Future of HR: implications for Russia

Future of HR:implications for Russia

www.pwc.ru/en/hr-consulting

How are global trends changing HR inRussia and CIS countries?

January 2014

PwCFuture of HR

3

DocumentOverview

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 severalglobal scale surveys (the 16th Annual Global CEO Survey,Talent Mobility 2020 and Beyond, etc.) that highlighted HRchallenges on the agendas of top CEOs. The Russian economy isalso strongly affected by these challenges. With megatrendsaffecting our business, new conditions have emerged in areassuch as demographics, information technologies, populationconcentration in megalopolises and climate change, which allhave started to reshape HR in Russia.

The purpose of this study is to understand the local impact ofenvironmental pressures on HR. Guided by the belief thatmajor changes will appear following the theory of “fivemegatrends”, we have defined the six change drivers thatare already forming specific conditions for Russian HRprofessionals and are dramatically affecting theirwork.

4

Thus, we were eager to uncover thereasons behind two research

questions:

To what extent global

trends will impact HRmanagement in Russia?

How will Russian HRchange in the near

future?

PwC

Target group: HR professionals, firmly established companies operating in Russia

5

Methodology and survey participants

150HR directors andprofessionals, providing a viewof both local and foreigncompanies

52% 48%

21% 11% 10% 10%

68%

65%

Otherindustries

Survey timeframe: Septemberthrough November 2013

Localcompanies

Multinationalcompanies

Industrialproduction

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 interms of total turnover by morethan 5% (in comparison to lastyear)

Specifically:

Method: quantitative

PwC

Key survey findings

6

Our approach

This study is based on the concept of the fivemegatrends (see Appendix) that companiesface globally. These trends have shaped thedrivers that are expected to have crucialimpact on HR’s role and functions in thefuture. We applied this theory to the specificsof Russia and surveyed 150 HR professionalsworking in Russian and multinationalcompanies in order to verify the validly of thistheory and understand how HR will generallychange 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 driverswill have a greater impact on HR processes,while having less of an influence on theknowledge and skills essential for HRprofessionals or the organisation of the HRservice's operations or the general role of HR.Interestingly, multinational and domesticcompanies in Russia differ in their estimatesof the drivers' impact on HR functions andconcur only when evaluating demographicalchallenges and social responsibility. Forinstance, 58% of multinationals noted theimpact of social media on the HR service'soperations material compared to 35% of theRussian respondents.

Top HR challenges

HR professionals cited leadership development, employeeengagement 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 andemployee development will be also important.

Employee involvement in implementing change

Most of the respondents admit that they are now attentivelystudying the societal and environmental impacts on HR andare tying to help their companies implement changes for thefuture.

PwC

Change drivers for Russian HR

7

PwC 8

Demographicchallenges

22%

Social media

16%Corporate

responsibility

18%

Digitaltechnology

19%

Thegeneration

gap

16%

Demographicshifts

Shift in globaleconomic power

Acceleratedurbanisation

Climatechange andresourcescarcity

Technologicalbreakthroughs

Globalmobility

9%

Drivers shaped by globaltrends have an impact on HRin Russia

Based on the Global Annual Survey*, we asked respondents to assessthe impact of these drivers on both our future and the future of ourclients over the next ten years. The respondents assessed the impact ofthese drivers on HR services as follows:

The drivers arecloselyinterwoven andwhenever one ofthem changes, itprompts changesin all the others.

(*) Global Annual Review 2013:Building trust in a time ofchange

PwC 9

Theses drivers impact HR in all thecompanies, no matter what their size orindustry or turnover may be.

The respondents believe that the changedrivers identified will have a greaterimpact on HR processes, while havingless of an impact on the knowledge andskills essential for HR professionals, HRservice structure or HR’s general role.

36%

Impact on

HR processes

Impact on

HR knowledgeand skills

Impact on

the functionalorganisation of

HR

Impact on

HR’s role

23% 22% 19%

Impact of change drivers on certain HR issues

PwC

Russian and multinationalcompanies have varyingassessments of the driversimpacting of HR services

10

69% 58% 56%

60% 58% 44% 44%


Russiancompanies

Demographic shifts

Social media Corporateresponsibility

Demographic shifts

Corporateresponsibility

Thegenerationgap

Digital technology

Demographic shifts. Although there aredifferences between multinational and localcompanies, all companies admit that the declinein the share of working population in their primeyears between 18-60 will have a crucial impact onthe work of HR professionals.

52%

Digital technology Thegeneration gap

46%

Social media

35%

Imp

ac

tIm

pa

ct

PwC 11

Digital technology

Digital technology transforms thekey HR processes. Suchprocesses encompass HRadministration, recruitment,performance management,learning and development, bonusand benefit management, etc.

Impact of generationaldifferences on competencies

Managing workforce diversity,particularly generationaldifferences, will be a new keyarea where additional knowledgeand skills will be required.

HR departments will managecertain categories of thepersonnel with various workingmethods, preferences and even

36%The generation gap is thekey driver that will changecompetences.

Furthermore, societalexpectations will also have astrong impact on the methodsmultinationals employ fororganising their HR functions.

These recent changes demandthat HR professionals not onlyunderstand their customers andtheir values but also treatemployees as clients by buildingpolicies and practices that willsupport the delivery of brandpromises, both internally andexternally.

values. Here, HR’s objective is toensure effective work cooperation

among various groups ofemployees, which may call foradjustments in HR systemsthemselves.

Rising expectations forcorporate socialresponsibility

Social responsibility as anintegral part of business will drive

44%Social responsibility is

changing HR’s role.

56%Digital technologywill materiallychange HRapproaches.

68%Extensive use of digitaltechnology willtransform key HRprocesses.

the changes in HR’s role and theway it is organised. This isparticularly the view held bymultinational companiesoperating in Russia.

Most of the respondentsindicated that the society’sexpectations about how productsare manufactured,

what they stand for, the way theyserve to customers and labourstandards that they follow aremore and more changing the roleof HR professionals in the CIS.

PwC

Three major HR challenges

December 2013Future of HR12

(*) The data reflects the opinions of study participants

PwCFuture of HR

13

Productivity

Employeeengagement

Leadershipdevelopment

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 %


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 ofthe importance of leadership development and effective HRinvestments, these are still challenges for both Russian andmultinational companies. Compared to 51% of local companiesadmitting such challenges, 58% of multinationals operating in Russiaand 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






Financial services


Oil and gas

FMCG and retail

Technology and telecom

Pharma and healthcare


50% of HR professionals consider achieving a high rate ofemployee retainment to be extremely difficult.

In this regard, multinational companies experience slightly lesschallenges than domestic companies. This can be explained by theirlong-standing HR practices with respect to employee involvementand engagement. Furthermore, western multinationals usually entera market with a relatively high brand awareness and good image as anattractive employer, which may positively influence employeeengagement at its early stage.

PwC

Productivity

16

Table 3. Employee productivity challenges by industries

14%

14%

42%

46%

47%

50%

60%

Oil and gass


Professional Services



Financial services

FMCG & retail


Technology and telecoms

Pharma and healthcare


Financial services


Oil and gas

FMCG and retail


For 47% of HR professionals, supporting line managers inorder to improve employee productivity is still a top HRchallenge.

The growth of competition, on one hand, and slowdown in economicgrowth, on the other, has highlighted the importance of costs and businessrestructuring.

PwC

Future HR skills and knowledge

17

PwC

The importance of developingcertain HR skills

18

69%89%

Managing change

Organisational learning/knowledge transfer

Employee development

Performancemanagement 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 forthe 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 change1HR professionals indicated that the current turbulentenvironment demands quick and wide-rangingmanagerial changes from them every day. This is evenmore important for local companies and thisilluminates a growing trend for greater businessrestructuring. The need to improve the skills is just ashigh for local companies as it is for multinationals.

Drawing on the above responses, we canname the skills that will undoubtedly be inhigh demand for future HR functions:

PwC 20

Organisational learning and knowledgetransfer/ Employee development

2

There is a greater demand on HR to help organisations create systems that can ensure thetransformation of tacit knowledge into explicit understanding. This will help organisations toretain knowledge regardless of employee turnover. In order to share and transfer knowledgethroughout operations and between employees, Russian HR should not only use IT systems,it will also need to built supportive organisational cultures, as well as encourageorganisations to cultivate their own capabilities.

Managing employee development will become equally important for HR as it is significantfor 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 actionsdriven by others

15.5%

Initiate and driveactions

One fifth of the HR professionals are not involved in initiativesthat address changes.

HR professionals' engagement inimplementing change

18% 22% 34% 36%

31% 28% 17% 14%


Russian companiesMultinational

companies

Russian companies


Russian companies Multinationalcompanies

Russian companies

HR professionals in Russia are developing cases for change while alsoraising awareness about the current environmental and the social impacton HR.

PwC

Appendix.Five global trends: implicationsfor Russia

22

PwC

Future of HR

23

Demographicshifts

1

Shifts in globaleconomic power

2

Acceleratedurbanisation

3

Climate changeand resourcescarcity

4

Technologicalbreakthroughs

5

PwC

Demographic shifts

24

Annual growth rate 2010-2050*

1

Explosive population growth in some areas of the globe againstdeclines in others parts has been contributing to everything fromshifts in economic power to resource scarcity to the changes insocietal norms. This trend is not only global, it is also visible inRussia. Over the last 13 years, the Russian populationdeclined by 2%. The country’s population is expected to fallfrom 143mn in 2010 to 132mn in 2030, which would mean apopulation decline of 8%.

Growth rate2000-2050.

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. Thiswill create a huge talent gap in the country’s future economy.

18% of thepopulation of theRussian Federationin 2030 who will beolder than 65 years

An ageing population restrictsRussia’s ability to increase itsshare of world GDP over thelong-term as is the case withother large emergingeconomies.

Population growthfor average workingage until 2030 (% perannum)

1%

18%

* Russian Federal State Statistics Service (Rosstat). The estimated Russian population size by2030.

PwC

Shifts in global economicpower

25

2

The focus of global growth has shifted towards emerging markets andRussia. By 2050, Russia will rank as the sixth largesteconomy by GDP. Emerging markets will host the majorityof 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 138.2trGDP

G7 E7

G7 E7

GDP of G7 and E7 countries in USD PPP

Competition will increase and be generated by multinationals comingfrom emerging markets, including from those of Russian origin. Theywill also become international players, which, in turn, will have manyimplications for HR.

Source: PwC Global Annual Review 2013: Building trust in a time of change

USD 69.3trGDP

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 willincrease and, by 2030, the proportion of people living in cities willhave surged from the current 30% towards 60%. The UN estimatesthat, by 2025, Moscow will be amongst 37 megacities1, ranking 27th.

80 and over

60-79

40-59

20-39

<20

Notestimated

Percentage of population in urban areas, 2030

11.9mn

12.2mn

2014

2025

Moscow will see a minor rise in itspopulation by late 2025, up to12.2mn people.The population in the MoscowRegion will also increase. Thispopulation will have grown byapproximately 600,0002 by late2025.

1 United Nations Organisation. World Urbanization Prospects The 2011 Revision.2 Russian Federal State Statistics Service (Rosstat).

PwC

Climate change and resourcescarcity

27

4Scarcity of resources and the impact of climate change are of growingeconomic concern. Demand for energy is forecast to increase by as muchas 50% by 2030 while water withdrawal will likely go up by 40%. Theneed for sustainable solutions may well be at odds with the demand forresources to fuel growth and feed populations. Time-honouredtraditions will be challenged by changes to the physical environment.Although Russia will not be amongst these countries, it will still impacton doing business in the country.

Climate change and resource scarcity trigger change inbusiness models, as well as the behaviours and values ofboth customers and employees. As a result, this will have avery major impact on corporate social responsibility.

35%morefood

40%morewater

With a population of 8.3 bn people by 2030 , we’ll need...

Food

It takes 1,200 l ofwater to produce1 kg of grain

7% of global energy consumptionis used for delivering water

1-2% of croplandis 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

5The combination of the Internet, mobile devices, data analysis andcloud computing will continue to transform Russia. Many companiesin all sectors are grappling with how these developments will affectconsumer expectations, as well as how to interact with their customersand the underlying business models that support this.

Technological breakthroughs and digitalisation of the world will alsochange workplaces and enable new forms of work. For instance, wealready see remote working and virtual teams, more flexpatriates andchanges in working practices.

Access to systems and information should help management models toflatten out their organisational structures. Furthermore, newcompetitors will emerge as technology and innovation create newcompetitive advantages and increase productivity across sectors andgeographies.

61.1mn > 52% 49 %

The number ofInternet users inRussia1

People use theInternet at least oncea month

People use theInternet on weeklybasis

@ 57%

of Russian on-line shoppersuse social media every day,which is above the globalaverage. This is asignificant target groupwith higher disposable

income1.

1 PwC Global multichannel survey 2012 • Survey Summary and BusinessImplications, 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. Norepresentation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in thispublication, and, to the extent permitted by law, PwC Russia, its members, employees and agents do not accept or assume anyliability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on theinformation 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 toPwCIL member-firms operating in Russia.

PwC is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provideservices. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agentof PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the actsor omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

Ruxandra StoianPartnerHuman ResourceConsulting ServicesTel: +7 (495) 967 6169

E-mail: [email protected]

Contacts

Future of HR: implications for Russia

Documents

Transcript of Future of HR: implications for Russia