WTW-HR risk study

The state of human capital risk in India2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

CII-Suresh Neotia Centre Of Excellence For Leadership

PrefaceCompanies worldwide are vying to succeed in a rapidly changing business landscape. Persistent global economic uncertainty, talent scarcity and growing skills mismatch, accelerating regulatory requirements, unparalleled technological changes — the challenges are multifaceted. No organisation can successfully navigate such turbulent times without effectively managing its most critical asset and driver of success — human capital.

In many organisations, human capital accounts for an increasingly significant share of operating costs and is a major determinant of business performance. Yet the risks and uncertainties arising from human capital management and workforce issues are not managed as rigorously as financial, supply chain, IT and other risks. Most organisations in India are just beginning to understand human capital risks and think about the frameworks, tools and methodologies they need to manage them. Effective management gives leaders insight into different risk scenarios and enables them to proactively eliminate or minimise risks that pose the greatest threat.

Willis Towers Watson in collaboration with the CII - Suresh Neotia Centre of Excellence for Leadership (SNCEL) has gathered the views of nearly 100 chief executive officers (CEOs), chief HR officers (CHROs), chief finance officers (CFOs), chief risk officers (CROs) and other senior executives in India spanning a diverse set of industries on human capital risk management.

This study provides fresh perspectives on the relevance and implications of human capital risks in India, prioritises risks by their impact on business performance and prevalence, and highlights the current state of risk management practices. We believe that rising HR challenges like workforce planning, retention, succession planning and skill gaps will drive organisations to prioritise human capital risk management. Taking a risk-based approach to human capital that involves not only HR but people from across the business will differentiate business performance in the future.

We would like to thank all the business leaders who made time to participate in this study for their valuable insights. We hope you find these findings useful and they help you shape effective practices for your organisation.

Vivek Nath Chandrajit BanerjeeHead, South Asia Director General Willis Towers Watson CII

1 The state of human capital risk in India

“Across the globe, business leaders are grappling with human capital issues, compounded by a rapidly changing business environment. As business leaders in India become more concerned about challenges like shortage of key skills, rising workforce costs, employee acquisition, retention and evolving labour reforms, they are increasingly realising the need to move to a

comprehensive talent management approach that allows them to plan for long-term business needs. This report helps us understand how leading organisations are developing talent strategies that deal with the entire gamut of people-related challenges and opportunities and are directly aligned with the business goals. This correlation reiterates how effectively human capital is emerging as a critical determinant of business performance and sustainability. At the same time this study reveals that human capital risks rank first in a list of twelve broad enterprise risks for most organisations in India. However, a large majority of organisations do not seem to be adequately prepared to manage these risks.

Using the right risk mitigation tools and frameworks enables the leadership of an organisation to gain advanced insights into various risks and address them in a proactive manner. Effective management of such risks truly differentiates top performing organisations from average ones. This study provides crucial insights into the importance and implications of different human capital risks and the current state of risk management practices in organisations of India. I hope it will help business leaders understand their evolving roles as they look for better ways to manage human capital while facing the ongoing tectonic shifts in the workforce dynamics.”

Harshavardhan Neotia Chairman CII - Suresh Neotia Centre of Excellence for Leadership (SNCEL)



Table of contents

At a glance ...........................................................................................................................................................4

Human capital risk moves centre stage ........................................................................... 5

An old risk with a new urgency ..................................................................................................6

Into the boardroom ....................................................................................................................................6

What are the top human capital risks in India? ........................................................7

Managing human capital risk: Current conditions.............................................12

Employing a co-ordinated approach ................................................................................. 14

Barriers to success ................................................................................................................................. 14

Bringing it all together ..........................................................................................................................17

About the study ........................................................................................................................................... 19

The state of human capital risk in India2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

4 willistowerswatson.com

At a glance�� 62% of respondents view human capital risk as an urgent or very important board-level concern for their organisations.

�� Majority of the respondents are very concerned about retention of critical talent and leadership bench-strength.

�� Roughly 41% of respondents believe their organisation manages human capital risk effectively, with multinational corporations reporting considerably greater success than domestic companies.

�� Only 35% of respondents report that their organisation has a formally defined risk mitigation or control strategy in place.

�� A scarcity of HR specialists and insufficient dialogue between the HR and risk management functions are major obstacles to establishing a successful human capital risk mitigation plan.


Human capital has become one of the most critical assets for organisations worldwide. With competitive advantage being increasingly driven by quality and engagement of human capital, any risks that come in the way of optimising it need to be taken very seriously by organisations. Yet human capital risks are rarely identified and managed in a systematic manner at the enterprise level in India. Even organisations that are aware of their vulnerabilities generally employ a narrow focus and fail to assess the entire gamut of risks.

To realise their growth potential, organisations need to effectively manage the supply of human capital and reduce risks that could adversely affect its optimisation, such as ineffective talent acquisition programmes or failure to retain key talent. Also, as local companies expand regionally or globally, they need to invest more heavily in human capital infrastructure, including processes, platforms, governance structures and programmes.

While some organisations are investing in strategic workforce planning to secure and retain critical talent, today’s business environment demands a holistic approach that aligns talent with broader strategic objectives and evaluates longer-term risks. Firms cannot afford to ignore risks with large-scale impact, such as a misalignment between culture and strategy, governance, manager ineffectiveness, employee disengagement, rising costs, and suboptimal use of HR technology and HR infrastructure. While HR might be primarily responsible for managing these risks, risk professionals and corporate boards also need to be involved to achieve optimal results.

Defining human capital risk

Risk: Possibility of deviation from an expected outcomeHuman capital risk (HCR): Workforce factors and practices that can have a range of possible effects on business performance

HCR can arise from a number of internal and external forces, such as uncertainties in the regulatory environment, demographic shifts, the competitive landscape, interest rates and exchange rate fluctuations, changing consumer demands and other factors that directly or indirectly impact businesses. Internal changes, such as new processes, operations, technology and service offerings, or expansion to different locations, can also give rise to HCR. These risks can occur in organisations of any size, nature or industry. HCR, however, does not stand alone — it must be understood in the context of the organisation’s overall risk environment (and appetite).

Research findingsFirst, we discuss how HCR stacks up against other risks faced by organisations in India. We then look at which HCRs are most in need of remediation, in terms of both their effect on business performance and likelihood of occurrence. Finally, we focus on the current state of HCR management in India: the maturity of mitigation processes, management effectiveness, responsible parties and existing obstacles. We also highlight significant differences in opinions by, organisation size, type and respondent’s job role.

Human capital risk moves centre stage


An old risk with a new urgencyThe top risks to business performance involve human capital factors, such as high attrition rates, attraction and retention challenges, and inadequate skills, according to participants (Figure 1). Human capital risk is ranked highest by organisations of all sizes, both MNCs and domestic, and by both HR and non-HR respondents. Next in the rankings are market risks and macroeconomic factors specific to India.

Into the boardroomBoards in India are recognising their crucial role in matters of human capital. Sixty-two percent of all respondents identified HCR as an “urgently important” or “very important” board-level concern for organisations. While boards have traditionally been actively involved in CEO compensation and succession planning, they’re now stepping up their involvement in strategic talent management areas, such as aligning HR strategy with business strategy, HR investments and organisational culture. Even the most systematic and sophisticated HR risk management strategy is not likely to fully succeed without the board’s participation. Surprisingly, only 38% of the HR respondents cited board involvement as an important concern, compared with 62% of CEOs, general counsel and other managers.

While 61% of respondents from MNCs consider HCR as an important board-level concern, only 39% of those from domestic organisations agree. This can be best understood in the context of the evolution of risk management in India, which is still a developing discipline. Moreover, Indian companies have enjoyed explosive growth, and bringing up risk is sometimes perceived as injecting a note of pessimism, and thus is not entirely welcome. This has more to do with perception than reality. Effective plans for addressing strategic and operational risks can help build a sustainable business.

Figure 1. Risk rankings based on impact on business performance

Risk Ranking

Human capital factors (e.g., high attrition, attraction and retention, skills inadequacy) 84%

Market risk factors (e.g., competition, reputation and brand image) 70%

Macroeconomic factors (e.g., inflation, unemployment, price fluctuations, exchange rate volatility) 55%

Financial risk (e.g., volatile financial markets and inadequate access to credit) 52%

Technological factors (e.g., technological obsolescence and insufficient R&D investments) 41%

Legal/regulatory uncertainty (such as corruption, bribery, redundancy of laws) 40%

Consumer market factors (e.g., changing tastes, cultural factors, demographic shifts) 38%

Infrastructure (physical and energy) 35%

Foreign trade and relations (e.g., import/export duties or troubled relations with other countries) 30%

Political uncertainty (e.g., mistrust of policymakers and processes, communal violence, inadequate protection of rights) 29%

Security risks (e.g., cyber insecurity and terrorism) 16%

Natural and workplace hazards (such as floods, earthquakes, accidents, fires) 10%

Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks Study

“People (whether in house or outsourced) are Bharti Airtel’s most critical resource and it is important for the company that processes supporting our people are operating effectively. In November 2013, we changed our appointed domain specialists to perform internal audit reviews who deliver quality reports giving management and the board useful insights regarding the execution of the company’s people processes and how they could be optimised. The success of this work is aptly demonstrated by the fact that The Chairman of the Board HR Committee requested that their work be presented to the quarterly HR Committee as well as the Audit Committee.”

Mario Pereira, Formerly Group Director – Internal Assurance, Bharti Airtel.


“ To answer this we need to look at the changing nature of the business itself. In many of our businesses, success depends not on access to capital but on how we deliver customer value. Having high-calibre employees developing exceptional products or services makes the difference between success and failure. In a dramatic way, this can be seen in the high-tech industry, where some acquisitions are executed solely to capture superstar employees of the acquired firm. While the above might be an extreme case, the fact remains that in the digital economy, innovation is driving businesses and innovation is driven by human capital.”

Shatrunjay Krishna, Director – Rewards, Talent and Communication, Willis Towers Watson India

0% 20% 40% 60% 80% 100%

Regulatory compliance

Managing global organizations

Growing business uncertainty

Reputation/image of organization

Growing human capital costs

A changing HR function making it crucial for strategic success

Business sustainability and continuity

Attraction and retention of critical talent

8585

6969

6666

5858

5757

4848

4545

4141

Drivers of HCR management Why are human capital risks increasingly viewed as critical to manage?

While employers are waking up to HR risks and control framework, the evolving regulatory framework also presents a unique opportunity to have an integrated approach to manage risks through appropriately defined controls. Companies Act 2013, emphasises the need for maintaining Internal Financial Controls and supporting operational controls. As per section 134, clause 5(e), the directors, in the case of a listed company, need to lay down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. The Act defines the term “Internal Financial Controls” as the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. As many business and risks experts would admit that HR process controls can be critical operating controls and should be effectively monitored. This way HR strategy and policy can be can be executed in full rigour. The HR fraternity should rise up to seize this opportunity and not let this happen only as a tick in the box of compliance requirements.

What are the top human capital risks in India?To identify the most serious near-term risks facing organisations and devise appropriate responses, the first step was to assess both potential impact and probability of occurrence for each HCR. Any risk response should be based on such an evaluation of both - the potential impact and the probability of occurrence. So, risks that have high potential negative impact on business performance as well as a high probability of occurrence would be of highest concern and are the ones organisations need to prioritise. While there might not be any one-size-fits-all HCR mitigation strategy, this research provides critical country-level aggregate insights that can help organisations assess their own risk profile and develop effective counter-strategies.


“The quest for the holy grail in organisational performance is a difficult one. But no matter which path you traverse, your destination will lead you to the twin towers of sustainable leadership bandwidth and a learning adaptive workforce. The twin towers are what make good organisations great. The single biggest risk for organisations today is not knowing where to start and how to sustain these twin temples.

At InMobi, we believe that the biggest risk also gives the largest payoff. Our people strategy is focused on taking small positive actions with disproportionate payoffs. Our learning wallet gives employees the right to invest in any learning of their choice. Bridge assignments offer them internships within the company across a new function. And our Live Your Potential programme gives InMobians the right to apply to any position in the company, even if it’s a promotion or two levels above or below what they do.”

Kevin Freitas, Global Head — Rewards and Talent Acquisition, InMobi

Top 10 risks (in order of importance)

1. Insufficient leadership bench-strength. This risk poses the biggest danger to organisations in India, according to our research. Having unfilled key positions can lead to missed targets and disrupt business continuity. Seventy-four percent of respondents indicated that insufficient leadership bench-strength significantly impacts business performance, and 38% said this risk has been a concern for their organisation in the past. Having long-term succession plans for key leadership positions is a fundamental responsibility of the board and CEO, and should be monitored and addressed regularly.

2. Retention of critical talent segments. High attrition of critical workforce segments affects businesses in many ways: posing obstacles to business growth, raising succession/ transition risk and increasing costs associated with untrained or unprepared talent. Seventy-seven percent of respondents cited the impact of this HCR on business performance as “major” or “catastrophic”, while 31% reported having faced retention challenges in the past two years. These findings are consistent with other employer surveys in India, including Willis Towers Watson’s Global Talent Management and Rewards Study, which examines employer views of trends and challenges in rewards and talent management. According to that survey, 46% of organisations in India have difficulty attracting workers and 45% experience challenges in retaining talent with critical skills.1

3. Capability gaps with respect to emerging business/technology. Organisations need their workforces to possess the critical skills required to maintain a competitive edge in today’s rapidly changing market, where new products and technologies emerge every other day. When skill gaps persist, the company’s talent profile goes out of alignment with its medium- and long-term HR needs, necessitating an overreliance on external talent and creating budgetary stress. In India, the supply-and-demand mismatch of skilled workers constitutes a perennial challenge for employers. Seventy-four percent of respondents believe skill gaps significantly hurt business performance, and 28% say their company has struggled with this risk.

4. Low workforce productivity. Many studies have confirmed a direct correlation between corporate financial performance and workforce productivity. Failing to enhance employee productivity can result in unmet business targets, lower profits and higher HR costs as organisations scramble to replace less productive workers. It can also foster an organisational culture lacking in performance-oriented work processes and systems, further dampening performance levels. For organisations in India, boosting productivity necessitates greater investments in training and skills enhancement, and in further efforts to improve employees’ attitudes towards learning new skills and enhancing productivity. Sixty-four percent of respondents said that workforce productivity challenges have a big impact on business performance, while 28% have faced productivity challenges in their own organisation.

5. Inadequate talent attraction programmes. The inability to attract the right employees to fill open positions is a cause of concern. A lack of appropriate hiring risk controls can lead to employment of suboptimal talent — either overpaying for workers’ experience/skills or a misalignment between workforce skills and business requirements. Sixty-five percent of respondents think flawed or insufficient talent attraction programmes strongly affect business performance, and 25% said their organisations have faced such hurdles.


1See Willis Towers Watson, 2014 Global Talent Management and Rewards Study: At a Glance (Willis Towers Watson, 2014),towerswatson.com/en/Insights/IC-Types/Survey-Research-Results/2014/08/2014-global-talent-management-and-rewards-study-making-the-most-of-employment-deal (accessed Dec. 29, 2014).


Rank HCRs Overall score

1 Insufficient leadership bench-strength 12.12

2 Retention of critical talent segments 12.02

3 Capabilities gaps with respect to emerging market/technology 12.01

4 Low workforce productivity 10.89

5 Inadequate talent attraction programmes 10.43

6 Lack of compelling capability development and talent management programmes 10.29

7 Suboptimal workforce planning and organisation design 10.18

8 Lack of business-critical systems like performance management 10.17

9 Ineffective compensation strategy design and implementation 9.24

10 Failure to deliver on changing business needs and ineffective change management 9.03

11 Insufficient tools to motivate and engage the workforce 8.39

12 Weak internal communication 8.14

13 Inadequate use of HR technology 7.92

14 Inefficient management of employee benefit plans 6.69

15 Ineffective outsourcing model and management of outsourcing partner 6.56

16 Statutory noncompliance 6.51

17 Ineffective industrial relations 6.36

Figure 2. Top risks

Source: 2016 Willis Towers Watson - CII-SNCEL Human Capital Risks StudyNote: Scores for “impact” and lIkelihood” are average scores on a 5-point scale.

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12

45

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Overall risk score = Impact score * Likelihood score

“Talent acquisition, development and retention are the fundamental risks. Associated challenges are in the realm of learning & development that keep acquiring new definitions given the range it encompasses right from skill development to leadership enhancement. This calls for coming up with innovative learning solutions that translates into relevant skill development programmes and leadership development initiatives with special focus on succession management. The other set of human capital risks are the regulatory requirements of running an organisation where the organisation’s approach to governance, compliance and risk management play a crucial role in promoting an ethical and transparent culture.”

R Venkatanarayanan, President — HR, IT & Education, Rane Group

6. Lack of compelling capability development and talent management programmes. Failing to provide appropriate learning and development programmes that enhance workforce capabilities and bridge any skill gaps poses a serious threat to organisations. Inadequate talent management can depress business performance by resulting in suboptimal career planning for employees and inadequate succession plans for critical roles.

7. Suboptimal workforce planning and organisation design. Where organisational design is ineffective, firms may lack the flexibility they need to scale-up to meet intensifying business needs. There may also be conflicts between functional and organisational roles, as well as overall obstacles to delivering the customer value proposition. Suboptimal workforce planning results in:

�� Insufficient resources to deliver services to targeted levels

�� Excess workforce in some areas that may need redeployment in the short/medium/long term

�� Weak linkages between workforce planning and business/functional variables (e.g., number of customers, fixed assets, number of purchase orders, full-time employee-to-HR ratio) leading to ineffective planning

�� A workforce model that may not achieve optimal structure in terms of insourcing/outsourcing, full/part time, and payroll/contract workers

8. Lack of business-critical systems. Sixty-two percent of respondents reported a lack of critical systems, such as performance management, which can have an enormous impact on business performance. Organisations without a proper performance management system cannot develop a culture that supports the achievement of organisation-wide goals across workers, functions and teams. An inability to differentiate high performers from low performers wastes resources and results in missed business opportunities.

9. Ineffective compensation strategy design and implementation. Most importantly this leads to difficulties in attraction and retention of critical talent. It also results in inappropriate HR cost management.

10. Failure to deliver on changing business needs and ineffective change management. Whether the changes are to work methods or processes, or are major transformations like mergers and acquisitions or restructuring, companies must remain adaptable to survive. Because change is such an integral part of today’s business environment, failing to manage change effectively drastically reduces an organisation’s probability of achieving its goals.

Drilling deeper

Figure 3 highlights marginal differences by organisation type and size for HCRs that pose the most serious threat to organisational health. Domestic firms seem less concerned than MNCs with low workforce productivity: 70% of respondents from MNCs believe that low workforce productivity critically impacts business performance versus 56% of respondents at local organisations. Although when asked about the frequency of productivity-related challenges, 25% of respondents from MNCs and 33% from domestic organisations said they occur often or fairly often. Another difference is that MNCs were more likely than domestic firms to consider the lack of well-designed learning and capability programmes that bridge skill gaps a serious risk, while domestic organisations expressed greater concern about “suboptimal workforce planning and organisation design”.



Type of Organisation Size of Organisation HR vs. non-HR

MNC Domestic organisation

Publicly traded Non-traded

Small (fewer than 1,000

employees)

Large(more than 10,000

employees)HR Non-HR

Retention of critical talent segments

Insufficient leadership bench-strength


Capabilities gaps with respect to emerging market/technology












Insufficient bench-strength







Low workforce productivity



Suboptimal workforce planning and organisation design



Inadequate talent attraction programmes




Lack of compelling capability development and talent management programmes

Lack of business-critical systems like performance management


Suboptimal workforce planning and organisation design





Figure 3. Top 5 risks by respondent profile


HR respondents seem more worried than other executives about the need for effective capability development programmes and managing low workforce productivity. These are challenges HR manages on a daily basis, so other senior executives are probably less informed about the risks and their potential impacts. To establish and maintain successful HCR mitigation plans, however, senior executives and other managers must have oversight or at least understand these business-critical risks. HR respondents also indicated that “inadequate use of HR technology” has often caused issues in their organisations.

Smaller organisations — those with fewer than 1,000 employees — were more likely than midsize and larger organisations to say they struggle with challenges arising from lack of effective performance management systems. Twenty-eight percent of respondents from smaller organisations versus 18% from large organisations cited ineffective performance management systems as a problem. Among larger organisations, talent management systems and programmes do not pose the highest risks. In fact, managing employee productivity and engagement seem to be a greater concern in larger firms, and 64% of respondents from large organisations indicated that employee engagement has a critical impact on business performance compared with 31% at small organisations.

“The context of business has turned on its head from being employer dominated to employee dominated in the past two decades People assets have become invaluable in a world where talent is getting increasingly scarce. Organisations have realised this and only those who are able to attract and retain talent will have a sustainable future.”

Vineet Sharma, Executive Vice President Quality & Service Excellence, Max Life Insurance Company Limited

Managing human capital risk: Current conditionsOnly 41% of these organisations are effective at understanding and managing HCR, according to the study. Seventy-three percent of respondents who said their organisation effectively manages risks work at MNCs and 27% work at domestic organisations. Amongst those who rate their risk mitigation strategy/process as effective, 45% are HR leaders and 55% are other executives.

Most organisations do not seem prepared to address their human capital risks. Overall, 63% said they lack formally defined risk mitigation strategies (Figure 5). Respondents from MNCs were more than three times as likely as domestic firms to have formally defined risk mitigation strategies. Size matters, too: 86% of respondents from organisations with fewer than 1,000 employees said they do not have a formally defined strategy, and 34% have not defined a strategy at all. Although larger organisations seem to have a strategy of some kind, 45% of them reported that it is not formally defined.

Furthermore, respondents were asked to indicate the maturity level of their risk mitigation process (whether formally defined or not). Process maturity was based on a seven-point scale where:

Less mature1 = Human capital risks are vaguely defined2 = Almost all critical risks are identified3 = Risks are documented

Moderately mature4 = Risks are evaluated and prioritised according to severity level, probability and risk appetite

Highly mature5 = Plans to mitigate risks are designed6 = Audit process is implemented to tests the risks7 = Risk mitigation plans are reported and monitored regularly

Less than half of respondents think their risk mitigation process is sufficiently mature to deal with all HCRs (Figure 6). The HCR mitigation process is three times as mature at MNCs versus domestic organisations, and 54% of HR respondents consider their processes highly mature versus roughly 41% of other executives. A significantly higher percentage of larger organisations have mature processes as compared with smaller or midsize firms.

Figure 4. How effectively do organisations identify, evaluate and manage human capital risks?

Ine�ectively Neutral E�ectively

20%

39%

41%



Figure 5. Has your organisation defined a risk mitigation or control strategy for human capital risks?

Not definedInformally definedFormally definedDon’t know

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Not defined Informally defined Formally defined

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Not defined Informally defined Formally defined

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58%

16%

Multinationals

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Figure 6. Is the risk mitigation process sufficiently mature to deal with human capital risks?

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Don't know

Risk mitigation plans are reported monitored regularly

Audit process is implemented to test the risks

Plans to mitigate risks are designed

Risks are evaluated and prioritized according to risk appetite

Risks are documented

Almost all critical risks are de�ned

HC risks are vaguely de�ned24

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Not so matureModerately matureHighly matureDon’t know

“People processes related to organisation, talent and performance are critical to deal with emerging business challenges. Organisations competing in today’s rapidly changing environment tend to face significant HR risks related to attraction, retention and management of talent. The vision of Bharti Airtel is to standardise ‘employee experience’ irrespective of the location of their work. To achieve what we envisioned, we institutionalised a ‘People Assurance Track’ in October 2013 as a focussed risk and assurance track, dealing with the entire life-cycle of the employee. As part of this initiative, we have created a comprehensive framework to assess people related risks and strengthen risk mitigation plans. Huge credit also goes to the HR teams for corrective action taken to make design and implementation of HR programmes more efficient, thereby achieving what we set out to do.”

Ritika Chopra, Head People Track, Corporate Assurance Group, Bharti Airtel


Employing a co-ordinated approachMany sophisticated global organisations are building successful partnerships among different functions to enhance understanding, develop plans and improve management of HCRs. In India, however, most organisations have yet to establish this connection, and HR remains primarily responsible for processes, procedures and issues relating to human capital. Although HR leaders must lead HCR management efforts, it is critical that risk managers, internal audit teams, executive leadership and the board understand the risks and potential costs. A coordinated approach to HCR management — one that combines the cumulative knowledge of all stakeholders — improves the odds of being able to avoid or mitigate negative outcomes.

Our research reveals mixed opinions about who bears the primary responsibility of HCR management. Some people argue that, because many HCR factors relate to HR programmes, HR is uniquely positioned to analyse and manage the drivers of HCR. Sixty-five percent of our respondents said that HR participates in the assessment and management of HCR in their organisations. Some think that corporate boards need to be more actively involved to help the business meet strategic objectives — only 42% of respondents indicated board involvement in HCR management. Others maintained that the risk/finance function, which has typically developed capabilities related to broader enterprise risk management (ERM), and compliance professionals should play key roles. Thirty-three percent of respondents said that HCR is managed by the internal audit function and 32% said it is managed by ERM in their organisation.

Barriers to successWe also tried to gauge likely obstacles to successful HCR management for organisations in India. About 39% of the respondents cited insufficient dialogue between the HR and risk management functions as a barrier to effective HCR management (Figure 7). This could be because these functions are separated by different reporting lines and thus have little incentive to collaborate. Both functions also tend to attract employees with different skills and capabilities, which could inhibit collaboration. This is a bigger challenge for larger organisations than it is for smaller or even midsize ones.

Furthermore, HR and other executives seem to differ significantly when it comes to collaboration between HR and ERM. Amongst those who cited lack of collaboration as a major obstacle, 32% are HR professionals, while 68% are other executives. This emphasises the need for dialogue between the risk and HR functions. Both these functions have grown in complexity and impact over the last decade. While HR professionals can learn assessment and management of risks, risk professionals need to understand how HR processes affect business results and sustainability. The risk functions can help HR understand how to leverage ERM processes and systems to manage HCR, and HR can ensure that key talent issues make their way into the risk management agenda.

“Evolving a common agreed framework of reporting is a key ingredient for HR to develop further. A well-developed reporting framework that provides analysts and investors insights into the quality of people capital in a company will start getting factored into predictions of business success, forward earnings etc. further strengthening the current momentum around HR.”

Animesh Kumar, Head - HR, Brand and Foundation, IDFC Bank



“Risk in India is still perceived mainly as the job of the risk and assurance function. The fact that it could help strategic success and sustainability of business needs more emphasis. The risk function needs to educate and collaborate with the operating organisation on the criticality of the risk and assurance process.”

Shatrunjay Krishna, Director – Rewards, Talent and Communication, Willis Towers Watson India

Figure 7. What are the challenges to having a successful HC riskmitigation plan in place in your organisation?

Limited resources to invest due to tight budgets

Insu�cient dialogue between HR and risk management functions

Lack of HC risk specialists

Limited understanding of HC risks in the audit community

Limited understanding of HC risks by senior leaders

15 25 25 35

16 29 30 25

18 21 30 32

8 23 30 39

8 23 30 39

Not a challengeSomewhat achallengeModerate challengeMajor challenge

0% 20% 40% 60% 80% 100%


Lack of human capital risk specialists is another challenge, with 39% of respondents calling it a major obstacle to a successful mitigation plan. Slow progress as HR shifts from a primarily operational role to a more strategic one, and overall sluggish advancement in the ability to align talent programmes and strategies with the business strategy hinder effective management. An organisation’s risk function can play a critical role in instilling a risk mind-set in the HR function, which can sharpen the HR focus on supporting both its own and the organisation’s overall objectives. In many organisations, HR lacks the data and analytics required to perform efficient cost-benefit analyses of various HR programmes. At the board level, the lack of HR expertise and skills limits the board’s ability to view these challenges in a strategic way.

Limited understanding of these risks by senior leaders is another major challenge, followed by the low priority accorded to HCR management in resource and budget allocations. Significantly more respondents from domestic organisations than from MNCs find limited understanding of HCR by senior leaders a major challenge. Organisations in India are more likely to undervalue HCR management for several reasons, including less well-established governance and human capital infrastructure, a legacy of considering HR as administrative rather than strategic, and rapid growth that prioritises short-term decision making over longer-term risk management. But the lack of effective risk mitigation strategies can derail the achievement of business objectives and weaken the organisation’s values and culture.



Bringing it all togetherA few years ago, “managing human capital risk” rarely figured on the agenda of C-Suite leadership in Asia and even less so in India. Corporate leaders today are more likely to realise that human capital can make or break the sustained viability and success of their business, and to make it a priority. HCR management is forecast to continue growing in importance globally. Three out of four of these respondents said their organisation plans to invest additional resources in HCR management over the next five years.

As our research clearly shows, organisations in India are most worried about attraction and retention challenges and managing the pipeline of future leaders. While addressing these talent-related risks is crucial in the prevailing war for talent, the risks which enable or hinder a company’s execution of strategy through its people are important as well. Among organisations in India, managing workforce productivity, and bridging the gap between required and available skills are urgent concerns that must be managed for business sustainability.

According to our research, most organisations seem to lack the proper frameworks, tools and processes to effectively identify and manage HCR. Many firms, especially domestic ones, are not effectively managing HCR — they have yet to develop a structured process to identify key risks, formulate and quantitatively evaluate risk mitigation strategies, and execute those strategies most closely aligned with the organisation’s overall business strategy.

Organisations need to adopt a holistic view of potential HCRs and define a practical, formal approach that helps them manage salient risks in a way that does not undermine other critical business objectives, such as innovation, collaboration and speed-to-market. Intelligent collaboration among HR, risk, audit teams and business leaders can minimise business failures due to talent-related obstacles and enable organisations to maximise strategic opportunities through their people. Leveraging existing HR workforce data and analytics to calculate the impact of these risks on performance should encourage leaders to focus more closely on these issues. Some effective risk-management performers have a standing group/committee with direct responsibility for overseeing HCR management. Or the CHRO might serve on the corporate risk committee as well as attend board meetings to ensure that HCR management is reflected in corporate strategy.


Managing HCR: Blueprint for actionThe rising complexity in conducting business and need for better talent management and engagement is making it increasingly common for employers to do HR Audits.

For the success of HR audits, review of organisation risks on a regular basis is imperative. This helps link and align HR systems and services to organisational objectives while focusing on the business needs.

Conducting an audit involves review of current practices, policies, and procedures, and may include benchmarking against organisations of similar size and / or industry.

Key steps for risk assessment and audit include:

1. Risk assessment: The success of process is dependent on diligence followed while identifying, prioritising and classifying risks. Involvement of senior leadership and key business stakeholders is pertinent at this stage. The next step is to list down key controls to be checked / audited for all HR programmes / processes.

2. Audit preparation: Audit protocols needs to be established to standardise the way of working for the audit team. Audit governance framework including acquiring audit resources are the key milestones of this step.

3. Conduct audits: Actual field-work is conducted at this stage - checks are conducted on the data collected from the auditee. Observations are also rated as per their impact and likelihood. Action plan to mitigate identified issues are also agreed at this stage.

4. Post audit review: The result of an audit helps determine what needs to be done, how these changes will impact the bottom line of the organisation, and how to prioritise problem areas in terms of significance.


About the Study

Project team

97Organizations

spanning diverse set of industries

60%companies with international

operations

44%Publically

traded

Number of employeesMore than 10,000 ............................................ 23%5,000-10,000 ....................................................... 19%1,000-5,000 ......................................................... 29%Less than 1,000 .................................................30%

Job levelCEO, Chairman, President ......................... 15%Chief Human Resources Officer ...........40%Other senior executives ...............................45%

Shatrunjay Krishna (HR Risk Expert)Director – Rewards, Talent and CommunicationWillis Towers Watson IndiaT +91 124 432 2884 [email protected]

Urvi Shriram (Research Lead) EconomistWillis Towers WatsonT + 91 124 433 [email protected]

Indrani Kar (Lead Partner)HeadCII-Suresh Neotia Centre of Excellence for LeadershipT: +91 33 [email protected]

Rajesh Gopinathan (Project Partner) Deputy Director (HR & IR Desk), CII T: +91 11 [email protected]



The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managed organisation, playing a proactive role in India’s development process. Founded in 1895, India’s premier business association has over 8,000 members, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 200,000 enterprises from around 240 national and regional sectoral industry bodies.

CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialised services and strategic global linkages. It also provides a platform for consensus-building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with civil society organisations carry forward corporate initiatives for integrated and inclusive development across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few.

The CII theme for 2016-17, Building National Competitiveness, emphasises Industry’s role in partnering Government to accelerate competitiveness across sectors, with sustained global competitiveness as the goal. The focus is on six key enablers: Human Development; Corporate Integrity and Good Citizenship; Ease of Doing Business; Innovation and Technical Capability; Sustainability; and Integration with the World.

With 66 offices, including 9 Centres of Excellence, in India, and 9 overseas offices in Australia, Bahrain, China, Egypt, France, Germany, Singapore, UK, and USA, as well as institutional partnerships with 320 counterpart organisations in 106 countries, CII serves as a reference point for Indian industry and the international business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi – 110 003 India T: 91 11 45771000 / 24629994-7 • F: 91 11 24626149 E: [email protected] • W: www.cii.in

Follow us on :

facebook.com/followcii twitter.com/followcii www.mycii.in

Reach us via our Membership Helpline: 00-91-124-4592966 / 00-91-99104 46244 CII Helpline Toll free No: 1800-103-1244


About Willis Towers WatsonA truly compelling combination

Willis Towers Watson (NASDAQ: WLTW ) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. Our distinct, connected perspective across talent, assets and ideas unlocks potential for our clients. While many just look at mitigating the downside, we see how a unified approach to people and risk is a path to growth. Powered by market analytics and behavioural insight, our integrated teams reveal hidden value within the critical intersections of our clients’ organisations. We design and deliver solutions that manage risk, optimise benefits, cultivate talent and expand the power of capital to protect and strengthen institutions and individuals.

A strong client focus, an emphasis on teamwork, unwavering integrity, mutual respect and a constant striving for excellence are the values at the core of the new Willis Towers Watson organisation.

We cover the length and breadth of India with some of the best talent in the industry comprising of close to 200 colleagues across 4 cities.

Willis Towers Watson was awarded the Best HR Consultant of the Year at the World HRD Congress 2016..

Willis Towers Watson: A Comprehensive Offering

Human Capital and Benefits

High-performing institutions cultivate and grow talent, carefully balancing costs and rewards. From employee benefits to executive compensation, we take a rounded perspective based on leading-edge thinking, data, analytics and software, unearthing new ways to motivate people, foster well-being and implement solutions that work.

Corporate Risk and Broking

We know how companies can unlock potential through effective risk management. Our clients rely on us to craft strategies to quantify, mitigate and transfer risk, taking advantage of our specialist industry experience and unparalleled market know-how. The result is a new way of embracing risk that drives superior results.

Investment, Risk and Reinsurance

Our sophisticated approach to risk helps clients free up capital. We work in close concert with investors, reinsurers and insurers to manage the equation between risk and return. Blending advanced analytics with deep institutional knowledge, we reveal new opportunities to maximise performance.

Exchange Solutions

A changing health care landscape creates new opportunities. With our combined understanding of regulation and risk, behavioural insights and technology platforms, we create innovative exchange-based services and solutions that enable people to navigate options with confidence, and give employers decision-making peace of mind.

Copyright © 2016 Willis Towers Watson and Confederation of Indian Industry. All rights reserved.WTW-AP-16-RES-2224B

willistowerswatson.com and www.cii-leadership.in

About Willis Towers WatsonWillis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

About CII - Suresh Neotia Centre of Excellence for Leadership (SNCEL)The CII-Suresh Neotia Centre of Excellence for Leadership is a part of CII’s integrated agenda for building competitiveness through Centres of Excellence. The Centre was set up on the basis of CII’s core belief that the quality of leadership will play a key role in enabling India to succeed in its mission for inclusive growth and competitiveness and claim its rightful position in the global arena. The Suresh Neotia Centre of Excellence for Leadership envisages to play a major role in India’s growth agenda by catalysing leadership development across all businesses and socio cultural demographics through a range of interventions especially focussing on “people” and “process” transformations.

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