
People capability 3 People risk 4
Examples of strong internal brands from global peers
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“Where your work touches lives.” — Disney
“Do cool things that matter.” — Google
“Grow with us.” — Kellogg
“Help us build a smarter planet.” — IBM
“Inspired by purpose. Have your career validated 4 billion times a day.” — P&G
“Rock Solid® Total Rewards.” — Prudential
“Great people make great beer.” — Miller Coors
“Share your passion.” — BMW
Source: Company websites
Clarify the roles of the EVP and Employer Brand
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Internally Externally
Communication Creating meaningful relationships and building engagement…
…between employers and their employees
…between companies and their customers
Value Proposition Defining the deal…
The Employee Value Proposition (EVP)
The Client Value Proposition (CVP)
Brand Building a connection…
Employer brand Corporate brand
The internal and external view need to be complementary
Chief employee experience officer
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Personnel director Tactical Operationally focused Employee as cost Implement programs Local Manager/director
level
Vice president, HR Broader Organization focused Employee as resource Design programs National Vice president level
CHRO Strategic Business focused Employee as asset Direct programs Global C-suite level
Chief employee experience officer Futurist/strategist Differentiation
focused Employee as value Transcend programs Borderless Board advisor
Chief employee experience officer
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CHRO
“I direct programs to balance the needs of employees, the
company and shareholders.”
Chief employee experience officer
“I create an employee experience that unleashes the potential of our talent to create incremental
value for our customers and shareholders.”
How can this help drive HR strategy and competitive advantage?
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A new strategic framework for HR?
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Product Leadership
Customer Intimacy
Operational Excellence
Treacy and Weirsema: The Discipline of Market Leaders
Application of strategy model to HR
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Product Leadership
Customer Intimacy
Operational Excellence
The Discipline of Market Leaders
Program Design Compensation Benefits Learning and Development Work environment
Advice and Partnership Strategy Counsel Support Change/Implementation
Operations Administration Processing Compliance Data management
Future drivers of HR competitive advantage…
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Product leadership
Integrated (Total Rewards)
Purchased rather than built
Private label
Technology-enabled
Customized
Program Design Compensation Benefits Learning and Development Work environment
Future drivers of HR competitive advantage…
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Operational excellence
Highly efficient/leveraged
Agile
Technology integrated
Globally deployed
Analytically-driven
Operations Administration Processing Compliance Data management
Future drivers of HR competitive advantage…
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New definition of customer intimacy for HR
Not new (but still critical): Internal consulting (insights and wisdom) Strategy Counsel Support Change/Implementation Advice and Partnership
Strategy Counsel Support Change/Implementation New: Focus on differentiated experience
for employees (consumer-driven) Segmentation Analytics and Insights Branding Employee Experience
How will you seek competitive advantage?
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Product Leadership
Customer Intimacy
Operational Excellence
The Discipline of Market Leaders
Program Design Compensation Benefits Learning and Development Work environment
Consumer Focus Segmentation Analytics and Insights Branding Employee Experience
Operations Administration Processing Compliance Data management
The HR time spend continues to morph…
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0%
25%
50%
75%
100%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040
Operations Program Design Employee Analysis
Percent of Time
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Most people overestimate what they can do in one year and
underestimate what they can do in ten years.
- Bill Gates
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