Managing Complexity in Cross-Country Operations - IHRIM

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1 Global Perspective Managing Complexity in Cross-Country Operations By Karen V. Beaman, Teilasa Global LLC Managing a Human Resource Information The Importance of Context System (HRIS) on a global scale as opposed To evaluate the impact of contextual factors to a domestic, single-country scope brings a on the HRIS, the first step is to categorize the unique set of challenges that are both magni- various factors into four domains organiza- fied and broadened when considered across tional, material, socio-political, and economic countries. The multitude of environmental fac- as seen in Figure 1. tors that vary across countries from compen- Organizational Factors Varying sation schemes and time recording, to social enterprise aspects, such as organiza- benefits and taxation frameworks, to legislative tional model (centralized or decen- and regulatory compliance create an unusu- tralized), governance model (local, ally complex environment that is not for the regional, global), industry sector, faint of heart. organization size; With such complexity, the critical question Material Factors Different physi- becomes, how does an HRIS organization ef- cal environments, such as geography, fectively deal with cross-country issues? This infrastructure (analog and digital ac- article discusses the importance of not only cess, transportation systems), climate, understanding the content but also the context time zone; in which the HRIS functions. A global HRIS (content) does not operate in isolation; it func- Socio-Political Factors Fluctuat- tions in a particular environment (context), ing business dynamics, such as culture, such as differing legislative and regulatory language, business practice and cus- requirements, varying tax regimes, multiple toms, legislation, regulation; and, languages, and diverse cultural practices, to Economic Factors Divergent name just a few of the contextual factors that economic conditions, such as levels vary across countries and impact the HRIS. and types of social benefits, taxation This article provides a framework for under- frameworks, financial sophistication, standing and managing the complexity of the economic stability. differing country contexts in which a global HRIS operates. A few examples can help to illustrate the impact of these contextual factors on the HRIS. Consider the number of official languages spoken across the organization and the impor- tance of having a global language strategy to effectively support the global business. Iden- tifying one (maybe two) standard language(s) for the corporation, such as English or French, improves communications across borders and reduces the number of translations required for official corporate communications. Tsedal Neeley and Robert Steven Kaplan, in their September 2014 Harvard Business Review article, Whats Your Language Strategy? hold that unrestricted multilingualism creates inef- Figure 1. Country Contextual Factors. 22 July 2015 Workforce Solutions Review www.ihrim.org

2 ficiency in even the most dedicated and talented workforces. This implies that the higher the levels of English spoken in a country (assum- ing English is the standard language for global business), the less complexity that country will have in their HRIS processes. Another common contextual factor often cited with regard to global HRIS is the complex country-based legislative environment. There is general agreement that the greater the level of legislative and regulatory compliance require- ments in a country, the more complex the HR Figure 2. Country Contextual Complexity Index (CCCI). and payroll processes. Finally, other factors may be critically impor- tant in one country, but not at all significant in another, such as climate. In highly developed countries, weather conditions, such as the oc- casional snowstorm, rarely impact HR/Payroll processing. But, in countries where the payroll is dropped via helicopter into a rice field, the impact of typhoons on pay distribution can be quite severe. As these examples show, it is critically im- portant to evaluate and understand multi-coun- try metrics within a variety of contexts. The use of a Country Contextual Complexity Index Figure 3. Sample Contextual Balance Scorecard (CCCI)1 provides an effective and objective filter for interpreting results, setting targets, and organization. The CCCI is used to normalize the benchmarking standard operational metrics operational metrics in each country so that a across countries. realistic, like-for-like comparison can be made and so that reasonable, attainable, context-sen- sitive targets can be set for each metric in each Country Contextual Complexity Index country. Across the seven countries shown in Fundamental to understanding cross-coun- Figure 2, Brazil and India have the most com- Endnotes try complexity for HRIS is the incorporation of 1 The author wishes to credit and plex environment for HR/Payroll due to factors thank James Garrett for the a factor to normalize the complexity of different such as their broad cultural and linguistic envi- collaboration on tying together the business contexts across countries. The CCCI2 ronment (India has 18 official languages), less business and numerical approaches shown in Figure 2 evaluates 16 contextual fac- to country complexity and for the well-developed infrastructure and educational tors and assigns each one a score, from lowest independent statistical validation of systems, and multifaceted taxation and legisla- the CCCI model. (score of 1) to highest complexity (score of 5). tive frameworks. Conversely, the U.S., UK, and Data are from a variety of independent, publicly Germany show the least complex environments, 2 The CCCI is defined in connection available research datasets, such as The World with a simple analysis of variance. followed by France and then China. Banks Financial Inclusion Data, World Eco- The index represents the effect on metrics as they vary from country to nomic Forums Global Competitiveness Index, country. The CCCI components are International Monetary Fund World Economic selected and weighted to minimize Outlook Database, Hofstedes Cultural Di- Global Benchmark Metrics the interactions in a two-way fixed- mensions, EF Education Firsts English Profi- Figure 3 illustrates the application of the effects model. ciency Index, and many others.3 The scores are CCCI to two metrics from the 2014 Mercer 3 This is a preliminary list of external weighted and averaged to produce the relevant Payroll Benchmarking Survey (MPBS), Payroll sources used to develop CCCI. CCCI for each country. Accuracy Rate and Manual/Off-cycle Payment Further analysis is continuing to The purpose of the CCCI is to objectively Rate. It is generally expected that as complexity determine the best-fit sources to goes down, accuracy rates should go up and ex- support the CCCI model for the HRIS evaluate the relative differences in complexity environment. across countries based on specific contextual ception payment rates should go down. Hence, factors that are outside the control of the HRIS less complex countries should have higher www.ihrim.org Workforce Solutions Review July 2015 23

3 Mercer Payroll Benchmarking Survey Demographics above target on payroll accuracy, while Brazil is performing close to target. The U.S., UK, France, Germany, and India are performing below average. The second example, Exception Payments, shows a similar trend with some minor differ- ences: the U.S., Brazil, and the UK are perform- ing close to target, while the other countries are below target. Only Brazil is performing at target on both metrics, while India is performing accuracy rates and lower manual payment rates below target on both. Extending this concept to than more complex countries; indeed, the data create a full contextually-based balanced score- from MPBS confirm this fact. card gives a fuller and more accurate picture on Taking the U.S. and India as examples, the the performance of each country. MPBS data from 2014 show that the U.S. has a Payroll Accuracy Rate of 99.13%, while India Optimizing Performance has an Accuracy Rate of 93.94%. Adjusting To effectively manage the performance of a these rates based on their CCCIs, the Actual global HRIS via metrics, it is important to set Adjusted Payroll Accuracy Rate for the U.S. is reasonable, attainable targets based on each 98.92%; for India, it is 95.95%. On average, countrys relative complexity. Contextually- U.S. organizations are performing 0.21% above based metrics provide a method to compare References what is expected given the complexity of apples-to-apples across countries, eliminating EF Education First, English Proficiency their environment, and Indian organiza- the all-too-common objection, Its different in Index, http://en.wikipedia.org/wiki/ tions are 2.01% below. EF_English_Proficiency_Index#2014_ our country. Setting individual country-based Rankings However, using the raw CCCI creates targets for each metric avoids the perception an inappropriately low target for the U.S. that metrics are being established based on Hofstede Centre, Cultural Dimensions of Uncertainty Avoidance and Indulgence, given their relatively low level of complex- corporate headquarters view of the world. http://geert-hofstede.com/countries. ity, and a potentially high target for India Setting realistically achievable metrics is funda- html given their relatively high level of complex- mental in building a performance management International Labour Organization, NATLEX, ity. Therefore, to normalize this difference system that motivates individuals to strive for Number of Entries by Country, http:// and set realistic, attainable targets for each continuous improvement. www.ilo.org/dyn/natlex/natlex_browse. country based on their complexities, a best byCountry possible CCCI is created by reducing the About the Author International Monetary Fund, World Karen V. Beaman is the managing director for raw CCCI to 40% of the lowest possible Teilasa Global and the founder and lead researcher Economic Outlook Database, http:// www.imf.org/external/pubs/ft/ complexity for each country (40% being a for Mercers Payroll Benchmarking Survey (MPBS), weo/2014/02/weodata/index.aspx reasonable, albeit arbitrary, number to set a unique groundbreaking research effort focused an attainable goal). on uncovering leading practices in payroll. She has Robert S. Kaplan and David P. Norton, The 30 years of diversified human capital management (HCM) Balanced Scorecard: Turning Strategy Specifically, the CCCI Target Rate for experience, covering global strategic planning, application into Action, Harvard Business Review each metric is the difference between the development, data modeling, business process optimization, shared Press, 1996. current value of the metric based on the services delivery strategies, business case development, and global Tsedal Neeley and Robert Steven Kaplan, countrys complexity index and the ideally systems deployment. She was previously the founder and chief Whats Your Language Strategy?, executive of Jeitosa Group International, a worldwide strategic best possible value for that metric based business consultancy providing solutions for global effectiveness, Harvard Business Review, September 2014. on the lowest possible complexity for the which was acquired by Mercer in 2014. She led the team that country. This calculation takes the U.S. developed the global strategy and built the requirements for the World Bank Group, Financial Inclusion Data, http://datatopics.worldbank.org/ from an Actual Adjusted Payroll Accuracy foundational core of Workdays new HCM system. Previously, she was responsible for ADPs global professional services across the financialinclusion/ Rate of 98.92% to Target Adjusted Accu- Americas, Europe and Asia Pacific. Beaman was the co-founder and World Bank Group, Doing Business, Ease racy Rate of 99.62%, in effect putting the editor-in-chief of the IHRIM Journal, is currently the academic editor of Paying Taxes Ranking, http://www. U.S. 0.49% below target. Likewise, Indias of Workforce Solutions Review, and is the editor of four IHRIM Press doingbusiness.org/rankings Actual Adjusted Accuracy Rate of 93.94% books. She is a certified Human Resource Information Professional (HRIP) and, in 2002, she received the Summit Award, IHRIMs World Economic Forum, Global becomes a Target Adjusted Accuracy Rate Competitiveness Index, http://reports. highest award honoring her lifetime achievements in the field of HR. of 97.37%, putting India 3.44% below tar- She is fluent in English, German, and French and conversational in weforum.org/global-competitiveness- report-2014-2015/rankings/ get. Looking at the CCCI target rates for all Spanish and Portuguese. She can be reached at seven countries, only China is performing [email protected] 24 July 2015 Workforce Solutions Review www.ihrim.org

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