HR Connect – Asia Pacific Volume 5, Issue 5 | 2012

Looking Beyond Costs in Talent Sourcing By Tabitha Lim, Research Consultant, Aon Hewitt

A few years ago, a multinational technology giant decided to move its operations from a coastal Chinese city to an inland Chinese city, in hopes of both reducing cost and increasing operational efficiency. After the relocation, however, the company experienced high turnover, which stemmed from a dearth of qualified talents at the managerial level. The company eventually had to resort to sourcing some of their managerial talents from their coastal operations. This turned out to be costly and also caused much delay in staffing key managerial positions. The example above demonstrates the risks inherent in relocation in search of lower costs. The advent of globalization has altered the dynamics of business, leading to the reshaping of markets and the increasingly rapid pursuit of lower costs and greater operational efficiency. Labor markets, in turn, have evolved with the changing dynamics. Globalization has broken down barriers and businesses operating in different geographies are increasingly competing with each other for people, as talent and operations, become more mobile. The competition for talent in emerging markets is even more acute due to the scarcity of qualified skilled talent, rising salaries, and high turnover rates in such emerging markets. Findings from the recent Aon Hewitt Salary Increase Survey 2011-12 conducted across Asia Pacific indicated that overall salary increases in Vietnam averaged 11% in 2011, and salary is projected to increase by 12.5% in 2012. India’s salary increases were even higher, with average increases in pay of more than 12%. With respect to high turnover rates, China offers a most striking example. The overall turnover rate in China averaged an unsustainable 24%, with voluntary turnover at around 19% (Figures 1 and 2).

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HR Connect – Asia Pacific Volume 5, Issue 5 | 2012

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HR Connect – Asia Pacific Volume 5, Issue 5 | 2012

As the emerging markets step up to take the center stage in the global economy, they bring along a vast pool of labor to the global workforce, now and for the future. Yet, organizations are still facing talent shortages, a situation that is likely to be exacerbated in future. A study conducted by the McKinsey Global Institute reported a future potential shortage of almost 40 million high-skilled workers, nearly 45 million medium-skilled workers, and a potential surplus of up to 95 million lowskilled workers around the world. However, even now our experience shows that organizations are having difficulty finding managerial talent and skilled professionals in many high-growth emerging markets. The increasing complexity of the global labor environment has varied implications for companies sourcing talent from around the world. What then can they do to develop effective talent sourcing strategies to prepare for and mitigate the risks they face in leveraging the potential of global labor markets?

Two Types of Talent Sourcing Talent sourcing may simply relate to recruitment, but at Aon Hewitt, we view talent sourcing as more than just recruitment. Talent sourcing encompasses the holistic analysis of the talent landscape and the development of a talent sourcing strategy, before actual talent acquisition. Talent sourcing can arise from two perspectives: 1. Talent sourcing arising from the relocation of operations. 2. Talent sourcing originating from a desire to diversify and broaden the pool of potential talents and thereby, leverage the potential advantages of operating in and/or sourcing from different locations. There is no doubt that cost is increasingly an issue in talent sourcing, with the global economy in the doldrums, and rising inflation around the world. A comprehensive analysis of locations with potentially available low-cost talent pools will enable organizations to broaden their supply pool and diversify their talent risk without spreading their focus and resources thin. Aon Hewitt’s approach to talent sourcing looks at a location in terms of four dimensions – Cost, Risk, Quality and Availability (Figure 3). In the following case study, we demonstrate how the use of this framework in analyzing the talent landscape for a global transportation company, led to the development of a talent sourcing strategy aligned with the organization’s business objectives.

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HR Connect – Asia Pacific Volume 5, Issue 5 | 2012

Figure 3: Aon Hewitt’s Talent Sourcing Framework Cost 

Analyzing the total cost of employment, including statutory benefits, provides a more comprehensive overview of cost.

Risk  Investigating a location’s inherent risks that could impact an organization’s people practices. This includes demographics, employment practices, and government support and regulations.

Availability 

Studying a location’s demographic profile, as well as forecasting the current and future size of labor pools, allows for better workforce planning.

Quality 

Understanding the quality dimension of the talent pool, based on such factors such as education systems and training resources, helps provide an indication of potential and actual productivity. Poor quality education and training may limit or reduce labor efficiency and productivity.

A Case Study – Hiring From Around the World What happened? The global economic turmoil impacted a global transportation company headquartered in Europe, with 20,000+ employees worldwide. While the company was still performing better than its competitors, its revenue had decreased. To address this, the company embarked on cost-reduction initiatives that included headcount reduction and a low-cost talent sourcing strategy whereby they increased hiring from various lower-cost locations. Costs were reduced as anticipated, but were accompanied by an unanticipated decrease in operational efficiency, which eventually resulted in higher overall operational costs. An internal audit uncovered that the source of this significant decrease in operational efficiency stemmed from the less qualified labor pools coming from low-cost locations, which lowered their overall key performance indicators and engagement levels, and increased turnover.

What was done? The company partnered with Aon Hewitt to analyze and redesign their talent sourcing strategy. Our project team worked with the client to customize the Aon Hewitt talent-sourcing framework (Figure 3) to incorporate the firm’s own quality measures and industry comparatives. This enabled the project team to draw a comprehensive view of all the current sourcing locations and the relations between talent quality, risk, cost and availability for each location, as in the chart below (Figure 4). Cost is measured based on the client’s internal compensation costs. Quality is measured based on indicators such as the client’s internal KPI adherence rates and risk is measured based on risk associated with

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HR Connect – Asia Pacific Volume 5, Issue 5 | 2012

government regulations and attrition rates. The cost, quality and risk factors have been converted to a rating scale – cost is based on a rating scale of ten, where the lower the rating, the lower the cost. Quality and risk is based on a rating scale of 20 where the lower the rating, the lower the quality and higher the risk.The bubbles in the chart represent the current locations from which the client is sourcing its talents and the size of the bubbles represents the size of workforce hired from those locations. The linear regression line plotted in the chart expresses the correlation between cost, quality and risk. This analysis and illustration allowed the client, for the first time, to understand the trade-offs, risks, and opportunities of recruiting from each location and allowed them to plan their sourcing strategy accordingly.

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HR Connect – Asia Pacific Volume 5, Issue 5 | 2012

The project team facilitated a discussion on future workforce needs (Figure 5) by analyzing the headcount required based on three business growth scenarios. In Figure 5, the lines represent the total workforce needed to support these three growth scenarios. Taking into consideration staff attrition rates and internal promotions, the project team calculated the total number of new hires the client would need to recruit to support its workforce demands, (represented by the bar charts) based on the 10% business growth scenario. Taking into consideration the four dimensions of talent sourcing and the projected business growth, the client decided on a balanced scenario of recruiting – a hybrid approach of sourcing talent partly from low-cost locations to support low-cost structure, while still recruiting from high-cost and quality locations as well. After establishing the sourcing strategy, the project team also developed immediate action steps to implement this balanced strategy for each of the selected locations. Utilizing the talent sourcing framework, the project team thus was able to perform a holistic analysis of the client’s current talent sourcing situation and then developed a strategy that was aligned with the organization’s business objectives of reducing overall costs, while still maintaining the quality of their business operations.

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HR Connect – Asia Pacific Volume 5, Issue 5 | 2012

Lessons Learnt It is clear that organizations should not take a one-dimensional, strictly cost-focused view of talent sourcing. There is no doubt as to the immediate cost-savings that can be attained from moving to, or sourcing from, a lower-cost location. Nevertheless, such shortsightedness can eventually lead to costineffectiveness and affect a company in terms of time and productivity loss, as in the opening case study. Organizations should not fall into the trap of searching for short-term financial gains from a lowcost location and lose sight of the longer-term implications that may reduce operational efficiency, ultimately leading to negative impacts on the bottom-line. With the economic spotlight on the emerging markets, the shifts in the global labor markets and the scarcity of qualified talents in those markets, it is more important than ever for organizations to make informed choices in talent sourcing and to develop a balanced talent-sourcing strategy. Taking on a multidimensional perspective on talent sourcing analysis presents an opportunity for HR to become more of a strategic partner to business leaders. By injecting a business perspective to talent sourcing, HR can support the business in its efforts to optimize business results in both the short-term, as well as the mid-to-long-term horizon. For a full version of this case study (and many others), please visit www.aonpeoplerisk.com.

Contact Tabitha Lim is a Research Consultant with Aon Hewitt’s Asia Pacific Talent & Rewards Analytics Center, and can be reached at [email protected].

References 1. Aon Hewitt Salary Increase Survey 2011-2012 2. Positions at foreign firms less attractive. 26 Oct 2011. The China Daily. 3. The world at work: Jobs, pay, and skills for 3.5 billion people. June 2012. McKinsey Global Institute.

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