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Brexit: A Black Swan event

On June 23, 2016, 51.9% of those who voted in a referendum to decide the UK’s membership of the Europe Union, supported leaving it.
Brexit: A Black Swan event

Brexit: A Black Swan event




Arnab Banerjee

Principal, Thought Leadership & Strategy




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On June 23, 2016, 51.9% of those who voted in a referendum to decide the UK’s membership of the Europe Union, supported leaving it.

Although ‘Euro-skepticism’ has long been an established strand of British political life, the outcome of the referendum was a shock to the system. It was - to use a phrase coined by Professor Nassim Nicholas Taleb, Distinguished Professor of Risk Engineering at New York University - ‘a black swan event’; an event that comes as a shock, has a major impact, and is rationalized (often wrongly) after the fact with the benefit of hindsight.

Loosening the bonds of trade built up over a period of nearly three decades with one’s largest and nearest trading partner uncertain of what future arrangements will be, is proving to be an unsettling experience for both the UK and Europe.

Brexit: The cause (one of so many)

Although the outcome of the referendum was a result of so many complex strands of socio-political and economic events intricately spun deliberately and through happenstance over so many years, one cause being discussed widely, and of some significance to the HR function, is the lack of social mobility in left behind Britain.

Even as the British economy, leading up to the referendum, was performing well with a record percentage of the working-age population in work, it was doing less well in terms of the quality of those jobs, with a higher proportion of people in low-paid employment, than other comparable nations and, overall, a higher incidence of low skills. In fact, the UK’s low-pay problem is partly a skills problem with just 18% of the working population having a post-secondary non-degree qualification, compared to 59% in Germany. In contrast to other developed countries, Britain has no comprehensive vocational education and training program on offer for low-paid workers, with low skills. There are too few progression opportunities for workers in the bottom half of the labour market. This is a vicious cycle of low skills leading to low pay, in low-quality jobs, with only one in ten low-paid workers in 2001 having managed to escape low pay by 2011. There is with a widespread perception that there is limited opportunity to improve career prospects and realise ambitions, particularly for people with low or redundant skills – in short, a brewing Human Resource crisis.

On June 23, 2016, 51.9% of those who voted in a referendum to decide the UK’s membership of the Europe Union, supported leaving it.

Although ‘Euro-skepticism’ has long been an established strand of British political life, the outcome of the referendum was a shock to the system. It was - to use a phrase coined by Professor Nassim Nicholas Taleb, Distinguished Professor of Risk Engineering at New York University - ‘a black swan event’; an event that comes as a shock, has a major impact, and is rationalized (often wrongly) after the fact with the benefit of hindsight.

Loosening the bonds of trade built up over a period of nearly three decades with one’s largest and nearest trading partner uncertain of what future arrangements will be, is proving to be an unsettling experience for both the UK and Europe.

Brexit: The cause (one of so many)

Although the outcome of the referendum was a result of so many complex strands of socio-political and economic events intricately spun deliberately and through happenstance over so many years, one cause being discussed widely, and of some significance to the HR function, is the lack of social mobility in left behind Britain.

Even as the British economy, leading up to the referendum, was performing well with a record percentage of the working-age population in work, it was doing less well in terms of the quality of those jobs, with a higher proportion of people in low-paid employment, than other comparable nations and, overall, a higher incidence of low skills. In fact, the UK’s low-pay problem is partly a skills problem with just 18% of the working population having a post-secondary non-degree qualification, compared to 59% in Germany. In contrast to other developed countries, Britain has no comprehensive vocational education and training program on offer for low-paid workers, with low skills. There are too few progression opportunities for workers in the bottom half of the labour market. This is a vicious cycle of low skills leading to low pay, in low-quality jobs, with only one in ten low-paid workers in 2001 having managed to escape low pay by 2011. There is with a widespread perception that there is limited opportunity to improve career prospects and realise ambitions, particularly for people with low or redundant skills – in short, a brewing Human Resource crisis.

Brexit and the HR function

With the uncertainty that Brexit presents along with the consequences – declining business investment in the last few quarters and resulting budgetary pressures - HR must do things differently to turn Brexit into an opportunity and reinvent the function; making it fit for the brave new world we are about to inhabit.

The HR function: A call to action

  • Mutate the organisational DNA to embed resilience, change readiness and contingency planning to combat the weapons of mass disruption (WMD) unleashed by the fourth industrial revolution.

  • Transform organisations into skills factories and learning organisations: Disruptions present opportunities but ‘reinvention’ is the key. As organisations reinvent themselves with each wave of disruption, renewable skills, and continuous organisational learning culture becomes front and centre of an organisation’s path to sustainable growth.

  • Be the change you want to see: Reskill and build up an HR function fit for the future with data scientists, behavioral economists, HR IT specialists, supplier relationship managers, and business partners, working together and learning from each other.

  • Do more with less: Embrace technology to overcome resource constraint. Enable managers and employees to do more, leaving the HR function to focus on transformation and reskilling the organisation

  • Nudge: Influence positive behaviors (e.g., pension auto-enrolment) and be influenced by broader socio, economic and political trends (contextual recruitment, 24/7 mobile applications, artificial intelligence, diversity, both demographic and cognitive).

  • Proactively debunk obsolescence: Processes, procedures, hierarchies, job- structuring and reward practices developed on the rising tide of the first industrial revolution, will toss around aimlessly in the choppy waters of the fourth industrial revolution. Replace your legacy HR system (steeped in the coded obsolesce of yesteryears) with employee experience platforms.

  • Be the employee champion: A repeated theme in the Brexit divide was the reaction against the elite and experts. Like it or not, HR is perceived as the ultimate ‘establishment’ figure within the corporate set up, and it adversely impacts the function’s credibility and effectiveness. Although HR has focused a lot on the three-other quadrants of the Ulrich model, it hasn’t been the best ‘Employee Champion’ to change this perception. around, HR needs to robustly represent all its constituencies and not just in the executive. HR can do so by championing conversations instead of appraisals, diversity instead of homogeneity and flexibility instead of desk-bound routines. This is particularly important given the conversation around greater employee representation in boards, the attrition of the trade union movement and the increasing instances of corporate excesses.

  • Partner with the business for a new social contract: According to the State of the Nation 2016: Social Mobility in Great Britain, ‘the time has come to break the vicious cycle of low skills, leading to low pay, in low-quality jobs, through a more active labour market policy on the part of both government and employers. What this calls for is a new concordant – a new deal – between government and businesses to define businesses’ social obligations, in return for the help they will get from welfare, training and education policy’. It is in the HR function’s own interest to drive this agenda.

 

Brexit and the HR function

With the uncertainty that Brexit presents along with the consequences – declining business investment in the last few quarters and resulting budgetary pressures - HR must do things differently to turn Brexit into an opportunity and reinvent the function; making it fit for the brave new world we are about to inhabit.

The HR function: A call to action

  • Mutate the organisational DNA to embed resilience, change readiness and contingency planning to combat the weapons of mass disruption (WMD) unleashed by the fourth industrial revolution.

  • Transform organisations into skills factories and learning organisations: Disruptions present opportunities but ‘reinvention’ is the key. As organisations reinvent themselves with each wave of disruption, renewable skills, and continuous organisational learning culture becomes front and centre of an organisation’s path to sustainable growth.

  • Be the change you want to see: Reskill and build up an HR function fit for the future with data scientists, behavioral economists, HR IT specialists, supplier relationship managers, and business partners, working together and learning from each other.

  • Do more with less: Embrace technology to overcome resource constraint. Enable managers and employees to do more, leaving the HR function to focus on transformation and reskilling the organisation

  • Nudge: Influence positive behaviors (e.g., pension auto-enrolment) and be influenced by broader socio, economic and political trends (contextual recruitment, 24/7 mobile applications, artificial intelligence, diversity, both demographic and cognitive).

  • Proactively debunk obsolescence: Processes, procedures, hierarchies, job- structuring and reward practices developed on the rising tide of the first industrial revolution, will toss around aimlessly in the choppy waters of the fourth industrial revolution. Replace your legacy HR system (steeped in the coded obsolesce of yesteryears) with employee experience platforms.

  • Be the employee champion: A repeated theme in the Brexit divide was the reaction against the elite and experts. Like it or not, HR is perceived as the ultimate ‘establishment’ figure within the corporate set up, and it adversely impacts the function’s credibility and effectiveness. Although HR has focused a lot on the three-other quadrants of the Ulrich model, it hasn’t been the best ‘Employee Champion’ to change this perception. around, HR needs to robustly represent all its constituencies and not just in the executive. HR can do so by championing conversations instead of appraisals, diversity instead of homogeneity and flexibility instead of desk-bound routines. This is particularly important given the conversation around greater employee representation in boards, the attrition of the trade union movement and the increasing instances of corporate excesses.

  • Partner with the business for a new social contract: According to the State of the Nation 2016: Social Mobility in Great Britain, ‘the time has come to break the vicious cycle of low skills, leading to low pay, in low-quality jobs, through a more active labour market policy on the part of both government and employers. What this calls for is a new concordant – a new deal – between government and businesses to define businesses’ social obligations, in return for the help they will get from welfare, training and education policy’. It is in the HR function’s own interest to drive this agenda.

 

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