HR gets the big thumbs-down

2006

Senior executives across the world have given their HR departments an emphatic thumbs-down, rating them the worst-performing of all their business functions.

The Economist Intelligence Unit's annual CEO Briefing survey quizzed 555 senior executives, including 226 CEOs, about their priorities and challenges over the next few years.

Asked to rate the performance of various areas of their business, survey respondents slammed their HR functions, with more assessing its performance bad than good.

"No other function-not even the notoriously unlovable IT department-came close to being this unappreciated," the report said.

Almost a third rated HR a 4 or 5 (where 5 is poor), compared with 22 per cent for IT, 20 per cent for knowledge management/research and 20 per cent for marketing/sales.

Only a quarter (27 per cent) gave HR a 1 or 2 (where 1 is excellent).

The survey also identified the importance of globalisation to their strategic growth plans, with respondents expecting the proportion of revenue coming from overseas markets to jump by an average of one-third over the next three years.

Acquiring new customers (58 per cent of respondents) is seen as the most important strategy for achieving revenue growth. Increasing market share (53 per cent) and growing revenue (50 per cent) outstrip lowering the cost base as strategic priorities for executives.

"As overseas markets become ever more important, companies will grapple with a new set of management challenges," said Andrew Palmer, the report's author.

"Successful firms have to be flexible enough to identify and take advantage of local opportunities, and strong enough to instil a recognisable set of global corporate values."

One paradox of globalisation is that it increases the value of local knowledge. Understanding the needs of local customers in the different markets as customers' tastes change and competition intensifies is the biggest challenge that managers of global companies face, according to the survey.

But despite embracing globalisation, most of the world's largest companies have a long way to go before they can claim to be run by truly global boards.

The Economist Intelligence Unit analysed the composition of the boards of directors at the 25 largest firms (by market capitalisation) in ten stock markets in Amsterdam, Australia, Germany, Hong Kong, London, Milan, New York, Paris, Switzerland and Tokyo.

Across the 250 companies analysed, only 624 board members out of a total of 3,352 executives, or 18.6 per cent of the total, were different in nationality to the company they steered.

In every market, the overwhelming majority of board executives came from the country where the firm was listed.

Companies listed on the London Stock Exchange were most likely to have a foreign national on the board, with an average of 4.3 nationalities.