Planning for Growth

After the crisis, the only certainty is uncertainty

The market and economic changes witnessed by businesses over the last few years could never
have been predicted. Globally, the crisis hit quickly and hit hard. Yet despite the severity of the
crisis, the recovery is happening faster in some markets than many could have either hoped or
expected but slower in others. As companies look forward, the one certainty of which
management is sure is that post-crisis, nothing is certain.

Respondents to our survey are looking forward to a positive rebound – albeit one in which
growth will be slow to return. Although this recovery is a global phenomenon, the expected
growth will not be consistently distributed by country or by sector, and we believe that signifcant
variations will remain.

While it is true that the "emerging markets" expect a stronger performance than developed
economies, this is not a global movement – Russia, in particular, is expecting only slow growth.
Interestingly, respondents from the US agree with many European countries in expecting
signifcant change; equally, in the emerging markets, many of the most positive responses are
from those companies which have built rapid change into their "business as usual" model.

Returning to growth is not returning to normal

Returning to growth will not be the same as returning to the "normal" conditions that existed
before the economic crisis. In our research during May 2010, 4 in 10 companies responded that
they do not expect business to "return to normal" for them. This is an increase of almost 25%
compared with the results we gathered from the research in November 2009.

The volatile tide of economic events over the last couple of months has led to a significant
impact and this higher degree of sensitiveness shows that although businesses are confident, they
have become more cautious during the last eight months.

A changed world

All respondents are looking ahead to a changed business environment. The rise of new economic
giants like China and India, as well as additional regulation, increased tax and the potential
return of inflation, are all seen as factors which will make businesses less profitable, unless they
are effectively addressed.

A consistent theme that runs across our finding, both in terms of market outlook and planned
business response, is the expectation of increased volatility and complexity. Markets are
expected to see major swings in growth, and both the volume and depth of change is expected to
increase.

Two factors emerge as being critical to future corporate success: the speed with which a business
can respond to both opportunities and threats, and the flexibility that it builds into its operation to
enable it to do so.
A changed company

As a result of the situation, companies are planning many changes in the way that they operate.
These changes are also extending to the way they measure their performance; while the top five
performance indicators are expected to remain the same, there is a significant increase in the use
of others, with a major move from quantitative to more qualitative and relative measures as key
performance indicators (KPIs).

Companies have already started to revisit their business model – or plan to do so. Evidence
shows that, after economic downturns, companies tend to concentrate on their core business; and
we believe that this will become a trend within the next couple of years. As part of the business
model review process, there was an expectation that we would see a move by companies from a
centralized to more decentralized organization.

In a world where change is more prevalent and rapid, no company can afford to focus its
attention on immediate events, or simply react to the latest problem; to be successful, it will have
to become aware of what’s happening on the global stage and be prepared for the impact of long-
term trends. Learning from key development trends in other markets and sectors will be crucial
for staying ahead of competition.

Successful companies in mature markets will need to focus on global innovation management.
Future market leaders will be companies which are both entrepreneurial and agile. However, the
characteristic that will truly determine which companies are the dominant players in 2012 will be
the ability to make and execute decisions quickly.

When times are uncertain, no one can predict what may be around the corner, so the need for
flexible responsiveness has never been greater.

Implications for key functions and processes

Strategic change will involve internal transformation activities on a significant scale, including
upheaval to organizational structure, the introduction of new technology, and big challenges to
the way people are recruited, developed and managed.

STRATEGY AND BUSINESS EVOLUTION

Summary of the implications for strategy and business evolution

The impact of the crisis on strategy and business evolution

Where do we go tomorrow?

The volatile and complex world of business has been going through a major upheaval, which will
cause a wide range of changes to your company. Our representative survey shows that over 50%
of people in management positions believe prolonged changes to business functions will result
from the crisis; with 73% expecting "some impact" on their business operations and 41%
anticipating "high impact" on their functions and disciplines. The top six areas of change are:

1. IT

2. Performance management

3. Sales and marketing

4. Governance, risk and compliance

5. Corporate strategy

6. Innovation management

Companies have been forced to learn many lessons during and following the crisis. After a 10-
year period of almost continuous growth, management in most businesses around the world did
not believe that they would have to deal with the problem of a 20% to 50% reduction in demand.
Most companies were not prepared, so they didn’t have the opportunity to react in an adequate
degree.

Optimize operational flexibility

We believe that one of the major lessons companies should learn from the crisis is the value of
gaining business flexibility – in the operating model, the processes and in the cost structure.

Aligning the business levels

If an organization is going to achieve the necessary speed and flexibility to allow it to optimize
operational flexibility, then it needs an aligned business model through which the company's
strategy, values, culture and methodologies can be communicated and consistently replicated.

An aligned business model requires a focus on the service functions and the business units. The
service functions play an important role in connecting the corporate level with each business
unit, i.e., the service functions are the interface through which strategy and consistency is
communicated to the broader organization.

However, when aligning the business levels, it is the business units which provide the greatest
challenge. This is because of the risk of losing existing synergies within the business units if
local strategy is sacrificed in an attempt to align with the overall corporate strategy. For example,
depending on the local market, competitive position and the positioning of the product/service,
each business unit will have a bespoke customer approach, which has a direct impact on the
supply chain.

Aligning the business units

Sooner or later, the review of the business model and strategy will lead to a situation in which
companies will again start to sell or strengthen parts of their businesses: with the overall
objective of aligning the business units to the revised business model and strategy.

As after such downturns in the past, we have seen an increased focus on core competencies
because either non-core assets use the limited liquidity needed for core transactions, or the
company has recognized that conglomerating competencies is a high-cost and high-risk strategy.

Vertical integrations are in evidence across a number of sectors, as the risk of failure in key parts
of the value chain becomes painfully obvious. The focus on core competence, however, is not the
same as narrowing market focus; it means sharpening the market focus.

Aligning the service functions

Learning from past experience, the service functions know that only focusing on cost reductions
in finance, HR or IT, does not lead to a balance between lean administration and a contribution
to the company’s performance. During the crisis, short-term savings to keep/gain liquidity were
the key to survival; the service functions now have to re-think their processes, exploring how to
do more with the resources available and how to align with the business operations.

For example:

• IT will require new initiatives for enterprise architecture which supports the business processes
efficiently; making the company more speedy and flexible, as well as adaptable and scalable.

• Finance will have to find ways to manage information and gain valued insights about potential
improvement opportunities and business performance management.

• HR needs to focus on talent management and finding ways to attract and retain the best people
for business development. This means developing an attractive employer brand; using an
intelligent and innovative approach to recruiting; plus offering world-class learning and
development models to keep the most valued talents within the company.

• Marketing has to forget "mass media" and respond to the new communication challenges;
finding oppotunities to use the diverse variety of communication channels to address their
audiences. Importantly, marketing and communication personnel need to maintain a close and
strong connection with the business operations, to facilitate the strategic articulation and
positioning of the business units.

• Cost management will continue to be on the agenda across all the service functions.

All the functions will need a more flexible structure to be able to gain benefits and act on the
business demand. Some companies will choose to have a stable and lean business platform
which allows them to add or reduce functions on demand; especially when companies start
initiatives to gather together individual service functions into one business service function, and
consolidate the support functions in one organizational structure to benefit fom each other.
Others will probably go further and outsource more to leading service vendors.

Optimize market reach

The changing customer and the new communication opportunities such as social networks, as
well as the increasing variety of the traditional media channels, have a strong impact on the
business units. It is not just about adjusting the marketing mix; it is about securing quality.
Failure to do this will have an immediate (and sometimes ultimate) impact, with huge
consequences on the business unit or the complete organization. Unhappy customers are able to
seriously harm a company – in the 1970s and 1980s, customers would express dissatisfaction to
seven best friends; today, they will do this on seven online forums.

"The period of doubling knowledge has shrunk from 100 to just six years. Ninety percent of all
researching and teaching scientists live in the present. Every minute, a new chemical formula;
every three minutes, a new physical coherence; and every five minutes, a new medical insight is
discovered and published." J. Brauner
The changes accelerated by the crisis have led to a new urgency for innovation. Faster innovation
could make the crucial difference for companies; especially those situated in mature economies
where a new or improved product can offer an advantage over companies which have their origin
in one of the emerging countries. In the Western economies, for example, it takes 18 months
until the next generation of mobile phones is released, but Chinese companies release new
mobiles every one to two months. Years ago, the leading catalog firms released their catalogs
twice a year; but the internet has forced those companies to change their business model, and
leading fashion companies like H&M and Esprit have increased their collections from 2 (summer
and winter) to 12 or 13.

The need for faster innovation is not limited to products or services. Given the myriad of new
communication channels, companies need to develop new ways of communicating and building
lasting relationships with their customer base.

On the value level, innovation is the key to continued success. Companies whose main feature is
operational excellence have to search continuously for ways to improve their efficieny in an
increasingly competitive environment: companies which excel through a high degree of
customer orientation have to demonstrate every day that their customers have chosen the right
brand.

Technology should not be the main differentiator for a product leader; but improved time to
market is a key requirement to become industry leader in this category. The main innovation skill
in the value discipline is anticipating the needs, wishes and sometimes dreams of the customer:
e.g., some companies do not always deliver the latest available technology; the chief asset of
those companies is the way it matches the customer's desire with their solution. Analysis from
many sectors indicates that the additional value captured by the first to identify an untapped
customer demand clearly outperforms the additional costs required to speed up the time to
market process.
Many companies, even traditionally strong and leading brands, go bankrupt because they did not
have innovation embedded into their business model. Even today, the majority of companies do
not have either a person or department responsible for innovation, or a structured process to
regularly identify business trends and potential.

Innovations have to respond to the global megatrends which drive the continuous evolution in
the business environment. The following megatrends highlight the most influential trends we see
in this changing world — some are driving the change and some are driven by it, and the impact
of the trends varies geographically:

• The accelerating shift of power from West to East has moved the engine for growth in the
global economy from developed to emerging countries. Multinationals from the emerging
markets are not just here to stay, but likely to become global champions in many industries: a
new middle class is developing as the backbone of this long-term trend.

• In the changing financial landcape, governments are aiming for a stronger role in the financial
markets, and not just on a short-term basis. Sovereign wealth funds will further increase their
influence in the local economies, especially in mature countries. PE, hedge funds etc. will return
to business, but be more controlled than in the past. (First, many of them need to divest large
portions of their portfolio of companies to close down older funds.) The regulatory environment
will, as a consequence of the crisis, move more toward greater regulation and global consistency.

• The economic importance of energy and commodities will once again be the number one
challenge in business, which will cause the further rise of cleantech and the necessity for greater
energy efficieny and lower carbon emission.

• Corporate social responsibility (CSR) will be back on the corporate agenda. Environmental,
social and ethical expectations and obligations on businesses, along with their associated
opportunities and risks, will increase.

• The next wave of technological innovations will drive change for businesses and consumers.
The iPad and new social networks will change how consumers and businesses interact with each
other.

• The demographic shift will increase the challenges of managing and developing talent, as well
as difficulties in attracting, managing and developing a diverse, global workforce.

Re-evaluate the business model

To gain more speed and flexibility in an organization, the management has to start at the top and
revisit the current business model and corporate strategy. There are many approaches to
reviewing the current business model and strategy of a company; for example, the Value
Disciplines Model is an adaptation of the three strategies (cost leadership, differentiation, focus).
Market leaders normally stand out in just one of the three value disciplines (operational
excellence, customer intimacy and product leadership), because every level requires a distinct
vision, business model and strategy and, even more importantly, internal philosophy and
consistency. Many companies fail because they are not good at driving the philosophy and
consistency throughout the organization. However, some companies have achieved industry
leadership in two value disciplines; for example a web dealer and a manufacturer of furniture are
world-leading companies which perform in operational excellence and customer intimacy.

It isn't just a case of amending the business model; as a consequence of the crisis, companies
have to review their entire strategic platform. At a minimum, the majority of companies will
have to adjust their strategic goals due to the slow recovery of the economy.

Evidence shows that every significant economic downturn has led to changes in the competitive
landscape. We recommend that every business undertakes a detailed analysis of the new
competitive environment; companies may have to re-think how to differentiate from their
competitors, with a potential impact on their offerings and, worst case, on their business model.
Accelerate decision-making and execution

Beside total flexibility, we believe that more than ever before speed will make a difference for
companies which want to succeed in their markets. Speed in decision-making, speed in execution
of programs and activities, and speed in bringing products and innovations to the market.

A major driver in accelerating the speed of decision-making is improving the way management
accesses information. But having the right information at the right time doesn't mean anything if
the management isn't able to decide due to lack of entrepreneurial spirit, or through inefficent
structures which make decision-making slow and sometimes impossible. Changing this will be
the challenging part.

Companies will approach these challenges differently. We, however, expect to see a trend
towards:

 Increased delegation of responsibilities closer to the front line

 Planning becoming a continuous process
 Increased board and top management focus on the gap between current trend and future
ambitions (rather than last period's performance)
 Less management, more leadership

If a company recognizes room for improvement, the processes for budgeting, reporting and
forecasting will need to be adjusted and linked to the company's strategy, which will also
strengthen general understanding of the strategy across the firm. Evironmental information as a
result of the trend radar, or a fully fledged cenario-planning process, has to be a part of the
reporting.
Strengthen management talent

Personal development and self-actualization have been the personal goals of many people for a
long time, as well as in their role as employees; however, a degree of realism has taken effect.
People understand that, within industries, company divisions and departments, they must come
to terms with a given framework, whatever form it may actually take; therefore the search for
personal development and self-actualization has become subordinate to a search for continual
challenge. This puts organizations under high and increasing pressure.

Retaining talented and qualified staff has become one of the most important goals of
organizations – affecting all divisions. There are numerous reasons why this has become more
difficult:

 A change in the labor market, from a buyer’s to a seller’s market

 Massive competition between organizations, triggered by the lack of qualified people
 Employees who can no longer identify with the organization
 Employees who are constantly in search of new challenges and incentives

Effective talent management is a key success factor, not just for substantial growth – it is the key
success factor for securing the future. The trick is to ensure that talent management strategies are
aligned to the business strategies of the organization. If talent management is not regarded as a
board or a CEO issue, too little time commitment will be given to it by managers and leaders. If
organizations don’t offer employees appropriate incentives (and this encompasses much more
than monetary rewards), workers will begin to search for new challenges in other places.

The challenge ahead will be to develop an organizational structure and business set up, which
allows companies to achieve the maximum potential from their human assets rather than just
their physical assets, as in the past.

Optimize capital availability and deployment

During the crisis, companies immediately stopped strategic decisions and actions. For many
months, companies went into "flight mode" and concentrated on improving cash flows and
reducing their cost bases; acquisitions or IPOs were cancelled or postponed around the world.

But this is going to change. Global IPO activity (per IPO) was significantly higher in quarter
1/2010 (267 deals) compared with quarter 1/2009 (52 deals), and the total capital increased in
quarter 1/2010 significantly (USD 53.2 bn) compared with quarter 1/2009 (USD 1.4 bn). Even if
the emerging countries are the main driver for this development, we see movement in the mature
economies and there are signs that transaction and merger activities are also increasing, as
illustrated by the mega merger between United Airlines and Continental Airlines.

Whatever the view on the recovery, uncertainty is the only certainty there is. Those who have the
organizational flexibility to adopt and respond as the market changes will be able to exploit
opportunities – those who don't will miss them and weaken their competitive position.
Capital matters more today than ever before. The "new normal" of continuing uncertainty,
weaker demand, margin erosion, scarcity of capital and increased risk aversion in strategic
decision-making, has narrowed the margins for error in capital allocation. Many companies will
feel inclined to hoard cash and simply be reactive; but winning companies will avoid the
temptation for inertia and use their capital to seize opportunities to move forward proactively.

To build a competitive advantage, businesses are adopting a range of disciplines in five key
areas:

 Preserving capital – reshaping their operational and capital base to reflect the risks and
realities of a prolonged downturn
 Optimizing capital (driving cash and working capital) – managing the portfolio of core
and non-core assets to accelerate a return on capital
 Raising capital – assessing future capital requirements and determining how funding
sources can be diversified to increase options
 Investing capital – strengthening investment appraisal and execution methods, so that
opportunities can be realized while managing increased risk
 Enabling the capital agenda – upgrading planning, forecasting, performance reporting and
governance processes, to sharpen decision-making speed and effectiveness

We believe that those who develop their capabilities to master this agenda will build competitive
advantage by:

 Increasing and maintaining investor confidence

 Winning the competition for scarce capital
 Anticipating and adapting to market conditions as they change
 Seizing acquisition and other growth opportunities that others are unable to
 Revitalize risk management
 A fast response to new, risk-related events demands that the same risk management
language is spoken throughout a company. Unfortunately, in many organizations, each
department will have its own definitions: as a result, the company will be slow to
detect and react adequately to new, risk-related events and trends.
 A common risk language gives clarity – shared definitions, company-wide priorities, a
common culture of risk awareness and accountability, and clear procedures for
measuring, monitoring, communicating and dealing with risks. Companies hampered
by a lack of common risk management language and related procedures are incapable
of defining and prioritizing different risks, let alone measuring, communicating and
monitoring them.
 Various surveys confirm that many board members of even the biggest companies
lack a clear understanding of their company's risk appetite and risk tolerance. A study
quoted in the Risk and Insurance Management Society publication, The 2008
Financial Crisis. A wake-up call for enterprise risk management, found that only 54%
of directors of US Fortune 100 companies understood their company's risk tolerance –
meaning that almost half did not – so either risk tolerance levels in those companies
have not been defined at all, or board members were not actively involved in this
process.
 Other studies suggest that most companies do not define and measure risk limits on a
consistent basis throughout the company. From our discussions with hundreds of
board members, we have the strong impression that a lack of explicit, structured focus
on risk appetite and risk tolerance on many boards is not due to an unwillingness to
deal with the issue: on the contrary, board members tend to understand the importance
of defining and dealing with risk appetite in a coherent, structured way; but they do
not know how to go about it very well.
 A good description of a company's risk appetite will have qualitative as well as
quantitative elements. On various issues, it may include definitions of what is
acceptable and what is not: a company might state it does not accept any risk of
regulatory infringements; or a company might decide that it will only approve
expansion in new business areas, if and when it has gathered sufficient knowledge of
the specific business issues and risks involved, and if the organizational and technical
infrastructure is in place to manage these risks effectively.
 Risk appetite regarding the company’s strategic goals should first be translated into
risk tolerance for specific categories of risk, e.g., strategic, operational, financial and
compliance risks. Risk tolerance expresses the specific maximum risk that an
organization is willing to take regarding each relevant risk category, often in
quantitative terms. Obviously, for each risk category, the resulting risk tolerance
should concur with the organization’s risk appetite. In human resources, for example,
a company can define its risk tolerance regarding overall staff turnover as not
exceeding 15% per year.
 Management should set risk targets for different business units. A risk target is the
optimal level of risk that an organization wants to take in pursuit of a specific business
goal; through it, a company defines the desired balance between risk and reward,
correlating the risk tolerance to specific business plans and business metrics.
 Setting the risk target should be based on the desired return, on the risks implicit in
trying to achieve those returns and on a company’s ability to manage those risks; for
example, the risk target for a business unit selling products that become obsolete quite
quickly could be to realize 30% of sales from products that have been on the market
for less than two years. The risk target can be expressed as a point between an upper
and a lower risk limit: monitoring these thresholds ensures that actual risk exposure
does not deviate too much from the desired optimum; breaching risk limits will
typically act as a trigger for corrective action at the process level. If a business unit
reaches the upper risk limit, it will have to manage down its risk level, unless a new
analysis of the risk/return balance justifies the risk position. If a lower risk limit is
breached, i.e., if the actual risk-taking falls below a minimum, the business unit should
add more risk unless the return on this extra risk-taking is not deemed adequate.
 Once the organization’s overall risk approach has been clearly defined, the board and
executive management should communicate it broadly throughout the organization to
ensure all actions of the company are in line with the risk appetite.
 Strengthen stakeholder confidence
 Adjusting the business model and strategy will not only affect the company; it has an
impact on all stakeholder groups. Therefore regular communication between
management and the stakeholders is not just a task that has to be done – it is the key
element for trust, confidence and ongoing relationships.
 The commitment to strategic decisions and the success of those essential changes are
directly linked to stakeholder confidence. Maintaining an open and trustful
relationship between board and stakeholder requires a system to prompt action, as well
as regular communications which differentiate between the diverse stakeholder groups
and their needs. We recommend including all these activities in an overall stakeholder
engagement plan which secures regular communication and reduces the risk of
surprises.

 HUMAN RESOURCES
 Summary of the implications for the HR function


 The changing face of the human resources function
 Rule number 1: The customer is always right.
 Rule number 2: Reread rule number 1.
 This concept has dominated the business culture for three decades. However,
organizations that hope to survive in the future increasingly recognize the need to adopt a
new position – your people are the most important aspect of any business.
 “Our employees are our most valuable asset” has become the new business principle, as
companies recognize that they can only serve the market as effectively as their people can
deliver, and the company can only go as far as the people driving it allow it to go.
However, despite this reality being proclaimed for several years by key business
 influencers, many companies have difficulties in adopting a positive people-based
approach.
 The simple fact of recognizing that your employees are your most important asset doesn’t
address the increased complexity of working life. If we examine the many demands
companies put on their employees – being available 24/7, having all the required
knowledge and skills, being creative and innovative, being more efficient and effective;
all while having to cope with frequent changes in the business model or organizational
requirements – it is not surprising that it is increasingly difficult to find emplyees that
comply with all those requirements.
 Additionally, in mature economies, two other issues are complicating the workforce
situation: the demographic shift, which is increasing the number of older workers without
a sufficient younger generation replacing them; and the Generation Y movement of
employees who require much more out of their working lives than simply a big pay check
– they need to be challenged by their tasks, they expect to be offered personal and skill
development opportunities, they like to feel included in the company decisions and want
to receive recognition for a job well done.
 Optimize operational flexibility
 Enabling operational flexibility is a real challenge for companies in countries with
developed labor markets and high levels of employee protection.
 In mature European markets such as France, Germany or the UK, where the labor market
is strictly regulated, companies have encountered major difficulties in laying off
employees in reaction to reduced demand. As a consequence, costs have had to be
reduced elsewhere: salary freezes, cuts or cancelation of bonuses, cheaper travel costs
and slicing entertainment expenses budgets – to name just a few. Yet, even after taking
these measures, many companies continue to face the problem of being too inflexible to
react to changing conditions, and the measures they have taken to reduce expenditure
have often simply de-motivated the remaining workforce.
 "Collaborative working" is the new HR buzz phrase. Teams combining a number of
specialists will more frequently be created to tackle specific projects and disbanded once
the task has been achieved. Cross-country, cross-departmental, cross-time zones and
cross-skills – virtual team working has no boundaries.
 HR should establish a continual change management approach, matching the
requirements of the organization to the abilities of the workforce, and tailoring
functionalities to the company needs. In the future, HR will be required to contribute to
the level of flexibility in business operations by hiring the "right" employees – people
who are capable of adapting to comply with the fluctuating company requirements,
enabling it to meet market demands.
 Companies should see the changes in the demographic market as an opportunity, not a
problem. Their request for flexibility neatly matches the new kind of worker coming onto
the market: someone who is happy not to be tied to a company for too long; who enjoys
freedom, but at the same time is highly skilled and knowledgeable. Consequently, the
reaction of the HR department could be to welcome those employees who are happy to
accept short-term contracts or work as freelance contractors, and to consider the
implementation of advanced technology to enable more effective ways to work remotely.
 Optimize market reach
 Moving into new markets requires the right management talent: managers have to be
entrepreneurial, open-minded and strong in leadership capabilities. They also need to be
 empowered to be pro-active with practical, financial and emotional support from senior
leadership and stakeholders.
 The HR function influences this leadership talent directly through its hiring policies, but
also indirectly through the company culture. The company-wide "vision" (a statement
that encompasses the company ideals and expectations, against which everything the
company does should be evaluated), can only be achieved by someone in the company
understanding the work ethics and personal values and behaviors that support the vision,
and by living them every day.
 Inflexible and highly hierarchical organizations will be counterproductive in developing
the right management talent, as gifted people will want to contribute and grasp
opportunities to make a real difference. Companies must try to create a constantly
learning and adaptable organization, which will also help to accelerate decision-making
and execution (see the section headed Accelerate decision-making and execution).
 Re-evaluate the business model
 The HR function has a major role in re-evaluating the business model, as cultural as well
as leadership capabilities are essential for a successful business model shift. To assist, the
HR function can help to make a flat hiearchy a success by implementing ways to foster
teamwork and discourage "silo" working, making it easier to share knowledge across
internal boundaries, engaging employees by making them feel involved in the business,
and encouraging lower levels to take responsibility.
 Another measure would be to provide possibilities for developing entrepreneurial spirit,
e.g., by letting employees work on their own projects, if the company structure or
business model allows it, or by allowing them to develop in-house improvements.
 Once you've attracted the right people into your company, it's vital to keep them. This is
not just about financial remuneration, it's about keeping them involved and engaged in
what's going on. This is no time to put your head down and pretend everything is OK.
Good internal communications are essential – good or bad news, it's better to know the
truth than to be left guessing. Managers must spend more time asking employees their
point of view and enabling feedback mechanisms, so that the entire workforce can voice
their concerns and contribute their ideas and innovations; and don't forget the importance
of celebrating company-wide successes with everyone to keep optimism high.
 We are aware that company culture cannot be changed overnight and that it requires a
massive joint effort from both management and employees to achieve success. For
example, we suggest that current employees can act as ambassadors to spread the good
news about the changes: using their personal and business contact networks, both through
the classical formats and the effective use of blogs or tweets, talking about the
“fascinating project” they’re engaged with, “the superb new product they’ve just
launched,” or the “great team spirit” within the company.
 Accelerate decision-making and execution
 The HR function can influence decision-making and execution indirectly, by fostering
and maintaining an appropriate company culture and enabling adequate knowledge
management. A positive, sharing company culture is essential when it comes to speeding
up decisions: flat hiearchies, where employees and management regularly connect, will
help to decrease the time from idea to execution.
 Companies should support a culture with horizontal linkages, cross- functional teams, etc.
to establish a feeling of permanent learning – it will also mean that disparate project
 teams will not waste time trying to resolve an issue, when a solution to a similar project
has already been created and tested in another department or country.
 To support team working and decision-making processes, a vital success factor is the
implementation of an appropriate knowledge management solution which – next to data
management – becomes the backbone of tomorrow's flexible organizations. This becomes
even more important with an increased employee turnover rate, as it is necessary to keep
hard-earned knowledge inside the company so that following generations of employees
can build on it.

What can the HR function do to keep knowledge inside the organization?

 Develop a process to capture and spread knowledge. Make it easy to access and straightforward
to use; then make it an essential part of everyone's job to update and add to it.
 Break down the "not invented here" syndrome and make sure people get recognition for having
the idea in the first place.
 Encourage everyone to live the knowledge sharing system in all hierarchies. The system is
unlikely to succeed if it is not adopted by each level of the company.

A bigger challenge will be to reactivate existing, but unused, knowledge management systems.
Companies need to find out why employees currently are not using the system, and then address
the issues accordingly. If necessary, systems and processes will have to be reworked to meet the
organization's changing requirements. Also, consistent training on the usage across all
hierarchies may be necessary to encourage employees to use the system.

Strengthen management talent

The strength of management talent is influenced by the capability of the company to attract,
develop and retain high performers. Therefore, the company culture needs to be appealing to
those employees the company wants to hire or hold; it also determines which talent is supported
and how.

To improve talent management and retention and therefore, ultimately, employee satisfaction,
the HR department should consider taking certain measures for career development and training,
as well as for compensation and incentive systems:

Career development/training

• Tailor career models to the strengths of each employee and identify areas of improvement.

• Respect work/life balance issues by considering part-time working, and remote or virtual
workplaces; these models should not be viewed as a disadvantage for career development
anymore – they should be seen as a way to motivate employees.

• Establish a flexible approach to training, where the employee can choose their desired area of
training (with some guidance), enabling them to develop according to their interests.
• Make 360° feedback mandatory for everyone. This will help each employee to increase their
strengths and overcome their weaknesses; plus, it will provide valuable information with which
to grow the company.

• Make mentoring programs mandatory for each employee, e.g., encourage informal meetings
once a month and formal meetings twice a year to discuss certain career development issues.

• Increase mobility across the company. This will give employees the opportunity to learn and
broaden their perspectives by working in a different regional environment, or in another division
or business unit for a limited time.

Compensation/incentive systems

• Rework your current compensation system to match your individual employees’ needs, e.g.,
offer alternative incentives such as paid leave and sabbaticals, and remove any stigma by acting
as a role model.
• Don’t forget to recognize the achievements of employees – if people don’t feel valued, they
will leave as soon as they have the opportunity. Even in economically tight situations, small gifts
or a day off will be highly appreciated and don’t forget that saying a sincere “thank you” doesn’t
cost anything!

By considering these suggestions, companies can increase their employees’ satisfaction, which
will become even more important in the future than they are today. The survey we undertook
with stakeholders shows that they consider it the most important KPI that companies should be
aware of in 2012 (see fgure 1).

To attract and keep the best management talent, companies have to focus on the strength of their
employer branding, especially now that employees and applicants have even more ways to
extract precise information about a company.

People like to work for a well-respected, successful company; they want to feel proud of its
achievements and are highly influenced by the way it portrays itself in advertising and collateral
material, the effectiveness of its website and the kind of coverage it gets in the media. They will
also have spent many hours/days searching for information about similar companies, talking to
colleagues and contacts in their business – comparisons will be made; especially about the way
the company treats its employees. The effect of this phenomenon is shown in our survey of 866
key decision-makers and stakeholders (see figure 2):

Respondents from all regions appear to recognize the shift of emphasis, anticipating that the
"strength of employer brand" will attain far higher importance in 2012. Some of the differences
are remarkable – Brazil's figures jumping from 35% in 2009 to 91% for 2012 and India's from
58% to 82% – but all sectors and geographies show a significant growth (see figure 3).

To shape the preferred "employer brand", companies need to make an extra effort to find out
exactly what is attractive to their employees and new applicants (the opportunity to travel, to mix
with experts with proven skills, to be stimulated by skills training, to have flexible working
hours, etc.) and then make sure they are delivering the whole employment package to the best of
their ability.

Our research has found that the aspirations of the future generation of workers can be
encapsulated by two wishes: "expression" and "acceptance." Steep career aspirations and huge
pay checks are not the only things appealing to tomorrow's talents; people require a challenging
and, at the same time, caring work environment where they can deliver value and where they are
also valued in return.

Strengthen stakeholder confidence

Stakeholder confidence can be influenced by transparent and consistent communications on

certain non-financial isues, like ecological, economical and social sustainability. The HR
function is able to influence the latter by fostering diversity and equality within the company.
European countries such as Spain and Norway have already implemented laws to promote
gender equality on management boards; France may decide to do the same in 2010, and other
countries are likely to follow.

Companies not only have to hire a diverse workforce because it might be required by law, they
also need to do so to succeed! Diversity brings new levels of knowledge to a company, with each
group offering its own strengths; it also helps to enrich the companies' approach toward global
business management.

HR can help to attract and develop diverse employees and eventually strengthen the employer
brand:

• Introduce diversity quotas, even if they are not yet mandatory, to show awareness.

• Create development programs for different social groups, and foster teamwork and networking
within these groups.

• Increase equality in the boardroom, even if it is not yet enforced by law; e.g., through
management development programs specially aimed at women.

• With respect to different cultures working in multinational companies: train employees

accordingly, enabling them to be aware of their differences and also enlighten them on how to
use this as an opportunity to look at issues from different angles, which will improve your
company's scope for increased cross-border teamwork.

• In very tough cases, you could offer one-to-one coaching for employees who are valuable to the
company, but are "training-resistant."

Another factor that can strenghten stakeholder confidence is the company's approach toward
demographic shifts. As the demographic landscape changes, sooner or later a huge pressure will
be put on companies in both mature and emerging countries:

Mature markets

As the aging workforce increases, so does the need to transfer their knowledge to new talent.
Companies have tried to address this issue for years; however, there hasn't yet been a
comprehensive approach to combine the drive of younger people and the experience of the older
workforce.

In the future, HR departments face the challenge to find a way to make progress in this area – to
avoid making the experienced workers feel obsolete, while at the same time help younger ones to
grow so they can eventually step into their roles.

One way to do this could be by implementing job shadow programs, or mandatory mentoring
programs. The main advantage of this approach is that the transition is gradual, so that the
mentor is not losing too much influence, while the “scholar” can learn incrementally without an
excessive amount of pressure. The business also benefits from both ends of the scale and, in the
meantime, has two people on the workforce with complementary skills already working in a
close-knit team.

Emerging markets

The situation is different in emerging markets, but still challenging. Indeed, many markets will
have their own unique problem that they need to resolve in this area.

India, for example, has more than 50% of the population below the age of 30. Before they can
satisfy the growing economy’s requirements, they will need to educate the workers, because the
more experienced employees often don’t speak English, which is vital for tomorrow’s job
market. Although the younger workforce is often trained in languages and can have a good
business education too, Indian companies still need to enforce the development of management
skills.

“Employees are looking forward to getting trained” revealed an Indian HR specialist, but
because there are not many experienced people they can learn from, other initiatives will need to
be introduced, for example:

• Increase cooperation, networking and informal relations among younger employees, so they
can pass on their best practice and learn from each other.

• Enforce training and relevant education, e.g., sponsor MBA students.

• Hire external consultants to train people to overcome their limitations and to help bolster
effciencies and effectiveness.