HR Optimization: From Personnel Administration to Human and Organizational Development

HR Optimization From Personnel Administration to Human and Organizational Capital Development

Rick Bellingham, Ed.D. with

Russell J. Campanello, Contributing Editor HRD Press, Inc. Amherst, Massachusetts

Copyright © 2004, HRD Press All rights reserved. It is a violation of the law to reproduce, store in a retrieval system or transmit, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, any part of this publication without the prior written permission of HRD Press, Inc.

Published by HRD Press, Inc. 22 Amherst Road Amherst, Massachusetts 01002 1-800-822-2801 (U.S. and Canada) 1-413-253-3488 1-413-253-3490 (fax) http://www.hrdpress.com ISBN 0-87425-762-X

Typeset by Pracharak Technologies (P) Ltd, Madras, India Cover design by Eileen Klockars Editorial services by Suzanne Bay

Other books by Rick Bellingham: Ethical Leadership, Second Edition The Manager’s Pocket Guide to Spiritual Leadership The Manager’s Pocket Guide to Corporate Culture Change The Manager’s Pocket Guide to Virtual Teams The Complete Guide to Wellness

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Contents

Dedication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii Section I Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section II Core Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2. Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3. Human Capital Management System (HCMS) . . . . . . . . . . . . . . 29 4. Learning and Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5. Staffing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 6. Leadership Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7. Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 8. Process Excellence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

HR OPTIMIZATION Section III Account Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 9. Business Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10. Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 11. Change Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 12. Performance Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 13. Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 14. Measuring Human and Organizational Capital . . . . . . . . . . . 139 Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Appendix A: Customer Satisfaction Survey . . . . . . . . . . . . . . . 149 Appendix B: Critical Consulting Skills (Positioning, Contracting, Productive Dialogue) . . . . . . . . . . . . . . . . . . . . . 157 About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

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Dedication

We would like to dedicate this book to our children, Emily, Nina, and Rebecca. It is for them that we have the passion to create healthy, innovative, and productive work environments.

Acknowledgments

First and foremost, we want to acknowledge Robert Carkhuff, Ph.D., whose perspectives, constructs, and technologies made this book possible. Dr. Carkhuff is the originator of the terms Human and Organizational Capital Development, which he service marked in the 1980s. We would also like to acknowledge people who contributed significantly to the content in this book: April Hendrick, Bill O’Brien, Doug Nufer, Ed Raine, Evelyn Flaherty, Greg Friedman, James Fuller, Jen Kahler, JoAnn Nikka, Laura Moorehead, Lisa Wales, Maria Van Parys, Maritzie Rudden, Matt Cohen, Michael Serino, Michele Giametti, Neal Bruce, Nicol Pitchon, Theresa Daniels. We could not have written this book without their input and feedback. Finally, we want to express our gratitude to our clients who have helped shape our ideas. We have worked with over 200 companies over the past 25 years, and it is our learning in those organizations that provided the material for this book.

Foreword

This book represents a blueprint for human resource transformation. It not only contains action steps and tasks, but also provides the vision for the future of human resources. It is obvious in this book that Bellingham and Campanello have not only lived in the organizational trenches for many years, but also have done their research. It is scholarly, pragmatic, and easily accessible. Bellingham and Campanello possess an incredible track record for innovation and results. Implementing the recommendations in this book should result in a great company in which great people have great jobs. It explains how to align the business and people strategies to achieve profitable growth. It successfully outlines the levels that exist between a company’s present state and the end game. Thus, one is never too far away from an orientation point. The beauty of this book is that it stimulates thought and provides a process for discussion. Each chapter is written to engage readers in a thought process that can be applied to their unique situation. The book encourages readers to assess their current situation, think about organizational readiness for change, and then develop action strategies to elevate the function. This book succinctly outlines critical success factors and invites readers to add their own success factors and their reasons to change. Some of the most compelling ideas of each chapter are contained in the Lessons Learned section. The authors derive these lessons from over 40 years of work with more than 200 companies. As such, they constitute a rich source of guidelines for successful transformation. Perhaps the most unique contribution this book makes is to organize all 14 human resource functions into their respective components, functions, processes, conditions, and standards. Based on the work of Dr. Robert Carkhuff, no other book has taken such a systematic and deductive approach to

HR OPTIMIZATION HR optimization. Again, the experience of the authors comes through in the conclusions of each chapter. Their multidimensional thinking provides frameworks and models that are invaluable for guiding transformation efforts. As a business leader, I am continually implored to take into account the human and organizational factors that account for sustainable growth. This book shows how to do just that. Barry Cohen, Ph.D. Executive Vice President PTC

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Preface

We believe that many contemporary HR organizations have unique and substantive capabilities—it is our responsibility as an HR community to share our thinking and our models with the wider HR community in the hopes that more companies will invest significant resources in people and culture. This book is not meant to be a cure-all for all HR departments within all companies. Each company and each HR department has unique needs that require thoughtful tailoring. We hope that this book will be a stimulus to help you think through your particular challenges and distinguish yourself as an HR professional independent of organizational support for HR. As such, this book is incomplete; it will be completed by your participation. In each chapter there will be opportunities for you to assess the current level of functioning of your organization, to identify reasons for you to change, to reflect upon the critical success factors in your organization, and to summarize the lessons you have learned in your efforts to implement initiatives in each function. Your organization may only want or demand personnel administration from HR. This book provides guidelines and strategies for optimizing that role. On the other hand, many organizations are demanding more from HR. In a service economy, compliance and reporting are necessary but insufficient requirements for HR. Many businesses are asking HR to add value, to act as strategic partners, and to develop individual and organizational capabilities. Whatever your organizational reality is, this book will help you and your colleagues grow as HR professionals. We would like you to see this book as an invitation to change because it represents the tone with which we would like to see the book received. It imposes neither participation nor use. We see the writing of this book as a dynamic process that will encourage you to journal your experience in transformation. We

HR OPTIMIZATION believe that every one of you will have a different perspective on and experience with the changes you are making. The book is divided into three sections: Introduction, Core Solutions, and Account Management. The Introduction describes the purpose of transformation: for organizations to evolve from good companies (or bad companies, if that is the case) to great companies; and for people to be able to describe their jobs as a great experience. Sections II and III discuss how HR can contribute to the creation of great jobs in great companies. The 14 chapters in this book each discuss one HR function—each chapter has seven parts:

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1. 2. 3. 4. 5. 6. 7.

Introduction Scale Why Change Critical Success Factors Reality Lessons Learned Conclusions

The Introduction describes the function and discusses why the function is an essential element in a great job. The Scale enables us to assess where we are and where we want to be in the function. Why Change addresses the reasons we need to look at things differently and to elevate our thinking. It should be noted that examples in this section represent a composite of over 200 companies. Critical Success Factors summarizes our strategy for change and incorporates theoretical constructs that support the change. The Reality is a place for all of us to describe our journey along the way—it’s a place for sharing the human-interest stories that will bring this book alive and make it real for the reader. It’s also the place to describe the organizational realities and context in which the implementation will take place. Lessons Learned encourages us to identify potential pitfalls and to capture and share our insights about transformation and the evolution of people and functions. Conclusions organizes the key points from the chapter into components, functions, processes, conditions, and standards. We used this organizing construct so that by the end of the book you will not only have a path for transforming your function, but also a framework for ongoing analysis and development. As you will see, everyone has an opportunity to contribute to this book. You may have a strong feeling about why change is required. Write it down. You may have an interesting story to tell that helps the reader understand the barriers and

PREFACE obstacles to change. Share it. Your experience may have led to a real epiphany for the Lessons Learned section. Pass it along. In fact, we encourage you to write your own story. This book simply provides examples and perspectives we have acquired along our own journey. To make this book really work for you, you’ll need to personalize each section to your own situation. You may have different reasons for change than we describe here. Your critical success factors may be different from what we have found to be successful. This book is a road map, not a recipe. Create your own stew.

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Section I Introduction

Introduction

How would you rate your job? Great? Good? OK? Bad? Depressing? What measures did you use to arrive at your rating? In the United States, a common measure of a great job is one that pays a lot of money. This book asks, “At what price?” Clearly, there are quantitative measures of success that need to be taken into account, but what about the qualitative side? One of our clients was a man who had just sold his company for $30 million. As it turns out, we had helped him structure the company in a way that made the sale possible. The terms of the sale included a clause for him to continue as CEO of this company for two years. After the deal closed, we asked him what success looked like for him at the end of those two years. When he started spouting quantitative measures, we interrupted him and said, “You’ve already won that game beyond your wildest dreams, what about the personal measures of success, like being able to spend more time with your grandchildren?” He was visibly startled, but to his credit, responded, “You’re right. I do need to change my measures of success.” Unfortunately, few of us are able to achieve the quantitative level of success this client attained. This book suggests a re-framing of our measures of success and encourages both individuals and organizations to take more responsibility for the qualitative side of the equation. Most people spend a large portion of their lives working. It is not uncommon for a person to work 50 hours per week for 40 years or more. This equates to 100,000 hours of work in a typical lifetime. This book explores the impact of that huge investment of time on the quality of our lives. Sadly, in many cases, the most significant investment of our time has a negative return. In our work as HR professionals, it is important for us to remember that we can have a significant impact on the quality of life for our colleagues in our

HR OPTIMIZATION respective organizational communities. As Dave Ulrich, a leading HR strategist, would say, our work is more than becoming administrative experts, we need to be employee champions, change agents, and strategic partners. In doing so, however, we need to keep in mind the desired outcomes of all our efforts: to improve the quality of life of our colleagues and to add measures of success that give people real meaning. As Jim Collins, a noted author and consultant, would say, our organizational goal is to transform our organizations from Good to Great. Our goal at the human level is to enable all employees in our company to respond to the question “How would you rate your job?” with a resounding “Great!” It may be helpful to start this journey with an assessment of how you would rate your job. Simply complete the following survey to determine if your work experience is for better or for worse.

Job Satisfaction Survey

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1. I look forward to going to work on Monday morning. 2. I feel positive and up most of the time I am working. 3. I have energy at the end of each work day to attend to the people I care about. 4. I have energy at the end of each work day to engage in personal interests. 5. I have the time and energy in my life to read books that interest me. 6. Most interactions at work are positive. 7. I have good friends at work. 8. I feel valued and affirmed at work. 9. I feel recognized and appreciated at work. 10. Work is a real plus in my life. 11. I’m engaged in meaningful work. 12. I feel free to be who I am at work. 13. I feel free to do things the way I like at work. 14. My values fit with the organizational values. 15. I am aligned with the organizational mission. 16. I trust our leadership team. 17. I respect the work of my peers. 18. I have opportunities to learn what I want to learn.

INTRODUCTION 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

I feel involved in decisions that affect our organizational community. Creativity and innovation are supported. I feel informed about what’s going on. I know what is expected of me at work. I have the materials and equipment that I need in order to do my work right. I have the opportunity to do what I do best every day at work. My manager cares about me as a person. I know someone at work who encourages my development. My opinions count. My co-workers are committed to doing quality work. My manager reviews my progress. I am fairly compensated.

Give yourself 2 points for each statement you answered positively. Use the following scale to evaluate your job: 50–60 40–49 30–39 20–29 0–19

points: points: points: points: points:

Great Job Good Job OK Job Bad Job Depressing Job

Now that you have an assessment of where you are on this scale, we can begin our discussion of how to create the conditions and standards that will enable you to answer more of the questions positively. Before we begin the process of assessing where you are on all of the HR functions, it is critical to get a sense of the context in which we are trying to make changes as individuals and as organizations. This introduction will help you evaluate not only how you are feeling about your current job, but also how you view your organizational culture. As we mentioned earlier, our organizational goal is to transform our organizations from good to great. Jim Collins conducted extensive research on this subject and wrote a book about the findings, Good to Great. What follows is an adaptation of the timeless characteristics that Collins discovered in his research: 1. Undaunted curiosity 2. Rigorous not ruthless

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HR OPTIMIZATION

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3. Culture of discipline:  Disciplined people  Disciplined thought  Disciplined action 4. Leadership humility 5. Professional determination 6. Right people in the right jobs 7. Unwavering faith 8. Honesty about the brutal facts of the current reality 9. Carefully selected technology accelerators 10. Core values 11. Understanding of differentiating competencies (what we are best at in the world) 12. Piercing insight into economic drivers 13. Focused passion 14. Goals based on understanding vs. bravado 15. Executive decisions based on  Dialogue and debate  Autopsies and analysis You may want to ask yourself how many of those characteristics would describe the organizational culture in which you work. Which of the 15 characteristics would you consider to be strengths in your organizational culture; and which would be weaknesses? The results give you an indicator of context and organizational readiness. One of the central challenges of HR professionals is to continually calibrate the work with organizational reality. This book contains ideas for transformation in 14 critical Human Resource areas that will result in employees pronouncing that they have a great job in a great company. Focus on all of the following 14 areas will result in significant contributions to human and organizational capital: 1. 2. 3. 4.

Compensation Benefits Human Capital Management System (HCMS) Learning and Development

INTRODUCTION 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Staffing Leadership Development Communications Process Excellence Business Consulting Employee Relations Change Management Performance Management Diversity Measuring Human and Organizational Capital Development

Each chapter contains principles for improving the delivery of services. As you read each chapter, remember the goal: to elevate the human and organizational capabilities of the company from good to great. At the beginning of any intervention or transformation effort, the first question that needs to be addressed is “What are the desired outcomes of this investment?” For an HR Optimization project, we answer that question as follows:  The compensation system rewards desired behaviors and core values.  The benefits package promotes and encourages wellness and wise medical consumerism.  The HR information system is user-friendly and serves as the foundation for capturing, maintaining, and reporting on all employee data worldwide.  Learning and development programs have real business and personal impact.  Staffing processes result in attracting, hiring, and retaining the right talent in a short amount of time at low cost per hire.  HR business partners add value to all discussions related to strategy, structure, and business issues.  Great talent stays with the company and employee satisfaction ratings are high.  HR leads change management initiatives and helps to define desired end states.  Leaders are promoted from within and are extremely successful in achieving business results.  All employees have contribution and capability plans written and reviewed.

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HR OPTIMIZATION  Employees are inspired by the company vision and direction; everyone is certified to tell the story.  HR is easy to do business with; processes are smooth and efficient.  The company acts as one team and leverages its collaborative processing capabilities.  There is significant diversity of talent in all organizations at all levels.

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At the beginning of each chapter, there is a scale that outlines the range of possible outcomes for each of the items listed above. For example, while the ideal outcome of changing the compensation system is to reward desired behaviors and values fairly and appropriately, there is no guarantee that the ideal will be achieved. There may be too much resistance to change or too much attachment to old ways of rewarding performance. Some people will prefer reward systems that are based solely on revenue production and that compensate them for achieving the ends independent of the means. Rewarding people based on a balanced scorecard and company performance may represent a dramatic shift in philosophy and threaten people. Therefore, it is critical to construct a range of possible outcomes, assess the gap between the current reality and the future possibility, and determine the amount of resources required to achieve the goal given the level of resistance. Each of the scales presented was built on a generic construct that can be represented as follows: 5: 4: 3: 2: 1:

Ideal End State. Very Positive, but Less Than Optimal End State. Acceptable End State. Less Than Acceptable End State. Totally Unacceptable End State.

The key to all change is seeing possibilities against the backdrop of reality. It is just as important to envision the possibility as it is to assess the reality. Having a broad range of outcome measures with specific indices for measuring success guides the transformation efforts and enables change leaders to determine dynamically what additional resources or shocks will be required to achieve the desired end-state—the scales simply facilitate that process. In reading the scales, it is important to understand that the scales are cumulative from level 3 up to level 5, i.e., a level 5 outcome incorporates the positive aspects of level 3 and level 4 outcomes. Each chapter in this book is designed to help HR departments achieve success in each of the 14 solutions addressed herein. If you are using this book to engage your team in the work of transforming HR, we suggest you welcome contribu-

INTRODUCTION tions from any source. When people contribute ideas for transforming your HR organization, acknowledge their input. With your team, you can establish a model for your own HR transformation. When you complete the journey, your whole team will own it. If you are able to “move up the scale” in the 14 functional HR areas, you will be contributing to human and organizational capital development. The last chapter of this book, “Measuring Human and Organizational Capital Development,” explores ways to measure the business impact of your progress—a new way for assessing the strength of your strategy and for measuring human and organizational capital.

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Section II Core Solutions

Chapter

1 Compensation

Introduction How people are compensated for their work in regard to base salary, bonuses, and stock grants has a large bearing on how they feel about their job and their company. People need to feel they are being compensated fairly and competitively. Most importantly, people need to believe that their compensation is directly linked to their personal performance, as well as corporate performance, and is in line with their contribution. Fairness is the operative word. Compensation strategy needs to be linked to corporate strategy. Decisions on the richness and mix of compensation depend on “who” the company is and what it is trying to achieve. For example, a company that positions itself as a dependable, steady organization may not want or need a compensation strategy with a high variable component. It is a mistake for companies to promote something that is not real. HR professionals need to make sure that the compensation strategy is consistent with the organizational reality. While we all aspire to doing great things (at least that is our assumption about the reader of this book), “great” needs to be defined relative to the organizational context in which you are working.

Scale There is a range of possible outcomes in any effort to change the compensation system. Here is a scale to envision possibilities and assess current realities:

HR OPTIMIZATION 5: 4: 3: 2: 1:

Reward systems tied to desired behaviors and core values. Reward systems tied to company performance. Rewards tied to individual performance. Rewards in line with market/no internal equity issues. Rewards not tied to performance or to market. System lacks integrity and is not perceived as equitable.

Where are you on the scale now? Where do you want to be on this scale in one year?

______ ______

Why Change

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Company A grew very rapidly as a result of superior engineering technology. As a high-flying, high-tech company, Company A was able to attract and retain great talent with relatively low cash compensation and rich option packages. As competition became more intense and the economic climate deteriorated (i.e., devaluation of high-tech stocks), stock options became a less important component of the compensation package. Whereas in the past, Company A could easily attract and retain people by offering base pay and total cash compensation at the 50th percentile with a great deal of upside potential on stock options, conditions have changed. The company now needs to take a hard look at each component of the mix. Company A needs to move toward the 75th percentile on total cash compensation and reduce its reliance on and use of stock options. In order to attract and retain key talent, it needs to design a compensation system that drives a high-performance culture and that is intimately linked to the performance management system. In short, Company A’s reasons to change are the need for greater flexibility, fairness, and attractiveness as an employer.

Your Reasons for Change

Critical Success Factors The two essential ingredients in transforming a corporate culture are leadership role modeling behaviors and the reward system. People take their cues

COMPENSATION from their leaders. Thus, leadership behaviors must be consistent with the values and philosophy of the compensation system. If behaviors that support the desired and required norms and values of the new culture are rewarded, then people will get the message that compensation is tied to cultural leadership. If the compensation system continues to reward old ways of doing business, then cultural proclamations and business imperatives will ring empty and employees will become increasingly cynical. In order to create an environment in which people feel great about their jobs, the compensation system must be aligned with stated values and operating principles. Leaders must be clear about performance expectations and how associates will be rewarded. At the foundation level, rewards need to be in line with the market and support the business strategy. Organizations need to make a policy decision to pay at the 50th percentile, the 75th percentile, or whatever is appropriate. If a company pays less than the 50th percentile, there will need to be multiple factors in the culture to “compensate” for a lack of compensation or it will be impossible to attract great talent or star performers. On the other hand, the strategy may not be to hire stars. The compensation strategy may be to attract solid performers by paying fair wages in exchange for security and growth opportunities. In essence, the compensation strategy should reflect the needs of the business strategy in attracting the most appropriate talent. Once a company decides the strategy and the corresponding pay percentile, benchmarking analyses are required to determine the comparability of each job in relation to market rates. In order to execute business strategy, it is usually necessary to compete for appropriate talent. Business strategy drives decisions related to compensation because it specifies requirements for critical talent that can only be acquired and retained through competitive compensation programs. The corporate culture also influences compensation decisions because it either consists of a number of compelling reasons for joining or staying with a company (for example, a winning company, great branding, quality of life, career development, or any of the Great Job/Great Company indicators listed in the Introduction) . . . or it doesn’t. If there are few compelling reasons for joining or staying with a company other than compensation, then the compensation package will need to be very rich. A good compensation system does not keep people focused on their compensation, it keeps them focused on other compelling aspects of the organization because pay is not a distraction. Again, the operative word is fairness. Employees will always ask, “Am I being paid fairly and rewarded appropriately for my contributions to what the company says is important?”

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HR OPTIMIZATION Decisions surrounding compensation present a terrific opportunity for HR business partners to take a leadership role with their clients. Since compensation usually tops the list of what’s most important to corporate clients, business partners can add real value to their clients through their consultation on compensation issues. In any company, the way compensation issues are handled is critical to the perceived effectiveness of HR. It is also important to minimize inequities within departments. Over a period of time, because market rates vary according to supply and demand curves, there may be several people in a department doing very similar jobs but who are paid at significantly different rates. For example, one person may have been hired as a computer programmer in 1997 when the market value for such jobs was $50,000. Another programmer could have been hired in 2000 when the market rate for the same job was $75,000. Thus, while appropriate market measures were used to determine salary, the changing rates create inequity issues within the department. These issues are compounded when gender and race come into play. Salary offers, merit increases, and other compensation decisions must take into account both comparability and equity considerations. These issues typically consume a large share of compensation specialists’ time.

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While it seems to be common sense to tie rewards to individual performance, this practice is far too uncommon. We have worked in multiple corporations in which the compensation team and performance management team did not talk to each other. Unfortunately, very few organizations are satisfied with their performance management system and even fewer believe that performance is linked fairly and accurately to compensation. In too many cases, employees perceive that rewards are tied more to who you know than to what you deliver. This perception violates one of the primary characteristics of a “great job”: I am fairly compensated. While performance management will be discussed in more detail in Chapter 12, it is important to make the connection here. The other common factor that causes employees to rate a job as “depressing” is to have an opinionated boss who uses only one source of input to make compensation decisions— his or her own perception. Not only are managers often not in the best position to evaluate performance, they may also suffer from biases that could taint their evaluations. In the worst of cases, the manager may be a golfing buddy of an employee who is of the same age, race, sex, background, and sexual orientation. This employee may benefit from a “halo effect,” while another employee from a different set of circumstances may be unjustly compensated. These situations feed the negative perception among employees that compensation decisions are based more on “how you dance vs. what you do.” In single-rater situations, quiet contributors are also often ignored unless the manager is finely attuned to each employee’s various levels of contribution. When compensation is linked

COMPENSATION closely to performance and employees feel that evaluation decisions are done fairly and accurately, employees are much more likely to proclaim, “I’ve got a great job!” Assuming that a company has addressed internal equity and market comparability issues and that compensation is linked intimately to performance, the next level of achievement is to tie compensation to organizational performance. This linkage is typically accomplished through incentive programs. When bonuses are given every year independent of the financial performance of the firm, then employees begin to see this form of compensation as an entitlement. If bonuses are tied to company performance, employees are more likely to think interdependently and the company has a greater chance of survival in tough economic times. If employees know that they will be compensated based on how well the company achieves its revenue and profitability goals, then everyone will actively seek ways to help each other succeed. A one-team mentality starts to take form in which all members of the community work collaboratively for the greater good. This phenomenon is what makes people experience their everyday work experience as a great job. Feeling part of a community in which all members are focused on common goals leads to greater satisfaction than simply working independently to collect a pay check each week. It is important to point out, however, that variable compensation can only be leveraged so far. Base salary needs to be fair enough for employees to “hang in” during tough times. The perception of fairness is based on both structural fairness and reward fairness. Structural fairness relates to how the job fits into the career path framework; reward fairness relates to the amount and timing of incremental increases. At level 5 on our compensation scale, reward systems are tied to desired behaviors and values. Stock option grants are the most common way of making a statement that particular behaviors are valued and that the organization wants the person to remain in the community. When stock option grants are awarded to people who achieve financial goals at the expense of all other stated values in the culture, employees rightly conclude that they are simply a member of a mercenary community with one value—money—not a growth community in which several values are rewarded and recognized. Linking rewards to desired behaviors and values requires three key elements: (1) a clear articulation of what the desired behaviors and values are; (2) a commitment to tie compensation to those behaviors; and (3) a reward system that takes into account the contribution that individuals make to the desired culture. Articulating the desired values is not an event that the executive committee performs; it is a process in which employees at all levels of the organization participate. If employees are involved in the process of stating desired behaviors and values, they will be much more likely to own them. When values are clear, they can become a vital part of the

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HR OPTIMIZATION performance management system, so employees get regular feedback on how well they are contributing to the values or detracting from them. That feedback should influence compensation adjustments.

Your Critical Success Factors

The Reality

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While the theoretical constructs of compensation appear logical, the reality often presents many challenges. Here are some examples from our experience. Tenured vs. new employees. With changing economic conditions, it is not unusual for people to be recruited into the organization in boom times with inflated salaries. When this happens, loyal employees who have served many years may find themselves with far smaller salaries than new employees with less experience. These situations, which are difficult to avoid, are even more difficult to resolve when the economy slows and profit margins come under pressure. Do you always pay market value for new jobs? Do you always limit pay raises for existing employees to a certain amount? What happens when you refuse to pay inflated market values or if you start making exceptions for certain employees? If rigid adherence to a philosophy of limiting pay raises to a certain percentage results in a situation in which employees have to quit and return to get significant bumps in compensation, how do you deal with those employees and the ones who stayed with you and came up short? Legacy products vs. new technologies. Supply and demand curves sometimes create bidding wars for people who have skills in hot products. For example, when SAP first emerged, consulting companies were paying “hot skills” bonuses to attract people who had SAP implementation skills. The problem occurs when the supply and demand curve shifts and the hot skills cool off. What happens if the bonuses for these skills are baked into base salary? Do you take away the bonus? Should you use variable compensation to deal with “hot skill” pressures on compensation? Transfers between organizations. In many organizations, some departments follow the compensation rules, while other departments don’t. When an individual transfers from a department that doesn’t follow the rules into a department that does, what do you do if the person’s compensation is far above his or her

COMPENSATION colleagues in the new organization because he or she benefited from exceptions? For example, a Web designer in marketing with essentially the same job as a Web designer in IT makes much more money because the marketing department tended to pay higher wages and regularly made exceptions to the rules. In addition, the person in marketing has an incentive plan and the person in IT does not. What do you do when the marketing person gets transferred to IT? What do you do when exceptions become the rule?

Your Reality

Top Ten Lessons Learned 1. It is important to start with a guiding philosophy and stick to it. 2. HR business partners can have a tremendous impact on the business by optimizing the compensation value proposition. 3. Effective compensation policy requires a balanced approach with thoughtful consideration for how compensation is configured among base, variable, and stock incentives. 4. As the business climate changes and business strategy changes, compensation must adjust policies to be aligned with the changes. 5. The leadership team must own and believe in the compensation strategy. 6. It is critical to be able to accommodate exemplars and star performers without destroying internal equity. 7. Compensation is as much art as science. 8. Compensation decisions need to take into account performance, equity, and market conditions. 9. Structured flexibility is the best policy. There is always a need for discretion. 10. Compensation must be interdependent with other initiatives such as performance management, career development, etc.

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HR OPTIMIZATION Conclusions The components that need to be taken into account in any comprehensive compensation program are base salary, bonuses, incentives, and stock grants. The right levels and mix of these components should result in improved performance and motivation. The three critical processes of compensation are benchmarking, performance management, and continuous calibration. Clearly, economic conditions play a major role in compensation decisions, but the standard of fairness should remain constant.

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Chapter

2 Benefits

Introduction The benefits package is an essential part of the employment agreement. Employees need to feel that they are financially protected from catastrophic loss or disabling disease. In the United States, this level of coverage is necessary to meet the social service threshold—the level at which basic health care needs are met. Many benefits address fundamental needs for safety and security (which according to Maslow’s hierarchy must be met first). Other benefits, such as tuition reimbursement, address higher-order needs. If people do not feel safe and secure, they cannot move up the transformational ladder to feel belongingness, esteem, and self-actualization (a great job provides all of these). A comprehensive benefits package should address the full range of needs of a diverse workforce: financial, social, emotional, physical, and intellectual.

Scale There is a range of possible outcomes in any effort to change a benefits package. The following scale helps to envision possibilities and assess current realities: 5: 4:

Benefits package attracts the right talent and promotes and supports total employee well-being for a diverse population. Benefits package promotes wise consumerism and employee well-being and engages people as healthy partners.

HR OPTIMIZATION 3: 2: 1:

Benefits package is competitive with market in comprehensiveness and is cost-effective. Benefits package is competitive with market in comprehensiveness, but more costly than most. Benefits package is not competitive with market and promotes unwise consumerism; policies promote sickness behaviors.

Where are you now on this scale? Where do you want to be on this scale in one year?

_____ _____

Why Change

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Historically, Company B offered one of the richest benefits packages of any high-tech company. Company B was one of a few companies that provided 100 percent medical coverage. When health care costs were rising at 5 to 7 percent per year and profit margins were robust, Company B was able to afford a comparatively rich benefits package. Now health care costs are rising at 15 to 20 percent per year and company profit margins are declining. It is prohibitively expensive to continue to offer the same benefits package. In 2002, Company B paid approximately $17 million in U.S. health care costs. With no changes in the benefits package or economic conditions, those costs would exceed $50 million in 2008. In addition, the benefits package was designed to address the needs of a male, family-oriented employee base. As the workforce becomes more diverse, benefits packages need to change to take into account different demographics and life style orientations. There is also a growing body of research that supports the idea that partnering with employees on health care management and focusing on prevention can lead to significant cost savings and to healthier employees. By targeting high-risk employees, promoting positive health practice, and educating employees on wise medical consumerism, health risks and their associated costs can be reduced. In short, the reasons to change are lower costs, more flexibility, and better health care.

Your Reasons to Change

Critical Success Factors Benefits can be a compelling part of the great job equation. Some of the fundamental benefits employees expect in their benefits package are health, dental,

BENEFITS and life insurance. In today’s environment, an enhanced level of benefits usually includes an employee stock purchase plan (ESPP), a 401(K) plan, dental care, Employee Assistance Programs (EAPs), and vision care in addition to the standards mentioned above. Many progressive companies offer elder care, child care, paternity and maternity leaves, as well as provide comprehensive wellness programs, encourage work-life balance, and take seriously the idea of creating a healthy work environment. Transforming benefits requires an elevated perspective of health. Benefits should address the physical, emotional, intellectual, and financial issues that are important to employees. For example, particularly in this economic climate, the 401(K) plan is a very important component of the benefits package. Employees want to have flexibility in how they access their retirement accounts. With medical care costs rising at 15 to 20 percent per year, it is cost prohibitive for companies to pay 100 percent of all health-related claims. Companies need to form healthy partnerships with employees in which both parties actively seek ways to keep the other healthy and whole. Since benefits make up a significant portion of the overall rewards program, employees need to be educated about the economic value and true cost of health care. Most employees do not appreciate the real value of the benefits provided because there has been little or no communication to the employees about the benefits and there are typically few educational programs to increase awareness and to promote behavioral change. Providing employees with total compensation statements that detail both pay and benefits helps educate employees about the economic value of their benefits package. Ongoing communications about benefits programs reinforce the mutual nature of the healthy partnership and keep employees informed of changes and options. Essentially, benefits programs need to be dynamic and sustainable for the long term. HR professionals need to engage employees in productive dialogue about the economics of benefits and their role in the dual goals of increasing health and decreasing costs. This dialogue also makes it possible to design benefits that fit the needs of employees so that they realize the value of what is provided. The overall theme of benefits programs should be to promote the wellness of employees and their families. Employees are more apt to embrace change if they understand the context, reasons, and benefits of the change. When a company makes the decision to redesign benefits programs to reduce costs, it must also find creative ways to offer more choice and greater flexibility so that selected programs can be enhanced to balance those programs that are being reduced. Changing behavior takes time and requires a great deal of communication and education in order to be successful. Communication campaigns should incorporate both Web-based and print media. The benefits program needs to be branded in order to promote recognition and

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HR OPTIMIZATION

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consistency. Ongoing communications are needed to announce open enrollment choices and to educate employees about their options. One extremely useful communication tool is to send annual benefits statements to employees that explain the financial value of benefits provided in the total compensation package. Medical premium plans may be converted to self-insured plans in order to reduce fixed administrative costs, eliminate state premium taxes, and allow for a uniform plan design. In self-insured plans, the company pays for all covered health care costs (e.g., dental, vision, medical, etc.), but carries insurance to cover catastrophic events. Self-insured plans allow for more flexibility, better financial management, and gain sharing. Full flexibility programs can then be explored to increase employee choice. Full flexibility programs mean that benefits are assigned price tags and employees are given credits to purchase benefits to meet their individual needs. It should be noted, however, that the transition to self-insurance and to self-service requires robust systems and consistent communications. All of these elements—self-service, communications, systems, and education—are intimately connected and interdependent and constitute an integrated health management system. Shifting to self-insured, full flex programs requires benefits professionals to keep a constant watch on cost drivers to insure that spikes in certain areas don’t undermine the economic viability of the programs. These cost drivers may come from mandated legislative changes, new coverage and procedure requirements, medical price inflation, or changes in utilization of services, e.g., increases in the frequency of claims driven by improved diagnostic procedures, an aging workforce, and so forth. Advancements in technology can also drive costs because they result in new medical equipment, procedures, and medications that impact the intensity of care. Also, the trend toward reduction in Medicare reimbursement generally results in cost shifts to the private sector. One critical advantage of self-insured plans is that they enable gain sharing with employees. Gain sharing means giving back a percentage of cost reductions achieved through healthy lifestyles and wise medical consumerism to the employees who practice positive health practices and use health care resources wisely. Additional cost savings, not distributed to employees, can be used to fund wellness activities and programs. It is a win-win solution. In addition to all the fundamental components of a comprehensive benefits program, there are additional perks to consider such as fitness centers, free breakfasts and drinks, cafeteria subsidies, and concierge services. The challenge is to figure out not only what benefits to offer to employees but also how to make them connected and integrated with the organization.

BENEFITS Whether one views health care from a national perspective or an organizational perspective, the same six factors need to be taken into account:      

Quality Cost Access Choice Simplicity Responsibility

The reason the health care problem is so difficult to solve is because any solution requires a trade-off among those six values. It is impossible to provide universal access and freedom of choice to the highest quality care in a simple way at low cost. The only way to achieve a win-win solution is for all parties to take responsibility for wise medical provision and consumerism and for healthy choices. Forming healthy partnerships appears to be the most promising avenue for change, but it will take a great deal of work to create an interdependent attitude in which both employer and employee look for ways to help each other grow.

25 Your Critical Success Factors

The Reality While the theoretical constructs underlying benefits packages appear logical, reality often presents many challenges. Here are some examples from our experience. Entitlement vs. empowerment. Theoretically, one would think that communicating to employees about the economic value of their benefits package and educating them about the options and choices they have would lead to a sense of empowerment. Unfortunately, in many cases, employees view benefits as something HR does to them and they take the benefits for granted. It’s hard to educate employees about economic value and the marriage of compensation and benefits. Particularly in paternalistic cultures, employees don’t understand that benefits need to change in response to changing economic and competitive

HR OPTIMIZATION conditions. Therefore, any changes in benefits packages need to take into consideration the sense of entitlement employees have and how strongly paternalistic the culture is. Competitive differentiator vs. cost drain. A competitive benefits package not only has value to the employee but also to the company. Excellent benefits are a critical component of a compelling employment offer. Smart candidates compare the benefits packages of competing offers as well as the salary component. In many cases, a benefits package that meets the particular needs of a candidate can offset a lower salary offer. Benefits can be a powerful differentiator, particularly when an individual puts a heavy weight on vacation, wellness, or even coverage for fertility treatments. In times when competition for talent is severe, having flexibility in the benefits package can make a difference. Flexible cafeteria plans, however, require more work to implement. Emotional vs. intellectual factors. While some changes in benefit plans make good sense from an intellectual point of view, they can meet with strong emotional resistance. People don’t like to change benefits, particularly on coverage that is personal. A change in plans may mean a change in relationship with a health provider with whom an employee has close ties. Therefore, any changes in plans need to consider emotional as well as economic factors.

26 Your Reality

Top Ten Lessons Learned 1. It’s important to ensure that management understands how benefits are tied to organizational strategy. 2. Employees deal better with open, honest, direct communications than with surprises. 3. Before making any changes, ask for input and feedback from multiple groups. 4. It’s important to stay close to and manage health care providers. 5. Education of employees is crucial, particularly as it relates to the economic value of benefits. 6. Employees need accurate decision support information to help them choose among their options.

BENEFITS 7. Wise medical consumerism can result in significant cost savings. 8. Organizational culture is a major factor in the success or failure of any program—we must understand what people value. 9. Timing is everything—changes must be introduced at a time when there are few competing announcements. 10. A dynamic and sustainable benefits plan requires a dynamic and sustainable relationship with employees.

Conclusions Level 5 benefits programs promote wellness, encourage partnerships, and enable wise medical consumerism. A comprehensive benefits program should take into account the physical, emotional, and intellectual dimensions of a person’s life through all life stages. Physical factors might encompass medical coverage and health insurance. Emotional factors might include an EAP program. Intellectual factors might involve financial planning or legal assistance. The functions of a benefits program are to reduce costs, increase flexibility, and improve care. These functions are discharged by facilitating enrollment, partnering for health, and communicating effectively. Clearly, the age and diversity of the workforce may affect the range of benefits programs offered, but the standards of protection and support should remain constant.

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Chapter

3

Human Capital Management System (HCMS)

Introduction Having access to the information you need to do your work is a fundamental requirement for a great job. Effective information systems and infrastructure make it easier for people to acquire meaningful decision support information. Clearly, that decision support information needs to be accurate so that business leaders can make intelligent and informed business decisions about investments in human capital—the combination of commitment and capability that generates new sources of gain. Without sufficient information, decision making and individual/organizational development are made more difficult, if not impossible. Systems need to support our ability to develop individual and organizational capabilities. As such, HCMS is different from HRIS (Human Resource Information System) to the extent that it provides knowledge vs. data. Data are simply discreet facts. Knowledge is processed information which means it requires human analysis. Therefore, an HCMS is the output of information technology and human processing. The information technology component may include learning management systems (for example, THINQ and SABA), staffing systems (for example, WebHire and Brass Ring), and human resource systems (for example, PeopleSoft, Oracle, and Lawson). An efficient HCMS fully integrates all component systems, reduces the hassle factor in a job, and provides the knowledge platform on which a great company can be built. Above all, it ensures data accuracy and protects employee

HR OPTIMIZATION confidentiality. Employees need to know that their personal data are strictly confidential. Managers need to know that the information they are being provided is trustworthy. And organizations need to know that confidentiality safeguards are government mandated. HR earns the right to engage in higher level work only when it is able to ensure employee confidentiality and data integrity. It should be noted, however, that management and employees own responsibility for accurate data.

Scale There is a range of possible outcomes in any effort to change the systems related to managing human capital. The following scale helps to envision possibilities and assess current realities for HCMS in your organization: 5:

4:

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3: 2: 1:

One global, efficient, best-of-breed, user-friendly, seamless system that is the foundation for capturing, maintaining, and reporting on all employee knowledge worldwide. Global, efficient, and integrated enterprise solution for capturing, maintaining, and reporting employee information and competencies worldwide. Adequate and efficient means of centrally capturing and maintaining all employee information and skills worldwide. Adequate but inefficient means of capturing and maintaining employee information worldwide. Inefficient, inadequate, individual systems for capturing and maintaining employee data worldwide.

Where are you now on this scale? Where do you want to be on this scale in one year?

_____ _____

Why Change Company C’s current system doesn’t have data integrity, and it is passing inaccurate information to numerous downstream systems. In order to be credible, it needs to be able to provide reports that are reliable and repeatable. Currently, the lack of reliability and repeatability is damaging credibility. In order to be cost-effective, Company C needs to reduce redundancies. Currently, many of the systems and processes are redundant. These redundancies result in unnecessary costs. In short, Company C does not have the basics in place.

HUMAN CAPITAL MANAGEMENT SYSTEM (HCMS) Company C needs to capture worldwide employee data with high integrity. Business leaders need accurate and timely decision support information to be effective. Company C has an incompatible and inadequate set of systems and technology that makes it difficult and time consuming to ensure information integrity. The current HRIS does not have global capabilities and does not enable the company to feed related systems in an efficient way. As a result, different countries use different spreadsheets to account for information that could all be processed with better contextual knowledge with a more robust system. Essentially, Company C is currently at level 1 on the scale and it needs to be at least at level 3 to be able to respond reliably to business requests. Finally, new requirements are imposing new demands on HR systems. With the advent of the Internet, business leaders expect to have access to information they need to make informed decisions. Timely, accurate, and meaningful information is required for intelligent strategic positioning. When HR fails to meet management requirements and expectations for accessible and accurate information, or if these requirements and expectations are ill-defined, HR’s perceived effectiveness is damaged. In short, Company C’s reasons for change are the need for integrity, accuracy, timeliness, and efficiency.

Your Reasons for Change

Critical Success Factors HR typically has an abundance of data. Unfortunately, the data does not usually translate into accurate, timely, and usable information that can facilitate effective decision making. In addition, the information usually resides in multiple locations and there is no easy way to access the information from a single view. This fragmented amalgamation of data results in redundancies, uninformed decisions, and an enormous waste of time. Ideally, an information management system should make it easy for decision makers and employees to get the information they need quickly and easily and in a form that facilitates good decision making. Simply stated, an effective HCMS increases efficiencies and leverages information. At the foundation level, an HCMS needs to reduce the time it takes employees to do certain activities, thereby reducing labor costs. Reducing time and costs associated with routine HR activities can be achieved by enabling

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managers and employees to access a portal or a self-service application instead of requiring human intervention. These activities can include enrolling in or changing benefits, registering for training, changing home and mailing address information, applying for a job, making a salary change, checking pay stubs, accessing organizational charts, getting approval for a promotion, or creating a job requisition. All of these activities normally require a great deal of labor costs and time. An HCMS system can reduce these costs significantly. It should be noted, however, that transitioning to self-service requires a transformation in culture. Moving to self-service means that employees need to own the data and take more initiative in getting the information they need. In addition, openness has risks and rewards. The risk is that giving people access to information that can be interpreted in multiple ways could generate more questions and create unfounded angst. The rewards are that employees feel more empowered and self-sufficient and can find information they need to support personal and professional decisions. Having acknowledged the cultural requirements and confidentiality risks, the use of self-service applications can reduce many of the costs associated with printing, publishing, and binding manuals as well as distributing forms, letters, reports, statements, etc. An effective HCMS can make it much easier to do business with HR. Self-service applications can make administrative tasks much simpler and more accessible. This goal requires that processes are well defined and simplified and people are trained in how to use the system. By giving employees direct access to services, HR is relieved of administrative tasks and is freed up to work on higher level issues and change initiatives. Having one portal for all HR-related information makes it possible to present pertinent information to all employees on a consistent basis. A self-service application not only enables employees to view their paid time-off balance, benefits elections, or paycheck data, it also serves as an excellent vehicle for communicating company information. At level 1 on the scale, critical information can get buried in an e-mail file or somehow get lost in a “wall of noise” that arises from multiple communication channels bombarding employees from every direction. As a result, there is no way to capture, maintain, and use employee information worldwide. Since so many employees work remotely and function as virtual teams, an effective self-service application should be accessible through a browser. Making the portal accessible through the Internet allows employees to be connected to critical information wherever they go. Employees should be able to use any Web browser to take advantage of a server doing all the processing. Self-service functionality enables employees to be empowered and more productive. Building an effective HCMS starts with defining the requirements for success. The next step is to ensure that there are processes in place to achieve those

HUMAN CAPITAL MANAGEMENT SYSTEM (HCMS) requirements. Then, decisions can be made about how to capture, organize, distribute, and use the information contained within the system. Capturing knowledge means collecting implicit and explicit information from new and existing sources. Organizing knowledge means categorizing information to facilitate its use and value. Distributing information means making decisions and accessibility rules to ensure that information gets to the right people at the right time in the right format. Using knowledge means leveraging information both internally and externally to continually achieve better results. An effective HCMS drives knowledge to people who can use it. Thus, in essence, an HCMS is a transactional-based knowledge management system. Knowledge management is the process of getting the right information from the right source to the right person using the right vehicle at the right time in the right format so that people can make the best decision or take the wisest course of action. The decision or action may require different levels of knowledge. Data consist of basic facts. Information is contextualized data or concepts and ideas made up of related facts. Knowledge is processed information or causal relationships between interrelated elements of information. Wisdom is applied and tested knowledge. It results in the ability to forecast and control situational outcomes within a particular domain. An effective HCMS needs to provide accurate information capital and manage our human capital accurately throughout the employee life cycle. A global system is required to support worldwide initiatives and processes. In addition, success requires leadership and cultural support. It is a mistake to assume that all leaders want information that an HCMS can provide and that the culture is one that values openness, responsibility, initiative, and ownership. It is also a mistake to underestimate the amount of planning, process development, and IT support required to implement any new system. Successful implementation of an HCMS involves a thoughtful consideration of leadership needs, cultural resistance, IT requirements, and data ownership.

Your Critical Success Factors

The Reality While HCMS theory appears logical, reality often presents many challenges. Here are some examples from our experience.

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Manual vs. electronic. While there is clearly a rapid evolution to electronic processing, there is still a lot of paperwork to be completed manually. HR is frequently asked to fill out employee change forms and performance management documents. And no matter how sophisticated the system, there are always requests for information that require manual effort. For example, headcount reporting may take into account temps, contractors, or part-time employees. Without a full understanding of FTEs (full-time equivalents) in the organization, it is difficult to manage expenses and achieve profitability goals. HR vs. management responsibility. Even though there is a clear trend for employees to own responsibility for data input and processing, accountability for data integrity is typically assigned to HR. When management gets inaccurate data, HR gets blamed. In many cases, management will often talk about the need for adequate infrastructure and information systems, but investments do not always match the rhetoric. It is always a challenge to put responsibility for data audits, common review, or performance management in the hands of management. Independent systems vs. integrated systems. In global companies, it is fairly typical for each company or geographic region to use home-grown spreadsheets to handle reporting and compensation responsibilities. When it becomes necessary to roll up data into company statistics, it becomes a nightmare to piece together all the disparate data and processes. A variety of independent systems causes a great deal of frustration not only for corporate leaders but also for new employees who might be accustomed to more integrated, enterprise solutions.

Your Reality

Top Ten Lessons Learned 1. Providing integrated sources of information elevates the role of HR. 2. Distribute and use knowledge instead of burying management with data. 3. Don’t build in silos (for example: learning management, staffing, HRIS, performance management) without an integration plan. 4. Leverage small improvements—demonstrate that systems work. Million dollar investments are not always required to improve the way work gets done. 5. Engineer processes before buying systems, but recognize the fact that sometimes new systems provide a catalyst for developing new processes.

HUMAN CAPITAL MANAGEMENT SYSTEM (HCMS) 6. 7. 8. 9.

Educate management on the value of effective HCMS. Use process improvement to change the culture. Invest in training people in the tools—it must be a process, not an event. Conduct training in new technology for all HR staff—it’s the foundation of HR. 10. Ensure that the HR system is integral to and connected with other systems.

Conclusions An effective HCMS takes into account the business needs for data, information, and knowledge. Data needs might relate to headcount or demographic numbers. Information might address trends in each organization and geography over time. Knowledge might include an expert resource network and/or skills bank that enables employees to leverage the experience of subject matter experts to gain competitive advantage. The functions of an HCMS are to develop information capital, human capital, and organizational capital. The processes required to optimize capital development are defining requirements, capturing relevant tacit and explicit information, organizing the information into meaningful categories, distributing the information to the right people in the right way, and leveraging knowledge to achieve results. Clearly, cultural conditions such as openness and risk taking influence the effectiveness of an HCMS, but the standard of trustworthiness remains constant.

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Chapter

4 Learning and Development

Introduction One of the defining characteristics of a great job is the opportunity for growth. In many ways, the purpose of life is to grow. Learning and development provide multidimensional opportunities for growth at work. If individuals are learning and growing, the company has a much greater chance to grow also. Without individual growth, there is rarely organizational growth. Given the dynamic nature of today’s marketplace, there is no chance for sustained company growth unless individuals are learning and growing. In order for individuals to sustain growth, the organizational culture must support growth and recognize progress on learning and development goals. In order for organizations to sustain growth, learning activities must be aligned to performance improvement and business results. In a great company, learning and development support both individual (personal and professional) and organizational growth.

Scale There is a range of possible outcomes in any effort to change learning and development programs. Here is a scale to envision possibilities and assess current realities regarding learning and development: 5: Employees average 10 days per year of business impact development; multiple learning options are leveraged and zero latency exists.

HR OPTIMIZATION 4: Employees average 7 days per year of business-related development; multiple learning options exist, and there are minimal time lags between skill requirements and skill availability. 3: Employees average 5 days per year of excellent development; several learning options exist, and time lags between skill requirements and skill availability do not disrupt performance. 2: Employees average 3 days per year of random development; a few learning options exist, and time lags between skill requirements and skill availability cause performance problems. 1: Employees average less than 3 days per year of out-dated development; very few learning options exist, and skill availability never meets skill requirements. Where are you now on this scale? Where do you want to be on this scale in one year?

_____ _____

Why Change

38

Building relationships has not been as important to Company D as generating revenue. Company D now realizes that growing revenues is dependent on improving relationships internally and externally. While Company D ranks highest among its customers on the most comprehensive solution in its market space, it ranks lowest among its competitors on customer satisfaction. The biggest reason for the low customer satisfaction rating is the fact that customers don’t trust Company D. Since organizational growth is dependent on people, Company D needs to teach people how to become trusted advisors with customers and with employees. Unfortunately, many managers not only discourage development as trusted advisors, they enable and permit destructive behaviors. In addition, Company D has been an “on your own” culture. Employees learned what they needed to know through their own initiative, peer networks, and Internet searches—there was no development culture at Company D. In order to realize its mission, Company D needs to provide employees at all levels with the knowledge, skills, and experience to be helpful to customers. It also needs to be seen as the first choice for helping employees win in their careers. In short, Company D needs to make relationships as important as revenue. Company D offers a variety of disparate programs, but they are all random and inductive. Even though the programs are well designed, they do not relate to corporate objectives. There is no consistent process to register employees in classes, track progress, or estimate a return on investment. The company culture does not support learning and development—it is viewed more as a cost than an investment.

LEARNING AND DEVELOPMENT Your Reasons to Change

Critical Success Factors The functional test of learning and development is whether or not the programs and activities make any impact on the business. Having said that, it is important to set an organizational standard for development in order to send the message that employee learning and growth are important. The scale in this chapter is defined in both quantitative and qualitative terms so that both impact and expectations are taken into account. The best way to ensure that learning and development will have a business impact is to design all interventions around the competencies required for success in particular jobs. Involving client groups (e.g., Sales, Services, Marketing, R&D) in the development of job models and related competencies is critical for accuracy and success. The organization is responsible for defining competencies required for maximum business impact in each job, and the individual is responsible for assessing himself or herself on those competencies and then acquiring the skills related to those competencies. Again, this type of disciplined process requires cultural support in order to sustain the system. The key is to create simple, empowering, thinking tools that enable managers to improve business processes. One critical success factor is a clear learning strategy. A learning strategy is designed to address all of the learning demands created by the business strategy, organizational needs, and cultural requirements. A learning strategy is an implementation road map for the competency, skill, and knowledge requirements and takes into account system needs and cultural support. Developing and implementing a learning strategy is critical to the business because it ensures that individual and organizational capabilities are aligned behind its marketplace positioning and organizational needs. A learning strategy is designed to achieve four major goals: 1. To enable colleagues to acquire the skills and knowledge they need to perform optimally on their jobs and to fulfill their personal development goals by providing easy access to the right content delivered in the right way at the right time. 2. To develop and/or acquire programs, processes, systems, and technologies that support the business strategy, the cultural requirements, and the competency model and that meet organizational needs for learning and development.

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HR OPTIMIZATION 3. To create an environment that supports innovative thinking, organizational learning, personal development, and high performance. Learning needs to be a part of the greater organizational change management plan. 4. To link knowledge management and people development strategies to financial success, i.e., to demonstrate positive return on investment. Finally, with the strategic context and competency requirements in mind, the learning strategy must take into account three critical learning processes that will enable the improvement of individual and organizational performance: 1. How to improve access to learning. 2. How to develop and deliver learning opportunities. 3. How to manage learning and realize value. Another critical success factor is the belief employees have in the culture. People need to believe that corporate-sponsored learning will be useful to them and that their efforts will be rewarded. In addition, learning and development cannot be delivered in isolation from other organizational initiatives. Success depends not only on an integrated approach, but also on other systems, processes, guidelines, and procedures.

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On an individual level, there are two primary reasons to grow: to improve performance on current job realities and to improve positioning for future job possibilities. It is important for individuals to understand both the economic and personal value of development. On an economic level, competency-based incentive plans reward individuals for acquiring and applying certain skills. On a personal level, the acquisition of new skills usually translates into heightened confidence and a sense of empowerment. On the organizational level, there are multiple objectives for a long-term learning strategy: 1. 2. 3. 4. 5. 6.

Align learning investments to performance needs and business requirements. Ensure fair access to learning. Develop the right learning options and opportunities. Deliver learning in the right way at the right time to the right people. Create an environment that supports learning and development. Install the right systems to manage the learning process most costeffectively. 7. Maximize return on investment. 8. Achieve zero latency (ensure that people get the skills and knowledge they need to meet project deliverables just in time).

LEARNING AND DEVELOPMENT 9. Reduce turnover. 10. Improve performance. 11. Improve the attractiveness of the organization. 12. Leverage opportunities for collaboration. These objectives can be summarized by level in the organization and by process, impact, and outcome variables.

Process

Impact

Outcome

Executive

Cultural Management

Organizational Development

Reduced turnover Achievement of business goals

Manager

Performance Management

Human Development

Zero latency Improved performance

Learning Management

Competency Development

Improved costeffectiveness Improved quality

HR

One of the biggest challenges in HR is to sell the value proposition of programs it offers. The chart above is a helpful tool for thinking about what the value proposition is for clients at different levels in the organization. A project manager simply wants to ensure that he or she has the right skills available at the right time to do the job so that performance can be improved. The value proposition for executives focuses on capital development: organizational capital, customer capital, cultural capital, and financial capital. This chart helps the HR professional personalize the value proposition to the audience, i.e., become more thoughtful about what value is responsive to whom. In the five-point scale described in the second section of this chapter, there is mention of how many learning options are being offered and how well they are being leveraged. The list on the following page provides a stimulus for thinking about the various learning options that might be considered in a comprehensive learning and development strategy.

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HR OPTIMIZATION Learning Options

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1. Classroom learning  Internal courses  External courses  Technical training 2. Interactions  Peers  Customers 3. Benchmarking 4. Cross-functional teams 5. Mentor 6. Self-Study 7. Online learning/Web-based training 8. Knowledge sharing  Central repository  Expert resource network  Networking  Communities of practice  Professional associations 9. OJT (on-the-job training) 10. New hire training 11. Corporate University 12. Web site surfing 13. Modeling 14. Coaching 15. Road shows 16. Reading 17. Laboratory 18. Lunch and learn 19. Application success sharing 20. After action reviews 21. Product demos by experts 22. Webinars

LEARNING AND DEVELOPMENT 23. Seminars 24. Workshops 25. Webcasts 26. Conferences 27. Conference calls 28. Intranet connector 29. Town meetings 30. VP forums 31. Action learning interventions 32. Virtual teaming 33. Multiple rater assessments 34. Customer satisfaction surveys Access to most of this learning is a function of cultural support for thinking and learning. Leaders are the primary gateway to learning access, i.e., if leaders support and encourage participation in many of the activities listed above, colleagues will have continuous access to learning. Beyond cultural and leadership support, however, access involves connecting learners to learning options outside day-to-day activities at the workplace. Access to classroom training, online courses, educational materials, expert and knowledge resources—both internally and externally—requires assistance beyond what can be expected from leaders. The chart below is a thinking tool for helping you consider a variety of ways to improve cultural and leadership support for learning:

Before

During

After

Learning Provider Participant Sponsor Manager Leader This chart will help you think through what needs to happen before, during, and after any learning opportunity in order to maximize its impact.

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HR OPTIMIZATION There are several critical decisions that need to be made concerning access to learning opportunities. Here are a few of the key questions that need to be answered: 1. What is the right blend of learning options, i.e., what percentage of learning should be done online, what percentage should be in the classroom, etc.? 2. How much freedom do you give your employees to select learning options? What is the spending authority of each employee? 3. What level of support will be required to institutionalize continuous learning? For example, what policies need to be created to support learning and development?

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Question #1: What is the right blend of learning options, i.e., what percentage of learning should be done online, what percentage should be in the classroom, etc.? We recommend converting as much compliance-level training as possible to e-learning delivery and developing the technological capacity to make it easy for employees to access Web-based training at home and at work. We also strongly recommend that selected training, such as leadership development and team development, be done in a classroom setting. Most important, however, is to ensure that all employees have access to a multitude of the informal learning opportunities listed earlier. The reason for providing multiple learning options is that learning delivery needs to match the learning style of the participant. And it is critical to apply adult learning principles to guide decisions regarding learning options. Question #2: How much freedom do you give your employees to select learning options? What is the spending authority of each employee? We recommend giving colleagues freedom in pursuing learning objectives. Respect and trust are key values in a learning culture. The decision on this issue will send a loud message about how we walk that talk. In addition, we believe that personal development of any type has transfer power to the business. As people grow, the business benefits from their increased insight, creativity, and wisdom. In order for this policy to work, however, employees need to know how their jobs fit into the big picture, what competencies are required for their jobs, and how any learning is aligned with business objectives. Question #3: What level of support will be required to institutionalize continuous learning? For example, what policies need to be created to support learning and development? While we don’t recommend creating a raft of policies that would dizzy even the most bureaucratic of organizations, we do recommend developing policies related to:

LEARNING AND DEVELOPMENT    

Tuition reimbursement Dollar limits for classroom and online learning Approval process Line item allocations and charge backs

A critical success factor is to list all the questions that will need to be addressed in order for learning and development to realize its potential. The three questions discussed above may trigger additional questions for you. The most important outcome of answering these questions is to institutionalize learning in the culture. This will not happen with a random, event-based approach to learning.

Your Critical Success Factors

The Reality Implementing a learning strategy requires several critical decisions concerning the development and delivery of learning opportunities. Here are a few of the key questions that need to be answered. 1. What programs best support your performance needs, competency requirements, culture, and business strategy? 2. Should you develop your own programs or buy programs that are already developed? 3. Should you build an internal staff for learning and development or outsource most of the programs? 4. How should you deliver your learning opportunities: online, self-paced, or in a classroom? 5. How can you customize all learning opportunities so that they reflect your way? Question #1: What programs best support your performance needs, competency requirements, culture and business strategy? All skills need to be mapped against the business strategy, the cultural requirements, and competency model to ensure that you are linking all of your course offerings to business needs. You also need to link the learning options to the competency requirements. Development and delivery must take into account not

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HR OPTIMIZATION

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only what courses should be offered, but also who teaches them and how they are best delivered. Start by identifying the company’s business goals. Next, align performance requirements to those business goals. If there is a gap, investigate. The gap may exist because of non-skill and knowledge issues (i.e., a process needs to be modified). On the flip side, you may find that the gap exists because the majority of the performers do not have the right skills and knowledge. At this point, seek out the highest performers. Interview these performers (internal or external) and use their help to identify the skills and knowledge used to perform the process. Next, determine if the majority of performers truly do not possess the required skills and knowledge (you may do this via surveys, observations, assessment reviews, leadership insight, etc.). If they do not, you will be much more inclined to buy or create the learning program. Question #2: Should you develop your own programs or buy programs that are already developed? We recommend that, whenever possible, you should buy programs that are already developed. There are a multitude of courses available to teach most required skills and it is very expensive and time intensive to develop courses from scratch. However, there may be certain courses that can only be developed internally because of the uniqueness of your culture, products, methodologies, and leadership style. Another dimension of this question is whether to provide programs electronically or in live classrooms. The answer to this question must take into account costs and learning styles, but one factor is to ask how results will be measured. A simple rule of thumb is if it can be tested on the Web, it can be delivered on the Web. For example, teaching swimming might be hard to measure on the Web, but spreadsheet mastery could be tested on the Web. Question #3: Should you build an internal staff for learning and development or outsource most of the programs? We recommend an outsourced model. Hiring internal staff is not only expensive, it tends to be ineffective over time because skill requirements are constantly changing. However, most companies need a driver and sponsor of learning as well as a core infrastructure to coordinate the customization of all content by subject matter experts and to develop and oversee all internally developed programs listed in the development recommendations. The roles of the internal learning and development organizations need to be clearly defined and collaborative opportunities agreed upon. We suggest that the learning and development organizations (Learning Council) should have the following roles:  Develop and implement the learning strategy.  Select and administer the appropriate systems and technologies for implementing the strategy.

LEARNING AND DEVELOPMENT  Help develop cultural support for thinking and learning.  Orchestrate and manage the delivery of internal and external courses. Question #4: How should you deliver your learning opportunities: online, selfpaced, or in a classroom? Overall, it usually makes sense to deliver most of the technical courses online, whereas the leadership, marketing, sales, and professional development courses are better taught in a classroom situation. You will need to continually evaluate the blend of high-tech and high-touch delivery. You should also continue to look at how you can convert some of the course content you now deliver in classrooms into online versions, particularly as you grow globally. Question #5: How can you customize all learning opportunities so that they reflect your way? Your company surely has some “secret sauce” it doesn’t want to share with the outside world. You need to ensure that your sauce gets mixed into the learning recipe without compromising its integrity. We recommend forming a close relationship with an outside training provider with whom there is a high degree of trust and who can help to customize some of the courses. We also recommend that associates participate in the development and delivery of courses where it makes sense. Some courses, particularly in leadership development and operations, should be home grown so that you can continue to differentiate your company in the marketplace by your leadership style, corporate culture, and intellectual capital. Most important, all learning opportunities need to be built around the core competencies. The underlying dynamic in most of these questions is whether programs are being offered to justify HR existence and survival or are being offered to enable business growth. To the extent that HR gets caught up in its own survival needs, it will continue to miss opportunities to partner effectively with its business clients.

The Work Contract Has Changed. Did We Tell Anyone? The work contract used to be: Loyalty for Security. Now it is Commitment for Development in a safe and secure environment. For most of the 20th century, workers felt that as long as they remained loyal to the company, they could expect job security and health coverage. Even though there were always issues about pay inequity, market comparability, benefits design, and work environment, workers did not typically feel anxious about losing their jobs through restructuring, downsizing, or re-layering. While there have always been fairness issues, lack of security was not a predominant concern. As a result of that psychological contract, many workers never worried

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HR OPTIMIZATION about their market value, i.e., what their current skills were worth in the marketplace. In essence, these workers engaged in planned obsolescence. When layoffs became more common toward the end of the century, these workers found themselves scrambling for jobs at significantly reduced wages. The old contract is dead. Very few companies are now willing to guarantee job security for any length of time, so it is a bit unrealistic to think that employees should be totally loyal. On the other hand, most companies provide developmental opportunities for employees that make it easier for employees to find new jobs if economic conditions require significant cost and headcount reductions. In exchange for the ability to learn new skills, it is reasonable for organizations to expect that employees demonstrate high commitment while they are employed. The new contract can be graphically depicted by the following grid:

Responsibility

Expectation

Organization

Provide developmental opportunities

High commitment while employed

Individual

Learn the skills required to increase market value

Respect, fairness, and integrity during time of employment

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Expecting high commitment in Europe and Asia, however, can be problematic. The reaction is, “How do you know what my commitment is?” More acceptable language in Europe and Asia is “personal accountability and support.” Development has to include consideration for expatriate assignments as well. In a global economy, one of the most critical skill-sets a person can learn is how to conduct business in multiple cultures.

Your Reality

Top Ten Lessons Learned 1. Educate people about possibilities for growth. 2. Demonstrate the impact of programs through ROI analysis.

LEARNING AND DEVELOPMENT 3. 4. 5. 6. 7. 8. 9. 10.

Be more concerned with quality than quantity. Understand what it will take to be successful in the organizational culture. Map learning to performance needs and business results. Create a value proposition and reasons to change. Don’t forget the basics: Skills + Support = Success. Leverage the power of sponsorship. Involve stakeholders. Solve business problems through networking, relationship building, and collaboration.

Conclusions A comprehensive learning and development program encompasses the components of professional development, sales development, technical training, and product training. The functions of learning and development are individual growth, organizational growth, and company growth. Multiple processes are employed to discharge these functions: self-paced learning, e-learning, and instructor-led training. Clearly, the extent to which the company embraces the notion of organizational learning impacts the effectiveness of learning and development initiatives, but the standard of positive and sustainable performance remains constant.

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Chapter

5 Staffing

Introduction A great company is built by great people. The search for world-class talent is an ongoing priority for a great company. One critical requirement for a great job is to be able to work with great people. Exceptional talent attracts exceptional talent. All of these principles underscore the importance of staffing.

Scale There is a range of possible outcomes in any effort to change the staffing process. The following scale helps envision possibilities and assess current realities: 5: World-class talent attracted, hired, retained, and aligned behind corporate objectives. Staffing is measured on the performance of people hired. 4: Great talent attracted, hired, and retained. Staffing is measured on retention of mission critical/highly capable talent. 3: Adequate talent attracted, hired, and retained. Staffing is measured on cost per hire, time of open requisitions. 2: Fair talent attracted and hired. Staffing is measured on number of positions filled. 1: Poor talent attracted and hired. Staffing effectiveness and efficiency are not measured.

HR OPTIMIZATION Where are you now on this scale? Where do you want to be on this scale in one year?

_____ _____

Why Change

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Historically, Company E relied heavily on outside agencies to conduct a high percentage of searches. While the agencies were able to source excellent candidates, the costs were very high. In fact, average cost per hire in some departments exceeded $15,000. While a reasonable standard for agency usage is around 10 percent of hires, several groups had agency usage in the 35 to 40 percent range. In addition, Company E sourced a large number of employees from personal contacts. While employee referrals can be a rich source of candidates for a company, it can also lead to an extremely homogeneous workforce. For Company E, the sourcing pool consisted predominantly of white, male, military athletes. This DNA (organizational gene pool) served Company E well when the sales strategy was to be the most aggressive player in the market and when the primary clients were white male engineers. But in the new competitive, relationship-oriented marketplace, this strategy no longer makes sense. Company E needs to attract a diverse workforce through a more cost-effective mix of sourcing strategies. It needs to not only recruit a more heterogeneous workforce, but also to encourage its diverse workforce to recruit from diverse talent pools. To compound the problem, managers within the company perceive HR as résumé finders instead of staffing consultants who could add value to the entire staffing process. In short, Company E needs staffing to attract and retain the right talent.

Your Reasons to Change

Critical Success Factors One of the most critical factors of a great job is working with great people. Waging the war for talent requires real commitment from senior leadership and processes that result in excellent choices. There are five phases within a Staffing Methodology or Process: Planning, Sourcing, Assessing, Closing, and Engaging. People, culture, and technology support and enable these five phases. The people enabler includes interviewers, managers, business partners, etc. The

STAFFING cultural enabler refers to the norms and values in the organization that either enhance or impede a systematic process. The technology enabler makes it possible to conduct the staffing process more efficiently and effectively.

Planning

Sourcing Assessing

Closing

Engaging

People, Culture, and Technology 1. Planning Phase The planning process begins with the creation of a workforce plan and ends with a clearly defined approach to filling jobs. This plan includes the roles that each person will play within the staffing process. Workforce planning brings together business executives, finance leaders, HR leaders, and hiring managers for the purpose of creating a top-down and bottom-up view of the human capital requirements to achieve business objectives. Hiring managers identify ideal start dates and the staffing organization rolls up all the requirements (competencies, experience, knowledge, skills, and attitudes) and start dates into a comprehensive plan. The workforce plan is used to create a hiring plan. This plan takes into account turnover and internal transfer expectations. With the workforce plan and hiring plan in place, staffing consultants facilitate a conversation with business executives and finance leaders that results in a staffing budget. Based on the budget, staffing leaders define and implement a collateral strategy to attract talent. Also after budget approval, hiring managers create job requisitions and secure approval. Staffing consultants verify that the job requisition content is accurate and complete. Once the requisition is approved, the manager and staffing consultant meet to commit to a staffing strategy that is documented in a service-level agreement. In this document, the staffing consultant and hiring manager create a staffing strategy for each of the remaining steps of the methodology and reach agreement on start dates, assessment procedures, interview teams, and the communication strategy. After role expectations are defined, the staffing consultant moves the approved requisition to open status in the staffing system. Entering the requisition into the system enables the staffing organization to track the time and costs associated with each position.

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HR OPTIMIZATION 2. Sourcing Phase The goal of the sourcing phase is to attract talented individuals for opportunities on a global basis. During this phase, candidates become aware of and excited about career opportunities. During the planning phase, the staffing consultant and hiring manager defined a sourcing strategy. Now the strategy will be verified and updated to reflect any changes. The staffing consultant verifies the job description, prioritizes job requirements, ensures that the approved recruiting budget is appropriate for the job, uses internal and external resources available to source the best candidates, and updates the service-level agreement as necessary. The hiring manager identifies target companies or candidates for the job, gains approval for additional sourcing costs as necessary, participates in sourcing efforts, and solicits candidate referrals from colleagues.

3. Assessing Phase

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The assessment phase is designed to measure the fit between the candidate and the job. The assessment includes measuring a candidate’s capabilities, motivations, and cultural fit with the organization. The goal is to find candidates who fit well with the corporate culture and who demonstrate how their skills and values are aligned with business needs. In this phase, candidates also assess the organization and decide if the company meets their expectations for a rewarding career opportunity. During this phase, the staffing consultant meets with the other members of the qualifying team to review and update the staffing strategy, determines if the candidate meets the minimum requirements as defined by the hiring manager, conducts the initial candidate interview, provides an introduction to the company, and facilitates a structured feedback discussion with members of the qualifying interviewing team.

4. Closing Phase The goals of the closing phase are to acquire candidates who are the best fit for the jobs available, to notify candidates who were not selected, and to have candidates who, regardless of the outcome, feel better about the company after participating in the staffing process. During this phase, the staffing consultant verifies the candidate’s current compensation and expectations, identifies outstanding issues, and defines the compensation package within the compensation range. Then the staffing consultant and hiring manager work together to create a compelling offer, including salary, bonus, stock, relocation (if necessary) benefits, and development/career opportunities. The hiring manager gains

STAFFING additional offer/contract approval if the final compensation package is outside the range approved in the requisition. After all these details are covered, the appropriate leader communicates the verbal offer to the selected candidate and communicates his or her decision to other members of the hiring team. As a person transitions from “candidate” to “new hire,” it’s the responsibility of staffing to complete the appropriate paperwork.

5. Engaging Phase The goals of the engaging phase are to help orient new colleagues to their new company and fully assimilate into the culture, to ensure that they have the tools and relationships necessary to start their new jobs, and to facilitate a rapid learning curve. During this phase, the staffing consultant and hiring manager work together to ensure that new hires have office space with computer equipment, are set up in payroll, and have signed up for benefits. The hiring manager should also introduce the new hires to other colleagues inside the group and create a support network outside the group, possibly including mentors. As a result of the engagement phase, new colleagues not only understand job expectations and how their jobs relate to the overall business strategy, but also feel connected to their teams.

Your Critical Success Factors

The Reality While staffing theory appears logical, reality often presents many challenges. Here are some examples from our experience. Good times vs. bad times. Staffing issues change dramatically in different economic conditions. During good times, getting the right people presents a major challenge. The emphasis is on creating the most compelling offer in order to compete with multiple offers the candidate brings to the table. Sourcing good candidates is a continuous challenge because the demand for talent far exceeds supply. During bad times, getting a requisition approved presents the major

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HR OPTIMIZATION

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challenge. The supply and demand curve shifts, so the supply of candidates far exceeds demand and the caseload and the nature of work in staffing changes. It’s difficult to maintain excitement and motivation in the staffing organization during tough times because there are always stops and starts, and the interviewing process is typically drawn out. In short, sourcing presents the biggest challenge during good times, and selection (assessing and closing) presents the biggest challenge during bad times. Quality vs. quantity. Staffing is typically assessed on the number of jobs it is managing, the number of candidates that are presented, the number of people hired, and the cost per hire. Unfortunately, these quantitative measures do not reflect the quality of the hire. The most important measure of staffing is retention and performance, i.e., does the person stay and does he or she demonstrate the level of contribution and commitment expected. While cost is fairly easy to compute, the effectiveness part of the equation is usually ignored. Effectiveness can be measured by the time it takes the person to reach peak performance on the job, how long the person stays with the company, and whether or not the person is promoted or advances in the organization. These measures are more qualitative and take more time to track. The real issue is whether or not staffing is able to get the right person in the right job at the right time. These are all qualitative measures that rarely get the attention they deserve. Recruiters vs. consultants. Changing the way people think about staffing is an ongoing challenge. Most business leaders have an image of people in staffing as recruiters—people who source candidates and get them hired. The staffing consultant is a person who adds value to each phase of the staffing process: planning, sourcing, assessing, closing, and engaging. An effective staffing consultant is much more than a recruiter. A staffing consultant is engaged in workforce planning, performance assessments, and ongoing dialogue with clients about getting the right resources working on the most important tasks. Changing the image of staffing with clients and positioning staffing appropriately in the organization as a value-added service is a reality that staffing consultants confront on a daily basis. The people in the role of recruiting talent into the organization are perceived by candidates as the “face” of the company; the representatives who embody the culture and character of the company. In many cases, this face is the only contact a candidate has with the company. The impression the staffing consultant leaves with a candidate has significant impact on the company’s brand image in the marketplace. The impact the staffing function has on the perception of the marketplace should not be underestimated. A number of factors make up this impact: the quality of the staffing consultants’ work, their personal character, their broad

STAFFING and in-depth knowledge of the company they represent, and their personal commitment to the company and its mission. The reality is that this value is rarely recognized or appreciated. Manual vs. electronic. Managing changes in realistic time frames is difficult with manual procedures. There are client demands for weekly reports as well as daily requests. Trying to respond to all the requests for information and for people is practically impossible without an electronic system. Staffing systems, e.g., Brass Ring or WebHire, enable the staffing process and make it more efficient and effective. Spreadsheet accuracy is critical for managers to control their expenses and make informed decisions. Providing that accuracy and ensuring data integrity is much easier with electronic tools and systems.

Your Reality

57 Top Ten Lessons Learned 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

You can’t fix what you don’t measure. The recruiting system is a critical enabler. Choosing the most important metrics is critical. It takes years to establish/inculcate great processes. Leadership changes dramatically affect the ability to move from one level to another. You must align staffing strategy with competencies required for today and tomorrow. The requisition process is necessary to focus on what matters, e.g., competencies, cultural fit, level of commitment. Focus on hiring the “right” people vs. world-class talent. Every company says it wants to hire top talent—very few want to invest the time, money, and resources to do it. Employer of choice may be the wrong strategy; you want the right people in the right jobs.

HR OPTIMIZATION Conclusions The components of a comprehensive staffing program are planning, sourcing, assessing, closing, and engaging. The functions of staffing are to recruit a diverse and talented workforce that meets business needs and to retain the most critical and capable people. Several processes are used to discharge these functions: direct hiring, Internet recruiting, employee referrals, agency assignment, and assimilation. Clearly, the abundance or scarcity of talent in the labor market affects staffing programs, but the standard of getting the right person in the right job at the right time remains constant.

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Chapter

6 Leadership Development

Introduction There is no possibility of creating great jobs in a great company without effective leadership. A person’s relationship with her or his boss is a major factor in how the person views the job. A positive and productive relationship is essential. But many managers are promoted to leadership positions without having the skills to build relationships and mobilize commitment to the organizational goals and objectives. Leaders need to be continually assessed for performance and potential: performance is a combination of the contribution the leader makes as well as the leadership role he or she plays; potential is a combination of capability and commitment. An effective leader contributes to the company’s strategic direction, to the bottom line, and to the organizational culture. In this chapter, we will discuss the competencies required for great leadership as well as the process used to optimize talent.

Scale There is a range of possible outcomes in any effort to improve leadership development. Here is a scale to help envision possibilities and assess current realities: 5: Most promotions from within are extremely successful. 4: Most promotions from within are very successful. 3: Many promotions from within are successful.

HR OPTIMIZATION 2: Some promotions from within have limited success. 1: Almost no promotions from within; rare success.* *It should be noted that many companies promote from within, but those promotions turn out to be unsuccessful because the promotions are based on inappropriate criteria and/or nothing is done to help the person acquire the competencies required for success in the new position. This scale does not reflect that option, but if that is the case for your company, you should assign yourself a level 1 rating. Where are you now on this scale? _____ Where do you want to be on this scale in one year? _____

Why Change

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Leadership development needs to change because marketplace and organizational requirements have changed. In the past, Company F needed its managers to drive for results, control costs, and monitor work. In response to that need, HR provided a series of supervisory and management-level courses that taught managers the fundamentals of supervision. These courses focused on tactical considerations and helped managers comply with internal policies and external laws. They were designed to enable managers to do their jobs and relate to people in reasonable ways. In the marketplace today, there is a need for continuous generation of new ideas to help customers win with superior products, services, solutions, and partnerships. In the organization today, there is a need for leaders to inspire people to think creatively about new ways of working, to motivate people to perform at their highest levels, and to align all work behind corporate goals and priorities. Whereas in the past most decisions were made by a small group of executives, there is now an attempt to push decision making lower in the organization and to hold managers accountable for the results to which they commit. These new requirements mean that leaders have to think strategically and relate collaboratively in order to be successful. It is no longer sufficient to perform well as a supervisor or manager by monitoring tasks and controlling costs. In today’s world, every employee needs to think and act as a leader by identifying priorities, building programs and teams, and driving results. If we are going to provide opportunities for people to grow, we need to provide them with the skills and support they need to be successful. Company F needed to change because the predominant leadership style was resulting in poor morale and turnover of key talent. In order to improve morale, productivity, and profitability, Company F now requires leaders who are competent, empowered, and collaborative.

LEADERSHIP DEVELOPMENT Your Reasons to Change

Critical Success Factors The functional tests of leadership development involve asking the following questions: 1. Are we promoting from within? 2. Are our leaders successful in their jobs? If our leadership development efforts are effective, then we should be growing sufficient talent internally to fill new leadership roles as they open up. It is not sufficient, however, to provide leadership opportunities to internal candidates. The people who are promoted must succeed in their new jobs. The challenge is to determine what makes a good leader in different cultural contexts. A leader could be extremely effective in North America and fail miserably in Japan. Similarly, a leader could perform well in marketing and not do well in engineering. There are certain truths about leaders, however, that hold constant in any context: integrity, the ability to identify strategic opportunities, the ability to build teams, and the persistence to drive results. One important factor in the success of any leader is to be clear about the measures of success at the beginning of the job. In order to be effective, leaders need to be able to know and grow:    

Their own commitment and capabilities Others’ commitment and capabilities Their organization’s capabilities Their customers’ capabilities and satisfaction

These are the four components of leadership. Leaders need to focus on knowledge and growth for themselves, others, their organizations, and their customers. There are well-defined meta competencies that enable leaders to discharge their responsibilities in all four components of leadership:  Envision possibilities.  Assess realities.  Think creatively and analytically.

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HR OPTIMIZATION    

Relate inclusively and interdependently. Plan dynamically. Act rigorously and relentlessly. Learn continually.

The grid on the next page provides examples of competencies that are directly related to success in each cell. Thus, if the primary component of a leader’s job is to know and grow the customer, and the primary functions are to think creatively and relate interdependently, then the competency in that cell will indicate what the leader needs to know in order to be successful. The assignment of competencies to each cell is not meant to be exclusive. For example, the competency of motivating others could be critical in multiple cells. Since this book is an invitation to transformation, the cell assignments should be seen as stimuli for you to think through what competencies are required in your organization. As mentioned earlier, the challenge was to identify required competencies for a leader whose primary job responsibility was to know and grow customers and whose primary functions were to think creatively and think interdependently.

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Thus, in this example, the competencies required for success for this leader would be: Business acumen, Intellectual horsepower, Problem solving, Customer focus, Integrity and trust, Presentation skills, Written communications Essentially, good leaders need to be able to envision, assess, think, relate, plan, act, and learn. These are the metacompetencies of leadership. Leaders need to be able to size up people and situations, analyze organizational dynamics, and diagnose accurately what it takes to motivate people. They need to generate new responses to changing conditions and apply innovation to customers’ needs. They need to be able to engage people in meaningful dialogue and create an environment of trust. They need to be able to plan, organize, manage, and measure work in efficient and effective ways. And finally, they need to be able to hire the right people, get work done, and drive for results. All of these competencies can be summarized by Identify, Build, and Drive. The effective leader identifies strengths, weaknesses, opportunities, and threats; builds individual and organizational capabilities; and drives for results.

Self-knowledge, Career ambition

Work/Life balance

Timely decision making

Personal disclosure, Ethics and values, Composure

Planning, Priority setting

Perseverance, Standing alone, Action oriented

Personal learning, Self-development

Envision Possibilities

Assess Realities

Think Creatively and Analytically

Relate Inclusively and Interdependently

Plan Dynamically

Act Rigorously and Relentlessly

Learn Continually

Know and Grow Your Own Capabilities and Commitment Strategic agility Innovation management, Customer listening Business acumen, Intellectual horsepower Problem solving

Process management Re-engineering, Action orientation, Functional and technical skills Dealing with paradox, Technical learning

Organizational agility, Perspective, Managing vision Time management Dealing with ambiguity, Creativity, Decision quality Boss relationships, Comfort around higher management, Managing diversity, Political savvy Organizing Command skills, Managerial courage, Drive for results Learning on the fly

Conflict management, Negotiating Fairness, Caring, Compassion, Patience, Humor, Interpersonal savvy, Listening, Informing Managing and measuring work

Managing diversity

Delegating, Developing, Confronting, Directing, Building teams

Sizing up people, Understanding others

Hiring and staffing, Motivating others

Customer focus, Integrity and trust, Presentation skills, Written communications

Know and Grow Customer Capabilities and Satisfaction

Know and Grow Others’ Capabilities and Commitment

Know and Grow Organizational Capabilities

Leadership Competencies

LEADERSHIP DEVELOPMENT

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HR OPTIMIZATION Your Critical Success Factors

The Reality While leadership theory appears logical, the reality usually presents many challenges. Here are some examples from our experience. Company F’s CEO issued a challenge to his management team: “We need to optimize our resources throughout the organization. That means we need to ensure that  We have our best people in our most important jobs.  We have development plans for our high performance/high potential people.  We no longer accept or ignore poor performance.” His bold and demanding challenge raised several questions:

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1. How do we evaluate objectively what our most important jobs are? 2. How do we evaluate objectively who our highest performing/high potential people are? 3. How do we ensure that we are providing the right developmental opportunities to the right people? 4. How do we deal fairly with poor performers? HR took on the task of providing substantive responses to all these questions. Question 1: How do we evaluate objectively what our most important jobs are? In order to answer this question, we needed to develop criteria for evaluating each vice president (VP) job. These criteria were designed to evaluate if the job really merited a VP or senior vice president (SVP) title. Company F had 186 VPs for an employee population of 4,200, which meant that about 4.4 percent of its employees had a VP title. A benchmarking study indicated that in comparable high-tech companies, about 3 percent of all employees were VPs. That meant that Company F had about 60 more VPs than what one might find in a benchmark company. That statistic posed a problem because the intent of this process was not to demote 60 VPs, but to ensure that the highest performing people were in the most important jobs. Thus, one of the first challenges of this process was to keep the discussion laser focused on optimization vs. demotion.

LEADERSHIP DEVELOPMENT We established a set of criteria to facilitate the analysis and dialogue. Here are the criteria we used to evaluate the jobs and the people.

Senior Management Job Rating Scales Instructions: Refer to the standard criteria below to evaluate each VP titled position in your organization. Do not evaluate the person in the role today—this is a job evaluation only. Total the points associated with each job you evaluate. Job Title: __________________________________ Name of Person Currently in Job __________________________________ Strategic Nature of Job/Liability Potential _______ 5: 4: 3: 2: 1:

Extremely Strategic and/or great liability potential in the case of inaccuracy Very Strategic or high liability potential in the case of inaccuracy Strategic or liability potential in the case of inaccuracy Somewhat Strategic or liability potential in the case of inaccuracy Tactical or no real liability potential in the case of inaccuracy

Size and Scope of Job

_______

5: >100 employees 4: 51–100 employees 3: 25–50 employees 2: 15–24 employees 1: $50 million in sales or >$18 million in costs $30–50 million in sales or $12–18 million in costs $20–29 million in sales or $6–12 million in costs $10–19 million in sales or $1–6 million in costs < $10 million in sales, 20; VP = 15–20

Senior Management Personal Ratings Instructions: Refer to the standard criteria below to assess each of your senior managers (VPs and above). Total the points associated with each person you assess. Name: _____________________________________________ Performance: (How is this person doing on current job?) Contribution: _______

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5: 4: 3: 2: 1:

Far exceeding expectations on current job Exceeding expectations on current job Meeting expectations on current job Falling short of expectations on current job Falling far short of expectations on current job

Leadership: 5: 4: 3: 2: 1:

Inspires others in people development and core values Promotes people development and impacts core values Actively develops people and supports core values Sometimes engages in people development and supports the values Doesn’t engage in people development and/or distracts from the core values

Potential (Can this person do more?) Capability: 5: 4: 3: 2: 1:

_______

_______

Has the knowledge, skills, and experience to do much more Has the knowledge, skills, and experience to do more Has the knowledge, skills, and experience to do more with development Lacks the knowledge, skills, or experience to do more Does not have the knowledge, skills, and experience to do more

LEADERSHIP DEVELOPMENT Commitment:

_______

5: Extremely committed to the company, personally accountable for company growth 4: Very committed to the company, personally accountable for organizational growth 3: Committed to the company, personally accountable for departmental growth 2: Lacks commitment to the company, accountable for personal growth 1: Not at all committed to the company, not accountable Question 2: How do we evaluate objectively who our highest performing/high potential people are? The senior management teams of each organization reviewed each job on the Job Rating Scales and each VP on the Person Rating Scales. If a VP job fell below a total of 15 points on the five scales, that job was tagged in case the person in the job were to leave for any reason. The person was not demoted, but the job was designated as one that would not be replaced as a VP. In a separate exercise, each VP was rated on the Person Rating Scales. Since there were two scales for Performance and two scales for Potential, it was possible to map the totals into an optimization model (see page 68) using the following guidelines:

Performance: High: Exceeds expectations/Inspirational leader (8–10) Med: Meets expectations/Impact player (5–7) Low: Falls short of expectations/Detracts from core values (