CII-Suresh Neotia Centre Of Excellence For Leadership

The state of human capital risk in India

2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study
 Preface
Companies worldwide are vying to succeed in a rapidly changing business landscape.
Persistent global economic uncertainty, talent scarcity and growing skills mismatch, accelerating
regulatory requirements, unparalleled technological changes — the challenges are multifaceted.
No organisation can successfully navigate such turbulent times without effectively managing its
most critical asset and driver of success — human capital.

In many organisations, human capital accounts for an increasingly significant share of operating
costs and is a major determinant of business performance. Yet the risks and uncertainties
arising from human capital management and workforce issues are not managed as rigorously
as financial, supply chain, IT and other risks. Most organisations in India are just beginning to
understand human capital risks and think about the frameworks, tools and methodologies they
need to manage them. Effective management gives leaders insight into different risk scenarios
and enables them to proactively eliminate or minimise risks that pose the greatest threat.

Willis Towers Watson in collaboration with the CII - Suresh Neotia Centre of Excellence for
Leadership (SNCEL) has gathered the views of nearly 100 chief executive officers (CEOs), chief
HR officers (CHROs), chief finance officers (CFOs), chief risk officers (CROs) and other senior
executives in India spanning a diverse set of industries on human capital risk management.

This study provides fresh perspectives on the relevance and implications of human capital
risks in India, prioritises risks by their impact on business performance and prevalence, and
highlights the current state of risk management practices. We believe that rising HR challenges
like workforce planning, retention, succession planning and skill gaps will drive organisations
to prioritise human capital risk management. Taking a risk-based approach to human capital
that involves not only HR but people from across the business will differentiate business
performance in the future.

We would like to thank all the business leaders who made time to participate in this study for
their valuable insights. We hope you find these findings useful and they help you shape effective
practices for your organisation.

Vivek Nath Chandrajit Banerjee

Head, South Asia Director General
Willis Towers Watson CII

1 The state of human capital risk in India

 “Across the globe, business leaders are grappling
with human capital issues, compounded by a rapidly
changing business environment. As business leaders
in India become more concerned about challenges like
shortage of key skills, rising workforce costs, employee
acquisition, retention and evolving labour reforms,
they are increasingly realising the need to move to a
comprehensive talent management approach that allows them to plan
for long-term business needs. This report helps us understand how
leading organisations are developing talent strategies that deal with the
entire gamut of people-related challenges and opportunities and are
directly aligned with the business goals. This correlation reiterates how
effectively human capital is emerging as a critical determinant of business
performance and sustainability. At the same time this study reveals that
human capital risks rank first in a list of twelve broad enterprise risks for
most organisations in India. However, a large majority of organisations do
not seem to be adequately prepared to manage these risks.

Using the right risk mitigation tools and frameworks enables the
leadership of an organisation to gain advanced insights into various risks
and address them in a proactive manner. Effective management of such
risks truly differentiates top performing organisations from average ones.
This study provides crucial insights into the importance and implications
of different human capital risks and the current state of risk management
practices in organisations of India. I hope it will help business leaders
understand their evolving roles as they look for better ways to manage
human capital while facing the ongoing tectonic shifts in the workforce
dynamics.”

Harshavardhan Neotia
Chairman
CII - Suresh Neotia Centre of Excellence for Leadership (SNCEL)

2 The state of human capital risk in India

The state of human
Table of contents

At a glance ............................................................................................................................................................4

capital risk in India Human capital risk moves centre stage............................................................................ 5

An old risk with a new urgency ...................................................................................................6

2016 Willis Towers Watson - CII-SNCEL Into the boardroom.....................................................................................................................................6
Human Capital Risks Study What are the top human capital risks in India?.........................................................7

Managing human capital risk: Current conditions.............................................12

Employing a co-ordinated approach.................................................................................. 14

Barriers to success.................................................................................................................................. 14

Bringing it all together...........................................................................................................................17

About the study............................................................................................................................................ 19

3 The state of human capital risk in India

 At a glance
ƒƒ
62% of respondents view human capital risk as an urgent or very
important board-level concern for their organisations.
ƒƒ
Majority of the respondents are very concerned about retention of
critical talent and leadership bench-strength.
ƒƒ
Roughly 41% of respondents believe their organisation manages
human capital risk effectively, with multinational corporations reporting
considerably greater success than domestic companies.
ƒƒ
Only 35% of respondents report that their organisation has a formally
defined risk mitigation or control strategy in place.
ƒƒ
A scarcity of HR specialists and insufficient dialogue between the HR
and risk management functions are major obstacles to establishing a
successful human capital risk mitigation plan.

4 willistowerswatson.com
Human capital risk moves
centre stage
Human capital has become one of the most critical assets for organisations
worldwide. With competitive advantage being increasingly driven by quality and
engagement of human capital, any risks that come in the way of optimising it
need to be taken very seriously by organisations. Yet human capital risks are
rarely identified and managed in a systematic manner at the enterprise level in
India. Even organisations that are aware of their vulnerabilities generally employ a
narrow focus and fail to assess the entire gamut of risks.

To realise their growth potential, organisations need to effectively manage

the supply of human capital and reduce risks that could adversely affect its
optimisation, such as ineffective talent acquisition programmes or failure to
retain key talent. Also, as local companies expand regionally or globally, they
need to invest more heavily in human capital infrastructure, including processes,
platforms, governance structures and programmes.

While some organisations are investing in strategic workforce planning to secure

and retain critical talent, today’s business environment demands a holistic
approach that aligns talent with broader strategic objectives and evaluates
longer-term risks. Firms cannot afford to ignore risks with large-scale impact,
such as a misalignment between culture and strategy, governance, manager
ineffectiveness, employee disengagement, rising costs, and suboptimal use of
HR technology and HR infrastructure. While HR might be primarily responsible for
managing these risks, risk professionals and corporate boards also need to be
involved to achieve optimal results.

Defining human capital risk

Risk: Possibility of deviation from an expected outcome
Human capital risk (HCR): Workforce factors and practices that can have a
range of possible effects on business performance

HCR can arise from a number of internal and external forces, such as uncertainties in
the regulatory environment, demographic shifts, the competitive landscape, interest
rates and exchange rate fluctuations, changing consumer demands and other
factors that directly or indirectly impact businesses. Internal changes, such as new
processes, operations, technology and service offerings, or expansion to different
locations, can also give rise to HCR. These risks can occur in organisations of any
size, nature or industry. HCR, however, does not stand alone — it must be understood
in the context of the organisation’s overall risk environment (and appetite).

Research findings
First, we discuss how HCR stacks up against other risks faced by organisations
in India. We then look at which HCRs are most in need of remediation, in terms
of both their effect on business performance and likelihood of occurrence.
Finally, we focus on the current state of HCR management in India: the maturity
of mitigation processes, management effectiveness, responsible parties and
existing obstacles. We also highlight significant differences in opinions by,
organisation size, type and respondent’s job role.

5 The state of human capital risk in India


“People (whether in house or
outsourced) are Bharti Airtel’s most
critical resource and it is important
for the company that processes
supporting our people are operating
effectively. In November 2013, we
changed our appointed domain
specialists to perform internal
audit reviews who deliver quality
reports giving management and the
board useful insights regarding the
execution of the company’s people
processes and how they could be
optimised. The success of this work
is aptly demonstrated by the fact
that The Chairman of the Board
HR Committee requested that their
work be presented to the quarterly
HR Committee as well as the Audit
Committee.”
Mario Pereira, Formerly Group
Director – Internal Assurance,
Bharti Airtel.
An old risk with a new urgency
The top risks to business performance involve human capital factors, such as high
attrition rates, attraction and retention challenges, and inadequate skills, according
to participants (Figure 1). Human capital risk is ranked highest by organisations of all
sizes, both MNCs and domestic, and by both HR and non-HR respondents. Next in
the rankings are market risks and macroeconomic factors specific to India.
Into the boardroom
Boards in India are recognising their crucial role in matters of human capital. Sixty-
two percent of all respondents identified HCR as an “urgently important” or “very
important” board-level concern for organisations. While boards have traditionally
been actively involved in CEO compensation and succession planning, they’re
now stepping up their involvement in strategic talent management areas, such as
aligning HR strategy with business strategy, HR investments and organisational
culture. Even the most systematic and sophisticated HR risk management strategy
is not likely to fully succeed without the board’s participation. Surprisingly, only 38%
of the HR respondents cited board involvement as an important concern, compared
with 62% of CEOs, general counsel and other managers.
While 61% of respondents from MNCs consider HCR as an important board-level
concern, only 39% of those from domestic organisations agree. This can be best
understood in the context of the evolution of risk management in India, which is still
a developing discipline. Moreover, Indian companies have enjoyed explosive growth,
and bringing up risk is sometimes perceived as injecting a note of pessimism, and
thus is not entirely welcome. This has more to do with perception than reality.
Effective plans for addressing strategic and operational risks can help build a
sustainable business.

Figure 1. Risk rankings based on impact on business performance

Risk Ranking

Human capital factors (e.g., high attrition, attraction and retention, skills inadequacy) 84%

Market risk factors (e.g., competition, reputation and brand image) 70%

Macroeconomic factors (e.g., inflation, unemployment, price fluctuations, exchange rate volatility) 55%

Financial risk (e.g., volatile financial markets and inadequate access to credit) 52%

Technological factors (e.g., technological obsolescence and insufficient R&D investments) 41%

Legal/regulatory uncertainty (such as corruption, bribery, redundancy of laws) 40%

Consumer market factors (e.g., changing tastes, cultural factors, demographic shifts) 38%

Infrastructure (physical and energy) 35%

Foreign trade and relations (e.g., import/export duties or troubled relations with other countries) 30%

Political uncertainty (e.g., mistrust of policymakers and processes, communal violence, inadequate protection of rights) 29%

Security risks (e.g., cyber insecurity and terrorism) 16%

Natural and workplace hazards (such as floods, earthquakes, accidents, fires) 10%
Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

6 willistowerswatson.com
Why are human capital risks Drivers of HCR management
0% 20% 40% 60% 80% 100%
increasingly viewed as critical Attraction and retention of critical talent
to manage? 85
Business sustainability and continuity
“To answer this we need to look at the changing nature 69
of the business itself. In many of our businesses, A changing HR function making it crucial for strategic success
success depends not on access to capital but on how 66
we deliver customer value. Having high-calibre Growing human capital costs
employees developing exceptional products or 58
services makes the difference between success and Reputation/image of organization
failure. In a dramatic way, this can be seen in the 57
high-tech industry, where some acquisitions are Growing business uncertainty
executed solely to capture superstar employees of the 48

acquired firm. While the above might be an extreme Managing global organizations
45
case, the fact remains that in the digital economy,
Regulatory compliance
innovation is driving businesses and innovation is
41
driven by human capital.”

Shatrunjay Krishna, Director – Rewards, Talent and Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

Communication, Willis Towers Watson India

While employers are waking up to HR risks and control framework, the evolving
regulatory framework also presents a unique opportunity to have an integrated
approach to manage risks through appropriately defined controls. Companies
Act 2013, emphasises the need for maintaining Internal Financial Controls and
supporting operational controls. As per section 134, clause 5(e), the directors, in
the case of a listed company, need to lay down internal financial controls to be
followed by the company and that such internal financial controls are adequate and
were operating effectively. The Act defines the term “Internal Financial Controls” as
the policies and procedures adopted by the company for ensuring the orderly and
efficient conduct of its business, including adherence to company’s policies, the
safeguarding of its assets, the prevention and detection of frauds and errors, the
accuracy and completeness of the accounting records, and the timely preparation
of reliable financial information. As many business and risks experts would
admit that HR process controls can be critical operating controls and should be
effectively monitored. This way HR strategy and policy can be can be executed in
full rigour. The HR fraternity should rise up to seize this opportunity and not let this
happen only as a tick in the box of compliance requirements.

What are the top human

capital risks in India?
To identify the most serious near-term risks facing organisations and devise
appropriate responses, the first step was to assess both potential impact and
probability of occurrence for each HCR. Any risk response should be based
on such an evaluation of both - the potential impact and the probability of
occurrence. So, risks that have high potential negative impact on business
performance as well as a high probability of occurrence would be of highest
concern and are the ones organisations need to prioritise. While there might not
be any one-size-fits-all HCR mitigation strategy, this research provides critical
country-level aggregate insights that can help organisations assess their own
risk profile and develop effective counter-strategies.

7 The state of human capital risk in India

“The quest for the holy grail in
organisational performance is a
difficult one. But no matter which path
you traverse, your destination will lead
you to the twin towers of sustainable
leadership bandwidth and a learning
adaptive workforce. The twin towers
are what make good organisations
great. The single biggest risk for
organisations today is not knowing
where to start and how to sustain
these twin temples.  2. R
At InMobi, we believe that the biggest
risk also gives the largest payoff.  with untrained or unprepared talent. Seventy-seven percent of respondents
Our people strategy is focused
on taking small positive actions
with disproportionate payoffs. Our
learning wallet gives employees the
right to invest in any learning of their
choice. Bridge assignments offer
them internships within the company
across a new function. And our Live
Your Potential programme gives
InMobians the right to apply to any
position in the company, even if it’s
a promotion or two levels above or
below what they do.”
Kevin Freitas, Global Head ­—
Rewards and Talent Acquisition,
InMobi
8 willistowerswatson.com
Top 10 risks (in order of importance)
1. Insufficient leadership bench-strength. This risk poses the biggest danger to
organisations in India, according to our research. Having unfilled key positions
can lead to missed targets and disrupt business continuity. Seventy-four
percent of respondents indicated that insufficient leadership bench-strength
significantly impacts business performance, and 38% said this risk has been a
concern for their organisation in the past. Having long-term succession plans
for key leadership positions is a fundamental responsibility of the board and
CEO, and should be monitored and addressed regularly.
 etention of critical talent segments. High attrition of critical workforce
segments affects businesses in many ways: posing obstacles to business
growth, raising succession/ transition risk and increasing costs associated
cited the impact of this HCR on business performance as “major” or
“catastrophic”, while 31% reported having faced retention challenges in the
past two years. These findings are consistent with other employer surveys
in India, including Willis Towers Watson’s Global Talent Management and
Rewards Study, which examines employer views of trends and challenges
in rewards and talent management. According to that survey, 46% of
organisations in India have difficulty attracting workers and 45% experience
challenges in retaining talent with critical skills.1
3. Capability gaps with respect to emerging business/technology.
Organisations need their workforces to possess the critical skills required to
maintain a competitive edge in today’s rapidly changing market, where new
products and technologies emerge every other day. When skill gaps persist,
the company’s talent profile goes out of alignment with its medium- and long-
term HR needs, necessitating an overreliance on external talent and creating
budgetary stress. In India, the supply-and-demand mismatch of skilled workers
constitutes a perennial challenge for employers. Seventy-four percent of
respondents believe skill gaps significantly hurt business performance, and
28% say their company has struggled with this risk.
4. Low workforce productivity. Many studies have confirmed a direct correlation
between corporate financial performance and workforce productivity. Failing
to enhance employee productivity can result in unmet business targets, lower
profits and higher HR costs as organisations scramble to replace less productive
workers. It can also foster an organisational culture lacking in performance-
oriented work processes and systems, further dampening performance
levels. For organisations in India, boosting productivity necessitates greater
investments in training and skills enhancement, and in further efforts to
improve employees’ attitudes towards learning new skills and enhancing
productivity. Sixty-four percent of respondents said that workforce
productivity challenges have a big impact on business performance, while
28% have faced productivity challenges in their own organisation.
5. I nadequate talent attraction programmes. The inability to attract the right
employees to fill open positions is a cause of concern. A lack of appropriate
hiring risk controls can lead to employment of suboptimal talent — either
overpaying for workers’ experience/skills or a misalignment between workforce
skills and business requirements. Sixty-five percent of respondents think
flawed or insufficient talent attraction programmes strongly affect business
performance, and 25% said their organisations have faced such hurdles.
1
See Willis Towers Watson, 2014 Global Talent Management and Rewards Study: At a Glance (Willis Towers Watson, 2014),
towerswatson.com/en/Insights/IC-Types/Survey-Research-Results/2014/08/2014-global-talent-management-and-
rewards-study-making-the-most-of-employment-deal (accessed Dec. 29, 2014).
 Figure 2. Top risks

High

2
1
7 3
4
8
5
9
16 11 6
12 10

17 13
Impact

14
15

Low Likelihood
Low High
Overall risk score = Impact score * Likelihood score

Rank HCRs Overall score

1 Insufficient leadership bench-strength 12.12
2 Retention of critical talent segments 12.02
3 Capabilities gaps with respect to emerging market/technology 12.01
4 Low workforce productivity 10.89
5 Inadequate talent attraction programmes 10.43
6 Lack of compelling capability development and talent management programmes 10.29
7 Suboptimal workforce planning and organisation design 10.18
8 Lack of business-critical systems like performance management 10.17
9 Ineffective compensation strategy design and implementation 9.24
10 Failure to deliver on changing business needs and ineffective change management 9.03
11 Insufficient tools to motivate and engage the workforce 8.39
12 Weak internal communication 8.14
13 Inadequate use of HR technology 7.92
14 Inefficient management of employee benefit plans 6.69
15 Ineffective outsourcing model and management of outsourcing partner 6.56
16 Statutory noncompliance 6.51
17 Ineffective industrial relations 6.36

Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study
Note: Scores for “impact” and lIkelihood” are average scores on a 5-point scale.

9 The state of human capital risk in India

“Talent acquisition, development
and retention are the fundamental
risks. Associated challenges are in
the realm of learning & development
that keep acquiring new definitions
given the range it encompasses right
from skill development to leadership
enhancement. This calls for coming
up with innovative learning solutions
that translates into relevant skill
development programmes and
leadership development initiatives
with special focus on succession
management. The other set of human
capital risks are the regulatory
requirements of running an
organisation where the organisation’s
approach to governance, compliance
and risk management play a crucial
role in promoting an ethical and
transparent culture.”
R Venkatanarayanan, President­—
HR, IT & Education, Rane Group
10 willistowerswatson.com
6. Lack of compelling capability development and talent management
programmes. Failing to provide appropriate learning and development
programmes that enhance workforce capabilities and bridge any skill gaps
poses a serious threat to organisations. Inadequate talent management can
depress business performance by resulting in suboptimal career planning for
employees and inadequate succession plans for critical roles.
7. S
 uboptimal workforce planning and organisation design. Where organisational
design is ineffective, firms may lack the flexibility they need to scale-up to meet
intensifying business needs. There may also be conflicts between functional and
organisational roles, as well as overall obstacles to delivering the customer value
proposition. Suboptimal workforce planning results in:
ƒƒ
Insufficient resources to deliver services to targeted levels
ƒƒ
Excess workforce in some areas that may need redeployment in the short/
medium/long term
ƒƒ
Weak linkages between workforce planning and business/functional
variables (e.g., number of customers, fixed assets, number of purchase
orders, full-time employee-to-HR ratio) leading to ineffective planning
ƒƒ
A workforce model that may not achieve optimal structure in terms of
insourcing/outsourcing, full/part time, and payroll/contract workers
8. L
 ack of business-critical systems. Sixty-two percent of respondents
reported a lack of critical systems, such as performance management, which
can have an enormous impact on business performance. Organisations
without a proper performance management system cannot develop a culture
that supports the achievement of organisation-wide goals across workers,
functions and teams. An inability to differentiate high performers from low
performers wastes resources and results in missed business opportunities.
9. I neffective compensation strategy design and implementation. Most
importantly this leads to difficulties in attraction and retention of critical talent.
It also results in inappropriate HR cost management.
10. Failure to deliver on changing business needs and ineffective change
management. Whether the changes are to work methods or processes, or are
major transformations like mergers and acquisitions or restructuring, companies
must remain adaptable to survive. Because change is such an integral part of
today’s business environment, failing to manage change effectively drastically
reduces an organisation’s probability of achieving its goals.
Drilling deeper
Figure 3 highlights marginal differences by organisation type and size for HCRs
that pose the most serious threat to organisational health. Domestic firms seem
less concerned than MNCs with low workforce productivity: 70% of respondents
from MNCs believe that low workforce productivity critically impacts business
performance versus 56% of respondents at local organisations. Although
when asked about the frequency of productivity-related challenges, 25% of
respondents from MNCs and 33% from domestic organisations said they occur
often or fairly often. Another difference is that MNCs were more likely than
domestic firms to consider the lack of well-designed learning and capability
programmes that bridge skill gaps a serious risk, while domestic organisations
expressed greater concern about “suboptimal workforce planning and
organisation design”.
HR respondents seem more worried than other executives about the need for “The context of business has turned
effective capability development programmes and managing low workforce on its head from being employer
productivity. These are challenges HR manages on a daily basis, so other senior dominated to employee dominated in
executives are probably less informed about the risks and their potential impacts. the past two decades People assets
To establish and maintain successful HCR mitigation plans, however, senior have become invaluable in a world where
executives and other managers must have oversight or at least understand these talent is getting increasingly scarce.
business-critical risks. HR respondents also indicated that “inadequate use of HR Organisations have realised this and only
those who are able to attract and retain
technology” has often caused issues in their organisations.
talent will have a sustainable future.”

Smaller organisations — those with fewer than 1,000 employees — were more
Vineet Sharma, Executive Vice President
likely than midsize and larger organisations to say they struggle with challenges
Quality & Service Excellence, Max Life
arising from lack of effective performance management systems. Twenty-eight
Insurance Company Limited
percent of respondents from smaller organisations versus 18% from large
organisations cited ineffective performance management systems as a problem.
Among larger organisations, talent management systems and programmes do not
pose the highest risks. In fact, managing employee productivity and engagement
seem to be a greater concern in larger firms, and 64% of respondents from
large organisations indicated that employee engagement has a critical impact on
business performance compared with 31% at small organisations.

Figure 3. Top 5 risks by respondent profile

Type of Organisation Size of Organisation HR vs. non-HR

Small Large
Domestic Publicly
MNC Non-traded (fewer than 1,000 (more than 10,000 HR Non-HR
organisation traded
employees) employees)

Retention of Insufficient Retention of Capabilities Insufficient Retention of critical Insufficient Retention of

critical talent leadership critical talent gaps with leadership bench- talent segments leadership critical talent
segments bench- segments respect to strength bench- segments
strength emerging strength
market/
technology
Capabilities Capabilities Insufficient Insufficient Capabilities gaps Insufficient Capabilities Insufficient
gaps with gaps with leadership leadership with respect to leadership bench- gaps with bench-
respect to respect to bench- bench- emerging market/ strength respect to strength
emerging emerging strength strength technology emerging
market/ market/ market/
technology technology technology
Insufficient Retention of Capabilities Retention of Retention of critical Capabilities gaps Low Capabilities
leadership critical talent gaps with critical talent talent segments with respect to workforce gaps with
bench- segments respect to segments emerging market/ productivity respect to
strength emerging technology emerging
market/ market/
technology technology
Low Suboptimal Low Low Inadequate Inadequate Retention of Inadequate
workforce workforce workforce workforce talent attraction talent attraction critical talent talent
productivity planning and productivity productivity programmes programmes segments attraction
organisation programmes
design
Lack of Lack of Lack of Suboptimal Lack of business- Low workforce Lack of Lack of
compelling business- compelling workforce critical systems productivity compelling business-
capability critical capability planning and like performance capability critical
development systems like development organisation management development systems like
and talent performance and talent design and talent performance
management management management management management
programmes programmes programmes

Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

11 The state of human capital risk in India

 Figure 4. How effectively do organisations
identify, evaluate and manage human
capital risks?

20%
Managing human capital risk:
41%
Current conditions
Only 41% of these organisations are effective at understanding and managing
39% HCR, according to the study. Seventy-three percent of respondents who said
their organisation effectively manages risks work at MNCs and 27% work at
domestic organisations. Amongst those who rate their risk mitigation strategy/
process as effective, 45% are HR leaders and 55% are other executives.
Ineffectively Neutral Effectively
Source: 2016 Willis Towers Watson -
CII-SNCEL Human Capital Risks Study
Most organisations do not seem prepared to address their human capital risks.
Overall, 63% said they lack formally defined risk mitigation strategies (Figure
Figure 5. Has your organisation defined 5). Respondents from MNCs were more than three times as likely as domestic
a risk mitigation or control strategy for firms to have formally defined risk mitigation strategies. Size matters, too: 86% of
human capital risks? respondents from organisations with fewer than 1,000 employees said they do
50% not have a formally defined strategy, and 34% have not defined a strategy at all.
Although larger organisations seem to have a strategy of some kind, 45% of them
40%
44 reported that it is not formally defined.

35 Furthermore, respondents were asked to indicate the maturity level of their risk
Not defined
30% Informally defined
mitigation process (whether formally defined or not). Process maturity was based
Formally defined
on a seven-point scale where:
Don’t know
20%
19
Less mature
10% 1 = Human capital risks are vaguely defined
2 = Almost all critical risks are identified
2
0% 3 = Risks are documented

Multinationals Moderately mature

4 = Risks are evaluated and prioritised according to severity level, probability and
14% risk 16%
appetite
26%
Highly mature
5 = Plans to mitigate risks are designed
49%
6 = Audit process is implemented to tests the risks
7 = Risk mitigation plans are reported and monitored regularly
37%

Less than half of respondents think their risk mitigation process is sufficiently
58%
mature to deal with all HCRs (Figure 6). The HCR mitigation process is three
times as mature at MNCs versus domestic organisations, and 54% of HR
Domestic organisations
respondents consider their processes highly mature versus roughly 41% of other
Not defined Informally defined Formally defined
executives. A significantly higher percentage of larger organisations have mature
16% processes as compared with smaller or midsize firms.
26%

%
44
58%
35 Not defined
Informally defined
Not defined Formally defined
ormally defined Formally
Informally definedDon’t know
defined
Formally defined
19
Don’t2016
Source: knowWillis Towers Watson -
CII-SNCEL Human Capital Risks Study

2
12 willistowerswatson.com

2
 “People processes related to organisation, talent and performance are critical to
deal with emerging business challenges. Organisations competing in today’s rapidly
changing environment tend to face significant HR risks related to attraction, retention
and management of talent. The vision of Bharti Airtel is to standardise ‘employee
experience’ irrespective of the location of their work. To achieve what we envisioned,
we institutionalised a ‘People Assurance Track’ in October 2013 as a focussed risk
and assurance track, dealing with the entire life-cycle of the employee. As part of
this initiative, we have created a comprehensive framework to assess people related
risks and strengthen risk mitigation plans. Huge credit also goes to the HR teams for
corrective action taken to make design and implementation of HR programmes more
efficient, thereby achieving what we set out to do.”

Ritika Chopra, Head People Track, Corporate Assurance Group, Bharti Airtel

Figure 6. Is the risk mitigation process sufficiently mature to deal with human capital risks?

0% 5% 10% 15% 20% 25%

50%
HC risks are vaguely defined
46 24
40% Almost all critical risks are defined
41
7
Risks are documented
30% 9
Risks are evaluated and prioritized according to risk appetite
11
20% Not so mature
Plans to mitigate risks are designed
Moderately mature
13
Highly mature
Audit process is implemented to test the risks Don’t know
10%
11 10
Risk mitigation plans are reported monitored regularly
2
0%
23
Don't know
2

Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

13 The state of human capital risk in India


“Evolving a common agreed
framework of reporting is a key
ingredient for HR to develop
further. A well-developed reporting
framework that provides analysts
and investors insights into the
quality of people capital in a
company will start getting factored
into predictions of business
success, forward earnings etc.
further strengthening the current
momentum around HR.”
Animesh Kumar, Head - HR, Brand
and Foundation, IDFC Bank
14 willistowerswatson.com
Employing a co-ordinated
approach
Many sophisticated global organisations are building successful partnerships
among different functions to enhance understanding, develop plans and
improve management of HCRs. In India, however, most organisations have yet to
establish this connection, and HR remains primarily responsible for processes,
procedures and issues relating to human capital. Although HR leaders must lead
HCR management efforts, it is critical that risk managers, internal audit teams,
executive leadership and the board understand the risks and potential costs. A
coordinated approach to HCR management — one that combines the cumulative
knowledge of all stakeholders — improves the odds of being able to avoid or
mitigate negative outcomes.
Our research reveals mixed opinions about who bears the primary responsibility
of HCR management. Some people argue that, because many HCR factors relate
to HR programmes, HR is uniquely positioned to analyse and manage the drivers
of HCR. Sixty-five percent of our respondents said that HR participates in the
assessment and management of HCR in their organisations. Some think that
corporate boards need to be more actively involved to help the business meet
strategic objectives — only 42% of respondents indicated board involvement in
HCR management. Others maintained that the risk/finance function, which has
typically developed capabilities related to broader enterprise risk management
(ERM), and compliance professionals should play key roles. Thirty-three percent
of respondents said that HCR is managed by the internal audit function and 32%
said it is managed by ERM in their organisation.
Barriers to success
We also tried to gauge likely obstacles to successful HCR management for
organisations in India. About 39% of the respondents cited insufficient dialogue
between the HR and risk management functions as a barrier to effective HCR
management (Figure 7). This could be because these functions are separated
by different reporting lines and thus have little incentive to collaborate. Both
functions also tend to attract employees with different skills and capabilities,
which could inhibit collaboration. This is a bigger challenge for larger
organisations than it is for smaller or even midsize ones.
Furthermore, HR and other executives seem to differ significantly when it
comes to collaboration between HR and ERM. Amongst those who cited lack
of collaboration as a major obstacle, 32% are HR professionals, while 68% are
other executives. This emphasises the need for dialogue between the risk and
HR functions. Both these functions have grown in complexity and impact over the
last decade. While HR professionals can learn assessment and management of
risks, risk professionals need to understand how HR processes affect business
results and sustainability. The risk functions can help HR understand how to
leverage ERM processes and systems to manage HCR, and HR can ensure that
key talent issues make their way into the risk management agenda.
 “Risk in India is still perceived mainly as the job of the risk
and assurance function. The fact that it could help strategic
success and sustainability of business needs more emphasis.
The risk function needs to educate and collaborate with
the operating organisation on the criticality of the risk and
assurance process.”

Shatrunjay Krishna, Director – Rewards, Talent and

Communication, Willis Towers Watson India

Figure 7. What are the challenges to having a successful HC risk

mitigation plan in place in your organisation?
0% 20% 40% 60% 80% 100%

Limited understanding of HC risks by senior leaders

15 25 25 35

Limited understanding of HC risks in the audit community

Not a challenge
16 29 30 25 Somewhat a
challenge
Lack of HC risk specialists Moderate
8 23 30 39 challenge
Major challenge
Insufficient dialogue between HR and risk management functions
8 23 30 39

Limited resources to invest due to tight budgets

18 21 30 32

Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

15 The state of human capital risk in India

 Lack of human capital risk specialists is another challenge, with 39% of
respondents calling it a major obstacle to a successful mitigation plan. Slow
progress as HR shifts from a primarily operational role to a more strategic one,
and overall sluggish advancement in the ability to align talent programmes
and strategies with the business strategy hinder effective management. An
organisation’s risk function can play a critical role in instilling a risk mind-set in
the HR function, which can sharpen the HR focus on supporting both its own
and the organisation’s overall objectives. In many organisations, HR lacks the
data and analytics required to perform efficient cost-benefit analyses of various
HR programmes. At the board level, the lack of HR expertise and skills limits the
board’s ability to view these challenges in a strategic way.

Limited understanding of these risks by senior leaders is another major

challenge, followed by the low priority accorded to HCR management in
resource and budget allocations. Significantly more respondents from domestic
organisations than from MNCs find limited understanding of HCR by senior
leaders a major challenge. Organisations in India are more likely to undervalue
HCR management for several reasons, including less well-established
governance and human capital infrastructure, a legacy of considering HR as
administrative rather than strategic, and rapid growth that prioritises short-term
decision making over longer-term risk management. But the lack of effective
risk mitigation strategies can derail the achievement of business objectives and
weaken the organisation’s values and culture.

16 willistowerswatson.com
Bringing it all together
A few years ago, “managing human capital risk” rarely figured on the agenda of
C-Suite leadership in Asia and even less so in India. Corporate leaders today are
more likely to realise that human capital can make or break the sustained viability
and success of their business, and to make it a priority. HCR management is
forecast to continue growing in importance globally. Three out of four of these
respondents said their organisation plans to invest additional resources in HCR
management over the next five years.

As our research clearly shows, organisations in India are most worried about
attraction and retention challenges and managing the pipeline of future leaders.
While addressing these talent-related risks is crucial in the prevailing war for
talent, the risks which enable or hinder a company’s execution of strategy
through its people are important as well. Among organisations in India, managing
workforce productivity, and bridging the gap between required and available skills
are urgent concerns that must be managed for business sustainability.

According to our research, most organisations seem to lack the proper

frameworks, tools and processes to effectively identify and manage HCR. Many
firms, especially domestic ones, are not effectively managing HCR — they
have yet to develop a structured process to identify key risks, formulate and
quantitatively evaluate risk mitigation strategies, and execute those strategies
most closely aligned with the organisation’s overall business strategy.

Organisations need to adopt a holistic view of potential HCRs and define a

practical, formal approach that helps them manage salient risks in a way that
does not undermine other critical business objectives, such as innovation,
collaboration and speed-to-market. Intelligent collaboration among HR, risk,
audit teams and business leaders can minimise business failures due to talent-
related obstacles and enable organisations to maximise strategic opportunities
through their people. Leveraging existing HR workforce data and analytics to
calculate the impact of these risks on performance should encourage leaders to
focus more closely on these issues. Some effective risk-management performers
have a standing group/committee with direct responsibility for overseeing HCR
management. Or the CHRO might serve on the corporate risk committee as
well as attend board meetings to ensure that HCR management is reflected in
corporate strategy.

17 The state of human capital risk in India

 Managing HCR: Blueprint for action
The rising complexity in conducting business and need for better talent management and engagement is making it
increasingly common for employers to do HR Audits.

For the success of HR audits, review of organisation risks on a regular basis is imperative. This helps link and align HR
systems and services to organisational objectives while focusing on the business needs.

Conducting an audit involves review of current practices, policies, and procedures, and may include benchmarking
against organisations of similar size and / or industry.

Key steps for risk assessment and audit include:

1. Risk assessment: The success of process is dependent on diligence followed while identifying, prioritising and
classifying risks. Involvement of senior leadership and key business stakeholders is pertinent at this stage. The next
step is to list down key controls to be checked / audited for all HR programmes / processes.

2. Audit preparation: Audit protocols needs to be established to standardise the way of working for the audit team.
Audit governance framework including acquiring audit resources are the key milestones of this step.

3. Conduct audits: Actual field-work is conducted at this stage - checks are conducted on the data collected from the
auditee. Observations are also rated as per their impact and likelihood. Action plan to mitigate identified issues are
also agreed at this stage.

4. Post audit review: The result of an audit helps determine what needs to be done, how these changes will impact the
bottom line of the organisation, and how to prioritise problem areas in terms of significance.

18 willistowerswatson.com
 About the Study

44% 97
Organizations
60%
companies with
Publically
spanning diverse international
traded
set of industries operations

Number of employees Job level

More than 10,000............................................. 23% CEO, Chairman, President .......................... 15%
5,000-10,000........................................................ 19% Chief Human Resources Officer. ........... 40%
1,000-5,000.......................................................... 29% Other senior executives. ............................... 45%
Less than 1,000. . ................................................ 30%

Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

Project team
Shatrunjay Krishna (HR Risk Expert) Indrani Kar (Lead Partner)
Director – Rewards, Talent and Communication Head
Willis Towers Watson India CII-Suresh Neotia Centre of Excellence for Leadership
T +91 124 432 2884 T:  +91 33 66140100
Shatrunjay.Krishna@willistowerswatson.com Indrani.Kar@cii.in

Urvi Shriram (Research Lead) Rajesh Gopinathan (Project Partner)

Economist Deputy Director (HR & IR Desk), CII
Willis Towers Watson T: +91 11 24682230-35
T + 91 124 433 7096 Rajesh.Gopinathan@cii.in
Urvi.Shriram@willistowerswatson.com

19 The state of human capital risk in India

 The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development
of India, partnering industry, Government, and civil society, through advisory and consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managed organisation, playing a proactive role
in India’s development process. Founded in 1895, India’s premier business association has over 8,000 members,
from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 200,000
enterprises from around 240 national and regional sectoral industry bodies.

CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and
enhancing efficiency, competitiveness and business opportunities for industry through a range of specialised services
and strategic global linkages. It also provides a platform for consensus-building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship
programmes. Partnerships with civil society organisations carry forward corporate initiatives for integrated and
inclusive development across diverse domains including affirmative action, healthcare, education, livelihood, diversity
management, skill development, empowerment of women, and water, to name a few.

The CII theme for 2016-17, Building National Competitiveness, emphasises Industry’s role in partnering Government
to accelerate competitiveness across sectors, with sustained global competitiveness as the goal. The focus is on six
key enablers: Human Development; Corporate Integrity and Good Citizenship; Ease of Doing Business; Innovation and
Technical Capability; Sustainability; and Integration with the World.

With 66 offices, including 9 Centres of Excellence, in India, and 9 overseas offices in Australia, Bahrain, China, Egypt,
France, Germany, Singapore, UK, and USA, as well as institutional partnerships with 320 counterpart organisations in
106 countries, CII serves as a reference point for Indian industry and the international business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 India
T: 91 11 45771000 / 24629994-7 • F: 91 11 24626149
E: info@cii.in • W: www.cii.in

Follow us on :

facebook.com/followcii twitter.com/followcii www.mycii.in

Reach us via our Membership Helpline: 00-91-124-4592966 / 00-91-99104 46244

CII Helpline Toll free No: 1800-103-1244

20 willistowerswatson.com
 About Willis Towers Watson
A truly compelling combination
Willis Towers Watson (NASDAQ: WLTW ) is a leading global advisory, broking and solutions company that helps
clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000
employees in more than 120 countries. Our distinct, connected perspective across talent, assets and ideas unlocks
potential for our clients. While many just look at mitigating the downside, we see how a unified approach to people
and risk is a path to growth. Powered by market analytics and behavioural insight, our integrated teams reveal hidden
value within the critical intersections of our clients’ organisations. We design and deliver solutions that manage
risk, optimise benefits, cultivate talent and expand the power of capital to protect and strengthen institutions and
individuals.

A strong client focus, an emphasis on teamwork, unwavering integrity, mutual respect and a constant striving for
excellence are the values at the core of the new Willis Towers Watson organisation.

We cover the length and breadth of India with some of the best talent in the industry comprising of close to 200
colleagues across 4 cities.

Willis Towers Watson was awarded the Best HR Consultant of the Year at the World HRD Congress 2016..

Willis Towers Watson: A Comprehensive Offering

Human Capital and Benefits

High-performing institutions cultivate and grow talent, carefully balancing costs and rewards. From employee benefits
to executive compensation, we take a rounded perspective based on leading-edge thinking, data, analytics and
software, unearthing new ways to motivate people, foster well-being and implement solutions that work.

Corporate Risk and Broking

We know how companies can unlock potential through effective risk management. Our clients rely on us to craft
strategies to quantify, mitigate and transfer risk, taking advantage of our specialist industry experience and
unparalleled market know-how. The result is a new way of embracing risk that drives superior results.

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21 The state of human capital risk in India

 About CII - Suresh Neotia Centre of Excellence for
Leadership (SNCEL)
The CII-Suresh Neotia Centre of Excellence for Leadership is a part of CII’s
integrated agenda for building competitiveness through Centres of Excellence.
The Centre was set up on the basis of CII’s core belief that the quality of leadership
will play a key role in enabling India to succeed in its mission for inclusive growth
and competitiveness and claim its rightful position in the global arena. The Suresh
Neotia Centre of Excellence for Leadership envisages to play a major role in India’s
growth agenda by catalysing leadership development across all businesses and
socio cultural demographics through a range of interventions especially focussing
on “people” and “process” transformations.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and
solutions company that helps clients around the world turn risk into a path for
growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees
in more than 120 countries. We design and deliver solutions that manage risk,
optimise benefits, cultivate talent, and expand the power of capital to protect and
strengthen institutions and individuals. Our unique perspective allows us to see
the critical intersections between talent, assets and ideas — the dynamic formula
that drives business performance. Together, we unlock potential. Learn more at
willistowerswatson.com.

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WTW-AP-16-RES-2224B

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