Are you under pressure to get your firm through the current difficult climate unscathed? Human due diligence will help to identify and retain the capability that will ultimately get you through the downturn, and ensure that you’re poised to take advantage of the next economic upturn, says Chris Legge

Headlines of City layoffs are creating ripples of fear in the British economy. Newspapers are currently running stories of impending redundancies. Six months ago it was forecast that the credit crisis would cost 6,500 City jobs. JP Morgan Chase has more recently revised its prediction to 40,000 (The Sunday Times).  Beyond the City, other organisations are contemplating similar action. Although downsizing may deliver short-term financial benefits in a difficult climate, it can also influence an organisation’s ability to respond to positive economic changes.

Whilst some talent is inevitably lost through downsizing, other employees are choosing to leave their jobs. Recent research carried out by global consulting firm Blessingwhite, indicates that up to 25% of employees are disengaged with their work, primarily due to poor management. CIPD (Chartered Institute of Personnel and Development) research and ER Consultants’ experience also supports the notion that poor employee engagement, i.e. with their respective manager, can be a significant factor in an employee’s decision to leave an organisation.  That, coupled with the fact that 30% of companies are currently considering freezing or significantly restricting the level of salary increases due to the growing prospect of economic uncertainty, gives employees very little incentive to stick around. So valuable employees are heading for the door.

Whether you’re losing disengaged employees who are choosing to go or through downsizing, attracting that talent back will be harder when the market picks up, especially if they have been lured to pastures new by your competitors. And you’ll pay the price, as you won’t be able to respond quickly enough to take advantage of the next market upturn.

So if your firm, like many others, is entering the doldrums, you need to be consciously looking at how you can retain existing talent, and reduce the risk of losing the capability and skills necessary to maximize on any future opportunities when the market picks up again. The current downturn at least gives you the opportunity to take stock, analyse and deal with the areas that need redress, and more importantly, build capability in advance of the competition. So what are pragmatic organisations doing to retain, nurture and develop talent for when the upturn occurs?

Counting on the human factor
It is universally accepted that financial due diligence is a recognised and critical activity in any business venture, merger or acquisition. It provides the basis upon which financial investments are made, contracts established and covenants agreed. Yet few organisations have a formal due diligence process for arguably their most expensive and complex commodity – their employees. The smart ones, however, will be carrying out human due diligence – an in-depth analysis of the capability, decision-making and accountabilities of management and staff, performance and retention mechanisms and cultural and competence alignment. It’s basically equivalent to your company’s financial balance sheet.

The consequences of not understanding what human capital/capability you have and not addressing staffing issues is loss of productivity. Ultimately, business performance is affected. But, carrying out human due diligence can help to avoid these problems by uncovering the critical staffing issues and provide the basis for implementing solutions. In short, it will help you assess whether all of the elements of business delivery – i.e. employing staff, leading and managing their activities and cultural focus – are aligned with the direction and goals of your business.

Conducting human due diligence can be achieved in a relatively short timescale, depending upon the depth of analysis that is required and the degree of inappropriate ‘human accounting’ that is uncovered.  For example, we completed one human due diligence in just one month (as illustrated in the case study at the end of this article), which resulted in a focused assessment of the staffing issues facing the business and the solutions required to reconcile the human assets and liabilities.

The ER Consultants approach
ER Consultants have an analysis process that can help organisations successfully carry out human due diligence. By analysing key elements of the organization, i.e. the structure, the people and processes, the work and information, and the reward and recognition structure, we can help firms quickly determine the degree of misalignment between its capability and business objectives, and provide the solutions necessary to rectify the imbalance.

Structure: We conduct interviews with members of the executive team, stakeholders and managers to gain their views on the current and future organization models in order to understand where any differences of perspective lie, and define the change challenges of any transition. Based on this material, we run a half-day workshop with the executive team that gains a common understanding of any disparate views. This helps the team recognise the consequent leadership challenges. Over time, organisations can experience a drift upwards in decision-making, whereby more senior management are taking decisions that ought to be taken by managers/employees further down the line. Quite often the tendency for pushing decisions upwards will be great, especially in difficult times – even if the decisions are not necessarily high-risk.

We apply the Decision Band Methodology (DBM) to compare, contrast and correct any inappropriate decisions that may have been made by management and individuals.

People and Process: Through a series of interviews with directors and selected focus groups of managers, we identify the critical competencies (no more than six) that are required at all levels to succeed over the next few years. Through this process, we also identify the types of behaviours that can be observed that reflect these critical behaviours. This is elicited through techniques such as Critical Incidence Questioning and ER Consultants’ SkillsMAPPER approach, which establishes competencies by getting interviewees into the mindset of the future. We recommend the importance of gaining some common language around the definition of culture through the conduct of an organisational culture survey. Such a tool proves a useful starting point to understand what it is saying about the organisation, against what is defined as the desired culture.

Work and Information: Performance management is assessed from two perspectives:
i) are the strategic objectives adequately cascaded down the organisation;
ii) how people’s performance is managed and improved.

Line managers are key to improving individual and ultimately organisational performance, so it is important to understand how the process rectifies underperformance, removes barriers and motivates its employees. The analysis activity includes an assessment of the strategic objectives by researching a sample of business areas, their team’s and individual’s objectives. From this, we are able to determine the degree of alignment of the organisation’s strategic objectives. By reviewing the formal performance management process and comparing the results against our experience of other organisations’ performance management systems, we are also able to determine the quality of the management of ‘people’ performance.

Reward and Recognition Structure: Here we explore to what degree the reward mechanisms are supportive of the overall strategic objectives. Remuneration strategies should give rise to remuneration policies, processes and practices, which complement and support the achievement of the company’s objectives.  In turn, this should reinforce and support, as well as challenge the prevailing working culture and behaviours, including the actions expected of a high performance, committed, workforce. To assess the reward and recognition structure, we run a concise questionnaire – Dimensions of the Reward Strategy – which gathers information regarding the current pay and grading arrangements and the desired future company state. Using the data gained from this activity, we deliver a workshop to senior managers in order to review the results and assess how the reward structure is impacting on employee behaviours.

Human Due Diligence in practice
ER Consultants recently used the above methodology to help a client carry out human due diligence in order to assess the current capability of leadership across all levels of the business. The executive board believed that there was significant risk of non-delivery against a number of agreed business critical objectives, if issues concerning organisational and individual capability were not addressed. Our approach helped to uncover critical staffing and business issues, such as:
decision-making and accountability operating at the incorrect structural level;
management style that is high on structure and process, but low on building rapport and trust within teams;

• organisational conflicts between departmental structure and project delivery. Having identified the issues affecting the leadership’s ability to deliver, we were able to devise specific interventions to help address them. The solutions, included:
• the development and assessment of individuals against the ‘six critical core competencies’ established for the organisation;
• developing managers’ ability to set stretching goals and deal with under performance;
• building a high potential development programme to ensure the best talent is stretched, and develop additional recognition elements to acknowledge successful delivery of ‘high-risk’ projects.

So far, these solutions have helped to empower leaders and decision makers to display suitable behaviours, such as effectively ‘leading’ a programmed organisation, balancing customer-pull and supplier-push product delivery, whilst ensuring that the ‘followership’ is suitably skilled to respond to the economic changes ahead. In just one month, not only did this firm have a better idea of what leadership competencies they lacked, but also the solutions required to help those in leadership achieve the set business targets.

So, have you considered whether your talent is capable of getting you through the current downturn?  If not, human due diligence is certainly worth thinking about. After all, there’s no time like the present to start assessing how to retain talented employees, who are not only capable of counteracting any unforeseen conditions you come up against, but will also give you a head start when market conditions improve.

Benefits of Human Due Diligence

• It provides the opportunity to investigate what it will take to retain in-house talent.
• It helps to actively introduce solutions to retain talent.
• It helps to address organisational and structural issues.
• It aligns decision-making and accountabilities to relevant role holders.
• It gets stakeholders to acknowledge the importance of employees in a substantial way.
• It provides a relevant and timely health check of existing people polices and practices.
• It provides the opportunity to deliver low cost – high impact solutions in difficult times.
• It demonstrates positive commitment to employees in difficult times.

For more information, contact:
Chris.Legge@erconsultants.co.uk

© er consultants Topics Issue 2, 2008