The majority of Chief Executive Officers (CEOs) understand the importance of HR.  CEOs expect their HR leaders and the HR function to achieve the basics well, but have little interest in the administrative, transactional, and compliance aspects of HR beyond the fact that they are done.

Research overwhelmingly finds that what CEOs want from HR, and what they care about most, is support in enabling the business strategy and building the people and organisational capability to achieve it.

The technical expertise of the HR leader is a given.  Strategic thinking, commercial understanding, and performance are the differentiators. HR Directors need to be more ‘Director’ and less ‘HR’.

And many CEOs privately admit that they don’t know how to use their HR team as effectively and strategically as they would like to.

Equally, that same group said that having the right data is vital – particularly HR metrics that contribute to commercial goals.

Some of the most important metrics and leading indicators that your HR team should provide are:

Hiring plan

Including targets for numbers, time to hire, cost to hire, agency fees, diversity rates, open positions filled internally, etc.

Exits/attrition

Including regrettable turnover percentage, exits within six months, exits within 24 months, attrition/retention percentage, leading termination reason, leading resignation reason, internal turnover, etc.

Manager effectiveness

Including data by manager for turnover, retention, engagement, performance reviews completed, etc.

Employee engagement

Including trends over time and qualitative feedback, employee net promoter scores, etc.

Absenteeism

Including short-term, long-term, lateness, etc.

Training effectiveness

Including training days/costs, course attendance and completion rates, post-training assessment rates, learner satisfaction and retention rates, and training return on investment.

Cost

Including total cost as a percentage of overall organisational expenditure, cost of the HR function per employee, the ratio of full time equivalent employees to HR staff.

This mix of leading and lagging indicators signals a wide span and range of critical areas that may need attention.  They will allow you to recognise patterns, identify strengths and weaknesses, predict future trends, and take action where required.

This is the real power of HR leading (and lagging) indicators.  They allow organisations, businesses, and HR leaders to proactively tackle problems identified by these signals.  This means they can prevent problems from escalating or even occurring in the first place.  Conversely, ignoring these early warning signs can lead to reduced employee satisfaction, increased turnover, lower productivity, and ultimately, a negative impact on the organisation’s bottom line.

If these data, and associated insights, are not readily available in your organisation then you must ask why.

Most new houses are built by a small number of large developer.  They need somewhere to build, permission to build and then labour and materials to get the job done.  Government is working to make planning permission easier to obtain, so what are the challenges in building?

Materials and supply chain

As we saw in 2020 and 2021, the building materials supply chain is finite and can be slow to respond to increasing demand.  When everybody spent their money on home improvements instead of holidays the price of basic building materials soared, when they were even available.

Skilled tradespeople

Since the 1990s the UK education system has aimed for 50% of young people to go to university.  The emphasis on academic education inevitably took young people out of vocational training and apprenticeships.  Fewer apprentices 20 years ago means there are fewer experienced, skilled tradespeople now.  A high proportion of those who are experienced are now looking towards retirement.  Can we fix it?  Not quickly.  Traditional apprenticeships take two years or more; longer for electricians and plumbers.  Rushing people through will reduce quality, leading to the need for re-work.

Generally, house builders do not employ tradespeople.  They contract with them for each job.  So a shortage of trained people increases competition for those who are available.  If the materials to complete the work are not on site, workers will find other work, which increases the delay when materials are available.

Changes in regulations

Construction must comply with the building regulations.  These have changed in recent years to mitigate climate change – for example, exterior walls now require 150mm of insulation instead of 100mm; fossil fuel burning boilers are banned.  Some changes are straightforward, but others require new skills – a heat pump and a gas boiler have different installation requirements.  This again causes difficulty in finding skilled workers.

Careful planning

These challenges can be met by careful scheduling of deliveries and engaging with the workforce.  Getting this right will avoid delays and keep the project within budget.  Digital tools, such as Building Information Modeling (BIM), can help but there are still factors outside the builder’s control, such as poor weather, that must be allowed for.

Self-determination theory, first posited in 1985, says that autonomy is an important factor in motivation.  When employees have control over their work environment, they can tailor it to their preferences and spend more time being productive rather than dealing with things that are just not quite right.  Some may prefer to start and finish early, while others don’t find the energy to achieve their goals until later in the day.  Some thrive in a neat and tidy environment, while others work best when they can spread their work to suit themselves.

The debate over homeworking versus office-based productivity may have missed the point.  Perhaps productivity is not a function of where you work, but rather about how much control you have over your work environment and schedule. By prioritising autonomy and empowering employees to work in a way that suits their needs, wherever they are, organisations can unlock higher productivity and job satisfaction.

Edward Hollingsworth, a 19th century hosiery manufacturer, equipped his Nottinghamshire factory with mechanised stocking frames.  In November 1811, seeing a threat to their traditional skills and fearing for their livelihoods, a group of textile workers broke into the factory and destroyed several machines, beginning the Luddite movement.  However, although the need for skilled weavers diminished until it almost disappeared, the new mechanised mills brought down the price of textiles, which increased demand until more people were employed to operate automatic looms than had been employed as weavers. Associated industries, such a fabric dying, also expanded.

Automated teller machines (ATMs) began appearing in the USA in the 1960s and 70s with wide anticipation that the number of human bank tellers would fall.  The number of tellers in a branch did fall and those who remained no longer dealt with routine deposits and withdrawals but spent their time on more complex services such as loan consultations, financial planning and customer service.  A branch was now cheaper to run, needing fewer people who could now spend their time gaining customers, so banks opened more branches to compete in new locations and the total number of human tellers increased.

Today, we see companies taking advantage of AI for simple customer service interactions powered by chatbots while escalating more complex questions to a human.  Does this mean that companies are employing fewer customer service staff, or does it mean that the staff it employs are free to respond to more complex enquiries, while the customers that could have got their answer from web site or who ask the simple common questions receive a faster response?

At the Queen Elizabeth University Hospital in Glasgow, a pioneering project is using AI to improve the efficiency of CT scan processing.  The technology examines head CT scans and accurately pinpoints critical areas of concern, creating prioritised reporting that allows prompt diagnosis and treatment of head injuries.  Not only does this improve the patient experience, it also alleviates the pressure on the A&E department.  Will this reduce the number of jobs for specialist radiologists?  That seems unlikely, given your correspondent’s recent experience of being told it would take six weeks for a radiologist to review the images of his scan.

So is AI coming for our jobs?  Mechanisation took the weavers’ jobs but created opportunities for machine operators.  ATMs allowed bank tellers to do something other than count money.  Will AI replace last mile delivery drivers and long-distance lorry drivers?  Will financial analysts be replaced by automated trading and AI financial analysis systems?  Or will AI simply allow us to get more done?

Strategy teams and external advisers will have reviewed: past performance, trading conditions and economic forecasts, then created scenarios for executives to consider. Executives and leaders must face the challenge of maintaining the gains or completing the critical activities that have emerged in the past three years. These extremes create turbulence in the employment pool; some are aiming to benefit while others are searching for stability. Every sector is experiencing recruitment and retention difficulties. Employers must have a clear plan for the organisation beyond the next two or three years if they are to attract the right people.

This scale of disruption is unprecedented in our 50 years of experience as advisors. When chaos ensues, leadership and management competence come to the fore. Military history has shown time and again that training and processes will get you through the difficult scenarios. However, public and private sector organisations achieve economic stability by satisfying customer demand and with market forces being so disrupted, decisions must be owned by the business leaders. Executives require a deep understanding of the business and market; they should be supported, not led, by external experts.

The leadership needs to exude confidence in the decisions it has made. They need the competence to articulate the plan they want to achieve and to be open about the challenges ahead. Some companies have a very exciting future, but others must tread a very difficult road. Regardless of your business’s outlook, it must share the leadership’s common goal and vision.

In this volatile market, whether you are reaching new heights, or struggling with survival you must constantly consider:

• What are the top three goals that everyone in the business understands?
• Do we need all the resources and are they used effectively?
• Are the working arrangements today appropriate for the business success tomorrow?
• Are change activities achievable and do they support the previous three points?

Whatever you do in 2023, it should be another building block on the superb success you have achieved or a new cornerstone for the future. There is no value in tinkering while the boat is going down and it is risky to ignore an aggressive attack on a product or service. Both ends of the spectrum are difficult to manoeuvre from, but if you are in the middle, which way do you want to go?

Any conversation with our clients will confirm this view but the big challenge facing employers is how much can, or should, we change our long-standing norms, practices, and policies to attract and retain people and are we sure that doing so will not damage productivity?

A major client recently explained how increased working from home and flexi-time arrangements for some indirect roles, such as quantity surveying, buying and engineering, was affecting customer service as well as making it difficult to achieve scheduled milestones.

We know that homeworking is here to stay — experience during lockdown has driven up demand. Surveys routinely report that:

• Four out of five workers expect to work at least one day a week from home. Around forty-five per cent of workers are either fully or partially working from home.
• Up to a quarter of employers have adopted homeworking as a permanent model. This obviously varies enormously by sector with, for example over half of businesses in the information and communication industry stating that they were using, or intended to use, increased homeworking as part of a permanent business model, which was true for only 3% of businesses in the accommodation and food services industry and 5% of businesses in the construction industry, which are less adaptable to homeworking

Introducing these working arrangements without fully examining the trade-offs and establishing new standards around basics such as e-mail response time and out of hours responses may make it more difficult to manage hybrid working successfully.

The key problem is that many roles still have no proper productivity-based metrics and instead rely on qualitative methods. Whilst these can provide important insights and offer some useful benefits for estimating productivity, they are not fit for purpose for managing it. Managing productivity requires objective information from accounting data or from systems that monitor the activities and hours worked by employees or, at the very least, manager-led assessments rather than employee-led self-assessment about whether they believe they are more, or less productive in a given environment.

We would argue that the function that tends to lead the design of the new norms and policies (HR) must also start to take accountability for the need for better data from the organisation metrics that may suffer as a result of new policies – even though it may not, as a function, be directly ‘on the hook’ for any fall in productivity.

HR must not be oblivious to the issues even though its primary concern is finding people of the right calibre whereas dealing with the productivity fall-out of new ‘Ts and Cs’ usually falls elsewhere.

The answer, of course, is to establish policies that balance the needs of the business to achieve results for its board, shareholders and customers, with the need to make it sufficiently attractive in the employment market.

Businesses must avoid a recruitment and HR model that does not sufficiently support the needs of the business and have a detailed understanding of the trade-offs. In short, it is vital that a business considers how, by increasing employee flexibility, it may be restricting its own. It should take a considered and data-led approach to balancing priorities.

One solution is to develop a clearly understood framework for productivity decision-making, which requires a detailed study of the current state of productivity, the pain points, and their causes. This exercise is of inherent value to the business in any event and may lead to other initiatives and changes.

The business should also clarify the position of its core norms (the policy on hours, dress, location, remote work, start and finish times, availability/status during the working day, out of hours contact, overtime, response times to e-mails, travel et cetera) and their link to productivity and performance. We must identify the relative value of working practices (this could be broadened to include attributes and attitudes) and how they affect productivity and performance.

HR-led policies that are good for recruitment but damaging to operations may still be the correct option if the trade-off creates a net benefit. It is also correct that the business may wish to set a series of non-negotiable norms for some roles, where transgressing them would be highly damaging. HR colleagues need to be made aware of these red lines to help guide their thoughts and processes.

As a business moves with the times it must use a joined-up approach to finding, retaining, managing, and developing talent. The important point is to ensure there is a framework that prompts and shapes these discussions. Decision-making without such a tool for assessing the net position may lead to a one-sided and sub-optimal conversation. HR must be at the forefront of these discussions not following behind the business.

Ludwig Erhard became the first Minister of Economy of the newly established Federal Republic of Germany in 1949. He faced an almost impossible situation.  Industrial production was around a third of what it had been in 1938, there were huge shortages of food and other essential consumer goods, the old Reichsmark was losing its value rapidly, nearly a quarter of German housing had been destroyed during the war and there was a massive shortfall of labour because a large number of potential workers had never returned from the front.

Erhard did many difficult things to tackle the problems he faced – currency devaluation, removing price controls and enabling substantial immigration, amongst them – and he undoubtedly played a huge part in the post-war German ‘economic miracle’.  But the fundamental tenet that underpinned his entire approach was that sustainable prosperity and economic growth can only come from increases in productivity.

Lax fiscal policy and unbounded monetary stimulus do not create long-term, sustainable economic growth – quite the opposite. Low taxes, low inflation, monetary rigour and the uninterrupted operation of the free market are essential in order to achieve success.  But prosperity is ultimately, and only ever, a result of increasing productivity.

What has all this got to do with industrial relations in the UK?  Arguably one of the greatest, although perhaps at least partly unintended, consequences of Erhard’s approach, is that German collective bargaining (and individual ‘bargaining’) is underpinned by, and permeated with, a recognition that productivity is king.

Pay negotiations, discussions, awards – call them what you will – are heavily flavoured by a so-called ‘productivity alliance’ where trade-offs between affordable (ideally self-funding) pay increases, productivity levels and job creation (or reduction) are recognised.  Commitment to the firm’s central goals, partly as a result of a greater involvement of workers in strategic decision-making, is usually a given, as is acceptance of the need for profit – as a driver of capital investment, tax revenues and long term job security.

Employee engagement and communication – together with good old-fashioned collaboration, joint working and partnership initiatives – via collective representatives and directly with employees is more systematic, sophisticated and embedded in management process.  This yields long term dividends.

What a far cry from Britain where many, if not all, of the current pay disputes are characterised by ‘re-distributive’ thinking – shareholders and managers are badged as ‘greedy’, profits are ‘dirty’ unless and until a greater share of them is returned to the pockets of the workers in the form of ever-increasing pay demands.  Any attempts to link productivity or other improvements to pay negotiations are met with cries of ‘foul play’ or claims that managers are seeking to undermine pay negotiations.  And the notion that profits fund returns on past investment and provide long term job protection through future investment is barely on the radar.

Too often there is no long-term strategy or plan for employee and/or trade union engagement and to communicate them.  Initiatives are reactive, event or incident driven and there is still a reluctance to work with collective representatives to build their commitment to, and alignment with, organisation objectives.

If you’re looking for an antidote to this, then at Collinson Grant we help clients to tackle these problems and their root causes by:

• reviewing current industrial relations strategies and plans or developing them from scratch. This is particularly topical at the moment as union activity and industrial relations disputes are on the increase
• helping clients to manage trade union relationships where there is a collective agreement in place. This could be ‘behind the scenes’ support or working alongside client staff members with the union representatives or dealing directly and solely with the unions
• supporting all the legal aspects of working with and handling trade unions, disputes, recognition/de-recognition etc as well as training line managers in any of these matters.

The Construction Industry Training Board’s (CITB’s) latest Construction Skills Network (CSN) report predicts that the UK construction industry will require an additional 226,000 workers by 2026.

The exodus of workers during Covid, and the record high numbers of economically inactive (1.26 million vacancies in the UK) has led to an understandable perception that the employment market is now employee-led. Employers compete for talent by offering inducements, both financial and related to working conditions, such as hours, and location of work.

Any conversation with one of our operational clients will confirm this view, and the challenge facing the construction sector (and others) is:
How much can or should we change long-standing norms, practices, and policies to attract and retain people and are we sure that doing so will not damage productivity?

A major client recently explained how increased working from home and flexi-time arrangements for some indirect roles, such as quantity surveying (QS), buying and engineering, was affecting customer service as well as making it difficult to achieve schedule milestones. Granting a level of flexibility without fully examining the trade-offs and establishing new standards around basics such as e-mail response time and out of hours responses may make it more difficult to plan the need for different skill sets.

Two things exacerbate the problem. Firstly, the function that tends to lead the design of the new norms and policies (HR) is not directly accountable for the metrics that may suffer as a result. This is not to say that HR is oblivious to the issues, but its primary concern is finding people of the right calibre, whereas dealing with the productivity related fall-out of new ‘Ts and Cs’ usually falls elsewhere. Secondly, many roles still have no proper productivity-based metrics, instead relying on age-old industry norms such as man hours per tonne. These can be useful for estimating, but not for managing productivity.

The answer is to establish policies that balance the needs of the business to achieve results for its board, shareholders, and customers, with making it sufficiently attractive in the employment market. Businesses must avoid a recruitment and HR model that does not have sufficient regard to, and involvement with, operations and a detailed understanding of the trade-offs. In short, it is vital that a business considers how, by increasing employee flexibility, it may be restricting its own. It should take a considered and data-led approach to balancing priorities.

• One solution is to develop a clearly understood framework for productivity decision-making. This means undertaking a detailed study of the current state of productivity, the pain points, and their causes. This exercise is of inherent value to the business in any event and may lead to other initiatives and changes.
• Secondly, clarify the position of the core norms (the policy on hours, dress, location, remote work, start and finish times, out of hours contact, overtime, response times to e-mails, travel et cetera) and their link to productivity and performance. We must identify the relative value of working practices (this could be broadened to include attributes and attitudes) and how they affect productivity and performance.

HR-led policies that are good for recruitment but damaging operationally may still be the correct option if the trade-off creates a net benefit. It is also correct that operations may wish to set a series of non-negotiable norms for some roles, where transgressing them would be highly damaging. HR colleagues need to be made aware of these red lines to help guide their thoughts and processes.

As the industry moves with the times it must do so using a joined-up approach to finding, retaining, managing, and developing talent. The important point is to ensure there is a framework that prompts and shapes these discussions. Decision-making without such a tool for assessing the net position may lead to a one-sided and sub-optimal conversation.

The problem of poor quality is especially prevalent in new house building. The National House Building Council and Home Builders Federation annual survey published in 2021 indicates that new-build housing defects have become almost universal, with 94% of respondents reporting snags or defects. Within this, 41% of respondents reported more than 10 issues to their builder and 30% replied that the number of problems they experienced was in line with their expectations, so there was an expectation of quality issues by homeowners. Most new homeowners are satisfied with their purchase overall, but this should not lead to complacency.

If 94% of new car owners had a similar number of quality problems, it’s hard to imagine any automotive manufacturer staying in business for long. Why should this be the status quo in housebuilding construction?

Root cause analysis suggests that design (especially non-standard design), planning, and time pressures are contributing factors, but there is also a poor culture in relation to quality. Lack of accountability for supply chains is also a key issue.

Various initiatives have been launched to raise quality in the sector. The Get It Right Initiative is a group of UK construction industry experts, organisations and businesses actively improving productivity and quality in construction. This initiative receives support from the Construction Industry Training Board, which funded three projects investigating where improvements could be made during the construction process. Each project led to the development of specialist training modules, which were piloted with supply chains before being made available for the whole sector. This also raises another interesting question – does the lack of national trade companies affect quality? For example, the geographically fragmented nature of plumbing suppliers or roofers to housebuilders.

The UK government has been actively involved and announced in 2018 that it intends to create a New Homes Ombudsman Service to ‘champion homebuyers, protect their interests and hold developers to account’. An interim New Homes Quality Board (NHQB) was set up to oversee the development of a new Code of Practice for the housebuilding industry. Following consultation, a new Code was published in December 2021. Its aim is to ‘drive up the quality of new build homes and strengthen protections for customers’. There is also an intention to create a new Housing Complaints Resolution Service as a single point of access.

How can poor quality be redressed? Technology can help refine programme and design issues, and digitised information and workflows provides better management visibility, but is continuous improvement taken seriously? Is there a culture of openness and continuous improvement in house building? Construction companies should understand the true cost of defects on bottom line profit. A zero-defect approach would improve margins over the long term. There is thus not just a financial incentive, but the opportunity to increase customer satisfaction. The counter argument is that there is a tipping point where the cost of monitoring and striving for zero defects outweighs the benefit. Some in construction believe they are operating at this point already and therefore it is not worth the extra investment in monitoring, as it would cost more than rectifying the mistakes down the line. But as Harold F Dodge observed, ‘quality cannot be inspected into a product or service; it must be built into it’.

The key question is how to establish a culture of ‘right first time’ and operational excellence. Whilst Lean is often cited as driving quality and efficiency in manufacturing, its core principles are just as relevant for construction. Construction is not manufacturing in the sense of having an engineered product in a highly controlled environment. Some quality issues are not as easy to eliminate when affected by the physical environment and site as they would be in a factory setting. But construction does provide elements that can be used to improve processes and quality, whilst removing waste.

In the Automotive and medical device industries, supply chains are rigorously controlled and defects tracked to ensure components are of the highest standard, achieving near perfect quality. Six Sigma quality translates to a defect rate of no more than 3.4 parts per million and is the de facto quality standard in many of the best manufacturing plants. How are suppliers and contractors in construction managed and incentivised to achieve the highest quality product or service? Are suppliers and contractors transparently rated according to their performance? It should be possible to attribute poor quality not just to a process but also a specific supplier, otherwise a repetitive loop of poor quality will occur. One modular housebuilder gives an example of seeing tolerances in sanitary ware of plus or minus 5mm – it therefore waits to receive the part and then adapts the surrounding fitments accordingly, rather than the other way around.

Problems first need to be captured, then analysed for root causes before appropriate countermeasures are put in place. With incremental margin and customer satisfaction at stake, who can afford not to take this seriously?

Labour shortages, both on site and at a professional level, are a significant cause for concern, often impacting programmes and supressing margins, particularly where Brexit and the pandemic have made it more difficult to rely on established labour sources. Solutions that can provide greater predictability and mitigate risk are increasingly attractive within the sector.

Perhaps the biggest, and longest term, challenge is the requirement to move to net zero carbon. The Greenhouse Gas (GHG) protocol, which is the most widely used carbon accounting standard, divides emissions into three scopes:

1 Emissions from the business’s direct activity.
2 The parts of the supply chain that can be affected through contracts or choice of supplier.
3 The remaining parts of the supply chain.

Most companies have worked on Scopes 1 and 2, as these are the most straightforward. Tackling Scope 3 emissions provides an unparalleled opportunity to fundamentally change the construction process. A vertically integrated supply chain would give greater visibility of Scope 3 GHG emissions with the consequent opportunity to measure and control them.

In a vertically integrated construction business, core materials or components, which were traditionally supplied by a third party, are manufactured by the construction company itself. Having control over the manufacture of critical items should lead to an increase in quality and responsiveness as the voice of the customer can be ever present and better understood. As a result, rework should reduce, costs should go down and, ultimately, profit should go up.

Larger construction businesses that have strong purchasing power may be less incentivised to bring part of the supply chain in-house. The high upfront costs could outweigh the benefits if only a marginal reduction in unit cost can be achieved. As demand for construction materials has been outstripping supply of late, material manufacturers are commanding higher prices making vertical integration currently more attractive. Developing internal labour forces, rather than relying on often difficult to secure outside subcontractors should improve responsiveness. Developing internal capability in staff will also allow skilled labour to perform higher value-added activities with the supplement of semi-skilled staff.

A vertically integrated supply chain would afford the opportunity to closely monitor costs and performance. And close monitoring can provide analysis to improve the efficiency of integrated components. Could this drive for reducing cost move the business towards more standard manufacturing in components, which will in turn increase the appeal of modular buildings? After all, modular components can still be designed to provide flexibility without the high cost of custom building.

Persimmon, the UK’s biggest housebuilder, has chosen to vertically integrate some parts of its supply chain, including bricks, tiles and timber frames. Combined with strong cost management the business has achieved industry-leading margins of around 27%. Its timber frame manufacturer, Space4, has cut the site time to build the structure of a new home by almost two thirds as well as reducing the reliance on some traditional trades, such as bricklayers.

Vertical integration offers the opportunity to mitigate some of the supply chain challenges the industry is facing, whilst improving an organisation’s ability to track and reduce its emissions as part of its drive to Net Zero Carbon.

Collinson Grant routinely supports national and regional housebuilders. We have been doing that for more than 50 years and our work has included supplier assessment programmes, strategic sourcing initiatives and value engineering studies as part of cost reviews. We strive to use the insights and experiences we have gained from the sector and strong relationships to continue to achieve