Human Resources Officers Prac tice

Prioritizing HR to succeed in China Domestic Chinese companies are often held back by their lack of HR savvy. By identifying HR challenges, local firms and multinationals can put themselves firmly on the road to success.

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While the human-resources (HR) function

of HR infrastructure and resources the company was

is almost universally acknowledged as

had been promised during the interview process. Not

willing to allocate to the function—contrary to what he

a critical source of business value, the

surprisingly, many top HR leaders (and other executives)

situation on the ground in many privately

who come from MNCs struggle when they are confronted

owned enterprises (POEs) in China suggests that many companies haven’t gotten the message. Some examples

with a POE’s organization. The kind of infrastructure they are accustomed to is absent, and though the owner expects them to build it, they must constantly justify every expenditure. In such situations an HR leader’s past credentials and achievements are often discounted.

include the following:

There is significantly more pressure for these leaders to

•

MNC role.

At a Chinese life-sciences company with global

prove themselves than there would be in a comparable

ambitions, the head of HR is a close relative of the

•

founder. The appointment reflects the importance

In short, many POEs do not take the HR function seriously.

that the owner attaches to HR, and it is consistent with

Why not? In part because these companies are young and

the traditional cultural practice of putting someone

have grown extremely quickly, they may not have had

you trust in charge of highly critical functions.

the time (or in some cases, the capacity) to implement

Unfortunately, the owner’s relative has no prior

the necessary organizational structures and strategies.

experience in managing the HR function.

Moreover, in many firms HR is regarded as a primarily

Similarly, a Chinese medical-device company hired a head of HR whom the owner met through his personal network. Although the owner trusts him, the HR head is not a specialist in the healthcare industry and is relatively inexperienced. As the company expands globally through acquisitions in overseas markets, the organization is now realizing that it does not have enough of the right people or the HR infrastructure

•

administrative function responsible for processing and distributing paychecks, enrolling employees in benefit plans, and taking care of other routine transactional matters. But the biggest obstacle to unlocking the full business potential of the HR function lies in the deeply ingrained attitudes and beliefs of top leaders (many of whom are the owners)—in mind-sets that prevent a full appreciation of HR’s value and, worse, can justify inaction.

required to integrate and manage the newly

Undervaluing the HR function can have unfortunate,

acquired entities.

but predictable results. If executives are not aware of

At a large POE conglomerate, the base compensation

gaps in their organization’s capabilities, they may fail to

for the top management team is about half that

establish a culture and reputation conducive to attracting

at comparable multinational corporations (MNCs)

the brightest talent. This can ultimately affect their later

operating in the country. Although the company is

expansion and success.

doing well (earning several billion dollars in revenue), shortcomings in its HR infrastructure, performancemanagement system, and processes for identifying high-potential executives are making it difficult for the company to attract people from MNCs—and retain the ones it has managed to recruit. Even at companies where the leader is aware of the importance of attracting, developing, and retaining talent, disconnects can occur with HR. At most POEs, the HR department has often been short of resources and not given enough authority. For example, at one POE an HR leader who had been hired away from an MNC competitor was astonished to find how little in the way

The undervaluing of HR continues at a time when POEs have become an important source of economic growth and of increasing employment in China, as well as major contributors to the country’s growing role as a global trader. Indeed, POEs are beginning to gain some significant advantages in their now decade-long battle for talent with multinational companies—primarily because the compensation gap between POEs and MNCs is narrowing. According to CEB (formerly the Corporate Executive Board), in 2007 only 9% of highly skilled Chinese professionals preferred to work for a domestic company, while 41% preferred to work for a Western MNC. By 2010, the gap had narrowed considerably, with 28% preferring

2 Prioritizing HR to succeed in China

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domestic companies and 44% preferring MNCs.1 In

•

At travel-services website Ctrip, senior executives

the ensuing years that momentum has continued.

were the instructors for crucial courses such as sales,

Increasingly, these much-in-demand professionals are

quality, and marketing (which the CEO taught). For

seeing fewer reasons to work for an MNC, with its distant

employees in new roles, completing required courses

headquarters, when they could be working at the center

was necessary for career advancement.

of a domestic company in the second-largest economy in

These are just a few of the concrete, practical steps that

the world. Clearly, MNCs have their work cut out for them

these companies took on their journey to becoming

(see sidebar, “For MNCs, HR looms larger than ever”).

household names. The first step? Acknowledge the attitudes that are holding back your HR function—and

But unless POEs dramatically overhaul their HR functions,

your company—and work consciously to overcome them.

they will be unable to utilize, motivate, and retain these talented individuals. They will have difficulty

Changing HR means changing your mind-set

converting their newfound attractiveness as employers into significant business advantage. And they will unnecessarily hobble their efforts to compete on the global stage.

In our experience, the chief obstacle standing in the way of HR excellence in many POEs is the mind-set of their

Learning from leaders

leaders. Their unexamined attitudes prevent them from seeing the importance of HR, and, as a result, they do

One place POEs can look for inspiration is the country’s

little to capture its full value. Yet once these attitudes are

high-tech industry, where a handful of pioneering

recognized, there are some simple steps for reversing

companies paved the way a decade or more ago. In 2006

their destructive effects. Here are five such steps for

Heidrick & Struggles, in conjunction with the Stanford

overcoming what, in our experience, are the most

Project on Regions of Innovation and Entrepreneurship

frequently encountered attitudes and beliefs that are

(SPRIE), conducted an in-depth study of what leaders

preventing many POEs from realizing the full business

of high-tech companies in China were actually doing

value of HR.

2

to address talent challenges. Because Chinese tech companies are where many world-class practices are

Acknowledge the “founder trap” and take steps to avoid it

first developed, we found numerous examples of POEs that recognized the value that HR provides and whose practices are still relevant: •

In many cases, company founders—flush with confidence from their initial success—believe that they can “do it

Neusoft, from its beginnings, pursued a strategy

all.” They resist sweeping organizational changes or new

of hiring students and investing intensively in their

faces at the leadership table, even as their company

capabilities, and today it is the largest China-based

grows rapidly. Yet experience has clearly shown that as a

company providing IT solutions and services. In

company grows from a start-up to a mature enterprise,

addition, the company conducted in-depth leadership

it needs distinctive kinds of leadership at each stage.

assessments of its top 500 employees and established

Company founders can either invest the time and effort

development plans to guide their professional growth. •

in becoming skilled in the type of leadership required

At Lenovo, to counteract the tradition of a strong

at each stage or surround themselves with people

hierarchy in Chinese organizations that often

who compensate for their shortcomings. This includes

produces followers instead of leaders, the company’s

transformational HR leaders, who can not only provide

mid-level managers were given carefully set

the high-level HR competence founders lack but also help

performance targets, but how they met them was left

3

founders develop required leadership skills as needed.

entirely up to their own judgment. 1

Conrad Schmidt, “The battle for China’s talent,” Harvard Business Review, March 2011, hbr.org.

2

3

Karen West, Elliott Stixrud, and Brian Reger, “Assessment: What’s your leadership style?,” Harvard Business Review, June 25, 2015, hbr.org.

See Getting Results in China: How China’s Tech Executives Are Molding a New Generation of Leaders, Heidrick & Struggles, in partnership with the Stanford Project on Regions of Innovation and Entrepreneurship, 2006,

Heidrick & Struggles 3

aparc.fsi.stanford.edu.

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For MNCs, HR looms larger than ever Just because many Chinese POEs are struggling with HR is

they operate and where organizational development is rudimentary and talent is scarce.

no reason for MNCs to rest on their laurels. Indeed, MNCs

What can MNCs do? Any improvement starts, of course,

in China often struggle with HR too, and we find that

with hiring the right HR leader. In addition, they should

the quality of HR talent can vary widely from company

work to:

to company.

•

The stakes are only getting higher. Not only are MNCs

◦◦ Develop a robust succession program and strong

facing slower economic growth and tougher competition from POEs, many report increasing government support for national companies, mounting government intervention against MNCs, and a growing number of more sophisticated consumers who are no longer dazzled by global brands. Together, these and other trends are eroding the long-standing advantages of MNCs in China— advantages that compensated for whatever setbacks they experienced in the long-running battle for local Chinese talent. And the battle for talent is where the larger war for market supremacy in China will be won or lost. Indeed, many talented individuals in China are now questioning whether Western-based MNCs remain the employer of choice. Chinese companies are increasingly offering competitive compensation packages, attractive career paths, and the opportunity to work at the center of the

Identify the organization’s talent and capability gaps. talent pipelines.

•

Create a culture and value system that puts a premium on talent. ◦◦ Get strong buy-in from internal stakeholders, especially business-line leaders. ◦◦ Develop strong external partnerships that link recruiting to employer branding. ◦◦ Provide rotational programs for high-potential employees to broaden their leadership skills and vision. ◦◦ Conduct frequent market-benchmarking surveys to ensure competitive levels of compensation for all positions, and share the results globally across the organization. ◦◦ Continuously train leaders in management skills, including tolerance and compassion.

company, not the periphery as in an MNC. In addition,

Creating these conditions and strengthening the

many more Chinese are opting to join POEs for their

organization will be challenging, as it will require not

agility and culture of rapid decision making. Some also

only outstanding HR talent but also business leaders

perceive a “glass ceiling” in MNCs, where top positions

who understand and support the function’s mission.

often go to expats.

Talent in general is scarce in China. Now that competitive

These shifts in attitude, coupled with the erosion of MNC market advantages, have given POEs a golden

advantage hinges more than ever on the HR function, this talent, too, will be in more demand than ever.

opportunity. If they can get HR right, their enhanced

Moreover, these challenges come at a time of

ability to attract, develop, and retain top local talent may,

fundamental change for many MNCs, as they shift from

in the current climate, prove to be the decisive advantage

being low-cost manufacturing hubs for the world to

in their competition with MNCs. That is a big “if,” of course,

becoming higher-value manufacturers and R&D centers

but it is now a distinct possibility. To forestall that possibility, MNCs must make sure that their HR functions are second to none. That will require some hard work, for despite being a part of companies that typically have exemplary HR operations in their

that, in many cases, are attempting expansion in China’s domestic market. These new business models may require fresh leadership models as well, placing new demands on HR and taking the battle for talent to a higher level of sophistication.

home countries, the China subsidiaries (as noted earlier) lag far behind in the function. In MNCs, as in POEs, the function is still evolving. And in MNCs, the quality of the HR function may vary widely among the regions in which

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If MNCs are to beat the odds, they will have to work both inside and outside their organizations simultaneously. Inside, they must rapidly develop their promising HR

Get the fundamentals right Though HR is seen as largely transactional in many

talent. Outside, they should map and track external HR

POEs, a general complacency about the function often

talent, and benchmark their internal people against it.

leaves even these essential aspects underdeveloped.

When it is necessary to attract external HR talent, MNCs

Many companies lack a basic HR infrastructure—people

can do so by offering potential hires the opportunity

processes, enabling technology, and an effective means

to build a comprehensive, strategic HR function—an

of communication with employees. Companies that fail

opportunity that will improve retention. If MNCs, like

to address these shortcomings quickly will continue to

POEs, are to win the battle for talent, they will have to first

fall further behind the competition. Most important, they

secure the best candidates for the HR function (Figure 1).

will be unable to move beyond the purely transactional to the transformational—the practices that turn talent into a



company’s most potent competitive weapon.

Figure 1: Several key attributes are essential for an exceptional HR leader.

Getting the fundamentals right requires some work, including organizational assessment and development. But HR best practices are widely known and understood, and POEs can benchmark themselves against exemplary companies and put those practices in place.

HR functional competencies

General leadership skills The fundamentals of an HR leader

Adopt a strategic, transformational view of HR In our experience, the one thing that characterizes topperforming companies around the world is that they use HR to support strategy and help catapult their companies past competitors—both local and global. Once the

Personal integrity • Moral principles • Compassion/empathy

fundamentals have been put on a sound footing, leaders can turn to the value-adding, transformational aspects of HR: systematic talent and leadership development, identification of high potentials, retention of top performers, carefully designed incentives to drive



performance, an engaging culture, and thoughtful succession planning. All of these activities must be governed by a talent strategy that supports that of the company overall. That means projecting talent needs into the future based on the company’s strategy and managing existing talent toward that future. For example, many companies—POEs and MNCs alike—see innovation as a key part of their business strategy. Whether through the development of innovative products and services, a new business model, or creative internal processes, the objective is to gain more than merely incremental advantages over the competition. Such major advances occur only through talent—the people who individually and collectively

Heidrick & Struggles 5

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generate superior ideas, fresh perspectives, and new ways

designed to make sure that managers and employees are

of doing things.

doing things exactly as instructed. Part of this is cultural—

Many companies simply hire smart people and hope for the best. They fail to see that the connection between talent and innovation can be systematically addressed as an organizational issue. But forward-looking HR leaders understand the key role that their function can play in enabling a strategy of innovation. Among other things, they can understand the leadership implications of an innovation-focused strategy, transform the executive team backing an innovation, and identify the elements of the corporate culture that need changing to support innovative thinking, appropriate risk taking, and new behaviors.

stemming from an unwillingness on the part of employees to question authority and a penchant on the part of leaders for designing organizations along family or clan lines. And part of it is inexperience with organizational design and development intended to prepare executives for broader roles and greater responsibilities and to impart greater agility to the business. But deployed well and managed actively over time, an organizational structure with a transformational HR leader—one with a high degree of integrity and empathy, as well as strong HR skills—can empower employees and produce a deep bench of highly competent leaders. This, in turn, leads to more engaged and

Treat HR as an investment, not a cost center

innovative employees and, ultimately, stronger business performance. ***

The phenomenal growth rate of China’s economy over the past 35 years, along with the growth of many companies

These steps—escaping the founder trap, creating sound

and of personal wealth, has led to a short-term, bottom-

fundamentals, taking a transformational view of HR,

line mind-set. That mind-set values the tangible—the

investing for the long term, and using organizational

immediate returns and the trappings of success, which

structure to improve performance—can help propel even

have come so effortlessly for so long. As a result, the

the most neglected HR operation toward the excellence

intangibles, such as leadership and talent development,

that separates the leaders from the laggards. As POEs

get less attention and little investment. HR is seen as

adopt such steps and begin to achieve excellence in

a cost center, rather than as the means for taking the

HR, MNCs will have a tougher time competing against

company to the top and keeping it there over the long

them. And POEs will find that success begets success:

term. This is particularly important against a backdrop

earning reputations that attract exceptional talent will, in

of economic contraction, when companies’ people

turn, attract even more talent, enabling these farseeing

processes and systems will be under both greater scrutiny

companies to outdistance their more shortsighted

and greater strain. While the urge to cut might be strong

competitors. n

in such times, the winners will ultimately be companies that have invested in transformational HR.

Use organizational structure to drive performance, not to monitor employees

About the author Jonathan Zhu ([email protected]) is a partner in Heidrick & Struggles’ Shanghai office and a member of the Healthcare and Life Sciences Practice.

All of the familiar organizational structures—functional, divisional, and matrixed, among others—offer advantages and disadvantages for a business. And they answer the question, “Who decides what and when?” Unfortunately, we have found that in many POEs, the reporting relationships and management of various activities tend to concentrate decision making at the very top and are

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Human Resources Officers Practice Heidrick & Struggles’ Human Resources Officers Practice experts understand that HR leaders face a confluence of trends that will shape the workforce of the future and change the very nature of work itself, including: •

The accelerating rates of disruptive change

•

A limited supply of top talent

•

The rise of emerging markets

•

Asymmetrical growth opportunities combined

•

An increasingly borderless, multigenerational, global, and cross-cultural workforce

•

with significant skills/needs gaps in many regions •

The impact of the independent worker

Exponentially greater complexity in operations, technology and big data, and risk and compliance

Our HR executive search team works with clients to ensure that HR leaders and their teams are equipped with the right qualifications to lead and manage in this rapidly changing environment, including the adaptability, insight, and operating skills to have an impact on business results. Similar to any line function, these roles demand strong business acumen, strategic and market insight, financial savvy, operational capabilities, and the ability to exploit data and technology. The HR executives of the future will have the credibility and advisory skills to interface with the board and to partner with the entire leadership team. They will be tasked with a complex challenge: to build a culture and value, mitigate risk, and plan for the future state of their organizations—leveraging an integrated talent management approach and anchored by deep functional and technical knowledge. Through our work, we advise boards, senior management teams, and HR executives themselves on how to identify and select the best leadership for the function, and we align with our leadership consulting colleagues in helping to optimally shape the HR organization. We view our work as essential to the success of today’s increasingly global organizations, providing a true and lasting competitive advantage.

Leader of Heidrick & Struggles’ Human Resources Officers Practice Daniel Kaplan Managing Partner [email protected]

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Heidrick & Struggles is the premier provider of senior-level executive search, culture shaping, and leadership consulting services. For more than 60 years we have focused on quality service and built strong relationships with clients and individuals worldwide. Today, Heidrick & Struggles’ leadership experts operate from principal business centers globally. www.heidrick.com

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