Future of HR from a Business Performance Perspective

THE FUTURE OF HR…FROM A BUSINESS PERFORMANCE PERSPECTIVEHR’s Role In Building a Performance Culture LWHRA February 8, 2011 © Dr. John Sullivan Author, Professor and Advisor to Management www.drjohnsullivan.com

Follow along on your mobile deviceTo view this presentation on a mobile device orreview at a later date, see it on SlideShare:http://bit.ly/ 2

Five goals for today1. To highlight the strategic purposes of HR2. To help you understand the key components that shareholders expect in a performance driven culture3. To provide you with some real world examples and action steps4. To have some fun… while making you think (and maybe even a little uncomfortable)5. To answer your questions (breakout session) 3

Performance culture #1 critical priority Top people concerns among senior business executives are: 1. Creating a high-performance culture (79%) 2. Leadership development (76%) 3. Talent Management (76%) 4. Training (63%) Why? Because of the business need for “a relentless focus on innovation, productivity, growth, and customer service.Source: Aligned at the Top, Deloitte/Economist Intelligence Unit Study, 2007 4

What is the definition of a performance culture? 5

Briefly, what is a performance culture?Definition1. An organization where every talent management, people management and business process is designed and operated for the highest measurable impact on firm performance2. People management processes related to hiring, rewards, promotion, metrics, development, retention, communications etc. must be primarily based on performance and output 6

Briefly, what is a performance culture?Definition3. The organization must also deemphasize “smoke” but not output factors like… Tenure Show up pay Effort Experience Education Loyalty Peanut butter treatment 7

Even policies can deemphasize common restrictions Code of conduct… “Googles respect and affection for our canine friends is an integral facet of our corporate culture. We have nothing against cats, per se, but were a dog company” 8

Who are the firms with a performance culture? 9

Most HR functions don’t produce a perf. culture 1% Performance Culture w/Next Practice 25% Best Practice 65% Average 9% - Antiquated “so last year” 10

Benchmark firms to learn fromFirms that have performance cultures: GE  Most professional Google sports teams Microsoft  US Marines Oracle  Whole foods Nucor  Netflix Wal-Mart  Apple 11

A quick snapshot – Netflix (How is there stock doing?) 12

Netflix has a performance cultureCEO’s of performance cultures act differently: * Google and GE also do Topgrading 13

Netflix has a performance cultureAt Netflix... “cutting smartly” means: “adequate performance gets a generous severance package.”Why? “otherwise managers feel too guilty to let someone go!” 14

Netflix has a performance culture“Star” employees demand different treatment: Netflix Vacation Policy and Tracking “there is no policy or tracking” Netflix Policies for Expensing, Entertainment, Gifts & Travel: “Act in Netflix’s Best Interests” (5 words long) 15

Why does HR exist?What are its strategic purposes / outputs? 16

What are the strategic purposes of HR?HR’s accepts accountability for six outcomes:1. Make a measurable contribution to increasing the stock price > 17

Best place to work – shareholder value increaseSource: Great Place to Work Institute (abbreviated chart) 18

HR practices impact on shareholder valueReturn to shareholders…Compared to the level of HR practice Blue = Low Value HR, Dark Purple = Better HR, Light Purple = Best HR 19

What are the strategic purposes of HR?HR’s accepts accountability for six outcomes:1. Make a measurable contribution to increasing the stock price2. Produce and demonstrate an above-average ROI on employee costs (60% of variable cost/productivity) > 20

Can changing the work environment impact productivity? Results Only Work Environment •Pick your hours •Pick where you work •No in-person meetings requiredThe business impacts:When workers switch to ROWE, their productivity jumps by 35% 21

What are the strategic purposes of HR?HR’s accepts accountability for six outcomes:1. Make a measurable contribution to increasing the stock price2. Produce and demonstrate an above-average ROI on employee costs (60% of variable cost/productivity)3. Increasing the ideas and innovations generated by your employees > 22

Does innovation mean increased productivity?These are all top firms… but some focus more oninnovation… IBM HP Microsoft Apple GooglePick the firm with the lowest level of innovation and the two firms with the highest level of employee innovation in recent years.

Comparing firms on their workforce productivityWorkforce productivity (i.e. rev per employee)Average $208,000 (Average for this industry)IBM $246,600 (23% above the average)HP $406,900 (Nearly double the average)Microsoft $722,700 (Over 3.5 times average)Google $1,303,000 (Nearly 6.5 times)Apple $1,631,000 (Nearly 8 times the average & the highest stock value)It takes 6.5 X more employees at IBM… toproduce the same revenue as Apple (Calculated using 2010 data) 24

What are the strategic purposes of HR?4. Mitigating major risks (i.e. loss of top talent, missed hiring opportunities)  Loss of Mark Hurd at HP  Loss of Steve Jobs at Apple?  Missing an opportunity to land Tiger Woods on your golf team ROWE teams mitigate turnover risk -they have a 3.2 % lower turnover rate (The cost ofturnover is $102k per employee = $13 million peryear savings) 25

What are the strategic purposes of HR?5. Improve your employee’s ability/skills to do an increased volume of current work (capacity) and increase ability/skills to do new work (capability) What is the value of having a more capable top performer/ game changer in the same job? (i.e. performance differential) > 26

The performance differentialOne top-notch engineer is worth “300 times or more… than the average … we would rather lose an Alan Eustace entire incoming class of Senior Vice President, Engineering and engineering graduates Research than one exceptional technologist.” 27

The performance differential“One great programmer is worth 1000 good programmers.” Bill Gates Chairman 28

The HR value proposition calculationIf HR helps land “game changers” the $ impact is… If you hire a single game changer at Google (where the average employee generates $1.3 million in revenue each year) And that game changer produces the expected 300x an average employee’s performance ($1.3 X 300) For every one you hire… you add over $390 million in revenue every year And if the new hire stays for only two and half years… that single hire will generate over $1 billion in added revenue (Which is why Google is a hiring machine) 29

O M G!Any questions at this point?

Finally, the last strategic purpose of HR?6. Provide consulting help to managers… so that they can improve the hiring and managing of their employees How do those outside of HR rate our service and contribution? > 31

HR isn’t meeting executive expectationsWhat percentage of senior business leaders believe:HR plays a crucial role in operational 23%success.We are world-class in people management 4%and HR.We have adequate or underperformingpeople management and need significant 79%or radical improvement.Source: Aligned at the Top, Deloitte/The Economist, 2007

HR isn’t meeting executive expectationsAustralian survey reveals perception among seniorbusiness leaders:73 % see HR as ineffectiveApproximately 80 % have little understanding of what HR doesSource: HRpulse Survey-Extreme Makeover, Australian Human Resource Institute, November 2007

The “new HR”Executive search firm… a managing partnerassessment “Even though everyone talks the talk of being a business partners… those HR executives who are actually anticipating the future needs of the business from a strategic and operational point of view are few and far between.” -Wendy Murphy, Managing Partner, Heidrick & Struggles

SummaryLet’s summarize the purpose of HR:1. Increase the stock price2. Increase employee productivity3. Increase use of successful ideas and innovations4. Mitigate major risks5. Increase employee capacity and capability6. Provide consulting help to managers 35

How can performance cultural principles be utilized? 36

Key “shareholder aligned” principles of HRShareholder aligned principles should be used as: a checklist for current program assessment/ auditOr as a design template for new HR programs (a screening filter for new ideas) 37

Here are nine key shareholder principles with action steps and examples 38

Key “shareholder aligned” principles1. Dollarize impacts of HR activities Shareholders and executives have no special affection for "soft" or overhead functions. They understand only “dollars” Action step – all “HR results” must be annually converted to their dollar impacts on corporate revenue (e.g. the cost of a bad hire and the value of eliminating barriers to productivity) An example > 39

Convert HR metrics into dollarsExample The turnover rate of store managers at a major discount apparel store was 40% Unfortunately that number gathered only minor interest Converted to dollars – store sales go down $1 million during the calendar year after a manager leaves Total revenue impact of store manager turnover… $220 million… gets everyone’s attention 40

Key “shareholder aligned” principles2. A “business problem” perspective Typically overhead departments are internally focused, rather than being focused on business problems Action step – rather than attacking "HR problems" like recruiting and retention, the function must target "business issues” and goals like product innovation, increased market share and improved customer service ratings An example > 41

I call these “the questions from hell”I learned the “bus problem perspective” on HRwhen a GM asked me “what is the name of the HRprogram that would…”Increase his output by 12%Cut labor costs by 8%Increase innovation by 23%Increase customer satisfaction rate by 37%Increase revenue by 6.5% What would your answer be? 42

Key “shareholder aligned” principles3. Rapid learning In a rapidly changing environment the key corporate competency is… continuous and self directed rapid learning Action step–hiring, development and promotion standards must be changed to focus on continuous learningAn example: Google learning speedAnd learning everywhere > 43

Learn “everywhere” strategy“Testing on the toilet”Source: www.flickr.com/photos/gubatron/246489031 44

Key “shareholder aligned” principles4. Prioritized treatment Not all individuals, processes, functions and business units have the same impact on results Action step – HR must prioritize jobs, key employees and business units and then allocate the greatest portion of it’s resources to those high priority areasAn example: a bank found that vacant loan officerpositions cost $5000 per day, so they prioritizedhiring and reduced time to fill by 30 days ($150k per position) 45

Key “shareholder aligned” principles5. Use data based-decision making Functions like finance, customer service and supply chain have produced superior results by adopting an evidence or “data based approach Action step – HR must develop algorithms, decision guidelines and provide data that will make it easier for managers to make fast and accurate people management decisionsAn example: Google utilizes the “100 foot rule”,employee shuttles, coffee lines & a laundromat, Why? 46

Key “shareholder aligned” principles6. Foster competition Shareholders are capitalists, so they believe in healthy competition and the need for market forces, even internally Action step – HR must foster contests and internal competitions to increase referrals, innovations, best practice identification and performance improvement.Some examples > 47

Deloitte’s film festival showed their excitement (Yielded 1,000+ videos) 48

Internal competitions can build excitement MGM Grand sends a message that talent triumphs over tenureLearn more about MGM’s commitment to it’s people: http://bit.ly/fotn55 49

This is not a performance culture contestZappos toga party and chug contest on YouTube 50

Key “shareholder aligned” principles7. Agility and flexibility In a fast changing business world, every process must have the capability of adapting rapidly to changes in the business, economic or the competitive environments Action step – HR strategies, budgets & resources must "shift" to meet changing needs and opportunities. If – then scenarios are also requiredAn example: Jet Blue put together a “work athome” call center, that can instantly ramp up andramp down hours 51

Key “shareholder aligned” principles8. Predict upcoming events All functions must be forward-looking so they are not "surprised" by tomorrows events Action step – every major HR process and program must have a problem and opportunity forecasting and alert componentAn example: CACI has a predictive model toaccurately forecast recruiting needs for the year andits internal mobility model is also tied in 52

Key “shareholder aligned” principles9. Broad reporting and transparency The broad distribution of ranked people- management results by manager makes it hard for individual managers to avoid comparing their results to the best managers Action step – HR should distribute metrics and thus increase pressure to performAn example > 53

A very public disclosure of performance

Let Amy, thelow performer,know who shecan learn from(Jesse)

Key “shareholder aligned” principlesAnd finally, a quick overview of six not previouslycovered performance culture principles:10.Build a competitive advantage11.Root cause and failure analysis12.Integrated processes13.Technology everywhere14.Global capability15.Aim for top talent 56

Did I make you… think? Make you a little apprehensive?How about some questions?

Future of HR from a Business Performance Perspective

by Dr John Sullivan on Feb 04, 2011

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Future of HR from a Business Performance Perspective Presentation Transcript