Blog Article

Are they worth it?

Posted by Paul Lambert

Paul Lambert

Typically, businesses spend too much on leaders and not enough on the critical operational roles that are essential to making strategy happen. How can you make sure your workforce investment is in line with your business plans? In this fifth blog post introducing the ‘5 RightS’ of Strategic Workforce Planning, we look at ‘Right Spend’, examining how two large corporations have solved this puzzle.

Despite the enormous sums involved, people expenditure doesn’t always get the scrutiny it deserves. When it’s assumed that the baseline people budget is acceptable, organizations rarely check in enough depth whether their investment in people is well spent.

They could be missing a big opportunity. Markets change so fast today that companies can easily find themselves spending on the wrong mix of people. For example, this graphic shows how the telecoms industry has transformed in shape over the past two decades. Two major shifts happened in just 10 years, leading to a dramatic increase of skills in the client management and content space. With such a dramatic change happening so rapidly, organizations should be asking “are we really spending on the right people for the future?”:

Right spend

Source : Hay Group

Finding the right spend in logistics

After 20 years of expansion that turned it into a major European and North American player, an international logistics firm saw growth slow as new competitors moved into its core markets. Although the company had wisely sought to develop new markets in East Europe and Asia, it still needed funds to drive growth and the board was being pressed to clarify how best to use its money to achieve this.

Given that over 30% of the company’s expenditure was on people, a big question was: “What’s the right spend?” in relation to people, roles and markets.

In situations like this, we find that three questions help to clarify the answer:

  1. What roles do you focus your spend on?
  2. What roles aren’t adding the value they should?
  3. What are you rewarding?

The importance of critical roles

Interestingly for this company, different markets had different answers to the first question, which uncovers the “critical roles” that add most value to the business and are central to its plans.

In a growing East European country market, the critical role was a new one: a “logistics solutions developer”. This was someone who could work with a customer to tailor the company’s service to solve particular issues. For example, they were able to ensure for a major food retailer that they had transported the right quantities of a soda brand’s cans and bottles to the right stores based on sales information from the retailer. On the other hand, in a more mature market, one of the critical roles was the relationship manager for key clients.

Where not to spend

Sometimes, right spend is about where not to spend money. This means identifying roles that aren’t adding the value they should. When working with a large energy firm in a strongly operational environment, we found the workforce shape was wrong (it was a diamond rather than a pyramid). And when the shape is wrong, the spend is usually wrong too. In this case, the issue was too many quality assurance staff checking frontline workers – there were even “checkers checking checkers”!

Reward the right things

Finally, the wrong spend often comes from a lack of clarity about what we are spending our payroll on. It’s therefore good to ask: what do we want to reward? It might be:

  • Performance – rewarding high quality work
  • Competence – rewarding the development of skills to deliver quality and safety
  • Retention of key capability – critical roles

These three questions are a good starting point to examine whether your investment in people is directed in the right way:

  • Who in my workforce can’t I afford to lose?
  • Are all jobs adding to the ultimate customer experience?
  • Am I rewarding the right people for the right things?

With expenditure on people such a huge part of so many organizations’ costs, there’s great value in making sure it’s being targeted effectively.

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1 Comment

  1. Arun Sharma

    Arun Sharma

    April 19, 2015 at 12:11 pm

    Hi Paul,

    Thank you for introducing another aspect of the Hay Group’s SWP offering. You have talked about a very important aspect of Human Capital Management – linking individual skills/competencies to organisation’s requirements and further to the optimum reward.
    I have been working with clients for over 5 years and I have found this question being asked over and again – “How do I implement the reward structure?” From the SWP perspective, we look at rewarding the “people”, but when we design reward/compensation plans, we typically talk about “roles”. Based on your experience, what do you think is the best way to merge these two in order to deliver the maximum value to our clients?

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