Human Capital Trends 2014 survey Top 10 findings

To gain insights into the 2014 global human capital trends, we conducted a survey in the last quarter of 2013 that included 2,532 business and HR leaders in 94 countries. The survey covered the major industries and all of the world’s geographies (survey demographics are summarized in the appendix to this chapter). Our goal was to better understand the priorities and preparedness of executives and HR professionals around the world, and to provide insight on what leaders can do to drive the talent and HR agenda.

This chapter provides a summary of our top findings from the global survey. We are also making views of the data available through the Deloitte Human Capital Trends Dashboard tool, which will be available on our websites.

Finding 1. Leadership, retention, HR skills, and talent acquisition are the top global trends in perceived urgency

Across all respondents to our global survey this year, companies cite four issues as the most urgent: leadership, retention and engagement, the reskilling of HR, and talent acquisition and access (see figures 1 and 2).

Building global leadership is by far the most urgent: Fully 38 percent of all respondents rated it “urgent,” almost 50 percent more than the percentage rating the next issue “urgent.” Companies see the need for leadership at all levels, in all geographies, and across all functional areas. This continuous need for new and better leaders has accelerated. In a world where knowledge doubles every year and skills have a half-life of 2.5 to 5 years, leaders need constant development. This ongoing need to develop leaders is also driven by the changing expectations of the workforce and the evolving challenges businesses are facing, including two major themes underlying this year’s trends: globalization and the speed and extent of technological change and innovation.

The second most urgent issue today is retention and engagement—a topic that often has no clear owner within HR or the business. Our research shows that “we all own this issue”: HR, top leadership, and all levels of management. As we discuss in the main report, companies should redefine their engagement strategy to move from keeping people to attracting them and creating a passionate and compassionate place to work. Further, companies will benefit from having a clear point of view on how business executives, line leaders, and HR can more effectively work together and address this challenge.

The third most urgent issue is the reskilling of HR. This finding suggests that the HR and talent functions are in the midst of a transformation. HR is not making the grade as companies move away from HR as people administration to a focus on people performance. An essential part of this change is the upskilling, reorganization, and transformation of HR and its relationship with business leaders and issues.

The fourth most urgent issue is talent acquisition and access. This continues to be one of the most important things companies do. In a skills-constrained environment, a company’s ability to find, attract, and access highly skilled people is critical to success. This area is going through a significant disruption as a result of globalization, technology, social media, changing workforce expectations, and the shrinking half-life of skills and technical knowledge. Tools such as LinkedIn, Facebook, Twitter, and others are changing recruiting into a strategic function focused on marketing, branding, and new tools and technologies.

Finding 2. Companies report generally low levels of readiness to respond to the trends

Overall, survey respondents reported generally low levels of readiness to respond to the 12 global trends in our survey (figure 3). In fact, on average across all trends, 36 percent of respondents reported they were “not ready” as opposed to 16 percent reporting they were “ready”—meaning that they were more than twice as likely to say they were “not ready” versus “ready” for the trends they see coming. Only in workforce capability did more than three-quarters of respondents feel either “somewhat ready” or “ready” to address the trend. These findings are sobering, given that each trend was rated “important” or “urgent” by at least 60 percent of respondents, while the top five trends were all rated “important” or “urgent” by at least 75 percent of respondents (figure 1).

More than 40 percent of respondents reported their companies were “not ready” to address talent and HR analytics, HR technology, the overwhelmed employee, and performance management—the lowest levels of readiness among all the trends (figure 4). These low reported levels of readiness and preparedness are a warning signal, considering the high levels of urgency and importance attributed to the trends in the global survey.

Figure 5 maps the 12 trends according to respondents’ ratings of both their urgency and their companies’ readiness to deal with them. Urgency is shown on the horizontal axis, with higher numbers indicating greater urgency; readiness is shown on the vertical axis, with higher numbers indicating greater readiness. The resulting grid shows a clustering of the trends in the lower right, underscoring one of the major findings in the survey: the gap between these trends’ perceived importance and companies’ readiness to address them.

Finding 3. The largest capability gaps are reported in leadership, analytics, reskilling HR, talent acquisition and access, and the overwhelmed employee

To further highlight the near-pervasive gap between urgency and readiness, we calculated an index score for each trend that we call the Deloitte Human Capital Capability Gap Index, a figure that shows HR’s relative capability gap in addressing a given talent or HR-related problem. It is calculated by taking an organization’s self-rated readiness and subtracting its urgency, normalized to a 0–100 scale. For example, if an organization feels that an issue is 100 percent urgent and it also rates itself 100 percent capable and ready to address the issue, the capability gap would be zero. These index scores, which are almost always negative, provide a “weighting” of gaps to help identify the biggest areas of need.

As figures 6 and 7 show, leadership (gap of -34) and analytics (gap of -30) are the areas with the biggest gaps between urgency and readiness, and hence the most important areas on which to focus investment. Reskilling HR, talent acquisition, dealing with the overwhelmed employee, and the need to replace HR technology are close behind, with gap scores of between -25 and -27, inclusive. These indicate areas where companies need to rethink their strategies and reengineer their current approaches.

The challenges of revamping performance management, addressing retention and engagement, and improving HR globalization received gap scores of between -20 and -24. These areas reflect a need to rethink HR strategies to deal with the 21st-century workforce.

The areas of workforce capability, diversity and inclusion, and learning and development also require attention. When weighted by importance, the gap between urgency and readiness is the smallest in our index, but these areas still represent potential opportunities for improvement.

Finding 4. Leadership is the top priority in developed and growing economies

We asked our respondents to identify in which of seven global geographies their top five trends were most important. As figure 8 shows, leadership, the most important overall trend in our survey, was identified as highly important in five of seven global regions: Asia Pacific, Western Europe, Central and Eastern Europe, North America, and South America. Note also that, in these regions, retention and engagement is a high priority as well, with North America facing the most acute need in this area.

This geographic pattern of leadership’s perceived importance corresponds to global regions of business growth and opportunity. Asia and North America were rated as the two highest areas of growth in our survey, and Western Europe is undergoing a difficult economic transformation. Emerging economies (Middle East, Africa, and, to a degree, South America) also report leadership as a top priority, balanced with the need for workforce capability, HR globalization, retention, and talent acquisition.

Finding 5. While global trends are similar around the world, program needs vary by region

While most geographies have broadly similar priorities across the human capital trends, there are some variations, as figure 9 shows. North America reports the highest level of challenge from the overwhelmed employee. Asia Pacific- and South America-based companies report the need for improved workforce capabilities more strongly than companies in other geographies. Western Europe sees a greater need to reskill and transform HR than other regions.

This finding suggests that regional economic forces and cycles have an impact on human capital priorities. In figure 9, the high urgency that companies in Africa, Latin and South America, and the Middle East report for many of the trends is striking. This underscores the value of HR and leadership teams understanding these variations and accommodating regional workforce priorities and dynamics as they globally hire, manage, and lead their people.

Finding 6. Human capital priorities vary by industry, with one exception: Leadership

Different industries have different talent priorities—with one major exception (figure 10): Every industry sees leadership as its top priority. Retention and engagement was almost as consistently rated a high priority: It was the No. 2 trend for six of the eight industry groups.

Differences among industries include:

• Technology companies, life sciences, health care, professional services, and oil and gas companies rate talent acquisition and access particularly high, reflecting the important need in these industries to find key people with unique technical skills.
• Energy companies, life sciences companies, and technology, media, and telecommunications companies—three industries going through significant transformations—rate the need to reskill HR as a particularly high priority.
• Professional services companies, public sector organizations, and energy and resources companies rate building workforce capabilities particularly high—in the top two or three slots.

Finding 7. “Excellent” HR companies and teams focus more intensely on the urgent global human capital trends

Our survey asked respondents to rate the overall performance of their HR and talent organizations and programs. When we looked at self-assessed “excellent” or “high performing” HR and talent teams, we found that they rated the top trends higher in urgency and importance (on average, seven percentage points more) compared to those who rated themselves “adequate” or “average” performers. These trends included:

1. Leadership: Rated as “urgent” or “important” by 88 percent of high performers vs. 85 percent of average performers
2. Talent acquisition and access: Rated as “urgent” or “important” by 85 percent of high performers vs. 74 percent of average performers
3. Reskilling HR: Rated as “urgent” or “important” by 84 percent of high performers vs. 76 percent of average performers
4. Retention and engagement: Rated as “urgent” or “important” by 83 percent of high performers vs. 79 percent of average performers
5. Talent & HR analytics: Rated as “urgent” or “important” by 82 percent of high performers vs. 71 percent of average performers

These findings suggest that top HR teams are even more focused on certain business and talent priorities, including leadership, talent acquisition, delivering a high-performing and highly engaged workforce, improving the HR function, and building analytics capability, than most companies’ HR teams.

Finding 8. Business leaders have less confidence in their organization’s readiness to deal with future trends than HR leaders

Our survey included the perspectives of both business leaders and HR leaders. For the five trends identified as most urgent overall, we observed substantial differences between business leaders’ and HR leaders’ views on their organizations’ readiness for these trends. These differences were more pronounced for larger organizations—those with more than 10,000 employees. Among these organizations, business leaders rate their organizations’ readiness to address the top trends an average of 13 percentage points lower than HR’s assessment of readiness in leadership, reskilling HR, the globalization of HR, retention and engagement, and talent and HR analytics (figure 11).

While HR teams may understand their current programs, capabilities, and readiness in these areas, these results hint that business leaders may not. If this is so, then this finding highlights the importance of HR leaders and teams improving their engagement with business line leaders, ensuring that HR is focusing on critical business concerns, and partnering with the business effectively to share HR’s capabilities and services. Of course, the finding may also point to underlying gaps that business leaders believe HR leaders need to address more fully.

Finding 9. HR and talent executives grade themselves a C-minus for overall performance

When asked respondents to rate their organizations’ HR and talent programs on a scale from excellent to underperforming, the HR organizations in our survey showed a minor improvement over last year’s self-assessment. In 2013, 37 percent of respondents felt that their overall HR and talent programs were “underperforming” or just “getting by.” This year, that number dropped to 34 percent.

While this improvement is a positive sign, the general picture is still one of widespread perceived mediocrity. If we evaluate HR organizations’ overall self-assessed capabilities using a traditional grade-point scale (see figure 12), where “excellent” is a 4.0 or A, “good” is a 3.0 or B, “adequate” is a 2.0 or C, “getting by” is a 1.0 or D, and “underperforming” is a 0.0 or F, then this year’s respondents rated themselves at the equivalent of a C-minus—in contrast to last year’s D-plus. In 2014, twice as many global respondents gave their HR and talent programs an F as gave them an A (10 percent versus 5 percent). While this is not intended as a criticism of HR in general, it does reflect how challenging it is to build a world-class HR function and how far companies believe they are from this goal.

Finding 10. Companies worldwide plan modest increases in talent and HR investments in 2014

Forty-seven percent of responding companies expect to increase their HR investments in 2014, with 13 percent anticipating increases of 5 percent or more. Eight percent of respondents expect to decrease these investments, and 39 percent are planning to invest at the same level (figure 13).

Taking the weighted average across these increases, we found that 2014 should see a general growth in spending on HR of 1.32 percent. While this is a relatively small number, it is positive, indicating that companies are recognizing the need to invest in human capital and the value derived from those investments. Similar research shows a significant increase in spending in talent acquisition, training, reskilling, and employee engagement programs, with a flat to declining investment in HR staff and technology.

Toward a 21st-century talent agenda: Are HR and business leaders ready?

The global Human Capital Trends 2014 survey strives to present critical insights for business and HR leaders on both their HR and talent priorities and their readiness to deal with the future. Given evolving business needs and a changing global employee landscape, there is a complex set of urgent and important human capital challenges that require attention. At the top of the list are:

• Leadership
• Retention and engagement
• Reskilling HR
• Talent acquisition and access
• Global workforce capabilities

At the same time, new challenges, including talent and HR analytics as well as the “overwhelmed employee,” are being added to the human capital agenda.

While the priorities and challenges are clear—and seem to resonate in importance across industries and geographies—the readiness of HR teams to respond to these challenges is less certain. For almost every trend we identified, readiness scores lagged, in many cases substantially, behind the trend’s perceived urgency. In large organizations (those with more than 10,000 employees), we saw the largest differences between business and HR leaders in their assessments of the readiness to respond to important trends.

Perhaps HR executives are being tough on themselves and their functions when they grade themselves an overall C-minus. But given the importance that both business and HR leaders place on the human capital and talent agenda, 2014 is a moment both to reflect on what else can be done and to take action: focusing on what more can be done, what should be done differently, and what might be improved to move the needle in this critical area.

Our findings outline an agenda that can guide business and HR leaders pivoting between the recession and future growth strategies. The trends discussed in the balance of this report represent opportunities for improvement in leadership and development, acquisition and engagement, and transforming and reinventing HR to support business priorities in a changing world.

Appendix: Global Human Capital Trends 2014 survey demographics

In the fourth quarter of 2013, Deloitte Consulting’s global Human Capital practice conducted an extensive survey of HR and business leaders to understand their priorities and readiness to address 12 global HR and talent trends. The survey included 2,532 respondents from 94 countries around the world. The key survey demographics are summarized in the following charts.

Explore the Human Capital Trends Dashboard at http://www.deloitte.com/hcdashboard.