HUMAN RESOURCES New Zealand people management practice rates a B minus, says Watson Wyatt New Zealand managing director Paul Loof. However, the real story in the HCI (Watson Wyatt Human Capital Index) survey is in the detail. “New Zealand seems to have some real strengths and some weaknesses,” says Loof. The Asia-Pacific HCI survey includes 20 New Zealand publicly traded companies (including more than 25% of the NZSE40) among 500-plus companies in the Asia-Pacific region.
“The overall message from the HCI is that firms with the best people management practices substantially outperform the market. By improving human capital management, New Zealand firms can improve their bottom line.”
The study identified 41 specific practices across five key HR dimensions that are the sources of additional value. A sixth dimension identifies potential sources of depleted value.
The five added-value dimensions and summary of findings are:
1 HR function effectiveness: Investing in an effective HR function that acts as a real business partner. The HCI shows that having the right capability and focusing the function on helping the business succeed can increase shareholder value of Asia-Pacific firms by 31.5%.
2 Collegial, flexible, customer-focused workplace: A key finding was that collegial-based leadership and a flexible, customer-focused workplace can add 21.5% to shareholder value with 17.5% of this value linked to having a customer-focused environment.
3 Clear total rewards and accountability: Building the right mix of short- medium- and long-term rewards, creating an ownership mentality, and refusing to accept substandard performance can add 17.7% to shareholder value.
4 Recruiting and retaining excellence: Companies that
have excellent recruitment practices driven by business needs, and that work hard to retain key talent, can generate an
additional 5.4% in shareholder value.
5 Communications integrity: Companies that share information and are more consultative and participative in their relationship with employees can generate an additional 2.6% in shareholder value.
A firm that achieved a significant improvement across all 41 practices making up these dimensions could add 78.7% to its shareholder value. “Obviously this transformation would require major investment and effort,” says Loof. “You can’t just take 41 pills and wake up the next day as a super-company.”
Watson Wyatt’s New Zealand human capital head of practice, Christian Dahmen, says that having only 20 large local companies in the study means caution is required in generalising the findings. Nonetheless, the study provides good insights into
New Zealand’s relative strengths and weaknesses, he says. “We operate very lean HR functions here,” says Dahmen. “In fact, the evidence is that we could benefit from further investment in this area.”
New Zealand also performed relatively well on clear total rewards and accountability. “The area of pay and benefits is obviously critical to business performance, and while we do some things well in New Zealand, we definitely need to do more to link pay to business strategy if we want to drive the right employee behaviours. We also need to become smarter in assembling the right mix of total rewards to attract and motivate employees.”
Dahmen said the main areas where New Zealand’s HR performance was relatively weak were “collegial, flexible, customer-focused workplaces”.
New Zealand also scored poorly for recruiting and retaining excellence. “The message in this area was that New Zealand companies need to make sure their hiring is closely aligned to business strategy. And new hires must hit the ground running. Hiring raw talent and then training them is often too slow and unreliable.”