Planning for GrowthAfter the crisis, the only certainty is uncertainty

The market and economic changes witnessed by businesses over the last few years could neverhave been predicted. Globally, the crisis hit quickly and hit hard. Yet despite the severity of thecrisis, the recovery is happening faster in some markets than many could have either hoped orexpected but slower in others. As companies look forward, the one certainty of whichmanagement is sure is that post-crisis, nothing is certain.

Respondents to our survey are looking forward to a positive rebound albeit one in whichgrowth will be slow to return. Although this recovery is a global phenomenon, the expectedgrowth will not be consistently distributed by country or by sector, and we believe that signifcantvariations will remain.

While it is true that the "emerging markets" expect a stronger performance than developedeconomies, this is not a global movement Russia, in particular, is expecting only slow growth.Interestingly, respondents from the US agree with many European countries in expectingsignifcant change; equally, in the emerging markets, many of the most positive responses arefrom those companies which have built rapid change into their "business as usual" model.

Returning to growth is not returning to normal

Returning to growth will not be the same as returning to the "normal" conditions that existedbefore the economic crisis. In our research during May 2010, 4 in 10 companies responded thatthey do not expect business to "return to normal" for them. This is an increase of almost 25%compared with the results we gathered from the research in November 2009.

The volatile tide of economic events over the last couple of months has led to a significantimpact and this higher degree of sensitiveness shows that although businesses are confident, theyhave become more cautious during the last eight months.

A changed world

All respondents are looking ahead to a changed business environment. The rise of new economicgiants like China and India, as well as additional regulation, increased tax and the potentialreturn of inflation, are all seen as factors which will make businesses less profitable, unless theyare effectively addressed.

A consistent theme that runs across our finding, both in terms of market outlook and plannedbusiness response, is the expectation of increased volatility and complexity. Markets areexpected to see major swings in growth, and both the volume and depth of change is expected toincrease.

Two factors emerge as being critical to future corporate success: the speed with which a businesscan respond to both opportunities and threats, and the flexibility that it builds into its operation toenable it to do so.

A changed company

As a result of the situation, companies are planning many changes in the way that they operate.These changes are also extending to the way they measure their performance; while the top fiveperformance indicators are expected to remain the same, there is a significant increase in the useof others, with a major move from quantitative to more qualitative and relative measures as keyperformance indicators (KPIs).

Companies have already started to revisit their business model or plan to do so. Evidenceshows that, after economic downturns, companies tend to concentrate on their core business; andwe believe that this will become a trend within the next couple of years. As part of the businessmodel review process, there was an expectation that we would see a move by companies from acentralized to more decentralized organization.

In a world where change is more prevalent and rapid, no company can afford to focus itsattention on immediate events, or simply react to the latest problem; to be successful, it will haveto become aware of whats happening on the global stage and be prepared for the impact of long-term trends. Learning from key development trends in other markets and sectors will be crucialfor staying ahead of competition.

Successful companies in mature markets will need to focus on global innovation management.Future market leaders will be companies which are both entrepreneurial and agile. However, the

characteristic that will truly determine which companies are the dominant players in 2012 will bethe ability to make and execute decisions quickly.

When times are uncertain, no one can predict what may be around the corner, so the need forflexible responsiveness has never been greater.

Implications for key functions and processes

Strategic change will involve internal transformation activities on a significant scale, includingupheaval to organizational structure, the introduction of new technology, and big challenges tothe way people are recruited, developed and managed.

STRATEGY AND BUSINESS EVOLUTION

Summary of the implications for strategy and business evolution

The impact of the crisis on strategy and business evolution

Where do we go tomorrow?

The volatile and complex world of business has been going through a major upheaval, which willcause a wide range of changes to your company. Our representative survey shows that over 50%of people in management positions believe prolonged changes to business functions will resultfrom the crisis; with 73% expecting "some impact" on their business operations and 41%anticipating "high impact" on their functions and disciplines. The top six areas of change are:

1. IT

2. Performance management

3. Sales and marketing

4. Governance, risk and compliance

5. Corporate strategy

6. Innovation management

Companies have been forced to learn many lessons during and following the crisis. After a 10-year period of almost continuous growth, management in most businesses around the world did

not believe that they would have to deal with the problem of a 20% to 50% reduction in demand.Most companies were not prepared, so they didnt have the opportunity to react in an adequatedegree.

Optimize operational flexibility

We believe that one of the major lessons companies should learn from the crisis is the value ofgaining business flexibility in the operating model, the processes and in the cost structure.

Aligning the business levels

If an organization is going to achieve the necessary speed and flexibility to allow it to optimizeoperational flexibility, then it needs an aligned business model through which the company'sstrategy, values, culture and methodologies can be communicated and consistently replicated.

An aligned business model requires a focus on the service functions and the business units. Theservice functions play an important role in connecting the corporate level with each businessunit, i.e., the service functions are the interface through which strategy and consistency iscommunicated to the broader organization.

However, when aligning the business levels, it is the business units which provide the greatestchallenge. This is because of the risk of losing existing synergies within the business units iflocal strategy is sacrificed in an attempt to align with the overall corporate strategy. For example,depending on the local market, competitive position and the positioning of the product/service,each business unit will have a bespoke customer approach, which has a direct impact on thesupply chain.

Aligning the business units

Sooner or later, the review of the business model and strategy will lead to a situation in whichcompanies will again start to sell or strengthen parts of their businesses: with the overallobjective of aligning the business units to the revised business model and strategy.

As after such downturns in the past, we have seen an increased focus on core competenciesbecause either non-core assets use the limited liquidity needed for core transactions, or thecompany has recognized that conglomerating competencies is a high-cost and high-risk strategy.

Vertical integrations are in evidence across a number of sectors, as the risk of failure in key partsof the value chain becomes painfully obvious. The focus on core competence, however, is not thesame as narrowing market focus; it means sharpening the market focus.

Aligning the service functions

Learning from past experience, the service functions know that only focusing on cost reductionsin finance, HR or IT, does not lead to a balance between lean administration and a contribution

to the companys performance. During the crisis, short-term savings to keep/gain liquidity werethe key to survival; the service functions now have to re-think their processes, exploring how todo more with the resources available and how to align with the business operations.

For example:

IT will require new initiatives for enterprise architecture which supports the business processesefficiently; making the company more speedy and flexible, as well as adaptable and scalable.

Finance will have to find ways to manage information and gain valued insights about potentialimprovement opportunities and business performance management.

HR needs to focus on talent management and finding ways to attract and retain the best peoplefor business development. This means developing an attractive employer brand; using anintelligent and innovative approach to recruiting; plus offering world-class learning anddevelopment models to keep the most valued talents within the company.

Marketing has to forget "mass media" and respond to the new communication challenges;finding oppotunities to use the diverse variety of communication channels to address theiraudiences. Importantly, marketing and communication personnel need to maintain a close andstrong connection with the business operations, to facilitate the strategic articulation andpositioning of the business units.

Cost management will continue to be on the agenda across all the service functions.

All the functions will need a more flexible structure to be able to gain benefits and act on thebusiness demand. Some companies will choose to have a stable and lean business platformwhich allows them to add or reduce functions on demand; especially when companies startinitiatives to gather together individual service functions into one business service function, andconsolidate the support functions in one organizational structure to benefit fom each other.Others will probably go further and outsource more to leading service vendors.

Optimize market reach

The changing customer and the new communication opportunities such as social networks, aswell as the increasing variety of the traditional media channels, have a strong impact on thebusiness units. It is not just about adjusting the marketing mix; it is about securing quality.Failure to do this will have an immediate (and sometimes ultimate) impact, with hugeconsequences on the business unit or the complete organization. Unhappy customers are able toseriously harm a company in the 1970s and 1980s, customers would express dissatisfaction toseven best friends; today, they will do this on seven online forums.

"The period of doubling knowledge has shrunk from 100 to just six years. Ninety percent of allresearching and teaching scientists live in the present. Every minute, a new chemical formula;every three minutes, a new physical coherence; and every five minutes, a new medical insight isdiscovered and published." J. Brauner

The changes accelerated by the crisis have led to a new urgency for innovation. Faster innovationcould make the crucial difference for companies; especially those situated in mature economieswhere a new or improved product can offer an advantage over companies which have their originin one of the emerging countries. In the Western economies, for example, it takes 18 monthsuntil the next generation of mobile phones is released, but Chinese companies release newmobiles every one to two months. Years ago, the leading catalog firms released their catalogstwice a year; but the internet has forced those companies to change their business model, andleading fashion companies like H&M and Esprit have increased their collections from 2 (summerand winter) to 12 or 13.

The need for faster innovation is not limited to products or services. Given the myriad of newcommunication channels, companies need to develop new ways of communicating and buildinglasting relationships with their customer base.

On the value level, innovation is the key to continued success. Companies whose main feature isoperational excellence have to search continuously for ways to improve their efficieny in anincreasingly competitive environment: companies which excel through a high degree ofcustomer orientation have to demonstrate every day that their customers have chosen the rightbrand.

Technology should not be the main differentiator for a product leader; but improved time tomarket is a key requirement to become industry leader in this category. The main innovation skillin the value discipline is anticipating the needs, wishes and sometimes dreams of the customer:e.g., some companies do not always deliver the latest available technology; the chief asset ofthose companies is the way it matches the customer's desire with their solution. Analysis frommany sectors indicates that the additional value captured by the first to identify an untappedcustomer demand clearly outperforms the additional costs required to speed up the time tomarket process.

Many companies, even traditionally strong and leading brands, go bankrupt because they did nothave innovation embedded into their business model. Even today, the majority of companies donot have either a person or department responsible for innovation, or a structured process toregularly identify business trends and potential.

Innovations have to respond to the global megatrends which drive the continuous evolution inthe business environment. The following megatrends highlight the most influential trends we seein this changing world some are driving the change and some are driven by it, and the impactof the trends varies geographically:

The accelerating shift of power from West to East has moved the engine for growth in theglobal economy from developed to emerging countries. Multinationals from the emergingmarkets are not just here to stay, but likely to become global champions in many industries: anew middle class is developing as the backbone of this long-term trend.

In the changing financial landcape, governments are aiming for a stronger role in the financialmarkets, and not just on a short-term basis. Sovereign wealth funds will further increase theirinfluence in the local economies, especially in mature countries. PE, hedge funds etc. will returnto business, but be more controlled than in the past. (First, many of them need to divest largeportions of their portfolio of companies to close down older funds.) The regulatory environmentwill, as a consequence of the crisis, move more toward greater regulation and global consistency.

The economic importance of energy and commodities will once again be the number onechallenge in business, which will cause the further rise of cleantech and the necessity for greaterenergy efficieny and lower carbon emission.

Corporate social responsibility (CSR) will be back on the corporate agenda. Environmental,social and ethical expectations and obligations on businesses, along with their associatedopportunities and risks, will increase.

The next wave of technological innovations will drive change for businesses and consumers.The iPad and new social networks will change how consumers and businesses interact with eachother.

The demographic shift will increase the challenges of managing and developing talent, as wellas difficulties in attracting, managing and developing a diverse, global workforce.

Re-evaluate the business model

To gain more speed and flexibility in an organization, the management has to start at the top andrevisit the current business model and corporate strategy. There are many approaches toreviewing the current business model and strategy of a company; for example, the ValueDisciplines Model is an adaptation of the three strategies (cost leadership, differentiation, focus).

Market leaders normally stand out in just one of the three value disciplines (operationalexcellence, customer intimacy and product leadership), because every level requires a distinctvision, business model and strategy and, even more importantly, internal philosophy andconsistency. Many companies fail because they are not good at driving the philosophy andconsistency throughout the organization. However, some companies have achieved industryleadership in two value disciplines; for example a web dealer and a manufacturer of furniture areworld-leading companies which perform in operational excellence and customer intimacy.

It isn't just a case of amending the business model; as a consequence of the crisis, companieshave to review their entire strategic platform. At a minimum, the majority of companies willhave to adjust their strategic goals due to the slow recovery of the economy.

Evidence shows that every significant economic downturn has led to changes in the competitivelandscape. We recommend that every business undertakes a detailed analysis of the newcompetitive environment; companies may have to re-think how to differentiate from theircompetitors, with a potential impact on their offerings and, worst case, on their business model.

Accelerate decision-making and execution

Beside total flexibility, we believe that more than ever before speed will make a difference forcompanies which want to succeed in their markets. Speed in decision-making, speed in executionof programs and activities, and speed in bringing products and innovations to the market.

A major driver in accelerating the speed of decision-making is improving the way managementaccesses information. But having the right information at the right time doesn't mean anything ifthe management isn't able to decide due to lack of entrepreneurial spirit, or through inefficentstructures which make decision-making slow and sometimes impossible. Changing this will bethe challenging part.

Companies will approach these challenges differently. We, however, expect to see a trendtowards:

Increased delegation of responsibilities closer to the front line Planning becoming a continuous process Increased board and top management focus on the gap between current trend and future

ambitions (rather than last period's performance) Less management, more leadership

If a company recognizes room for improvement, the processes for budgeting, reporting andforecasting will need to be adjusted and linked to the company's strategy, which will alsostrengthen general understanding of the strategy across the firm. Evironmental information as aresult of the trend radar, or a fully fledged cenario-planning process, has to be a part of thereporting.

Strengthen management talent

Personal development and self-actualization have been the personal goals of many people for along time, as well as in their role as employees; however, a degree of realism has taken effect.People understand that, within industries, company divisions and departments, they must cometo terms with a given framework, whatever form it may actually take; therefore the search forpersonal development and self-actualization has become subordinate to a search for continualchallenge. This puts organizations under high and increasing pressure.

Retaining talented and qualified staff has become one of the most important goals oforganizations affecting all divisions. There are numerous reasons why this has become moredifficult:

A change in the labor market, from a buyers to a sellers market Massive competition between organizations, triggered by the lack of qualified people Employees who can no longer identify with the organization Employees who are constantly in search of new challenges and incentives

Effective talent management is a key success factor, not just for substantial growth it is the keysuccess factor for securing the future. The trick is to ensure that talent management strategies arealigned to the business strategies of the organization. If talent management is not regarded as aboard or a CEO issue, too little time commitment will be given to it by managers and leaders. Iforganizations dont offer employees appropriate incentives (and this encompasses much morethan monetary rewards), workers will begin to search for new challenges in other places.

The challenge ahead will be to develop an organizational structure and business set up, whichallows companies to achieve the maximum potential from their human assets rather than justtheir physical assets, as in the past.

Optimize capital availability and deployment

During the crisis, companies immediately stopped strategic decisions and actions. For manymonths, companies went into "flight mode" and concentrated on improving cash flows andreducing their cost bases; acquisitions or IPOs were cancelled or postponed around the world.

But this is going to change. Global IPO activity (per IPO) was significantly higher in quarter1/2010 (267 deals) compared with quarter 1/2009 (52 deals), and the total capital increased inquarter 1/2010 significantly (USD 53.2 bn) compared with quarter 1/2009 (USD 1.4 bn). Even ifthe emerging countries are the main driver for this development, we see movement in the matureeconomies and there are signs that transaction and merger activities are also increasing, asillustrated by the mega merger between United Airlines and Continental Airlines.

Whatever the view on the recovery, uncertainty is the only certainty there is. Those who have theorganizational flexibility to adopt and respond as the market changes will be able to exploitopportunities those who don't will miss them and weaken their competitive position.

Capital matters more today than ever before. The "new normal" of continuing uncertainty,weaker demand, margin erosion, scarcity of capital and increased risk aversion in strategicdecision-making, has narrowed the margins for error in capital allocation. Many companies willfeel inclined to hoard cash and simply be reactive; but winning companies will avoid thetemptation for inertia and use their capital to seize opportunities to move forward proactively.

To build a competitive advantage, businesses are adopting a range of disciplines in five keyareas:

Preserving capital reshaping their operational and capital base to reflect the risks andrealities of a prolonged downturn

Optimizing capital (driving cash and working capital) managing the portfolio of coreand non-core assets to accelerate a return on capital

Raising capital assessing future capital requirements and determining how fundingsources can be diversified to increase options

Investing capital strengthening investment appraisal and execution methods, so thatopportunities can be realized while managing increased risk

Enabling the capital agenda upgrading planning, forecasting, performance reporting andgovernance processes, to sharpen decision-making speed and effectiveness

We believe that those who develop their capabilities to master this agenda will build competitiveadvantage by:

Increasing and maintaining investor confidence Winning the competition for scarce capital Anticipating and adapting to market conditions as they change Seizing acquisition and other growth opportunities that others are unable to Revitalize risk management A fast response to new, risk-related events demands that the same risk management

language is spoken throughout a company. Unfortunately, in many organizations, eachdepartment will have its own definitions: as a result, the company will be slow todetect and react adequately to new, risk-related events and trends.

A common risk language gives clarity shared definitions, company-wide priorities, acommon culture of risk awareness and accountability, and clear procedures formeasuring, monitoring, communicating and dealing with risks. Companies hamperedby a lack of common risk management language and related procedures are incapableof defining and prioritizing different risks, let alone measuring, communicating andmonitoring them.

Various surveys confirm that many board members of even the biggest companieslack a clear understanding of their company's risk appetite and risk tolerance. A studyquoted in the Risk and Insurance Management Society publication, The 2008Financial Crisis. A wake-up call for enterprise risk management, found that only 54%of directors of US Fortune 100 companies understood their company's risk tolerance meaning that almost half did not so either risk tolerance levels in those companieshave not been defined at all, or board members were not actively involved in thisprocess.

Other studies suggest that most companies do not define and measure risk limits on aconsistent basis throughout the company. From our discussions with hundreds ofboard members, we have the strong impression that a lack of explicit, structured focuson risk appetite and risk tolerance on many boards is not due to an unwillingness todeal with the issue: on the contrary, board members tend to understand the importanceof defining and dealing with risk appetite in a coherent, structured way; but they donot know how to go about it very well.

A good description of a company's risk appetite will have qualitative as well asquantitative elements. On various issues, it may include definitions of what isacceptable and what is not: a company might state it does not accept any risk ofregulatory infringements; or a company might decide that it will only approveexpansion in new business areas, if and when it has gathered sufficient knowledge ofthe specific business issues and risks involved, and if the organizational and technicalinfrastructure is in place to manage these risks effectively.

Risk appetite regarding the companys strategic goals should first be translated intorisk tolerance for specific categories of risk, e.g., strategic, operational, financial andcompliance risks. Risk tolerance expresses the specific maximum risk that anorganization is willing to take regarding each relevant risk category, often inquantitative terms. Obviously, for each risk category, the resulting risk toleranceshould concur with the organizations risk appetite. In human resources, for example,a company can define its risk tolerance regarding overall staff turnover as notexceeding 15% per year.

Management should set risk targets for different business units. A risk target is theoptimal level of risk that an organization wants to take in pursuit of a specific businessgoal; through it, a company defines the desired balance between risk and reward,correlating the risk tolerance to specific business plans and business metrics.

Setting the risk target should be based on the desired return, on the risks implicit intrying to achieve those returns and on a companys ability to manage those risks; forexample, the risk target for a business unit selling products that become obsolete quitequickly could be to realize 30% of sales from products that have been on the marketfor less than two years. The risk target can be expressed as a point between an upperand a lower risk limit: monitoring these thresholds ensures that actual risk exposuredoes not deviate too much from the desired optimum; breaching risk limits willtypically act as a trigger for corrective action at the process level. If a business unitreaches the upper risk limit, it will have to manage down its risk level, unless a newanalysis of the risk/return balance justifies the risk position. If a lower risk limit isbreached, i.e., if the actual risk-taking falls below a minimum, the business unit shouldadd more risk unless the return on this extra risk-taking is not deemed adequate.

Once the organizations overall risk approach has been clearly defined, the board andexecutive management should communicate it broadly throughout the organization toensure all actions of the company are in line with the risk appetite.

Strengthen stakeholder confidence Adjusting the business model and strategy will not only affect the company; it has an

impact on all stakeholder groups. Therefore regular communication betweenmanagement and the stakeholders is not just a task that has to be done it is the keyelement for trust, confidence and ongoing relationships.

The commitment to strategic decisions and the success of those essential changes aredirectly linked to stakeholder confidence. Maintaining an open and trustfulrelationship between board and stakeholder requires a system to prompt action, as wellas regular communications which differentiate between the diverse stakeholder groupsand their needs. We recommend including all these activities in an overall stakeholderengagement plan which secures regular communication and reduces the risk ofsurprises.

HUMAN RESOURCES Summary of the implications for the HR function

The changing face of the human resources function Rule number 1: The customer is always right. Rule number 2: Reread rule number 1. This concept has dominated the business culture for three decades. However,

organizations that hope to survive in the future increasingly recognize the need to adopt anew position your people are the most important aspect of any business.

Our employees are our most valuable asset has become the new business principle, ascompanies recognize that they can only serve the market as effectively as their people candeliver, and the company can only go as far as the people driving it allow it to go.However, despite this reality being proclaimed for several years by key business

influencers, many companies have difficulties in adopting a positive people-basedapproach.

The simple fact of recognizing that your employees are your most important asset doesntaddress the increased complexity of working life. If we examine the many demandscompanies put on their employees being available 24/7, having all the requiredknowledge and skills, being creative and innovative, being more efficient and effective;all while having to cope with frequent changes in the business model or organizationalrequirements it is not surprising that it is increasingly difficult to find emplyees thatcomply with all those requirements.

Additionally, in mature economies, two other issues are complicating the workforcesituation: the demographic shift, which is increasing the number of older workers withouta sufficient younger generation replacing them; and the Generation Y movement ofemployees who require much more out of their working lives than simply a big pay check they need to be challenged by their tasks, they expect to be offered personal and skilldevelopment opportunities, they like to feel included in the company decisions and wantto receive recognition for a job well done.

Optimize operational flexibility Enabling operational flexibility is a real challenge for companies in countries with

developed labor markets and high levels of employee protection. In mature European markets such as France, Germany or the UK, where the labor market

is strictly regulated, companies have encountered major difficulties in laying offemployees in reaction to reduced demand. As a consequence, costs have had to bereduced elsewhere: salary freezes, cuts or cancelation of bonuses, cheaper travel costsand slicing entertainment expenses budgets to name just a few. Yet, even after takingthese measures, many companies continue to face the problem of being too inflexible toreact to changing conditions, and the measures they have taken to reduce expenditurehave often simply de-motivated the remaining workforce.

"Collaborative working" is the new HR buzz phrase. Teams combining a number ofspecialists will more frequently be created to tackle specific projects and disbanded oncethe task has been achieved. Cross-country, cross-departmental, cross-time zones andcross-skills virtual team working has no boundaries.

HR should establish a continual change management approach, matching therequirements of the organization to the abilities of the workforce, and tailoringfunctionalities to the company needs. In the future, HR will be required to contribute tothe level of flexibility in business operations by hiring the "right" employees peoplewho are capable of adapting to comply with the fluctuating company requirements,enabling it to meet market demands.

Companies should see the changes in the demographic market as an opportunity, not aproblem. Their request for flexibility neatly matches the new kind of worker coming ontothe market: someone who is happy not to be tied to a company for too long; who enjoysfreedom, but at the same time is highly skilled and knowledgeable. Consequently, thereaction of the HR department could be to welcome those employees who are happy toaccept short-term contracts or work as freelance contractors, and to consider theimplementation of advanced technology to enable more effective ways to work remotely.

Optimize market reach Moving into new markets requires the right management talent: managers have to be

entrepreneurial, open-minded and strong in leadership capabilities. They also need to be

empowered to be pro-active with practical, financial and emotional support from seniorleadership and stakeholders.

The HR function influences this leadership talent directly through its hiring policies, butalso indirectly through the company culture. The company-wide "vision" (a statementthat encompasses the company ideals and expectations, against which everything thecompany does should be evaluated), can only be achieved by someone in the companyunderstanding the work ethics and personal values and behaviors that support the vision,and by living them every day.

Inflexible and highly hierarchical organizations will be counterproductive in developingthe right management talent, as gifted people will want to contribute and graspopportunities to make a real difference. Companies must try to create a constantlylearning and adaptable organization, which will also help to accelerate decision-makingand execution (see the section headed Accelerate decision-making and execution).

Re-evaluate the business model The HR function has a major role in re-evaluating the business model, as cultural as well

as leadership capabilities are essential for a successful business model shift. To assist, theHR function can help to make a flat hiearchy a success by implementing ways to fosterteamwork and discourage "silo" working, making it easier to share knowledge acrossinternal boundaries, engaging employees by making them feel involved in the business,and encouraging lower levels to take responsibility.

Another measure would be to provide possibilities for developing entrepreneurial spirit,e.g., by letting employees work on their own projects, if the company structure orbusiness model allows it, or by allowing them to develop in-house improvements.

Once you've attracted the right people into your company, it's vital to keep them. This isnot just about financial remuneration, it's about keeping them involved and engaged inwhat's going on. This is no time to put your head down and pretend everything is OK.Good internal communications are essential good or bad news, it's better to know thetruth than to be left guessing. Managers must spend more time asking employees theirpoint of view and enabling feedback mechanisms, so that the entire workforce can voicetheir concerns and contribute their ideas and innovations; and don't forget the importanceof celebrating company-wide successes with everyone to keep optimism high.

We are aware that company culture cannot be changed overnight and that it requires amassive joint effort from both management and employees to achieve success. Forexample, we suggest that current employees can act as ambassadors to spread the goodnews about the changes: using their personal and business contact networks, both throughthe classical formats and the effective use of blogs or tweets, talking about thefascinating project theyre engaged with, the superb new product theyve justlaunched, or the great team spirit within the company.

Accelerate decision-making and execution The HR function can influence decision-making and execution indirectly, by fostering

and maintaining an appropriate company culture and enabling adequate knowledgemanagement. A positive, sharing company culture is essential when it comes to speedingup decisions: flat hiearchies, where employees and management regularly connect, willhelp to decrease the time from idea to execution.

Companies should support a culture with horizontal linkages, cross- functional teams, etc.to establish a feeling of permanent learning it will also mean that disparate project

teams will not waste time trying to resolve an issue, when a solution to a similar projecthas already been created and tested in another department or country.

To support team working and decision-making processes, a vital success factor is theimplementation of an appropriate knowledge management solution which next to datamanagement becomes the backbone of tomorrow's flexible organizations. This becomeseven more important with an increased employee turnover rate, as it is necessary to keephard-earned knowledge inside the company so that following generations of employeescan build on it.

What can the HR function do to keep knowledge inside the organization?

Develop a process to capture and spread knowledge. Make it easy to access and straightforwardto use; then make it an essential part of everyone's job to update and add to it.

Break down the "not invented here" syndrome and make sure people get recognition for havingthe idea in the first place.

Encourage everyone to live the knowledge sharing system in all hierarchies. The system isunlikely to succeed if it is not adopted by each level of the company.

A bigger challenge will be to reactivate existing, but unused, knowledge management systems.Companies need to find out why employees currently are not using the system, and then addressthe issues accordingly. If necessary, systems and processes will have to be reworked to meet theorganization's changing requirements. Also, consistent training on the usage across allhierarchies may be necessary to encourage employees to use the system.

Strengthen management talent

The strength of management talent is influenced by the capability of the company to attract,develop and retain high performers. Therefore, the company culture needs to be appealing tothose employees the company wants to hire or hold; it also determines which talent is supportedand how.

To improve talent management and retention and therefore, ultimately, employee satisfaction,the HR department should consider taking certain measures for career development and training,as well as for compensation and incentive systems:

Career development/training

Tailor career models to the strengths of each employee and identify areas of improvement.

Respect work/life balance issues by considering part-time working, and remote or virtualworkplaces; these models should not be viewed as a disadvantage for career developmentanymore they should be seen as a way to motivate employees.

Establish a flexible approach to training, where the employee can choose their desired area oftraining (with some guidance), enabling them to develop according to their interests.

Make 360 feedback mandatory for everyone. This will help each employee to increase theirstrengths and overcome their weaknesses; plus, it will provide valuable information with whichto grow the company.

Make mentoring programs mandatory for each employee, e.g., encourage informal meetingsonce a month and formal meetings twice a year to discuss certain career development issues.

Increase mobility across the company. This will give employees the opportunity to learn andbroaden their perspectives by working in a different regional environment, or in another divisionor business unit for a limited time.

Compensation/incentive systems

Rework your current compensation system to match your individual employees needs, e.g.,offer alternative incentives such as paid leave and sabbaticals, and remove any stigma by actingas a role model.

Dont forget to recognize the achievements of employees if people dont feel valued, theywill leave as soon as they have the opportunity. Even in economically tight situations, small giftsor a day off will be highly appreciated and dont forget that saying a sincere thank you doesntcost anything!

By considering these suggestions, companies can increase their employees satisfaction, whichwill become even more important in the future than they are today. The survey we undertookwith stakeholders shows that they consider it the most important KPI that companies should beaware of in 2012 (see fgure 1).

To attract and keep the best management talent, companies have to focus on the strength of theiremployer branding, especially now that employees and applicants have even more ways toextract precise information about a company.

People like to work for a well-respected, successful company; they want to feel proud of itsachievements and are highly influenced by the way it portrays itself in advertising and collateralmaterial, the effectiveness of its website and the kind of coverage it gets in the media. They willalso have spent many hours/days searching for information about similar companies, talking tocolleagues and contacts in their business comparisons will be made; especially about the way

the company treats its employees. The effect of this phenomenon is shown in our survey of 866key decision-makers and stakeholders (see figure 2):

Respondents from all regions appear to recognize the shift of emphasis, anticipating that the"strength of employer brand" will attain far higher importance in 2012. Some of the differencesare remarkable Brazil's figures jumping from 35% in 2009 to 91% for 2012 and India's from58% to 82% but all sectors and geographies show a significant growth (see figure 3).

To shape the preferred "employer brand", companies need to make an extra effort to find outexactly what is attractive to their employees and new applicants (the opportunity to travel, to mixwith experts with proven skills, to be stimulated by skills training, to have flexible workinghours, etc.) and then make sure they are delivering the whole employment package to the best oftheir ability.

Our research has found that the aspirations of the future generation of workers can beencapsulated by two wishes: "expression" and "acceptance." Steep career aspirations and hugepay checks are not the only things appealing to tomorrow's talents; people require a challengingand, at the same time, caring work environment where they can deliver value and where they arealso valued in return.

Strengthen stakeholder confidence

Stakeholder confidence can be influenced by transparent and consistent communications oncertain non-financial isues, like ecological, economical and social sustainability. The HRfunction is able to influence the latter by fostering diversity and equality within the company.

European countries such as Spain and Norway have already implemented laws to promotegender equality on management boards; France may decide to do the same in 2010, and othercountries are likely to follow.

Companies not only have to hire a diverse workforce because it might be required by law, theyalso need to do so to succeed! Diversity brings new levels of knowledge to a company, with eachgroup offering its own strengths; it also helps to enrich the companies' approach toward globalbusiness management.

HR can help to attract and develop diverse employees and eventually strengthen the employerbrand:

Introduce diversity quotas, even if they are not yet mandatory, to show awareness.

Create development programs for different social groups, and foster teamwork and networkingwithin these groups.

Increase equality in the boardroom, even if it is not yet enforced by law; e.g., throughmanagement development programs specially aimed at women.

With respect to different cultures working in multinational companies: train employeesaccordingly, enabling them to be aware of their differences and also enlighten them on how touse this as an opportunity to look at issues from different angles, which will improve yourcompany's scope for increased cross-border teamwork.

In very tough cases, you could offer one-to-one coaching for employees who are valuable to thecompany, but are "training-resistant."

Another factor that can strenghten stakeholder confidence is the company's approach towarddemographic shifts. As the demographic landscape changes, sooner or later a huge pressure willbe put on companies in both mature and emerging countries:

Mature markets

As the aging workforce increases, so does the need to transfer their knowledge to new talent.Companies have tried to address this issue for years; however, there hasn't yet been acomprehensive approach to combine the drive of younger people and the experience of the olderworkforce.

In the future, HR departments face the challenge to find a way to make progress in this area toavoid making the experienced workers feel obsolete, while at the same time help younger ones togrow so they can eventually step into their roles.

One way to do this could be by implementing job shadow programs, or mandatory mentoringprograms. The main advantage of this approach is that the transition is gradual, so that thementor is not losing too much influence, while the scholar can learn incrementally without an

excessive amount of pressure. The business also benefits from both ends of the scale and, in themeantime, has two people on the workforce with complementary skills already working in aclose-knit team.

Emerging markets

The situation is different in emerging markets, but still challenging. Indeed, many markets willhave their own unique problem that they need to resolve in this area.

India, for example, has more than 50% of the population below the age of 30. Before they cansatisfy the growing economys requirements, they will need to educate the workers, because themore experienced employees often dont speak English, which is vital for tomorrows jobmarket. Although the younger workforce is often trained in languages and can have a goodbusiness education too, Indian companies still need to enforce the development of managementskills.

Employees are looking forward to getting trained revealed an Indian HR specialist, butbecause there are not many experienced people they can learn from, other initiatives will need tobe introduced, for example:

Increase cooperation, networking and informal relations among younger employees, so theycan pass on their best practice and learn from each other.

Enforce training and relevant education, e.g., sponsor MBA students.

Hire external consultants to train people to overcome their limitations and to help bolstereffciencies and effectiveness.