Published on March 18, 2014
Future of HR: implications for Russia www.pwc.ru/en/hr-consulting How are global trends changing HR in Russia and CIS countries? January 2014
PwC Future of HR 3 Document Overview Change drivers for Russian HR 6 12 17 22 30 Three major HR challenges Future HR skills and knowledge Appendix. Five global trends: implications for Russia Contacts Introduction Methodology and survey participants 4 5 Key survey findings 7
PwC Introduction In 2013, PwC published the research findings from several global scale surveys (the 16th Annual Global CEO Survey, Talent Mobility 2020 and Beyond, etc.) that highlighted HR challenges on the agendas of top CEOs. The Russian economy is also strongly affected by these challenges. With megatrends affecting our business, new conditions have emerged in areas such as demographics, information technologies, population concentration in megalopolises and climate change, which all have started to reshape HR in Russia. The purpose of this study is to understand the local impact of environmental pressures on HR. Guided by the belief that major changes will appear following the theory of “five megatrends”, we have defined the six change drivers that are already forming specific conditions for Russian HR professionals and are dramatically affecting their work. 4 Thus, we were eager to uncover the reasons behind two research questions: To what extent global trends will impact HR management in Russia? How will Russian HR change in the near future?
PwC Target group: HR professionals, firmly established companies operating in Russia 5 Methodology and survey participants 150 HR directors and professionals, providing a view of both local and foreign companies 52% 48% 21% 11% 10% 10% 68% 65% Other industries Survey timeframe: September through November 2013 Local companies Multinational companies Industrial production Oil&Gas, Utility&Mining Financial services FMCG&Retail By origin: By industry: By size: 54% 24% 9% 13% Less then 2,500 employees 2,500 – 10,000 employees More than 10,000 employees 10,000 – 50 ,000 employees Companies operating in most Russian regions Companies that are growing in terms of total turnover by more than 5% (in comparison to last year) Specifically: Method: quantitative
PwC Key survey findings 6 Our approach This study is based on the concept of the five megatrends (see Appendix) that companies face globally. These trends have shaped the drivers that are expected to have crucial impact on HR’s role and functions in the future. We applied this theory to the specifics of Russia and surveyed 150 HR professionals working in Russian and multinational companies in order to verify the validly of this theory and understand how HR will generally change in Russia in the future. Key drivers • Demographic shifts • Social media • Digital technology • Global mobility • Social responsibility • The generation gap Impact of change drivers on HR All respondents believe that change drivers will have a greater impact on HR processes, while having less of an influence on the knowledge and skills essential for HR professionals or the organisation of the HR service's operations or the general role of HR. Interestingly, multinational and domestic companies in Russia differ in their estimates of the drivers' impact on HR functions and concur only when evaluating demographical challenges and social responsibility. For instance, 58% of multinationals noted the impact of social media on the HR service's operations material compared to 35% of the Russian respondents. Top HR challenges HR professionals cited leadership development, employee engagement and productivity as top challenges. The most crucial set of skills for HR Change management will be a priority HR skill. Organisational learning, transfer of knowledge and employee development will be also important. Employee involvement in implementing change Most of the respondents admit that they are now attentively studying the societal and environmental impacts on HR and are tying to help their companies implement changes for the future.
PwC Change drivers for Russian HR 7
PwC 8 Demographic challenges 22% Social media 16% Corporate responsibility 18% Digital technology 19% The generation gap 16% Demographic shifts Shift in global economic power Accelerated urbanisation Climate change and resource scarcity Technological breakthroughs Global mobility 9% Drivers shaped by global trends have an impact on HR in Russia Based on the Global Annual Survey*, we asked respondents to assess the impact of these drivers on both our future and the future of our clients over the next ten years. The respondents assessed the impact of these drivers on HR services as follows: The drivers are closely interwoven and whenever one of them changes, it prompts changes in all the others. (*) Global Annual Review 2013: Building trust in a time of change
PwC 9 Theses drivers impact HR in all the companies, no matter what their size or industry or turnover may be. The respondents believe that the change drivers identified will have a greater impact on HR processes, while having less of an impact on the knowledge and skills essential for HR professionals, HR service structure or HR’s general role. 36% Impact on HR processes Impact on HR knowledge and skills Impact on the functional organisation of HR Impact on HR’s role 23% 22% 19% Impact of change drivers on certain HR issues
PwC Russian and multinational companies have varying assessments of the drivers impacting of HR services 10 69% 58% 56% 60% 58% 44% 44% Multinational companies Russian companies Demographic shifts Social media Corporate responsibility Demographic shifts Corporate responsibility The generation gap Digital technology Demographic shifts. Although there are differences between multinational and local companies, all companies admit that the decline in the share of working population in their prime years between 18-60 will have a crucial impact on the work of HR professionals. 52% Digital technology The generation gap 46% Social media 35% ImpactImpact
PwC 11 Digital technology Digital technology transforms the key HR processes. Such processes encompass HR administration, recruitment, performance management, learning and development, bonus and benefit management, etc. Impact of generational differences on competencies Managing workforce diversity, particularly generational differences, will be a new key area where additional knowledge and skills will be required. HR departments will manage certain categories of the personnel with various working methods, preferences and even 36% The generation gap is the key driver that will change competences. Furthermore, societal expectations will also have a strong impact on the methods multinationals employ for organising their HR functions. These recent changes demand that HR professionals not only understand their customers and their values but also treat employees as clients by building policies and practices that will support the delivery of brand promises, both internally and externally. values. Here, HR’s objective is to ensure effective work cooperation among various groups of employees, which may call for adjustments in HR systems themselves. Rising expectations for corporate social responsibility Social responsibility as an integral part of business will drive 44% Social responsibility is changing HR’s role. 56% Digital technology will materially change HR approaches. 68% Extensive use of digital technology will transform key HR processes. the changes in HR’s role and the way it is organised. This is particularly the view held by multinational companies operating in Russia. Most of the respondents indicated that the society’s expectations about how products are manufactured, what they stand for, the way they serve to customers and labour standards that they follow are more and more changing the role of HR professionals in the CIS.
PwC Three major HR challenges December 2013Future of HR 12 (*) The data reflects the opinions of study participants
PwC Future of HR 13 Productivity Employee engagement Leadership development
PwC Leadership development 14 Table 1. Leadership development challenges by industries 100% 69% 67% 57% 47% 45% 33% Pharma and Healthcare Technology and Telecom FMCG & retail Oil and gass Industrial Production Financial services Professional services Not at all% Partly challenging % Highly challenging % Professional services Financial services Industrial production Oil and gas FMCG and retail Technology and telecom Pharmaceuticals and healthcare Not at all % Partly challenging % Highly challenging % Building leadership capabilities is a major challenge for 55% of companies operating in the CIS. Although management is gradually gaining a better understanding of the importance of leadership development and effective HR investments, these are still challenges for both Russian and multinational companies. Compared to 51% of local companies admitting such challenges, 58% of multinationals operating in Russia and CIS countries acknowledged the same.
PwC Employee engagement 15 Table 2. Employee engagement challenges by industries 29% 33% 45% 53% 57% 71% 77% Oil and gass Professional Services Financial services FMCG & retail Pharma and Healthcare Industrial Production Technology and Telecom Not at all% Partly challenging % Highly challenging % Professional services Financial services Industrial production Oil and gas FMCG and retail Technology and telecom Pharma and healthcare Not at all % Partly challenging % Highly challenging % 50% of HR professionals consider achieving a high rate of employee retainment to be extremely difficult. In this regard, multinational companies experience slightly less challenges than domestic companies. This can be explained by their long-standing HR practices with respect to employee involvement and engagement. Furthermore, western multinationals usually enter a market with a relatively high brand awareness and good image as an attractive employer, which may positively influence employee engagement at its early stage.
PwC Productivity 16 Table 3. Employee productivity challenges by industries 14% 14% 42% 46% 47% 50% 60% Oil and gass Pharma and Healthcare Professional Services Technology and Telecom Industrial Production Financial services FMCG & retail Not at all% Partly challenging % Highly challenging % Technology and telecoms Pharma and healthcare Professional services Financial services Industrial production Oil and gas FMCG and retail Not at all % Partly challenging % Highly challenging % For 47% of HR professionals, supporting line managers in order to improve employee productivity is still a top HR challenge. The growth of competition, on one hand, and slowdown in economic growth, on the other, has highlighted the importance of costs and business restructuring.
PwC Future HR skills and knowledge 17
PwC The importance of developing certain HR skills 18 69% 89% Managing change Organisational learning/ knowledge transfer Employee development Performance management and reward Restructuring business/ Organisational design Prior importance Needs improvements Planning staff headcounts Recruitment We asked all respondents to name the future skills most important for the future of HR, as well as areas for improvement. The opinions were split as follows: 59% 59% 56% 55% 84% 84% 85% 76% 36% 77% 30% 67%
PwC 19 Managing change1 HR professionals indicated that the current turbulent environment demands quick and wide-ranging managerial changes from them every day. This is even more important for local companies and this illuminates a growing trend for greater business restructuring. The need to improve the skills is just as high for local companies as it is for multinationals. Drawing on the above responses, we can name the skills that will undoubtedly be in high demand for future HR functions:
PwC 20 Organisational learning and knowledge transfer/ Employee development 2 There is a greater demand on HR to help organisations create systems that can ensure the transformation of tacit knowledge into explicit understanding. This will help organisations to retain knowledge regardless of employee turnover. In order to share and transfer knowledge throughout operations and between employees, Russian HR should not only use IT systems, it will also need to built supportive organisational cultures, as well as encourage organisations to cultivate their own capabilities. Managing employee development will become equally important for HR as it is significant for line managers. HR will also need to support managers in improving these skills.
PwC 21 20% Not Involved 34.5% Building awareness 30% Participate in actions driven by others 15.5% Initiate and drive actions One fifth of the HR professionals are not involved in initiatives that address changes. HR professionals' engagement in implementing change 18% 22% 34% 36% 31% 28% 17% 14% Multinational companies Russian companies Multinational companies Russian companies Multinational companies Russian companies Multinational companies Russian companies HR professionals in Russia are developing cases for change while also raising awareness about the current environmental and the social impact on HR.
PwC Appendix. Five global trends: implications for Russia 22
PwC Future of HR 23 Demographic shifts 1 Shifts in global economic power 2 Accelerated urbanisation 3 Climate change and resource scarcity 4 Technological breakthroughs 5
PwC Demographic shifts 24 Annual growth rate 2010-2050* 1 Explosive population growth in some areas of the globe against declines in others parts has been contributing to everything from shifts in economic power to resource scarcity to the changes in societal norms. This trend is not only global, it is also visible in Russia. Over the last 13 years, the Russian population declined by 2%. The country’s population is expected to fall from 143mn in 2010 to 132mn in 2030, which would mean a population decline of 8%. Growth rate 2000-2050. 2013 2020 2030 143mn -3mn 140mn 132mn -11mn Even factoring in the rise of the immigrant population, Russia’s population will still fall by 21mn. The population will decline below the 1975 level by 2030. This will create a huge talent gap in the country’s future economy. 18% of the population of the Russian Federation in 2030 who will be older than 65 years An ageing population restricts Russia’s ability to increase its share of world GDP over the long-term as is the case with other large emerging economies. Population growth for average working age until 2030 (% per annum) 1% 18% * Russian Federal State Statistics Service (Rosstat). The estimated Russian population size by 2030.
PwC Shifts in global economic power 25 2 The focus of global growth has shifted towards emerging markets and Russia. By 2050, Russia will rank as the sixth largest economy by GDP. Emerging markets will host the majority of corporate headquarters with some of them in Russia, which will change the business models of many companies. 2009 2050 (USA, Japan, Germany, UK, France, Italy, Canada) (China, India, Brazil, Russia, Indonesia, Mexico, Turkey) USD 29tr GDP USD 20.9tr GDP USD 138.2tr GDP G7 E7 G7 E7 GDP of G7 and E7 countries in USD PPP Competition will increase and be generated by multinationals coming from emerging markets, including from those of Russian origin. They will also become international players, which, in turn, will have many implications for HR. Source: PwC Global Annual Review 2013: Building trust in a time of change USD 69.3tr GDP
PwC Accelerated urbanisation: Moscow and other large cities 26 3 The Russian population in urban areas will have risen by 2% by late 2025 (up to 76,3%)2. Rapid urbanisation and concentration of people in the cities will increase and, by 2030, the proportion of people living in cities will have surged from the current 30% towards 60%. The UN estimates that, by 2025, Moscow will be amongst 37 megacities1, ranking 27th. 80 and over 60-79 40-59 20-39 <20 Not estimated Percentage of population in urban areas, 2030 11.9mn 12.2mn 2014 2025 Moscow will see a minor rise in its population by late 2025, up to 12.2mn people. The population in the Moscow Region will also increase. This population will have grown by approximately 600,0002 by late 2025. 1 United Nations Organisation. World Urbanization Prospects The 2011 Revision. 2 Russian Federal State Statistics Service (Rosstat).
PwC Climate change and resource scarcity 27 4 Scarcity of resources and the impact of climate change are of growing economic concern. Demand for energy is forecast to increase by as much as 50% by 2030 while water withdrawal will likely go up by 40%. The need for sustainable solutions may well be at odds with the demand for resources to fuel growth and feed populations. Time-honoured traditions will be challenged by changes to the physical environment. Although Russia will not be amongst these countries, it will still impact on doing business in the country. Climate change and resource scarcity trigger change in business models, as well as the behaviours and values of both customers and employees. As a result, this will have a very major impact on corporate social responsibility. 35% more food 40% more water With a population of 8.3 bn people by 2030 , we’ll need... Food It takes 1,200 l of water to produce 1 kg of grain 7% of global energy consumption is used for delivering water 1-2% of cropland is needed to produce biofuels Energy The Food/Water/Energy Nexus Water Source: OECD; Dan Hammer, Center for Global Development 50% more energy
PwC Technological breakthroughs 28 5 The combination of the Internet, mobile devices, data analysis and cloud computing will continue to transform Russia. Many companies in all sectors are grappling with how these developments will affect consumer expectations, as well as how to interact with their customers and the underlying business models that support this. Technological breakthroughs and digitalisation of the world will also change workplaces and enable new forms of work. For instance, we already see remote working and virtual teams, more flexpatriates and changes in working practices. Access to systems and information should help management models to flatten out their organisational structures. Furthermore, new competitors will emerge as technology and innovation create new competitive advantages and increase productivity across sectors and geographies. 61.1mn > 52% 49 % The number of Internet users in Russia1 People use the Internet at least once a month People use the Internet on weekly basis @ 57% of Russian on-line shoppers use social media every day, which is above the global average. This is a significant target group with higher disposable income1. 1 PwC Global multichannel survey 2012 • Survey Summary and Business Implications, April 2013.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC Russia, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014 PwC Russia. All rights reserved. Not for further distribution without the permission of PwC Russia. PwC Russia refers to PwCIL member-firms operating in Russia. PwC is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. Ruxandra Stoian Partner Human Resource Consulting Services Tel: +7 (495) 967 6169 E-mail: firstname.lastname@example.org Contacts
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