Depicting a challenging scenario around human capital risk (HCR) management in India, a pioneering study done by CII – Suresh Neotia Centre of Excellence for Leadership in association with Willis Towers Watson finds that 62% companies indicate HCR to be an urgent Board level concern, yet only one in three respondents have a formally defined risk mitigation or control strategy in place.
Further, just over 40% believe they are effective at HCR management, with MNCs being more effective than domestic organizations. These are some of the major findings of the study - State of Human Capital Risk in India that gathered the views of nearly 100 CEOs, CHROs and other senior executives in India spanning a diverse set of industries.
The study observes that rising HR challenges like workforce planning, retention, succession planning and skill gaps will drive organizations to prioritize human capital risk management.
The study ranks the top HCRs facing companies in India based on an assessment of both - the potential impact and probability of occurrence - across 17 identified HCRs.
While only a few years ago, “managing human capital risk” rarely figured on the agenda of the Board and C-Suite leadership in Asia and even less so in India, the study reveals that today, Boards in India are recognizing their crucial role in matters around human capital. Sixty-two percent of all respondents have identified HCR as an “urgently important” or “very important” Board-level concern for organizations.
Surprisingly, only 38% of the HR respondents have cited Board involvement as an important concern, compared with 62% of CEOs, general counsel and other senior managers.
”Human Capital is the fulcrum upon which productivity, superior performance and eventually growth now depends. Using the right risk mitigation tools and frameworks and working with specialists will prepare organizations to effectively manage people-related risks. This will enrich understanding, improve planning and facilitate transitioning from a reactive mode of ‘putting out fire’, to a more pro-active mode of ‘anticipating and warding off fires’,” said Harshavardhan Neotia, Chairman, CII-Suresh Neotia Centre of Excellence for Leadership (SNCEL).
Commenting on the study findings, Vivek Nath, Managing Director - South Asia (India & South East Asia), Willis Towers Watson said, “The implications of HR risk measurement and mitigation extend beyond pure compliance and organizations must build a more holistic approach. It should be seen as a tool to mitigate financial, operational and reputational risk while delivering a consistent service delivery process leading to an improved overall employee experience.”
Sharing perspectives on the study findings, Chandrajit Banerjee, Director General, CII said, “With companies undergoing remarkable business transformations such as globalizing, M&A and restructuring, being informed and prepared to deal with emerging human capital risks will be a key determinant of sustenance and success.”
An underlying finding of the study is that corporate leaders today are more likely to realize that human capital can make or break the sustained viability and success of their business, and to make it a priority. Confirming that HCR management will grow in importance, the study finds that three out of four respondents plan to invest additional resources in HCR management over the next five years.
Top human capital risks faced by companies in India
Insufficient leadership bench-strength poses the biggest risk to organizations in India with 74% respondents indicating this significantly impacts business performance and 38% saying this risk has been a concern for their organization in the past.
Retention of critical talent segments was identified by 77% of the respondents as a risk that could have a “major” or “catastrophic” impact on business performance and 31% indicated that they have faced retention issues in the past two years.
Capability gaps with respect to emerging business/technology ranks third with 74% respondents believing skill gaps significantly hurt business performance and 28% saying their company has struggled with this risk. Low workforce productivity ranks fourth, with 64% indicating this could have a big impact on business performance and 28% having faced productivity challenges in their own organization. Inadequate talent attraction programmes (65%) occupies the fifth spot.
Barriers to effective human capital risk management
The study finds that a limited understanding around the issue of HCR, a lack of subject matter specialists and insufficient dialogue between the HR and Risk Management functions are the top barriers to effective HCR management.