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Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea
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Tomorrow's workplace for tomorrow's workforce jeffrey pfeffer, global hr forum 2010.pdf, seoul, korea

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The change in the content of work in advanced industrialized economies to knowledge work requires the engagement and discretionary effort of employees at all levels. The changing “social compact” or …

The change in the content of work in advanced industrialized economies to knowledge work requires the engagement and discretionary effort of employees at all levels. The changing “social compact” or contract between employers and employees has left employees disengaged and dissatisfied. There is a clear disconnect between the need for (and talk about) employee engagement and what companies are actually doing. There are also discontinuities between what the new workforce wants—interesting work and freedom to use their intellectual gifts and skills—and the increasing computer surveillance and monitoring and ever-growing centralization of decision-making authority in many companies. It is possible to build competitive economies and competitive companies—and it is possible to double sales and triple profits even in a commodity business (paper products) as Kimberly-Clark Andean region did between 20024 and 2008—but doing so requires a fundamental shift in the mind set of most corporate leaders.

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  • 1. TOMORROWTOMORROW’’SS WORKPLACE FORWORKPLACE FOR TOMORROWTOMORROW’’SS WORKFORCEWORKFORCE Jeffrey PfefferJeffrey Pfeffer Graduate School of BusinessGraduate School of Business Stanford UniversityStanford University Stanford, CAStanford, CA
  • 2. THE FUTURE STRATEGICTHE FUTURE STRATEGIC CHALLENGES ARE CLEARCHALLENGES ARE CLEAR…… Increasing emphasis on knowledge work,Increasing emphasis on knowledge work, innovation, and flexibility as cornerstonesinnovation, and flexibility as cornerstones of business strategy and company successof business strategy and company success Increasing global competition, includingIncreasing global competition, including competition from new companies andcompetition from new companies and countriescountries Faster erosion of technologyFaster erosion of technology--basedbased advantageadvantage——the economic life of patentsthe economic life of patents has declined substantiallyhas declined substantially
  • 3. All of which require an engaged,All of which require an engaged, committed, and wellcommitted, and well--trained worktrained work forceforce——to meet the growingto meet the growing competitive challengescompetitive challenges
  • 4. MEANWHILE, THE NEWMEANWHILE, THE NEW WORKFORCE WANTS..WORKFORCE WANTS.. More freedom and workMore freedom and work--life flexibilitylife flexibility More discretion and control over theirMore discretion and control over their workwork Less hierarchy and controlLess hierarchy and control Because they have seen broken promisesBecause they have seen broken promises of security and career advancement, theyof security and career advancement, they are less loyal, less willing to trade offare less loyal, less willing to trade off todaytoday’’s pleasures for future rewards, ands pleasures for future rewards, and less interested in being told what to doless interested in being told what to do
  • 5. THE NEW WORKFORCE HASTHE NEW WORKFORCE HAS GOTTENGOTTEN…… More electronic surveillanceMore electronic surveillance——of computerof computer use, telephone calls, work performanceuse, telephone calls, work performance through computerthrough computer--assisted monitory ofassisted monitory of workwork Less job security and a tough job market,Less job security and a tough job market, particularly for those just leaving schoolparticularly for those just leaving school and entering the labor forceand entering the labor force Increasing difference/dispersion betweenIncreasing difference/dispersion between pay at the top and frontpay at the top and front--line payline pay
  • 6. WHICH HAS RESULTED IN POORWHICH HAS RESULTED IN POOR WORK ATTITUDESWORK ATTITUDES Distrust of management is rampantDistrust of management is rampant——estimatesestimates range from 50% to 66% of employees who donrange from 50% to 66% of employees who don’’tt believe what their organizations tell thembelieve what their organizations tell them A recent Gallup survey showed that 19% ofA recent Gallup survey showed that 19% of employees are actively workingemployees are actively working againstagainst thethe interests of their companies; 71% areinterests of their companies; 71% are disengageddisengaged——justjust ““watching the clockwatching the clock”” In the United Kingdom, a Mercer survey reportedIn the United Kingdom, a Mercer survey reported that only 40% of people have faith in their bossesthat only 40% of people have faith in their bosses
  • 7. TOWERS PERRIN 2007 STUDY OFTOWERS PERRIN 2007 STUDY OF EMPLOYEE ENGAGEMENT IN 18EMPLOYEE ENGAGEMENT IN 18 COUNTRIESCOUNTRIES Survey of 90,000 employees found that justSurvey of 90,000 employees found that just 21% are engaged in their work, with 38% partly21% are engaged in their work, with 38% partly to full disengagedto full disengaged Firms with the highest percentage of engagedFirms with the highest percentage of engaged employeesemployees increasedincreased operating income 19%operating income 19% year to year, while firms with the lowestyear to year, while firms with the lowest percentage of engaged employees showed yearpercentage of engaged employees showed year-- toto--yearyear declinesdeclines of 33% in operating incomeof 33% in operating income
  • 8. SIMILAR RESULTS REPORTED INSIMILAR RESULTS REPORTED IN OTHER SURVEYSOTHER SURVEYS Conference Board reported that job satisfactionConference Board reported that job satisfaction is at an all time lowis at an all time low——and the decline has beenand the decline has been persistent over the past 25 yearspersistent over the past 25 years——this is notthis is not just because of the recessionjust because of the recession Only 38% of employees felt senior managementOnly 38% of employees felt senior management communicates openly and honestly (Towerscommunicates openly and honestly (Towers Perrin study)Perrin study) Between 2004 and 2006 in the U.S., turnoverBetween 2004 and 2006 in the U.S., turnover increased substantiallyincreased substantially
  • 9. WORK ATTITUDES ARE POORWORK ATTITUDES ARE POOR Surveys consistently show that more thanSurveys consistently show that more than 50% (in some surveys, much more) of50% (in some surveys, much more) of employees say the first thing they will doemployees say the first thing they will do when the recession ends is look forwhen the recession ends is look for another jobanother job Even in the recession, turnover in the U.S.Even in the recession, turnover in the U.S. was almost 20%was almost 20%
  • 10. THE WORKPLACE IS NASTYTHE WORKPLACE IS NASTY A study of 5,000 employees in EnglandA study of 5,000 employees in England found that 25% had been bullied and 50%found that 25% had been bullied and 50% had witnessed bullyinghad witnessed bullying A study of 175 registered nurses foundA study of 175 registered nurses found that 60% had beenthat 60% had been””verbally abused,verbally abused, yelled at, and insulted by a physician atyelled at, and insulted by a physician at least once every two monthsleast once every two months”” 27% of a representative sample of27% of a representative sample of Michigan employees reported beingMichigan employees reported being victims of psychologically abusivevictims of psychologically abusive coworkerscoworkers
  • 11. WHAT TO DOWHAT TO DO Implement high performance workImplement high performance work practicespractices Drive out fear (as Deming said)Drive out fear (as Deming said) Stop trying to control or manage tooStop trying to control or manage too muchmuch——and let people use their skills andand let people use their skills and themselves to help execute thethemselves to help execute the organizationorganization’’s visions vision
  • 12. PRACTICES FOR BUILDING APRACTICES FOR BUILDING A HIGH PERFORMANCE CULTUREHIGH PERFORMANCE CULTURE Employment security and a policy ofEmployment security and a policy of mutual commitmentmutual commitment Selective recruiting for cultural fit,Selective recruiting for cultural fit, not just job skillsnot just job skills
  • 13. PRACTICES FOR BUILDING APRACTICES FOR BUILDING A HIGH PERFORMANCE CULTUREHIGH PERFORMANCE CULTURE Sustained investment in trainingSustained investment in training and developmentand development Promotion from withinPromotion from within
  • 14. PRACTICES FOR BUILDING APRACTICES FOR BUILDING A HIGH PERFORMANCE CULTUREHIGH PERFORMANCE CULTURE An egalitarian culture, with fewerAn egalitarian culture, with fewer differences in pay across levels anddifferences in pay across levels and fewer status symbols and perquisitesfewer status symbols and perquisites Relatively high pay, contingent onRelatively high pay, contingent on organizational and group, not justorganizational and group, not just individual, performanceindividual, performance
  • 15. PRACTICES FOR BUILDING APRACTICES FOR BUILDING A HIGH PERFORMANCE CULTUREHIGH PERFORMANCE CULTURE Widely sharing information onWidely sharing information on strategy and performancestrategy and performance——openopen book managementbook management Decentralization of decision makingDecentralization of decision making and delegation, often to selfand delegation, often to self-- managed teamsmanaged teams
  • 16. WHY DO THESEWHY DO THESE PRACTICES WORKPRACTICES WORK——WHATWHAT’’SS IMPORTANT FOR SUCCESS?IMPORTANT FOR SUCCESS? Discretionary effort, includingDiscretionary effort, including acceptance of responsibility and notacceptance of responsibility and not sayingsaying ““itit’’s not my jobs not my job”” LearningLearning CreativityCreativity Leaner and fasterLeaner and faster——more productivemore productive
  • 17. DISCRETIONARY EFFORTDISCRETIONARY EFFORT COMES FROMCOMES FROM…… Rewards for individualRewards for individual andand organizationalorganizational performanceperformance Teams and peer monitoring and controlTeams and peer monitoring and control Employment securityEmployment security No one will work harder if it means they orNo one will work harder if it means they or their colleagues will lose their jobstheir colleagues will lose their jobs Norm of reciprocityNorm of reciprocity
  • 18. DISCRETIONARY EFFORTDISCRETIONARY EFFORT COMES FROMCOMES FROM…… An egalitarian culture in which peopleAn egalitarian culture in which people believe that they and their contributionsbelieve that they and their contributions are important and valuedare important and valued Selecting people who want responsibilitySelecting people who want responsibility and who buy into the culture and valuesand who buy into the culture and values Doing something that people believe isDoing something that people believe is meaningful and importantmeaningful and important
  • 19. LEARNING COMES FROMLEARNING COMES FROM…… Working in teams, so that people help and trainWorking in teams, so that people help and train each othereach other Getting data/information and being trained howGetting data/information and being trained how to analyze and use itto analyze and use it Hiring people who want to developHiring people who want to develop Doing different things, which means feeling safeDoing different things, which means feeling safe enough to try and failenough to try and fail TrainingTraining Employment security so people have time andEmployment security so people have time and interest in learninginterest in learning
  • 20. CREATIVITY COMES FROMCREATIVITY COMES FROM…… Being secure enough to advocateBeing secure enough to advocate ““weirdweird ideasideas”” An egalitarian culture where everyone canAn egalitarian culture where everyone can have a good idea and be heardhave a good idea and be heard Working in teamsWorking in teams——brainstormingbrainstorming
  • 21. PRODUCTIVITYPRODUCTIVITY——LEANER ANDLEANER AND FASTERFASTER——COMES FROMCOMES FROM…… Delegation and decentralizationDelegation and decentralization——less staff andless staff and less redundancyless redundancy Pay contingent on system performance, so thatPay contingent on system performance, so that people get the rewards of their effortspeople get the rewards of their efforts Information sharing so that more people knowInformation sharing so that more people know and can, therefore, take actionand can, therefore, take action Employment security so that knowledge doesEmployment security so that knowledge does not walk out the doornot walk out the door
  • 22. DRIVING OUT FEARDRIVING OUT FEAR Tell people what is going onTell people what is going on——be honestbe honest and tell the truthand tell the truth Admit mistakesAdmit mistakes——when leaders admit whatwhen leaders admit what they donthey don’’t know and their mistakes, itt know and their mistakes, it builds trustbuilds trust Give people second, and even, thirdGive people second, and even, third chances when they make a mistakechances when they make a mistake
  • 23. A PHILOSOPHY THATA PHILOSOPHY THAT DRIVES OUT FEARDRIVES OUT FEAR ““Enlightened trial and error outperformsEnlightened trial and error outperforms the planning of flawless intellects.the planning of flawless intellects.”” ““Fail early and fail often.Fail early and fail often.”” This is betterThis is better than failing once, failing at the end, andthan failing once, failing at the end, and failing big.failing big. David Kelley,David Kelley, IDEO Product DevelopmentIDEO Product Development
  • 24. ADMITTING MISTAKESADMITTING MISTAKES ““This is the best we can think of right now.This is the best we can think of right now. But the only thing I am sure of is that itBut the only thing I am sure of is that it [the structure] is temporary and it is[the structure] is temporary and it is wrong. We just have to keepwrong. We just have to keep experimenting so it keeps getting betterexperimenting so it keeps getting better all the time.all the time.”” David Kelley announcing aDavid Kelley announcing a major reorganization at IDEOmajor reorganization at IDEO
  • 25. STOP TRYING TO CONTROLSTOP TRYING TO CONTROL AND OVERAND OVER--MANAGEMANAGE Monty Roberts,Monty Roberts, The Man Who Listens toThe Man Who Listens to HorsesHorses ““Use a system, haste makes waste, leave fearUse a system, haste makes waste, leave fear and anger behindand anger behind”” ““There have always been infinitely more menThere have always been infinitely more men and women inclined to the whip than to theand women inclined to the whip than to the kind wordkind word”” ““Sense is far from commonSense is far from common””
  • 26. STOP TRYING TO CONTROLSTOP TRYING TO CONTROL AND OVERAND OVER--MANAGEMANAGE Joey Altman, celebrity chef:Joey Altman, celebrity chef: ““What I decide is how the basic processWhat I decide is how the basic process should be handled. Not the means to getshould be handled. Not the means to get there, but what the end isthere, but what the end is…….As far as service.As far as service goes, I realize that I have ten waiters and tengoes, I realize that I have ten waiters and ten different people. I dondifferent people. I don’’t want Darrell to bet want Darrell to be likelike JoanieJoanie, and, and JoanieJoanie, I don, I don’’t you to be liket you to be like SusieSusie…….Susie, I want you to be the best Susie.Susie, I want you to be the best Susie you can be. I just want you all to beyou can be. I just want you all to be knowledgeable and use your strengths of yourknowledgeable and use your strengths of your personality to the best.personality to the best.””
  • 27. WHY SO FEW DO ITWHY SO FEW DO IT Misunderstanding of the source ofMisunderstanding of the source of competitive successcompetitive success——for both companiesfor both companies and countriesand countries Lack of courageLack of courage——easier to follow the crowdeasier to follow the crowd and conventional wisdomand conventional wisdom Emphasis onEmphasis on ““financefinance”” instead ofinstead of ““peoplepeople””—— worrying about money (which is plentiful)worrying about money (which is plentiful) instead of talent (which is scarce) orinstead of talent (which is scarce) or customers (which are also valuable andcustomers (which are also valuable and scarce)scarce)
  • 28. CONVENTIONAL WISDOM ABOUTCONVENTIONAL WISDOM ABOUT SOURCES OF BUSINESS SUCCESSSOURCES OF BUSINESS SUCCESS Being first with an idea is importantBeing first with an idea is important It is important to be in the right industryIt is important to be in the right industry Being large mattersBeing large matters----accounting for the wave ofaccounting for the wave of mergers and consolidationsmergers and consolidations Being in a high technology industry is the pathBeing in a high technology industry is the path to successto success Downsizing and reducing labor costs areDownsizing and reducing labor costs are important for increasing profitsimportant for increasing profits
  • 29. DO YOU NEED TO BE FIRSTDO YOU NEED TO BE FIRST WITH THE IDEA?WITH THE IDEA? Amazon.com was at least theAmazon.com was at least the fourthfourth companycompany to begin selling books onlineto begin selling books online VCR technology was developed byVCR technology was developed by AmpexAmpex Xerox invented the first personal computerXerox invented the first personal computer DinerDiner’’s Club predated the Visa credit cards Club predated the Visa credit card PfizerPfizer’’ss LipitorLipitor was at least thewas at least the thirdthird statinstatin onon the marketthe market There is no evidence for a consistent firstThere is no evidence for a consistent first--movermover advantageadvantage
  • 30. THE EVIDENCE: DOESTHE EVIDENCE: DOES INDUSTRY MATTER?INDUSTRY MATTER? According to a study of 1,800 companies byAccording to a study of 1,800 companies by BoozBooz Allen, industry growth rates were unrelatedAllen, industry growth rates were unrelated to a companyto a company’’s ability to create shareholders ability to create shareholder value over a ten year periodvalue over a ten year period A study by Mercer Management ConsultingA study by Mercer Management Consulting foundfound nono correlation between industry growthcorrelation between industry growth rates and the growth rate of any individualrates and the growth rate of any individual company within an industrycompany within an industry
  • 31. HOW IMPORTANT IS BEING IN THE RIGHTHOW IMPORTANT IS BEING IN THE RIGHT INDUSTRY? 30 YEAR TSRINDUSTRY? 30 YEAR TSR——FROMFROM MONEYMONEY’’ss 3030THTH ANNIVERSARY ISSUE, 2002ANNIVERSARY ISSUE, 2002 Southwest AirlinesSouthwest Airlines——25.99%25.99% WalWal--Mart StoresMart Stores——25.97%25.97% Kansas City Southern IndustriesKansas City Southern Industries——25.61%25.61% Walgreen CompanyWalgreen Company——23.72%23.72% Intel CorporationIntel Corporation——23.49%23.49% Comcast Corp.Comcast Corp.——21.99%21.99% Circuit City StoresCircuit City Stores--CarmaxCarmax——21.71%21.71% Forest LaboratoriesForest Laboratories——21.69%21.69% State Street CorporationState Street Corporation——21.45%21.45% Kroger CompanyKroger Company——21.16%21.16%
  • 32. THE EVIDENCE:THE EVIDENCE: DOES SIZE MATTER?DOES SIZE MATTER? In 44% of the industries covered byIn 44% of the industries covered by Value LineValue Line,, there is athere is a negativenegative correlation between companycorrelation between company size and measures of profitabilitysize and measures of profitability Across the 80Across the 80 nonfinancialnonfinancial industries, theindustries, the average correlation between size and percentaverage correlation between size and percent earned on net worth was just .11.earned on net worth was just .11. Toyota was not as large as General Motors inToyota was not as large as General Motors in sales, but it has been much more profitable.sales, but it has been much more profitable.
  • 33. THE EVIDENCE:THE EVIDENCE: DOES SIZE MATTER?DOES SIZE MATTER? The most profitable airline in the U.S. isThe most profitable airline in the U.S. is Southwest; it isSouthwest; it is notnot the largestthe largest The only other airline to have beenThe only other airline to have been profitable every year for the past 30 isprofitable every year for the past 30 is Singapore; it is also not the largestSingapore; it is also not the largest
  • 34. MERGERS DONMERGERS DON’’T WORK!T WORK! Estimates are that between 70% and 80% of allEstimates are that between 70% and 80% of all mergers fail to deliver the promised economicmergers fail to deliver the promised economic benefits and destroy value in the processbenefits and destroy value in the process A recent metaA recent meta--analysis of 93 studies coveringanalysis of 93 studies covering more than 200,000 mergers published in peermore than 200,000 mergers published in peer-- reviewed journals showed that, on average,reviewed journals showed that, on average, the negative effects of a merger on shareholderthe negative effects of a merger on shareholder value are evident less than a month after thevalue are evident less than a month after the merger is announced and persist thereafter.merger is announced and persist thereafter.
  • 35. THE EVIDENCE: EFFECTS OFTHE EVIDENCE: EFFECTS OF DOWNSIZINGDOWNSIZING Downsizing doesDownsizing does NOTNOT increase stock price,increase stock price, either immediately or over a two yeareither immediately or over a two year period.period. A study using Census of ManufacturingA study using Census of Manufacturing data found that establishments thatdata found that establishments that increased productivity over a tenincreased productivity over a ten--yearyear period were as likely toperiod were as likely to addadd as reduceas reduce people.people.
  • 36. THE EVIDENCE: EFFECTS OFTHE EVIDENCE: EFFECTS OF DOWNSIZINGDOWNSIZING Downsizing often does not even alwaysDownsizing often does not even always cut costscut costs A survey of 720 companies found that 1/3A survey of 720 companies found that 1/3 had brought back laid off employees as tempshad brought back laid off employees as temps or contractorsor contractors Often, the wrong people (the best ones withOften, the wrong people (the best ones with other options) leaveother options) leave After paying severance, companies frequentlyAfter paying severance, companies frequently go back into the market when conditionsgo back into the market when conditions improveimprove——thereby buying high and selling lowthereby buying high and selling low
  • 37. THE EVIDENCE: EFFECTS OFTHE EVIDENCE: EFFECTS OF DOWNSIZINGDOWNSIZING Downsizing reduces morale and increasesDownsizing reduces morale and increases fearfear DonDon’’t announce layoffs without announcingt announce layoffs without announcing whowho is going to leaveis going to leave——otherwise, 100% ofotherwise, 100% of the workforce will be traumatizedthe workforce will be traumatized Downsizing hinders innovation, byDownsizing hinders innovation, by breaking the networks of relationshipsbreaking the networks of relationships necessary for developing and bringingnecessary for developing and bringing new products and services to marketnew products and services to market
  • 38. WHAT ARE THE SOURCES OFWHAT ARE THE SOURCES OF COMPANY & COUNTRYCOMPANY & COUNTRY SUCCESS?SUCCESS? Low wagesLow wages——and consequently, low laborand consequently, low labor costs?costs? Low taxesLow taxes——and consequently, lowerand consequently, lower costs?costs? Absence of governmental regulationAbsence of governmental regulation——andand consequently, more flexibility?consequently, more flexibility?
  • 39. WHAT ARE THE SOURCES OFWHAT ARE THE SOURCES OF COMPANY & COUNTRYCOMPANY & COUNTRY SUCCESSSUCCESS Education and skills of the people?Education and skills of the people? Lack of strong labor unions, facilitatingLack of strong labor unions, facilitating managerial autonomy?managerial autonomy? An engaged, committed, motivated workAn engaged, committed, motivated work force?force?
  • 40. ACCORDING TO THE WORLD ECONOMICACCORDING TO THE WORLD ECONOMIC FORUM, WHICH COUNTRY GOES WITHFORUM, WHICH COUNTRY GOES WITH WHICH GROWTH COMPETITIVENESS RANK?WHICH GROWTH COMPETITIVENESS RANK? ChinaChina IndiaIndia FinlandFinland SwedenSweden DenmarkDenmark SwitzerlandSwitzerland The NetherlandsThe Netherlands #2#2 #3#3 #4#4 #6#6 #10#10 #34#34 #48#48
  • 41. MISPERCEPTIONS ABOUTMISPERCEPTIONS ABOUT COUNTRY SUCCESSCOUNTRY SUCCESS World Economic Forum 2007World Economic Forum 2007--2008 growth2008 growth competitiveness rankings:competitiveness rankings: Switzerland ranked #2Switzerland ranked #2 Denmark #3Denmark #3 Sweden #4Sweden #4 Germany #5Germany #5 Finland #6Finland #6 Singapore #7Singapore #7 The Netherlands #10The Netherlands #10 China #34China #34 India #48India #48
  • 42. MISPERCEPTIONS ABOUTMISPERCEPTIONS ABOUT COUNTRY SUCCESSCOUNTRY SUCCESS TheThe EconomistEconomist Intelligence UnitIntelligence Unit’’s rankings ranking of the best places to conduct business inof the best places to conduct business in the next five years:the next five years: DenmarkDenmark FinlandFinland SingaporeSingapore CanadaCanada SwitzerlandSwitzerland Netherlands ranked 8, Sweden 9Netherlands ranked 8, Sweden 9
  • 43. MISPERCEPTIONS ABOUTMISPERCEPTIONS ABOUT COUNTRY SUCCESSCOUNTRY SUCCESS Richard FloridaRichard Florida’’s study of thes study of the ““creativecreative classclass”” % of jobs creating new ideas, new technology,% of jobs creating new ideas, new technology, or new contentor new content The U.S. now ranksThe U.S. now ranks 1111thth, behind Ireland,, behind Ireland, Belgium, Australia, Netherlands, New Zealand,Belgium, Australia, Netherlands, New Zealand, United Kingdom, Canada, Finland, and IcelandUnited Kingdom, Canada, Finland, and Iceland
  • 44. WHAT DETERMINESWHAT DETERMINES COMPETITIVENESS?COMPETITIVENESS? TheThe EconomistEconomist Intelligence UnitIntelligence Unit’’s reports report on R & D facility location decisions foundon R & D facility location decisions found that it was the availability of talentedthat it was the availability of talented peoplepeople——not taxes, regulation, ornot taxes, regulation, or incentivesincentives——that was the primarythat was the primary determinantdeterminant
  • 45. PEOPLE MANAGEMENT MATTERSPEOPLE MANAGEMENT MATTERS FOR COMPANY FINANCIALFOR COMPANY FINANCIAL PERFORMANCEPERFORMANCE AA study of 100 German companies in tenstudy of 100 German companies in ten industrial sectors found that companies higher onindustrial sectors found that companies higher on employee focus earned a greater totalemployee focus earned a greater total shareholder return than those that did not.shareholder return than those that did not. Employee focused companies also created theEmployee focused companies also created the most jobsmost jobs A study of 129 Korean firms found that thoseA study of 129 Korean firms found that those higher on organizational commitment to theirhigher on organizational commitment to their employees earned a higher return on assetsemployees earned a higher return on assets
  • 46. MENTAL MODELS MATTERMENTAL MODELS MATTER We see what we expect to seeWe see what we expect to see We createWe create ““selfself--fulfilling propheciesfulfilling prophecies”” We make decisions based on ourWe make decisions based on our assumptions and theories of how theassumptions and theories of how the world worksworld works Which means knowing the facts and theWhich means knowing the facts and the evidence is crucial to running a successfulevidence is crucial to running a successful enterpriseenterprise
  • 47. CHOOSE A STRATEGY TO COMPETECHOOSE A STRATEGY TO COMPETE IN THE GROCERY STOREIN THE GROCERY STORE INDUSTRYINDUSTRY Minimize labor costs byMinimize labor costs by Lean staffingLean staffing Minimizing wages, benefits,Minimizing wages, benefits, and trainingand training Getting by with few skillsGetting by with few skills Minimize product costs byMinimize product costs by Centralized purchasingCentralized purchasing In large quantitiesIn large quantities Staff the store generouslyStaff the store generously Let individual storeLet individual store department managers dodepartment managers do their own stockingtheir own stocking Hire more qualifiedHire more qualified peoplepeople Pay more and train morePay more and train more
  • 48. WHICH LOOKS MOREWHICH LOOKS MORE SUCCESSFUL TO YOU?SUCCESSFUL TO YOU? Grocery store industryGrocery store industry 29.6% gross margin29.6% gross margin 5.8% operating5.8% operating marginmargin 8.4% return on total8.4% return on total capitalcapital 14.7 P/E ratio14.7 P/E ratio Whole Foods MarketWhole Foods Market 37.4% gross margin37.4% gross margin 8.7% operating margin8.7% operating margin 11.3% return on total11.3% return on total capitalcapital 31.6 P/E ratio31.6 P/E ratio 16.5% 10 year CAGR in16.5% 10 year CAGR in salessales 22.0% 10 year CAGR in22.0% 10 year CAGR in earningsearnings 293% five year TSR293% five year TSR
  • 49. WALWAL--MART v. COSTCOMART v. COSTCO Average Costco employee earned $15.97 anAverage Costco employee earned $15.97 an hour in 2004, 39% more than the average Samhour in 2004, 39% more than the average Sam’’ss Club employee who earned $11.52Club employee who earned $11.52 Costco provides benefits such as healthCostco provides benefits such as health insurance (82% of employees covered), Saminsurance (82% of employees covered), Sam’’ss does not (47% covered by a less generous plan)does not (47% covered by a less generous plan) Which discount chain is more profitable?Which discount chain is more profitable?
  • 50. WALWAL--MART v. COSTCOMART v. COSTCO Turnover is 6% in the first year at CostcoTurnover is 6% in the first year at Costco v. 21% at Samv. 21% at Sam’’ss Costco generated $795 sales per squareCostco generated $795 sales per square foot, Samfoot, Sam’’s Club $516.s Club $516. Therefore, profit per employee wasTherefore, profit per employee was $13,647 at Costco v. $11,039 at Sam$13,647 at Costco v. $11,039 at Sam’’ss ClubClub Labor rates do not equal labor costs orLabor rates do not equal labor costs or profits!profits!
  • 51. WHY DOES TOYOTA OUTPERFORMWHY DOES TOYOTA OUTPERFORM GM, FORD, AND CHRYSLER?GM, FORD, AND CHRYSLER? Lower retiree health care and pensionLower retiree health care and pension costs?costs? Lower wages?Lower wages? Higher labor hour productivity?Higher labor hour productivity? Higher realized revenue per vehicleHigher realized revenue per vehicle sold?sold?
  • 52. THERE ARE FEEDBACKTHERE ARE FEEDBACK EFFECTSEFFECTS LaborLabor ratesrates do NOT equal labordo NOT equal labor costs,costs, andand labor costs dolabor costs do notnot equal profitsequal profits Southwest Airlines, a lowSouthwest Airlines, a low--cost carrier,cost carrier, pays more than its competitorspays more than its competitors The question is not what you payThe question is not what you pay someone, but what they cansomeone, but what they can dodo!!
  • 53. CIRCUIT CITY:CIRCUIT CITY: IGNORING FEEDBACK EFFECTSIGNORING FEEDBACK EFFECTS An electronics retailer that, in late March,An electronics retailer that, in late March, 2007, laid off 3,400 of the company2007, laid off 3,400 of the company’’ss most experienced sales clerks (to savemost experienced sales clerks (to save money by hiring less expensivemoney by hiring less expensive replacements); sales associates are paidreplacements); sales associates are paid in part on the basis of how much they sell.in part on the basis of how much they sell. Can you guess what happened?Can you guess what happened?
  • 54. CIRCUIT CITY v. BEST BUY,CIRCUIT CITY v. BEST BUY, 20062006--20072007 Circuit CityCircuit City --77.9% TSR77.9% TSR --5.5% sales5.5% sales declinedecline EPS went fromEPS went from $0.47 to <$1.25>$0.47 to <$1.25> Best BuyBest Buy --14.1% TSR14.1% TSR 11.4% increase in11.4% increase in salessales EPS grew 11.5%EPS grew 11.5% ($2.79 to $3.11)($2.79 to $3.11)
  • 55. DID ANYONE LEARNDID ANYONE LEARN ANYTHING?ANYTHING? Circuit City went bankrupt in late 2008Circuit City went bankrupt in late 2008 and is now liquidatedand is now liquidated Ford Motor (and other U.S. automakers)Ford Motor (and other U.S. automakers) are energetically trying to buy out theirare energetically trying to buy out their more senior employees so they canmore senior employees so they can replace them withreplace them with——you guessed it, peopleyou guessed it, people who have no experience making cars!who have no experience making cars!
  • 56. THERE ARE FEEDBACKTHERE ARE FEEDBACK EFFECTS: U.S. AIRLINESEFFECTS: U.S. AIRLINES Cuts in service, poor reliability (baggageCuts in service, poor reliability (baggage handling and onhandling and on--time performance), andtime performance), and fuller flights has led tofuller flights has led to…… A huge growth in the use of private aircraftA huge growth in the use of private aircraft—— U.S. airlines lost 47% of their best customersU.S. airlines lost 47% of their best customers between 2000between 2000--20072007 People not travelingPeople not traveling——one industry surveyone industry survey reports $10 billion in trips not takenreports $10 billion in trips not taken
  • 57. ITIT’’S AN OLD STORY, BUTS AN OLD STORY, BUT…… Market share changes (natural selection) meansMarket share changes (natural selection) means workplaces will either change or disappearworkplaces will either change or disappear Southwest is now the largest domestic carrierSouthwest is now the largest domestic carrier in the U.S.in the U.S. Air Asia and Singapore are growing faster thanAir Asia and Singapore are growing faster than the industrythe industry Toyota has become the worldToyota has become the world’’s largest autos largest auto companycompany DaVitaDaVita has taken share from dialysishas taken share from dialysis competitorscompetitors Whole Foods Market (grocery) has grownWhole Foods Market (grocery) has grown faster than its industryfaster than its industry So has The MenSo has The Men’’ss WearhouseWearhouse (tailored men(tailored men’’ss clothing)clothing)
  • 58. AN EXAMPLE: KIMBERLYAN EXAMPLE: KIMBERLY-- CLARK, ANDEAN REGIONCLARK, ANDEAN REGION Venezuela, Peru, Columbia, Ecuador,Venezuela, Peru, Columbia, Ecuador, BoliviaBolivia Company built in part through acquisitionsCompany built in part through acquisitions of local competitorsof local competitors In 2004, growth had stagnated, emphasisIn 2004, growth had stagnated, emphasis was on costwas on cost--cuttingcutting Between 2004Between 2004--2008, sales more than2008, sales more than doubled and profit more than tripleddoubled and profit more than tripled
  • 59. KC ANDEAN REGIONKC ANDEAN REGION——WHATWHAT DID THEY DO?DID THEY DO? Built aBuilt a ““people firstpeople first”” winningwinning organizational cultureorganizational culture Decentralized decision making so thatDecentralized decision making so that people could adapt to local calendars andpeople could adapt to local calendars and marketsmarkets Invested/gave back to the communityInvested/gave back to the community Invested in training and developmentInvested in training and development
  • 60. KC ANDEAN REGIONKC ANDEAN REGION——WHATWHAT DID THEY DO?DID THEY DO? Celebrated successesCelebrated successes——lots of recognitionlots of recognition and partiesand parties Instituted informal dress and mode ofInstituted informal dress and mode of addressaddress——people called each other by theirpeople called each other by their first namesfirst names Management became very visible &Management became very visible & accessibleaccessible——no locked and separate officesno locked and separate offices
  • 61. IS CHANGE POSSIBLE?IS CHANGE POSSIBLE? Continental AirlinesContinental Airlines KimberlyKimberly--Clark, Andean regionClark, Andean region KaiserKaiser--Permanente, Colorado regionPermanente, Colorado region Magma CopperMagma Copper New Zealand PostNew Zealand Post DaVitaDaVita
  • 62. STRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONS It is crucial to attract and retain the best peopleIt is crucial to attract and retain the best people Immigration and diversity policies at both theImmigration and diversity policies at both the national and company level must not foreclosenational and company level must not foreclose any talentany talent U.S. competitive success has come mostly from itsU.S. competitive success has come mostly from its attractive and open labor market (e.g., Andy Grove ofattractive and open labor market (e.g., Andy Grove of Intel is an immigrant from Hungary; contractIntel is an immigrant from Hungary; contract manufacturermanufacturer SolectronSolectron founded by Winston Chen,founded by Winston Chen, from China; many other examples)from China; many other examples) Participation of women in meaningful work rolesParticipation of women in meaningful work roles
  • 63. STRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONS It is crucial to attract and retain the bestIt is crucial to attract and retain the best peoplepeople Even in Japan, high skilledEven in Japan, high skilled--worker visasworker visas increased by 75% between 1992 and 1999,increased by 75% between 1992 and 1999, so that by 1999, highso that by 1999, high--skilled foreign workersskilled foreign workers were 40% of the number of Japanesewere 40% of the number of Japanese graduates entering the labor forcegraduates entering the labor force
  • 64. SOME IMPLICATIONSSOME IMPLICATIONS The strategic role of senior leadershipThe strategic role of senior leadership Provide for a culture ofProvide for a culture of ““factfact--basedbased”” oror ““evidenceevidence--basedbased”” managementmanagement Uncover, examine, and help peopleUncover, examine, and help people understand and change theirunderstand and change their ““mental modelsmental models”” oror ““mind setsmind sets”” (assumptions about how the(assumptions about how the world works)world works)
  • 65. THE STRATEGIC ROLE OF SENIORTHE STRATEGIC ROLE OF SENIOR LEADERSHIPLEADERSHIP The need for courageThe need for courage——getting beyondgetting beyond ““benchmarkingbenchmarking”” UnderstandingUnderstanding——and engaging inand engaging in——systemssystems thinkingthinking The importance of feedback effectsThe importance of feedback effects The idea of interdependence andThe idea of interdependence and interconnection among decisionsinterconnection among decisions

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