Prioritizing HR to succeed in ChinaDomestic Chinese companies are often held back by their lack of HR savvy. By identifying HR challenges, local firms and multinationals can put themselves firmly on the road to success.

Human ResouRces officeRs PRactice

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While the human-resources (HR) function

is almost universally acknowledged as

a critical source of business value, the

situation on the ground in many privately

owned enterprises (POEs) in China

suggests that many companies haven’t

gotten the message. Some examples

include the following:

• at a chinese life-sciences company with global

ambitions, the head of HR is a close relative of the

founder. the appointment reflects the importance

that the owner attaches to HR, and it is consistent with

the traditional cultural practice of putting someone

you trust in charge of highly critical functions.

unfortunately, the owner’s relative has no prior

experience in managing the HR function.

• similarly, a chinese medical-device company hired a

head of HR whom the owner met through his personal

network. although the owner trusts him, the HR head

is not a specialist in the healthcare industry and is

relatively inexperienced. as the company expands

globally through acquisitions in overseas markets,

the organization is now realizing that it does not have

enough of the right people or the HR infrastructure

required to integrate and manage the newly

acquired entities.

• at a large Poe conglomerate, the base compensation

for the top management team is about half that

at comparable multinational corporations (mncs)

operating in the country. although the company is

doing well (earning several billion dollars in revenue),

shortcomings in its HR infrastructure, performance-

management system, and processes for identifying

high-potential executives are making it difficult for the

company to attract people from mncs—and retain

the ones it has managed to recruit.

even at companies where the leader is aware of the

importance of attracting, developing, and retaining

talent, disconnects can occur with HR. at most Poes, the

HR department has often been short of resources and

not given enough authority. for example, at one Poe

an HR leader who had been hired away from an mnc

competitor was astonished to find how little in the way

of HR infrastructure and resources the company was

willing to allocate to the function—contrary to what he

had been promised during the interview process. not

surprisingly, many top HR leaders (and other executives)

who come from mncs struggle when they are confronted

with a Poe’s organization. the kind of infrastructure

they are accustomed to is absent, and though the owner

expects them to build it, they must constantly justify

every expenditure. in such situations an HR leader’s past

credentials and achievements are often discounted.

there is significantly more pressure for these leaders to

prove themselves than there would be in a comparable

mnc role.

in short, many Poes do not take the HR function seriously.

Why not? in part because these companies are young and

have grown extremely quickly, they may not have had

the time (or in some cases, the capacity) to implement

the necessary organizational structures and strategies.

moreover, in many firms HR is regarded as a primarily

administrative function responsible for processing and

distributing paychecks, enrolling employees in benefit

plans, and taking care of other routine transactional

matters. But the biggest obstacle to unlocking the full

business potential of the HR function lies in the deeply

ingrained attitudes and beliefs of top leaders (many of

whom are the owners)—in mind-sets that prevent a full

appreciation of HR’s value and, worse, can justify inaction.

undervaluing the HR function can have unfortunate,

but predictable results. if executives are not aware of

gaps in their organization’s capabilities, they may fail to

establish a culture and reputation conducive to attracting

the brightest talent. this can ultimately affect their later

expansion and success.

the undervaluing of HR continues at a time when Poes

have become an important source of economic growth

and of increasing employment in china, as well as

major contributors to the country’s growing role as a

global trader. indeed, Poes are beginning to gain some

significant advantages in their now decade-long battle

for talent with multinational companies—primarily

because the compensation gap between Poes and mncs

is narrowing. according to ceB (formerly the corporate

executive Board), in 2007 only 9% of highly skilled chinese

professionals preferred to work for a domestic company,

while 41% preferred to work for a Western mnc. By 2010,

the gap had narrowed considerably, with 28% preferring

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domestic companies and 44% preferring mncs.1 in

the ensuing years that momentum has continued.

increasingly, these much-in-demand professionals are

seeing fewer reasons to work for an mnc, with its distant

headquarters, when they could be working at the center

of a domestic company in the second-largest economy in

the world. clearly, mncs have their work cut out for them

(see sidebar, “for mncs, HR looms larger than ever”).

But unless Poes dramatically overhaul their HR functions,

they will be unable to utilize, motivate, and retain

these talented individuals. they will have difficulty

converting their newfound attractiveness as employers

into significant business advantage. and they will

unnecessarily hobble their efforts to compete on the

global stage.

Learning from leadersone place Poes can look for inspiration is the country’s

high-tech industry, where a handful of pioneering

companies paved the way a decade or more ago. in 2006

Heidrick & struggles, in conjunction with the stanford

Project on Regions of innovation and entrepreneurship

(sPRie), conducted an in-depth study of what leaders

of high-tech companies in china were actually doing

to address talent challenges.2 Because chinese tech

companies are where many world-class practices are

first developed, we found numerous examples of Poes

that recognized the value that HR provides and whose

practices are still relevant:

• neusoft, from its beginnings, pursued a strategy

of hiring students and investing intensively in their

capabilities, and today it is the largest china-based

company providing it solutions and services. in

addition, the company conducted in-depth leadership

assessments of its top 500 employees and established

development plans to guide their professional growth.

• at Lenovo, to counteract the tradition of a strong

hierarchy in chinese organizations that often

produces followers instead of leaders, the company’s

mid-level managers were given carefully set

performance targets, but how they met them was left

entirely up to their own judgment.

conrad schmidt, “the battle for china’s talent,” Harvard Business Review,

march 2011, hbr.org.

see Getting Results in China: How China’s Tech Executives Are Molding a

New Generation of Leaders, Heidrick & struggles, in partnership with the

stanford Project on Regions of innovation and entrepreneurship, 2006,

aparc.fsi.stanford.edu.

1

2

• at travel-services website ctrip, senior executives

were the instructors for crucial courses such as sales,

quality, and marketing (which the ceo taught). for

employees in new roles, completing required courses

was necessary for career advancement.

these are just a few of the concrete, practical steps that

these companies took on their journey to becoming

household names. the first step? acknowledge the

attitudes that are holding back your HR function—and

your company—and work consciously to overcome them.

Changing HR means changing your mind-set in our experience, the chief obstacle standing in the way

of HR excellence in many Poes is the mind-set of their

leaders. their unexamined attitudes prevent them from

seeing the importance of HR, and, as a result, they do

little to capture its full value. Yet once these attitudes are

recognized, there are some simple steps for reversing

their destructive effects. Here are five such steps for

overcoming what, in our experience, are the most

frequently encountered attitudes and beliefs that are

preventing many Poes from realizing the full business

value of HR.

acknowledge the “founder trap” and take steps to avoid it

in many cases, company founders—flush with confidence

from their initial success—believe that they can “do it

all.” they resist sweeping organizational changes or new

faces at the leadership table, even as their company

grows rapidly. Yet experience has clearly shown that as a

company grows from a start-up to a mature enterprise,

it needs distinctive kinds of leadership at each stage.

company founders can either invest the time and effort

in becoming skilled in the type of leadership required

at each stage or surround themselves with people

who compensate for their shortcomings. this includes

transformational HR leaders, who can not only provide

the high-level HR competence founders lack but also help

founders develop required leadership skills as needed.3

Karen West, elliott stixrud, and Brian Reger, “assessment: What’s your

leadership style?,” Harvard Business Review, June 25, 2015, hbr.org.

3

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The fundamentalsof an HR leader

HR functionalcompetencies

General leadership skills

Personal integrity• Moral principles• Compassion/empathy

For MNCs, HR looms larger than ever

Just because many chinese Poes are struggling with HR is

no reason for mncs to rest on their laurels. indeed, mncs

in china often struggle with HR too, and we find that

the quality of HR talent can vary widely from company

to company.

the stakes are only getting higher. not only are mncs

facing slower economic growth and tougher competition

from Poes, many report increasing government

support for national companies, mounting government

intervention against mncs, and a growing number of

more sophisticated consumers who are no longer dazzled

by global brands. together, these and other trends are

eroding the long-standing advantages of mncs in china—

advantages that compensated for whatever setbacks

they experienced in the long-running battle for local

chinese talent.

and the battle for talent is where the larger war for

market supremacy in china will be won or lost. indeed,

many talented individuals in china are now questioning

whether Western-based mncs remain the employer

of choice. chinese companies are increasingly offering

competitive compensation packages, attractive career

paths, and the opportunity to work at the center of the

company, not the periphery as in an mnc. in addition,

many more chinese are opting to join Poes for their

agility and culture of rapid decision making. some also

perceive a “glass ceiling” in mncs, where top positions

often go to expats.

these shifts in attitude, coupled with the erosion of

mnc market advantages, have given Poes a golden

opportunity. if they can get HR right, their enhanced

ability to attract, develop, and retain top local talent may,

in the current climate, prove to be the decisive advantage

in their competition with mncs. that is a big “if,” of course,

but it is now a distinct possibility.

to forestall that possibility, mncs must make sure that

their HR functions are second to none. that will require

some hard work, for despite being a part of companies

that typically have exemplary HR operations in their

home countries, the china subsidiaries (as noted earlier)

lag far behind in the function. in mncs, as in Poes, the

function is still evolving. and in mncs, the quality of the

HR function may vary widely among the regions in which

they operate and where organizational development is

rudimentary and talent is scarce.

What can mncs do? any improvement starts, of course,

with hiring the right HR leader. in addition, they should

work to:

• identify the organization’s talent and capability gaps.

◦ Develop a robust succession program and strong

talent pipelines.

• create a culture and value system that puts a

premium on talent.

◦ Get strong buy-in from internal stakeholders,

especially business-line leaders.

◦ Develop strong external partnerships that link

recruiting to employer branding.

◦ Provide rotational programs for high-potential

employees to broaden their leadership skills

and vision.

◦ conduct frequent market-benchmarking surveys

to ensure competitive levels of compensation for

all positions, and share the results globally across

the organization.

◦ continuously train leaders in management skills,

including tolerance and compassion.

creating these conditions and strengthening the

organization will be challenging, as it will require not

only outstanding HR talent but also business leaders

who understand and support the function’s mission.

talent in general is scarce in china. now that competitive

advantage hinges more than ever on the HR function, this

talent, too, will be in more demand than ever.

moreover, these challenges come at a time of

fundamental change for many mncs, as they shift from

being low-cost manufacturing hubs for the world to

becoming higher-value manufacturers and R&D centers

that, in many cases, are attempting expansion in china’s

domestic market. these new business models may

require fresh leadership models as well, placing new

demands on HR and taking the battle for talent to a

higher level of sophistication.

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The fundamentalsof an HR leader

HR functionalcompetencies

General leadership skills

Personal integrity• Moral principles• Compassion/empathy

Get the fundamentals right

though HR is seen as largely transactional in many

Poes, a general complacency about the function often

leaves even these essential aspects underdeveloped.

many companies lack a basic HR infrastructure—people

processes, enabling technology, and an effective means

of communication with employees. companies that fail

to address these shortcomings quickly will continue to

fall further behind the competition. most important, they

will be unable to move beyond the purely transactional to

the transformational—the practices that turn talent into a

company’s most potent competitive weapon.

Getting the fundamentals right requires some work,

including organizational assessment and development.

But HR best practices are widely known and understood,

and Poes can benchmark themselves against exemplary

companies and put those practices in place.

adopt a strategic, transformational view of HR

in our experience, the one thing that characterizes top-

performing companies around the world is that they use

HR to support strategy and help catapult their companies

past competitors—both local and global. once the

fundamentals have been put on a sound footing, leaders

can turn to the value-adding, transformational aspects

of HR: systematic talent and leadership development,

identification of high potentials, retention of top

performers, carefully designed incentives to drive

performance, an engaging culture, and thoughtful

succession planning.

all of these activities must be governed by a talent

strategy that supports that of the company overall. that

means projecting talent needs into the future based on

the company’s strategy and managing existing talent

toward that future. for example, many companies—Poes

and mncs alike—see innovation as a key part of their

business strategy. Whether through the development

of innovative products and services, a new business

model, or creative internal processes, the objective is to

gain more than merely incremental advantages over the

competition. such major advances occur only through

talent—the people who individually and collectively

if mncs are to beat the odds, they will have to work both

inside and outside their organizations simultaneously.

inside, they must rapidly develop their promising HR

talent. outside, they should map and track external HR

talent, and benchmark their internal people against it.

When it is necessary to attract external HR talent, mncs

can do so by offering potential hires the opportunity

to build a comprehensive, strategic HR function—an

opportunity that will improve retention. if mncs, like

Poes, are to win the battle for talent, they will have to first

secure the best candidates for the HR function (figure 1).

Figure 1: several key attributes are essential for an

exceptional HR leader.

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generate superior ideas, fresh perspectives, and new ways

of doing things.

many companies simply hire smart people and hope for

the best. they fail to see that the connection between

talent and innovation can be systematically addressed as

an organizational issue. But forward-looking HR leaders

understand the key role that their function can play in

enabling a strategy of innovation. among other things,

they can understand the leadership implications of an

innovation-focused strategy, transform the executive

team backing an innovation, and identify the elements

of the corporate culture that need changing to support

innovative thinking, appropriate risk taking, and new

behaviors.

treat HR as an investment, not a cost center

the phenomenal growth rate of china’s economy over the

past 35 years, along with the growth of many companies

and of personal wealth, has led to a short-term, bottom-

line mind-set. that mind-set values the tangible—the

immediate returns and the trappings of success, which

have come so effortlessly for so long. as a result, the

intangibles, such as leadership and talent development,

get less attention and little investment. HR is seen as

a cost center, rather than as the means for taking the

company to the top and keeping it there over the long

term. this is particularly important against a backdrop

of economic contraction, when companies’ people

processes and systems will be under both greater scrutiny

and greater strain. While the urge to cut might be strong

in such times, the winners will ultimately be companies

that have invested in transformational HR.

use organizational structure to drive performance, not to monitor employees

all of the familiar organizational structures—functional,

divisional, and matrixed, among others—offer advantages

and disadvantages for a business. and they answer the

question, “Who decides what and when?” unfortunately,

we have found that in many Poes, the reporting

relationships and management of various activities tend

to concentrate decision making at the very top and are

designed to make sure that managers and employees are

doing things exactly as instructed. Part of this is cultural—

stemming from an unwillingness on the part of employees

to question authority and a penchant on the part of

leaders for designing organizations along family or clan

lines. and part of it is inexperience with organizational

design and development intended to prepare executives

for broader roles and greater responsibilities and to

impart greater agility to the business. But deployed

well and managed actively over time, an organizational

structure with a transformational HR leader—one with a

high degree of integrity and empathy, as well as strong

HR skills—can empower employees and produce a deep

bench of highly competent leaders.

this, in turn, leads to more engaged and

innovative employees and, ultimately, stronger

business performance.

***

these steps—escaping the founder trap, creating sound

fundamentals, taking a transformational view of HR,

investing for the long term, and using organizational

structure to improve performance—can help propel even

the most neglected HR operation toward the excellence

that separates the leaders from the laggards. as Poes

adopt such steps and begin to achieve excellence in

HR, mncs will have a tougher time competing against

them. and Poes will find that success begets success:

earning reputations that attract exceptional talent will, in

turn, attract even more talent, enabling these farseeing

companies to outdistance their more shortsighted

competitors. n

About the author

Jonathan Zhu (jzhu@heidrick.com) is a partner in

Heidrick & struggles’ shanghai office and a member of the

Healthcare and Life sciences Practice.

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Human Resources Officers PracticeHeidrick & Struggles’ Human Resources Officers Practice experts understand that

HR leaders face a confluence of trends that will shape the workforce of the future

and change the very nature of work itself, including:

• the accelerating rates of disruptive change

• the rise of emerging markets

• an increasingly borderless, multigenerational,

global, and cross-cultural workforce

• the impact of the independent worker

• a limited supply of top talent

• asymmetrical growth opportunities combined

with significant skills/needs gaps in many regions

• exponentially greater complexity in operations,

technology and big data, and risk and compliance

our HR executive search team works with clients to ensure that HR leaders and their teams are equipped

with the right qualifications to lead and manage in this rapidly changing environment, including the

adaptability, insight, and operating skills to have an impact on business results. similar to any line function,

these roles demand strong business acumen, strategic and market insight, financial savvy, operational

capabilities, and the ability to exploit data and technology.

the HR executives of the future will have the credibility and advisory skills to interface with the board and

to partner with the entire leadership team. they will be tasked with a complex challenge: to build a culture

and value, mitigate risk, and plan for the future state of their organizations—leveraging an integrated talent

management approach and anchored by deep functional and technical knowledge.

through our work, we advise boards, senior management teams, and HR executives themselves on how

to identify and select the best leadership for the function, and we align with our leadership consulting

colleagues in helping to optimally shape the HR organization. We view our work as essential to the success of

today’s increasingly global organizations, providing a true and lasting competitive advantage.

Leader of Heidrick & Struggles’ Human Resources Officers PracticeDaniel Kaplan

Managing Partner

dkaplan@heidrick.com

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Heidrick & struggles is the premier provider of senior-level executive search,

culture shaping, and leadership consulting services. for more than 60 years

we have focused on quality service and built strong relationships with

clients and individuals worldwide. today, Heidrick & struggles’ leadership

experts operate from principal business centers globally.

www.heidrick.com

Copyright © 2016 Heidrick & Struggles International, Inc. All rights reserved. Reproduction without

permission is prohibited. Trademarks and logos are copyrights of their respective owners.

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