1. Thought Leaders on Human CapitalEdited by Theodore Kinni, Ilona Steffen,and Brenda WorthenWith an introduction by Richard Rawlinson,Walter McFarland, and Laird PostCapturing thePeople Advantage:A strategy+business Reader
2. Capturing the People Advantage
3. Thought Leaders onEdited by Theodore Kinni, Ilona Steffen, and Brenda WorthenIntroduction by Richard Rawlinson, Walter McFarland, and Laird PostCapturing the PeA strategy+business Reader
6. Introduction: Capturing the People Advantage Barclays PLC: Less Fluff, More Execution John Boudreau and Jay Conger, 7 Center for Effective Organizations: The Art and Science of Human Capital18 Walking the Talk with Talent Contents30 E.ON AG: Ensuring Tomorrow’s Workforce Today FedEx Ground Inc.: Where People Drive the Business50 Kraft Foods Inc.: Raising the Talent Bar54 Novartis AG: The Science of Talent66 The PNC Financial Services Group Inc.:82 Building Brands with Human Capital by Richard Rawlinson, Walter McFarland, and Laird Post94 by Christine Korwin-Szymanowska106 by Laird Post by Edward E. Lawler III by Klaus Mattern and Sven Uwe Vallerien by Jeffrey Akin and Andrew Tipping by Jeffrey Akin and Gary L. Neilson by Christian Burger and Klaus Mattern by Thomas Starr
7. Contents, continued Managing the Impending Workforce Crisis C.K. Prahalad: HR Is Strategy Royal Dutch Shell PLC: Learning as a Value Proposition120 Satyam Computer Services Ltd.: Learning Drives Transformation124 Saudi Telecom Company: HR’s Role in Radical Transformation138 ThyssenKrupp AG: A Multifaceted Approach to Talent150 Supporting Corporate Strategy with Management Development164 Toyota Motor Sales U.S.A. Inc.: Driving the Toyota Way176 Wachovia Corporation: Engaging Heads and Hearts188 About the Authors by Jeffrey Akin and Brenda Worthen192 by Thomas Starr206 by Andrew Clark218 by Vikas Sehgal by Bahjat El-Darwiche and Charles Saliba by Klaus Mattern and Joachim Rotering by Klaus Mattern, Joachim Rotering, and Ilona Steffen by Cynthia L. McNeese and Thomas Starr by Jeffrey Akin
8. by Richard Rawlinson, Walter McFarland, and Laird PostIntroduction:Capturing the People AdvantageIMAGINE A MASSIVE , long-term partnership with a developing nationthat requires turning thousands of poorly educated citizens into ahighly skilled workforce. Or a government-controlled monopolytransformed at the stroke of a pen into a public company in one ofthe world’s most competitive industries. Or a merger so large and sorife with change that, statistically speaking, not one of the combinedcompany’s 200,000 employees has the same job postmerger. These are the kinds of business challenges that organizationsface today — challenges that require human capital solutions thatstretch far beyond the traditional transactional and compliance rolesof HR. Indeed, these are just a few of the challenges that the com- Capturing the People Advantage 7panies featured in this strategy+business Reader have faced and mas-tered with innovative people-related strategies and tactics. (Thesethree stories are told in the chapters on Royal Dutch Shell, SaudiTelecom, and ThyssenKrupp, respectively.) The companies in thisbook are diverse in both industry and heritage: Some are long-established companies in traditional industries, like Swiss pharma-ceutical giant Novartis, with its 250-year history; others are relativenewcomers, riding the whitewater of recent technological revolu-tions, like the Indian information technology services providerSatyam Computer Services. But their industry or heritage aside, these companies confront
9. the same realities. They compete in markets that continuously morphas geographic borders fade away. They swim in the rapid flows ofglobal capital and technology. In responding to such challenges,these companies have all recognized the compelling need to payattention to the value of human capital. They are devoting signifi-cant resources and, more important, the thoughtful attention oftheir leaders to redesigning their workforce-related practices. In thisway, they are developing their human capital as a critical source ofcompetitive advantage. Some of the most pressing global challenges facing businesstoday are directly related to human capital issues. First are today’sdemographic trends. In mature economies, the overall aging ofthe population has led to a brain drain of critical skills and institu-tional knowledge in the workplace. Too many people are retiring,and too few skilled people are available to replace them, especially incritical sectors like energy and health care. Further complexitiesstem from the willingness of people to migrate to regions where eco-nomic growth creates demand for expert labor — places that cur-rently include centers of oil production, such as parts of the MiddleEast; booming emerging economies; and some industrially activeareas in Europe and North America. Companies whose facilities are8 strategy+business Readerlocated at the origin points of migration will have to cope with tal-ent shortages; companies that attract workers will have to cope witha greater degree of ethnic and gender diversity than they have knownin the past. Skills deficits represent another pervasive challenge. In manynations, education systems aren’t properly preparing young peoplefor work, and employers must pick up the slack. In 2003, accordingto Newsweek, employers in the United States spent US$1.3 billionto teach basic writing skills. Employers elsewhere report similarproblems. As C.K. Prahalad, a University of Michigan professorwho has written extensively about innovation in emerging markets,
10. The Differentiated Talent Marketnotes, realizing the immense aspirations of the new global entrepre-neurs of Asia, Africa, and Latin America will require an equallyimmense acceleration of skill development. “How do you take farmboys and create Six Sigma quality in four years?” he asks. Finally, the changing needs and expectations of today’s work-force are challenging traditional practices. Organizations need flexi-bility, but employees have their own needs: Some are reluctant totravel; others want flexible or part-time work; and still others wanta global career. “We need to create a work environment that enablespeople to put their own personality into their job while understand-ing that we prescribe certain behaviors,” says Neil Hall, the PNCFinancial Services Group’s executive vice president of retail banking. • Applying a “market segmentation” strategy for managing human capital.“And we need to realize that there’s freedom inside prescribed be-haviors.” The real story in HR is not of a monolithic shift, or evengenerational shifts, in employee expectations, but of variation inindividual expectations.Companies are tackling these challenges in many different ways. Forthis Reader, we asked distinguished business and HR executives andacademic experts in the United States, Europe, the Middle East, and Capturing the People Advantage 9Asia for their perspectives on the trends in human capital and fortheir view of their companies’ most effective people-related strate-gies. We asked them what works in the real world, not justin theory. Their answers provide valuable insights into the ways inwhich people-related strategies can be a key differentiator in busi-ness success. Many of these new approaches are aimed at more effectivelyattracting and recruiting talent: Just as customer segmentation is the basis for modern market- ing, employee segmentation is becoming the basis for modern
11. HR. To be sure, the basic standards of HR practice need to be in place and applied to every employee. For example, every employee needs to be treated with dignity and respect. But just as marketing responds to different customer segments with customized offers, so must HR create customized career alternatives for a diverse workforce. This means differentiation at the employee level. “When somebody tells me he wants to move to France and work from there for a year, I’ve got to say, ‘How can we make that hap- • Attracting and retaining talent through employer branding. A strong pen?’” declares Shannon McFayden, Wachovia Corporation’s senior executive vice president for human resources and corpo- rate relations. Shannon Brown, the senior vice president for human resources at FedEx Ground, comments that “people have very similar objectives when it comes to their work,” but then he adds that “people want different opportunities at different phases in their lives…. I think our work is going to be more reflective of the individual.” This also means that employers will end up prioritizing their commitments to employees on a more individualized basis. Different workforce segments contribute different levels of value and merit different levels of investment. As Professor John10 strategy+business Reader Boudreau of the Center for Effective Organizations at the University of Southern California’s Marshall School of Business says, organizations should manage human capital like a portfo- lio, identifying their most “pivotal” talent segments and focus- ing learning and development efforts accordingly. employer brand can maximize an organization’s position with the labor pool. Witness Novartis, the Swiss pharmaceutical com- pany. In his interview, HR head Jürgen Brokatzky-Geiger told us that the company hired 17,000 people worldwide in 2006, but received more than 300,000 applications. “This is clearly an
12. • Creating unconventional talent acquisition strategies to look ahead and act with prescience. In extremely popular place to work,” he says. The best employer brands focus on just a few key attributes, often articulating a clear shared purpose that rises aboveLeadership, Learning, Adaptability the profit motive. Relatively few companies are taking full advantage of the concept of employer branding, but those that do will reap the benefits as they strive to attract and retain talented people. tight labor markets, accurately forecasting and buying into future talent needs is an essential skill. E.ON, a fast-growing energy service provider, realized this when a wave • Recognizing that high performance requires great leaders. In this con- of privatization overtook the power generation sector in central and eastern Europe. “We have learned to launch an ambitious and proactive recruitment drive in anticipation of those needs,” says Chief HR Officer Christoph Dänzer-Vanotti. Organizations must also be prepared to act whenever excep- tional talent appears. ThyssenKrupp did this by establishing a special hiring fund in its technologies business. “This budget is for building our talent pool in that specific business, not for traditional hiring,” explains Ralph Labonte, executive board member and labor director. “When we find great people, Capturing the People Advantage 11 we’ll hire them first and then look around to see what they should do.”A number of the human capital–related strategies described in thisbook involve the development and retention of people after theyare hired: text, successful leaders are those who, as Satyam founder Ramalinga Raju says, “can enable ordinary people to achieve extraordinary results.” These leaders, through their example and
13. their influence on the culture, directly drive higher levels of employee engagement and retention. Some companies look externally for leadership talent. That makes sense when speed and culture change demand it. For example, Kraft Foods, newly independent in 2007 after decades as a subsidiary of Altria Group, shifted its leadership develop- ment strategy along with its business strategy. “In the past, we always tried to build all our talent,” says Executive Vice President of Global Human Resources Karen May. “But our focus on growth means we don’t always have time to do that. So ramping up our talent-buying skills has become an urgent matter.” For many companies, the battle for talent is won or lost in the field of internal leadership development. And the prevailing view of leadership is evolving away from the headhunter mind- set of the past, in which effective executives were hired from out- side, not mentored and fostered from within. The old external orientation, warns Jay Conger, senior research scientist at the Center for Effective Organizations and professor in leadership studies at Claremont McKenna College, can “undermine devel- opment…. It sends a powerful message to promising junior leaders about the lack of future opportunities.”12 strategy+business Reader This is why leading organizations are designing rigorous development processes to ensure depth on their executive and managerial benches. ThyssenKrupp, for example, defined seven key management competencies and built a standardized ap- praisal process to create cross-segment transparency and consis- tency. It also created a central placement process for its top 300 managers to promote mobility among its five business segments, and to accelerate the development of leaders no matter where they might emerge in the organization. The goal is to create a virtuous circle: Sound human capital development attracts high-potential leadership candidates, who
14. • Rethinking the connection between learning and strategic goals. We deliver the consistently superior business performance that gen- erates the profits needed to invest in better leaders. know that high-quality learning programs can drive change, innovation, and, ultimately, business value. It has been clear for decades that an organization’s competitive advantage depends on its ability to adapt new practices and innovations to ingrained, habitual activity. Nonetheless, several decades after the concept of a learning organization became widely known, many companies still struggle to embed learning in their organizations. A common mistake is positioning learning as a stand-alone function, with the proof of success being the establishment of the function itself, rather than results in the form of business outcomes. There are still many workplaces where corporate learning programs have ambiguous ownership and an under- developed support base of internal clients. In many companies, the accountability for training expenditures is fragmented, costs are not managed tightly, and business outcomes go unmeasured. The cure is closer integration with the business. At Novartis, for example, business units drive the content of learning pro- Capturing the People Advantage 13 grams to ensure alignment with strategic objectives. At Toyota Motor Sales U.S.A., Chief Information Officer Barbra Cooper aligns the strategic direction of the corporate university with the needs of the retail network. Through linkages like these, the learning function itself becomes more like a sophisticated adult- education enterprise, focusing on efficient and cost-effective delivery of learning services, to a segmented audience, with measured outcomes and ROI. Some companies also establish corporate universities at the center of their learning functions. This facility serves as a hub for executive and employee education, a center of excellence, a
15. • Emphasizing adaptability and resiliency in your workforce. “Change vehicle for building relationships with suppliers and key cus- tomers (who may be invited to send people to courses there), and a visible symbol of the organizational commitment to learning. management is at the very core of success these days,” says Satyam’s Raju. Business today demands resilient organizations that are able to adapt to many changes: the integration of acquisi- tions, privatization and deregulation, globalization, shifts inThe Business Impact Imperative technology, and the adoption of radical new strategies. This resilience, in turn, depends on having people on board who can quickly and effectively adopt new ways of thinking, working, and behaving. One company with a proven method for building the adapt- able workforce is Kraft. This consumer products enterprise is transforming from its old role as a cost-driven business unit to an independent company “rewired for growth,” as Kraft’s May puts it. She illuminates how she navigates change “by acting on all our people issues, including current talent, recruiting, work- force of the future, and culture, in the context of business strat- egy as it relates to growth, innovation, and technology.” In the best cases, the HR function can become a change14 strategy+business Reader leader itself. For example, when Saudi Telecom was privatized and job rotation was introduced to stimulate leadership devel- opment, Vice President of Human Resources and Training Salah Al-Zamil rotated the six general managers on his own staff first, sending each of them for short periods of time to take on the job of a peer in another HR function. Now, job rotation is company policy.Many HR professionals have not changed their performance orpractices significantly since they started their careers. “The field is
16. basically operating on a model that’s around 70 years old and has ahistory of being wedded strictly to compliance,” observes FedExGround’s Brown. “And that approach simply doesn’t work anymore.” HR underperforms in companies where its capabilities, compe-tencies, and focus are not tightly aligned with the critical businesspriorities. “A major risk in HR is that we become seduced by thetheory alone,” warns Barclays HR Director Cathy Turner, speakingof abstract ideas about human capital, leadership development, andtalent management. “[We] forget that the primary reason the com-pany employs us is to enable business leaders to run their busi-nesses better…. [At Barclays,] our driving principle is to avoid allthe ‘fluff ’ surrounding HR and focus on what we actually need todo to help the business operate in a controlled and effective way.” This business focus is particularly important because, as severalof the thought leaders observe in the pages ahead, the global HRprofession lacks the same kind of standard, widely accepted, andproven methodologies that disciplines such as finance and market-ing enjoy. Pending the development of more consistent and accepted per-formance frameworks, the only way for HR to prove — andimprove — its business impact is through business-aligned metrics. Capturing the People Advantage 15The best HR organizations are building that precise capability. Theystrive to measure their effectiveness by business outcomes, evenwhen that measurement is difficult. For example, they track theperformance records of people who have attended training and com-pare them with those of people who have not, in light of desiredstrategic business outcomes such as revenue or profit targets. As the interviews collected here demonstrate, HR leaders whorestructure their function around business results are earning a “seatat the top table,” as full participants in the highest level of executiveleadership. But the greatest value of innovative HR is not reflectedin the elevation of the leader or function. It is the elevation of
17. toward capturing the people advantage. +an idea: that people are a primary asset and competitive advantage,and that a compelling people strategy is required to realize theirvalue. This strategy will work by habituating high performance inthe people who work in every function, region, and business unit ofthe company. This is the message that comes through loud and clear in thisstrategy+business Reader. The ideas, insights, and experiences of thethought leaders featured within will challenge, stimulate, andenlighten the human capital efforts in your organization. And youwill come away from these pages convinced that, in the end, with-out a focus on human capital, nothing can change and no strategycan be accomplished. Leaders who understand and embrace thisprinciple of organizational success have already taken the first step16 strategy+business Reader
18. Capturing the People Advantage 17
19. by Christine Korwin-SzymanowskaReporter: David BolchoverBarclays PLC:Less Fluff, More ExecutionHR earns a privileged position by achievingoperational excellence in its transaction andcompliance roles, says HR Director Cathy Turner.Human Resources DirectorCATHY TURNERBarclays PLC
20. by Christine Korwin-SzymanowskaBarclays PLC:Less Fluff, More ExecutionIN 2005, BARCLAYSPLC moved its headquarters from London’scenturies-old financial district to nearby Canary Wharf, a fashion-able high-rise development built on former docklands in the 1990sand now populated by some of the world’s largest financial compa-nies. The move was symbolic as much as physical. A more genteelpast had given way to the modern era of intense competition, hard-headed commercialism, and open meritocracy at a bank that cantrace its history back more than 300 years. Cathy Turner, who took over as the company’s human resourcesdirector in the same year as the move, fits right in at Canary Wharf.Her manner is matter-of-fact and direct, and her philosophy on the20 strategy+business Readervalue of HR is unabashedly commercial: If an HR strategy does notclearly link to customer service and help the company’s bottom line,then it is more than likely “fluff.” Turner advocates “getting the basics right.” Her job is to ensurethat the very large and global Barclays workforce of 135,000 servesits more than 30 million customers in the most efficient and cost-effective manner possible. Her approach to HR is a function of her background. Turnercut her teeth in the consulting world, in the field of performancemanagement and reward, rising to become head of Ernst & Young’scompensation practice. She says the experience of handing a bill to
21. her clients at the end of each week was a formative one that taughther a fundamental law of business: You must provide a service ofdemonstrable value to customers if you expect them to continue todo business with you. Turner joined Barclays in 1997 as executive compensationdirector before embarking on a four-year stint as head of investorrelations, a role that enabled her to see the broader businesspicture. Strategy+business interviewed Turner at Barclays headquar-ters, where she expounded on HR’s connection to the corporatebottom line.S+B:What do you see as the principal role of HR at Barclays?TURNER: Our driving principle is to avoid all the fluff surroundingHR and focus on what we actually need to do to help the businessoperate in a controlled and effective way.S+B: What would you include in the fluff category?TURNER: There’s a great deal of science underpinning HR practice,but sometimes that science becomes an end in its own right ratherthan a means to an end. Historically, HR was focused on managingemployee administration plans and maintaining a productive rela- Barclays PLC 21tionship with collective labor. As employee relations became morestreamlined and sophisticated, the influence of HR weakened. Inthe 1990s, HR rightly focused more on leadership and talent asa strategic imperative, but its success at operationalizing this hasbeen mixed. Managing talent effectively and maintaining the quality of lead-ership are critical business activities in which HR should play animportant role. If you ask me what I do every day, for instance, Iwould say talent management. But “talent management” covers a lotof sins. I often listen to presentations that sound, at first hearing, tobe rich in content. But when you actually break down each sentence
22. and ask, “Is there anything insightful there? What’s actually going toget done, and how will it impact the bottom line or build capabilityfor the future?” you realize much of it can be platitudinous aspira-tion with no solid foundation. One of the hardest things to achieveis getting good talent management practices institutionalized inways that produce benefits to the business.S+B: But there wouldn’t be such a market for fluff if a large proportionof the HR industry rejected it. Why doesn’t it?TURNER: Because the subject areas are fascinating, and intuitively,all the theories sound right. So, for example, you can concoct anentire theory that says something like, “Businesses that perform overthe long term have the best and most committed people, thereforeyou should invest heavily in training and development, and youshould try to measure the engagement of employees.” Or, alterna-tively, “The way to develop great business leaders is to analyze greatbusiness leaders. You should dissect what it is that makes these lead-ers great, and build competency frameworks that reflect those find-ings. If we send our leaders away on programs that develop thesecompetencies, we will get great business performance.” All this sounds great until you translate the words into action. If22 strategy+business Readeryou operationalize at the theoretical level only, you often build abureaucracy, usually owned by HR, that is quite divorced from whatinternal clients are telling HR they need if they are to serve cus-tomers brilliantly. A major risk in HR is that we become seduced bythe theory alone and forget that the primary reason the companyemploys us is to enable business leaders to run their businesses bet-ter. And in reality, much of what makes businesses run well is a lotmore mundane than grand theories.S+B: What do you look for when you recruit HR staff members to helpbridge this disconnect between the profession and the bottom line?
23. TURNER: I don’t think HR always attracts the brightest and thebest, and that is sad given its central role. That doesn’t mean thatthere aren’t excellent HR people — just not enough of them. I look for intellect. If you haven’t got the intellectual horse-power, then you are going to struggle from both a capacity and acontent perspective. There is a widespread misconception that HRis just common sense and anybody can do it. But HR is very tech-nical, so you need good mental acuity to excel in this field. I look for technical HR skills, that is, people who have a tangi-ble and measurable skill in some aspect of HR, whether it is inemployment law or recruitment or talent. The technically mindedcan contribute something real to the business and can communicateeffectively with our senior managers. Talking in hard-edged, techni-cal, commercial terms will help them develop the necessary credibil-ity to get traction. If they are going to be truly credible, our HRpeople need to develop a commanding knowledge of the overallbusiness, the customer base, and the products. I also look for — and this is harder to measure — a capabilityfor relationship management. Most of what we do is serving othersin the business. Great service means instinctively and constantly ask-ing, “How can I help you?” and following up with strong service Barclays PLC 23delivery. You need to interpret the human dynamics within theorganization and be sensitive to what is affecting people, alwaysthinking what you could do to help and protect them. Those peo-ple who combine strong HR domain knowledge with excellent rela-tionship management can make a big difference to a business.S+B: As a result of these requirements, has there been much change inthe composition of your HR staff since you came in?TURNER: Yes, there has been a good deal of movement in thetop HR leadership positions, and among the HR workforce ingeneral. Some of that is forced change; some of it is self-selected
24. change as people have decided that the vision for HR in Barclaysis not for them. The task of improving the quality of HR talent is never ending— the same challenge that our business leaders face with theirteams. This means not accepting second best and always seeking toraise the standard of our work. In doing this, we have reduced agreat deal of cost, and the changes are leading to a fitter, leaner, morebusiness-aligned HR function than we had previously. The better webecome at this, the more likely it is that great people will want tojoin the function.S+B: What exactly is HR’s purview at Barclays, and how does it supportthe bottom line?TURNER: There are three main pillars of our HR strategy. The firstone is transaction services, covering a whole range of essential activ-ities. We hire people, run key processes like pay reviews and per-formance management, organize training, interface with unions,produce contracts, and manage the onboarding and exit processes.Given that Barclays employs more than 135,000 people, the HRfunction naturally oversees a huge amount of transactional activity.All that activity is essential to ensuring that people are in the right24 strategy+business Readerplace at the right time with the right skills and attitudes, and arepaid the right amount. Creating operational excellence around this“factory” aspect of our function is critical. The second pillar of HR is its role as a control function thatincludes making sure that we comply with the legal system andregulations in every country in which we operate. We need to pro-tect both the company and the individuals who perform transac-tions on behalf of the company. HR is also one of the key internalcontrol functions in that it sets and monitors compliance with inter-nal policies. Third, we act as advisors. The HR function ought to be pop-
25. ulated by respected professionals whom leaders feel they canapproach for counsel. That means working through issues at theindividual level, such as helping managers think through year-endperformance messaging, pay decisions, and talent development. Wecan add value by helping to develop thinking, coaching individuals,and challenging decisions. Acting as an advisor also means taking amuch broader perspective around how the organization shouldevolve its human capital. Great HR involves excelling at all three pillars. If you candeliver on these dimensions over a sustained period, I believe thatyou help build meaningful long-term business benefits.S+B: One of the operational activities that HR administers is the entryprocess into the senior executive group. Can you explain the nature ofHR’s involvement here, and what you look for in your senior leaders?TURNER: We have a senior leadership group of approximately 20roles. To become a member of this group, you have to occupy oneof the designated roles and perform it at a level that our executivecommittee deems appropriate. The Barclays executive committee isextremely committed to talent management and spends consider-able time (typically 35 to 50 percent of their quarterly meetings) on Barclays PLC 25the governance and management of the talent agenda. Typically, individuals in these key roles will be world-renownedfigures in their discipline and possess the personal attributes thatmake for excellent leadership, such as drive, energy, intellect,insight, and passion. We also look closely at track record. We arecommitted to realizing a performance culture, which means thatcontinuous superior performance is required year after year to main-tain a position in this population. Individuals are under constant assessment. This is not a cozyclub, and there is zero tolerance for anything other than meetingour standard.
26. S+B: As one of the world’s largest financial-services providers, Barclaysacquires other companies on a regular basis. What operational activitiesdoes HR pursue during the merger and acquisition process?TURNER: In a merger or acquisition situation, the premerger periodis often protracted and public. In such situations, staff can becomeuncertain about the future. They understandably want answers tosome very specific questions: “Do I have a job? What will be my job?Who will be my boss?” During such periods, communication is key,letting employees know what is happening and the key dates fordecisions as early as possible. Once an acquisition is agreed, pace becomes important. Youneed to quickly decide how things are going to operate and who isin charge. Give people clarity and certainty as soon as you possiblycan. HR should be at the forefront of both the organizational plan-ning and the implementation.S+B: HR’s role in compliance — the control function you mentioned —tends to get downplayed these days. Why is it so important?TURNER: This is a very important area given how much employ-ment law differs from country to country. We need to be expert inunderstanding the detail and excellent in implementation because if26 strategy+business Readerwe fail to comply, we lose our license to do business. When I consider the diverse aspects of the HR arena —pensions, share schemes, employee contracts, data privacy — andthe extent to which our core activities of hiring and motivatingemployees are impacted by external regulations and internal con-trols, it becomes clear very quickly that managing risk and beingin control is at the heart of HR. We take this very seriouslyat Barclays.S+B:In its advisory capacity, how can HR help shape the evolution ofhuman capital within the company?
27. TURNER: There are two critical elements here. First, HR needs torun well and focus on the elements discussed earlier — achievingthis will strengthen the core business. Second, HR needs to be readyto move quickly to capture talent when it becomes available frommarket dislocations or competitor underperformance. If you aregreat at the first, you can typically deliver the second.S+B: How has your view of HR translated into changes in the functionduring your three years as HR director?TURNER: A major change has been the move from a quite central-ized HR structure to a more decentralized one, in which HR peopleare integrated within the business units they are supporting. Thisplaces HR close to the business and our customers, which is impor-tant given how integral people are to business success. I have also focused on improving our transactional delivery. Wewere not good enough at getting things done that really mattered toour internal clients. Hiring did not go as smoothly as it should, forexample; training was not done properly; inappropriate decisionswere made in performance management; we had insufficient con-trols; and so on. This all sounds like it should be easy to fix, but itisn’t. The nuts and bolts of what we do are critical to a well-run busi- Barclays PLC 27ness and to securing respect for the function. We still have a lot todo, but we have made significant progress. And, as I have already mentioned, there has been the relentlessfocus on talent within HR, leading to what I perceive to be a great-ly improved standard in the quality and professionalism of our HRteams globally.S+B: What are your important objectives for the next three years?TURNER: I have several, all aimed at strengthening our human cap-ital base further. One of my main goals is to get a consistent ITarchitecture in place to support HR. There are not many HR people
28. exciting work. +around who have expertise in establishing IT systems and whounderstand this area. Getting this right would create the biggesttransformational shift in the services the function provides and thequality of the work we do in HR. We have been making steady progress in this area, with businessunits acknowledging a need to move toward a consistent company-wide software and architecture. We have agreed on a pan-BarclaysHR IT strategy, and we are now implementing at pace. This is28 strategy+business Reader
29. Barclays PLC 29
30. by Laird PostReporter: Lawrence M. FisherJohn Boudreau and Jay Conger:The Art and Science of Human CapitalProfessors John Boudreau and Jay Conger,colleagues at USC’s Center for EffectiveOrganizations, describe how to cureorganizational attention deficit disorderand cultivate human capital.Center for Effective OrganizationsJOHN BOUDREAU AND JAY CONGERUniversity of Southern California’sMarshall School of Business (RIGHT)
31. by Laird PostJohn Boudreau and Jay Conger:The Art and Science of Human CapitalHOW CAN HR organizations foster leadership within their companies?How do they gain and measure competitive advantage through tal-ent development? John Boudreau, research director, and Jay Conger,senior research scientist, of the Center for Effective Organizations atthe University of Southern California’s Marshall School of Business,have devoted their careers to these questions. Boudreau, who is also professor of management and organiza-tion at the Marshall School and who was the founding director ofSun Microsystems’ R&D Laboratory for Human Capital, is seekingto reframe HR as a decision science that encompasses the samediscipline and accountability as other business functions, such as32 strategy+business Readerfinance. HR leaders, he wrote with Peter Ramstad in Beyond HR:The New Science of Human Capital (Harvard Business School Press,2007), must practice “talentship” by recognizing and making pivotalstrategic decisions regarding people. Conger, who also serves as Henry Kravis Research Professor inLeadership Studies at Claremont McKenna College and visitingprofessor of organizational behavior at London Business School, is alongtime advocate of internal leadership development as a strategicnecessity. He has written and edited 14 books on leadership; mostrecently, he gathered state-of-the-art thinking on the topic as editor,with Ronald Riggio, of The Practice of Leadership (Jossey-Bass, 2006).
32. Clearly, the kind of strategic leadership development thatConger espouses goes hand in glove with the sophisticated manage-ment of human capital promoted by Boudreau. In a wide-rangingconversation, which took place at the Marshall School in LosAngeles, strategy+business found the two scholars speaking in har-mony, but with subtle differences in pitch. Conger emphasizes the benefits of growing leaders from withinand of distributing leadership training throughout an organizationrather than reserving it as a perk for a few at the top. A heavyreliance on recruiting talent from other companies also means rely-ing on those companies to do a superb job of developing talent, hesays. A risky proposition. Boudreau stresses the importance of attaching standards andmetrics to development practices so that the results generated canbe measured against an organization’s goals in meaningful ways.One way to do that is to adopt the language and metaphors usedto describe other key business disciplines, such as marketing andmanufacturing, and use them in the science of human capitalmanagement.S+B: Why is it still so rare to see effective human capital and leadership John Boudreau and Jay Conger 33practices implemented in the real world?CONGER: One factor is that organizations have attention deficit dis-order, and although the human factor is important to them, it’s notalways in the foreground. It’s more often a background issue. Withthe higher turnover in CEOs today, we also have enterprise agendaswith shorter lives. For example, you might have a CEO who is verycommitted to talent management. But if this commitment is notprofoundly embedded in the company culture and processes, thenext CEO may head off in another direction, with talent manage-ment dropping off the enterprise agenda. Also, many executives believe that it is important to have
33. development programs, but they project from their own experi-ences. They say to themselves, “I climbed to the top through jobassignments and hard knocks. These are the best teachers. Whoneeds coaching and education?” In other words, they think twiceabout an investment in formal development. When they mustchoose between funding marketing and funding development, mar-keting looks like the better return. Another factor hurting talent development programs is thatmany large companies are now recruiting outsiders for senior roles.The thinking is that you can go outside and headhunt the best exec-utives. This mind-set is facilitated by the rise of recruiting firms,which have developed very sophisticated databases of talent. Theyknow how to find and trade talent across and within industries. Butthis mind-set can powerfully undermine development. It is as ifthe company is saying, “Why not outsource our talent develop-ment? We’ll let companies like General Electric develop great lead-ers for us.” As you can imagine, this thinking is full of pitfalls: Itsends a powerful message to promising junior leaders about the lackof future opportunities; the externally hired executive or managerwho was so successful in one company may not be so successful inthe new company; and internal investments in talent development34 strategy+business Readerappear less necessary. The reality is that the companies with a sustained history of effec-tive human capital management have it deeply embedded in their cul-tures. This mind-set outlives each and every executive who runs theorganization. Their CEOs have a sense that as an executive, you are acustodian of this institution. You are wired to plan for succession atmany levels. As a result, these organizations think more deeply abouttalent processes, and they have a richer legacy of talent processes.BOUDREAU: This notion of why best practices in human capitalhaven’t taken hold has been a theme in my work for about 30 years.
34. I did my Ph.D. thesis on a return-on-investment model for optimiz-ing employee turnover. I was struck at the time by the difference inthe approach that courses in areas like finance, marketing, and oper-ations management took, which frequently was to help you learn alanguage and a set of principles, and then have you take those andapply them. You never got out of a finance class without understandingportfolio theory, and concepts like debt/equity, capital, risk/return,and liquidity were part of the language you were expected toknow. There’s a professional discipline that says, “These are theprinciples on which we manage the resource called money.”We’ve all learned them. We’ve all been held accountable for under-standing them. A decision science really doesn’t exist in the area of leadershipand human capital. If you ask 40 executives for their definitions ofmotivation, you get 40 different definitions. No one knows whichone is right. Organizations today can be pretty rudimentary in the way theymanage people and leaders, because right now, none of their com-petitors are any better at it than they are. That was true about finan-cial instruments before the turn of the 20th century, and it was John Boudreau and Jay Conger 35true about a great deal of the marketing discipline before the 1940sand 1950s. It’s an evolutionary issue, and I think we’re about to reach thepoint where the same things that came together to create disciplineslike marketing and finance will come together to create a non-ignorable need for a decision science. This is more than just corre-lating practices with outcomes. It really goes to a fundamentalunderstanding of how we compete with talent and how we competewith leadership, in the same way that marketing answers the ques-tion, “How good are we at the decisions we make about competingfor customers?”
35. S+B: Organizations still struggle to understand where their talent effortshave the greatest strategic impact. How have companies identified thereal levers and created interventions to exploit them?CONGER: Procter & Gamble, for example, is very strategic aboutbuilding deep relationships with the preeminent universities withineach country that it operates in. It focuses its recruiting effortson the top three or four universities. It has built deep individual fac-ulty relationships, and it has established a strong employer brandwithin those schools. So, for example, it’s able to get some of the topstudents out of the best Chinese universities because of that relation-ship building and brand building. General Electric is very clever in its own way. It says, “We’re notgoing to get the Harvard MBAs right from graduation anymore.Instead, we want to find talent that will come to GE and build acareer with us. So let’s go to second-tier schools, particularly in theMidwest. Let’s focus on folks coming out of the military, becausethey bring cultural values that we like.” For another example of a talent lever, consider the process ofsocialization that Toyota uses to onboard plant managers in the U.S.They take American managers who have run comparable plants fortheir competitors and put them through a two-and-a-half-month36 strategy+business Readersocialization process before they’re allowed to manage a Toyotaplant. Yet these are people who may already have 15 years of experi-ence running a plant! But Toyota says, “The Toyota way of manu-facturing is critical to our success. As the manager, you’re going tohave a very profound impact on this plant. We want to make surethat you deeply understand the Toyota way. We’re going to take thetime to socialize you in this mind-set and process. We’re goingto begin by giving you improvement assignments working withfrontline workers in your own plant. Then we’re going to send youto Japan to work in our world-class engine plant under the guidanceof a master coach.”
36. Another great example is Bank of America, which grew throughacquisitions but discovered that executive talent from its outsideacquisitions suffered a high failure rate. As a result, the companynow has a yearlong onboarding program for executives brought infrom outside as well as for executives promoted from within.They’ve built this very sophisticated process that is designed to helpthe individual succeed. On the day an individual begins the pro-gram, he or she senses, “This organization, at the executive level,really wants me to be successful.” I would add that the best firms do not have dozens of levers thatthey pull for talent management. Instead, they have focused on opti-mizing a handful of human capital levers because those particularinterventions support most effectively the organization’s strategicand competitive advantages.BOUDREAU: In class, I have students read a case on GE’s talentmanagement system. Then I ask them, “Would you want to use theGE method?” Almost everybody says they would, but in fact, whenyou look closely, the GE system is really very well suited to the kindof competition that GE is good at. So if you’re going to be a multi-product conglomerate in which business leaders have to be corpo- John Boudreau and Jay Conger 37rate assets and you expect to move them a great deal betweenbusinesses and you want the glue that holds everything together tobe fairly well understood and consistent, then what GE is doingmakes complete sense. But there aren’t that many organizations that compete that way.In a lot of organizations — take Berkshire Hathaway — you’re nevergoing to move a manager from one place to another. Those entitiesare held as separate businesses, and that’s a great way to compete forthat type of organization. The right question for organizations to ask is, “What is uniqueand what makes a big difference in how we compete?” Those are
37. pivot points. “Where would a change in our competitive differenti-ation make the biggest difference for us? Where are there talent gapsat those strategic pivot points?” The subtle but important difference is to not ask what’s impor-tant, because virtually everything you’re doing usually is or elseyou would stop doing it. It’s like asking what’s the most importantmachine on an assembly line. That’s a silly question, becausethey’re all important, and you wouldn’t have them there if theyweren’t. But it’s a very different question when you ask, “Wherewould improving the capacity of a machine make the biggestdifference?” When you frame it that way, you have a pivot pointquestion. I’m seeing companies start to do that around human capital.They are asking, “What is the pivotal difference that talent makes?Where are the pivotal differences in our strategies?” Rather than justasking, “What are our important strategic objectives, and wheredoes talent connect to those?”S+B: You write about the differences in the relative value created byincremental improvement in the performance of a FedEx pilot versus aFedEx driver or of a Disneyland sweeper versus the Mickey Mouse char-38 strategy+business Readeracter. How does understanding pivotal positions influence talent man-agement strategy?BOUDREAU: There is a tendency to think that treating peopleequally is the way to be fair, and it’s not an easy habit to break. It’sanalogous to talking about yield management in the 1970s, beforethe idea emerged that customers could pay vastly different prices forthe same perishable good, like hotel rooms or airline seats, depend-ing on what kind of customer they were and when they bought it.At the time, marketing professors were saying, “This probably won’twork in practice, because two customers sitting next to each otheron an airplane can discover that they paid hundreds of dollars’
38. difference in price. The one who paid more is going to think, ‘That’snot fair.’” Leaders didn’t have good stories to tell customers that justifiedthese very different prices for hotel rooms or airplane seats, but theyevolved. Organizations began to have good reasons for what theydid, reasons that they could articulate. So, I may not like it as wellwhen I fly an airline where I don’t have elite status, because it meansI’m going to board the plane last. But at least the airline can say,“Well, this is what it takes to earn elite status, and this is why ourbusiness depends on this segmentation.” The companies that aredoing talent management well are beginning to develop that kindof language. For example, GE treats all of its employees well and is commit-ted to their development, but there are differences once you’re iden-tified as belonging to the tier of leaders who constitute a corporateasset. GE has a very good explanation for this practice, and it’sembedded in the culture, so that employees know what it takes toget there. And if you’re not there, GE has a system that’s remarkablycandid and explicit about saying, “Look, this is where you’re notmaking it, and this is where you are.” It’s still probably dissatisfyingto people not to be in that elite group, but both the process and its John Boudreau and Jay Conger 39fairness provide an explanation and allow the system to work well. It’s a matter of getting the language right when stating the dif-ference between pivotal events and important events. A company’sleaders need to say, “Everybody’s important here, but we treat peo-ple differently depending on how pivotal they are to our strategy.We do that with customers. We do that with machines. We do thatwith money. Why wouldn’t we do that with talent?”S+B: HR leaders who truly make a strategic impact in their organiza-tions are rare. Are there elements in background, skill set, or expertisethat help predict the potential in HR leaders to play pivotal roles?
39. CONGER: One reasonably good predictor is people who have hadactual line experience running a field operation or a business unit.These individuals tend to have a very well rounded perspective; theyunderstand the business, the customers, and the financials. Theyunderstand the mentality of managers and of executives. They alsohave an appreciation for systems that are simple because they’ve hadto implement them as managers. I’ve asked HR executives, “What’s the one thing you wish you’dhad more of in your career?” And one out of two will say, “I wish I’dhad more business line experience.” It’s a truism, but having a more strategic mind-set is also a goodpredictor of success. If this strategic mind-set is linked to talentmanagement, HR people do carry more weight in executive discus-sions. The best of the HR executives I know work extensively withthe company’s board members and have strong one-on-one relation-ships with them. Another predictor is the extent of the networkof the HR executive’s relationships. The network should extendfar beyond the executive team to business unit heads and to the lev-els below.S+B: How do the most effective HR executives validate their role?40 strategy+business ReaderBOUDREAU: There’s often a currency that the more face time you’regetting with the CEO or with the board or with the business lead-ers in your unit, the more successful you are as an HR leader. Thatcreates a competition for connection and face time. There’s a lot ofeffort put into acting as a trusted advisor. Almost everybody will say they really like and trust and have aconfidant in an HR leader, but they don’t necessarily require thatabout their chief financial officer. They don’t necessarily need tohave a personal trust relationship with their Six Sigma expert, andyet their CFO and their Six Sigma expert are every bit as valuableas their HR leader. The profession of finance or operations or mar-
40. keting has a certain consistency to it, and when you get a newCFO, you know what to expect. Whereas in the world of humancapital right now, leaders must often rely on the particular languageor mind-set of the individual HR professional they work with,because there isn’t a consistent language or mind-set for the HRprofession. It’s understandable and important that leaders feel they musthave a confidant in the HR person they work with, that they have alot of trust in this individual, that they look to HR for gut checks.At the moment, I think a lot of business leaders feel that peopleissues are pretty soft and, in some ways, unknowable — so they needto find somebody that they trust, like, and rely on for judgmentwhen they can’t use analytical principles.CONGER: One of the traps for an HR executive is to be the primaryconfidant of the CEO. It gives you this deep sense of self-assurance,because you have the CEO’s ear. But I have often seen these individ-uals end up primarily as the CEO’s arm for delivering bad news:“I’ve got a problem with Executive X. Would you please go and dealwith that for me?” They are the right-hand cleanup guy versus theHR executive who has strong relationships across the executive team John Boudreau and Jay Conger 41and the board.S+B: So where should HR leaders be focusing now?BOUDREAU: There was a compliance era for the profession, whichwas “You have to do it this way or we’ll get in trouble, we’ll violatethe law.” Every profession from marketing to finance to operationshas gone through that era. It’s often the first place that a professiongains power, whether it’s IT or legal or HR. Then, there’s a services era that we’re in now. This is the imple-menter role; HR as a function defines its success by the idea thatclients find its services valuable or strategic. A lot of HR leaders have
41. had their greatest success in the transformation from a complianceto a services mind-set. Neither compliance nor services will go away, but I think we’llsee more reliance on consistent professional decision rules andframeworks for thinking about HR.S+B: How can organizations enable their leaders to make better peopledecisions?BOUDREAU: At GE, they have a pretty consistent decision frame-work and a language for talking about what potential means,what performance means, and what it means to have a leader be acorporate resource, not just a business resource. Their answers areconsistent and logical. The systems that they use with regard to per-formance, potential, and leadership careers, and the way theyconnect to their businesses, are so ubiquitous and so embeddedin the culture that their leaders have a common way of thinkingabout HR. You also see it in P&G. If you talk to the HR leaders at P&Gand ask them how they think about talent, you find that they havebeen adapting and applying concepts from marketing to talentsourcing.42 strategy+business Reader Sometimes the key is to find out what kind of models line lead-ers are comfortable using. Is it a marketing metaphor? Is it a produc-tion metaphor? By building on the mental model they already haverather than imposing a new one, you take that logic and say, “Howcan we help them think about talent more effectively?”CONGER: If I look for companies that have gone from a weak talentmind-set and supporting infrastructure to a strong one, I think rightaway of Mattel and Bank of America. In both cases, you’ve got aCEO who is deeply committed to talent development. Both CEOs have HR executives who are strategic, well re-
42. spected, and persuasive. That’s another characteristic of these topHR people: They have good persuasion skills. This partnershipbetween the CEO and the HR executive or leadership developmentexecutive, from my experience in those two cases, has been pivotalin instilling a talent development culture. These companies then built a series of development and talentidentification initiatives. The first initiative was a leadership devel-opment program. That was followed by a more rigorous per-formance assessment initiative. And that was followed by a morerigorous succession management process. So you have a series ofsteps that unfolded over several years. Each step was designed tobuild upon the previous one and to cascade down the line. Theseinitiatives themselves are about driving processes as much as theyare about socializing line managers in the importance of talent anddevelopment. In both cases, the CEOs modeled, through their own behavior,how critical talent is to them. They also put themselves andtheir own executives through rigorous talent processes. Over time,the mind-set and the supporting behavior spread into the linemanagement. John Boudreau and Jay Conger 43BOUDREAU: Jay’s comments bring to mind an interview I did withJoan Crockett, the senior vice president of HR at the AllstateInsurance Company, and Edward Liddy, the chairman. Joan takes Allstate’s mind-set about risk, mitigation, and returnof liquidity in the financial world and applies those ideas to talent.What is the equivalent of the return we’ll get on this talent? What isthe equivalent of a risk factor in this talent? What is the equivalentof being able to move talent around in different areas like the liquid-ity of the financial asset? Allstate began with a set of competencies that were developedby an executive team and then realized that with more rigorous
43. approaches to those competencies, they could improve them andmake them the basis for an array of HR programs built around acommon language. This process was moved forward by Ed, whomodeled the idea: “We are going to use these competencies and beaccountable for developing people. Leadership progress at Allstatewill include and go beyond being a great insurance salesperson.” It’s really through those leadership, performance management,and goal-setting systems that you begin to embed in the organiza-tion a common way of thinking about talent development and amore rigorous way of implementing it.S+B: Much has been written about employee engagement and the corre-lation with business outcomes. How can companies improve the level ofengagement in their workforce?BOUDREAU: There are lots of examples of the general idea of get-ting employees to become personally committed and passionateabout the strategy or direction of the organization. But the wholenotion of what actually constitutes engagement is subject to discus-sion and debate right now in the scholarly literature. Sometimes it’s about employee attitudes, like satisfaction.Sometimes it’s about employee commitment, like staying with the44 strategy+business Readercompany or working hard. Other times, it’s more about employeealignment — as in, do I understand where we’re going and doI understand my contribution to where we’re going? Thosethree things are actually very different in terms of what you doabout them. You do see organizations like Starbucks, for example, orMedtronic, whose employees, top to bottom, really do seem to havea strong passion about the direction of the company, a personaldesire to contribute, and a belief that they will be recognized andrewarded for their contributions. With Starbucks, I think it has a lot to do with the philosophy of
44. the organization and with the way they treat their employees. Entry-level service employees are treated very well there. With Medtronic, it’s certainly that they treat their employeeswell, but it’s also perhaps even more about the mission of the com-pany. You see this a lot in the medical industries — people just wantto be a part of that, and they really believe and can see thatMedtronic does things that change lives for the better. Every singleperson believes that he or she is part of that mission. The basis for engagement often varies, and savvy organizationsfigure out a way to make that basis compatible with the particularways that they’re going to compete in the market.S+B: Is it possible to have an organization that manages talent well andbuilds leadership capability, but is not able to deliver on its mission?BOUDREAU: It’s quite possible to do well at one level and have a lotof individuals who are very motivated, very engaged — and yet losein the marketplace because you simply didn’t have the formal orinformal structure to make things happen. An organization can havegreat people but, for example, while the world is turning toward amore product- or brand-focused model, they’re still based on aregional model. You might have great country managers, but they John Boudreau and Jay Conger 45cannot deliver the global brand that you need.CONGER: I would argue that it’s not formulaic in the sense that insome cases a centralized structure might actually be more conduciveto talent development. In other places, a decentralized structuremight be more conducive to talent development. Look at Procter & Gamble, which is still built around an oldmodel of country managers. This model is fantastic from the stand-point of grooming talent because younger people, in their 30s, canget a general manager’s job. In the general manager [GM] role, theyhave to worry about the economy, they have to worry about politics
45. and regulations, they have to worry about different functions, theyhave to worry about finance. Early in their careers, they’re getting arich set of experiences. Now let’s contrast this with another organization that says,“Gosh, this is expensive, having all these country operations. Let’shave global lines of business, and let’s wipe out this GM job at thecountry level.” Well, if you look carefully, what this type of reorgan-ization does is move up, by about a decade, the age at which you canget a significant general manager’s role. So, you now go through afunctional line — marketing, finance, manufacturing, whatever it is— all the way through your 40s. At 45, you get to be a GM over-seeing operations for eastern Europe. But before you take this role,your primary experience has been running manufacturing opera-tions. You might have had one or two broadening projects, but that’sabout it. In this case, going from a decentralized to a centralizedorganization, the company has actually wiped out talent develop-ment opportunities.BOUDREAU: That’s a great point, Jay. Not enough attention is paidto decisions about structure as an effective opportunity for talent devel-opment or for the enhancement of talent. It would be akin to not46 strategy+business Readerimproving our ability to develop suppliers, for example, as we changeour supply chain approach. Most organizations wouldn’tdo that. I think organizations can do a lot better at thinking throughthe talent development or the talent enhancement implications ofdecisions they make around questions like “How are we going tostructure?” and what that does to the supply of developmentopportunities.S+B: Both of you are teaching tomorrow’s workforce. What are the impli-cations for HR leaders as Gen Y enters the job pool?
46. CONGER: Gen Ys have more “transactional” mind-sets. They havedeeply ingrained beliefs that jobs and companies are stepping-stones. The logic goes like this: The more you move across compa-nies, the more you earn and the more responsibility you get. Whenyou ask a member of this younger generation, “How many compa-nies do you think you’ll work for over your career?” their answer istypically a minimum of five or six. The baby boomers might havesaid two or three. Their parents would have said one. If you want to retain them, the youngest generation of managerslove coaching. They love to have bosses mentor them. Early in theircareers, they’re definitely in high learning mode because they’rethinking, “I want to be incredibly mobile. I want to learn as muchas I can.” The more you as an organization can deliver on that coach-ing and learning, the longer, paradoxically, they’ll stay with you. Gen Ys also need clear expectations. I find them to be a genera-tion with whom you have to be very clear what your expectationsare and what work and project outcomes should look like. Theyneed more hand-holding, which also fits with the coaching mind-set. They love doing things in teams. Many of them were on soccerand baseball teams by age 5, so their lives are characterized by teamenvironments. They tend to be superb multitaskers, so they need a John Boudreau and Jay Conger 47lot of variety and stimulation in the job.S+B: What does the Gen Y mind-set mean for companies whose modelscall for bringing people in right out of school and trying to build long-term talent pools?CONGER: I think these companies can succeed provided they focusheavily on development, project variety, and lots of teamwork.I think young people also want to be with an exciting companydoing innovative work. Gen Ys have a social activist mind-set. Theywant to work for companies that have a social mission and thatperform public service.
47. they are going to need at those pivotal points. + Companies like General Electric, for example, with a strongenvironmental orientation, can be very attractive for this generation.So where Jeffrey Immelt is taking GE with all these green initiatives[such as Ecomagination] is very appealing for them. This is also thegeneration that grew up on community service, so the more thatcompanies integrate activities like Habitat for Humanity projectscreatively into their businesses, I think the more they are able toattract and retain young talent.BOUDREAU: Virtuality and globalization really do create options forfolks. It’s easier than ever to start a business or create a communityaround an idea or a passion that could lead to a career. So the ideathat people may have options to traditional employment is muchmore tangible now than perhaps it’s ever been, and I think thoseoptions are only going to increase. You can have a talent strategy that involves a long-term commit-ment, but it will mean altering your definition of an organizationalcareer to encompass a sense of the options people will have and what48 strategy+business Reader
48. John Boudreau and Jay Conger 49
49. by Edward E. Lawler IIIWalking the Talk with TalentIT IS HARD to find a recently published book or article about man-agement that doesn’t refer to the importance of people. Annualreports, too, regularly contain messages from CEOs saying that peo-ple are their company’s most important asset. Surveys of executivesconfirm that many believe that finding and developing the right tal-ent should be one of their top priorities. But if employees really arean organization’s greatest asset, why is it that the actions of execu-tives so infrequently match their words? Very few organizations walk their executives’ talk when it comesto talent management. Instead, most companies are designed andoperated in ways that downplay the importance of people. They50 strategy+business Readerhave bureaucratic structures that optimize the value of financial cap-ital, machinery, equipment, and natural resources, at the expense oftalent development and the opportunity for people to use theirskills. Work processes are designed to create simplified, standardizedjobs, and individuals are controlled through well-defined hierarchi-cal reporting relationships, budgets, and close supervision. When executives in a company fail to live up to their rhetoricabout human capital, employees are, in effect, given two messages:that the company is managing them incompetently, and that theirbosses know that this suboptimal approach is wrong. As a result,executives come across both as hypocrites and as poor managers and
50. strategists, which in turn undermines their ability to lead. Closing the gap between rhetoric and reality is not easy, butit can be done. If leaders are interested in building an organizationin which people are treated as a valuable asset, then they mustfocus on three features that are too often ignored: the board of direc-tors, the human resources management function, and the informa-tion systems. When an organization values human capital, the board of direc-tors should have at least one member who has a sophisticated under-standing of the research related to human resources management,organizational effectiveness, succession planning, and learningand development. These are the anchors of effective human capitalmanagement. Board members should also receive regular information aboutthe condition of an organization’s talent and the way it develops anddeploys that talent. These reports should include information aboutpeople’s attitudes and skill development levels, assessments of theavailability of backup talent for key positions, and evaluations of theorganization’s ability to attract, retain, and develop new talent. Moreover, the board should spend at least as much time onhuman capital issues as it does on the allocation of financial and Walking the Talk with Talent 51physical capital. It is particularly important that boards spend timeon succession planning for top-level management positions.Nothing is more important for the future of an organization thanthe type of talent it has available to fill its most senior positions. In any organization that believes human capital is its mostimportant asset, it follows logically that the HR department shouldbe its most important staff group. This means that HR should con-tain some of the top talent in the company, along with the bestinformation technology resources, and HR should be a valuedexpert resource when it comes to strategy development, changemanagement, organization design, and talent management.
51. The HR function should be staffed with individuals who under-stand the business — and who know the intricacies of human capi-tal strategy and management systems. The department shouldn’tbe staffed solely with individuals who are pursuing a lifelong careerin HR; the HR department should also be seen as an importantcareer stepping-stone for anyone who aspires to a senior manage-ment position. HR department leaders need to be involved in business strategydiscussions. A seat at the strategy table is not enough; if human cap-ital really is an organization’s most important asset, HR should “setthe table” for strategy discussions by framing the issues in terms ofthe current condition of the organization’s human capital and whattalent is available in the market. Finally, organizations that value employees as their greatest assetmust heed the old saying that what gets measured gets attended to.Thus, the quality of an organization’s people will be a central focusonly if the company has HR measures that are as relevant, rigorous,and comprehensive as the measures that pertain to financial assetsand physical capital. To be effective, a human capital information system needs totrack the contribution of people to the organization’s most critical52 strategy+business Readerand strategic objectives. It needs to provide a good indication of howproductive individuals are and how their productivity relates toorganizational performance. It needs to measure the condition ofthe competencies and capabilities that the organization needs forsuperior performance. It is particularly important for the HR department to haveinformation technology resources that will enable it to producethe kind of comprehensive, real-time quantitative data that can beused by leaders in making fact-based decisions about talent man-agement. HR leaders should not just generate and analyze thisdata — they should apply it to most critical decisions. The execu-
52. talk about talent. +Excerpted from strategy+business, Summer 2008.tive committee and the board should do the same. There are enormous gaps between the way corporate boards,HR functions, and information and measurement systems are actu-ally managed and designed and the way they would be managed anddesigned if human capital truly were their most important asset.Leaders should ask themselves how well they are living up to their Walking the Talk with Talent 53
53. by Klaus Mattern and Sven Uwe VallerienReporter: David BolchoverE.ON AG:Ensuring Tomorrow’s Workforce TodayShifting demographics and internationalexpansion require an employer brand aspowerful as the best consumer brands, saysChief HR Officer Christoph Dänzer-Vanotti.Chief Human Resources OfficerCHRISTOPH DÄNZER-VANOTTIE.ON AG
54. by Klaus Mattern and Sven Uwe VallerienE.ON AG:Ensuring Tomorrow’s Workforce Today largest private energy service provider, is a newE . ON , THE WORLD ’ Scompany with a long history. Formed in 2000 as a result of themerger between two of Germany’s oldest and largest industrialgroups, Veba and Viag, E.ON has expanded rapidly through acqui-sitions and organic growth. The company now distributes powerand gas in central Europe, the United Kingdom, northern Europe,Russia, and the United States. Its natural gas business also takesE.ON’s operations into the North Sea as well as into several coun-tries around the world. As chief HR officer of this fast-growing US$148 billion com-pany (market capitalization at year-end 2007), Christoph Dänzer-56 strategy+business ReaderVanotti is responsible for more than 80,000 employees. And, 30years after earning his law degree from the University of Bonn, healso finds himself on E.ON’s board of management. The German native took on his current role at the end of 2006,but he is not a newcomer to the energy industry. He spent nearlytwo decades working for RAG (now Evonik), a German coal andchemicals conglomerate, starting as an in-house legal counsel andfinishing out his tenure with a six-year stint on a subsidiary’s boardof management. Following this, Dänzer-Vanotti worked as a boardmember for E.ON Ruhrgas before joining E.ON AG. Clearly, Dänzer-Vanotti has devoted a great deal of thought to
55. the challenges for employees posed by the pace of E.ON’s inter-national expansion. He is also acutely aware of the significance ofcorporate responsibility within the energy company’s “people strat-egy.” Getting E.ON’s image right is vital, and not just from theconsumer standpoint; the growing legions of the environmentallyconscious will inevitably include many current and potentialemployees, the very people he spends most of his waking hoursthinking about. In the course of his interview with strategy+business, Dänzer-Vanotti drew on his long experience in the energy sector to talkopenly about some of the most profound people questions —including employer branding, gender diversity, and the impendingdemographic shortfall — that face his company and the industry asa whole.S+B: What are the major people challenges you are facing in your busi-ness today?DÄNZER-VANOTTI: One specific and pressing people issue we arefacing is a direct result of our demanding operational and financialtargets, which mandate a heavy emphasis on investment and growthin the coming years. As part of this program, we intend to invest a E.ON AG 57great deal in building new, highly efficient power plants. But to doso, we need highly qualified engineers with first-class experience.Because we are witnessing a serious shortage of engineers through-out Europe, recruiting them will not be simple. On a broader, more strategic level, I’d highlight three of themany people issues that we are actively addressing. First, we need anemployer brand that will reflect the exciting reality of the E.ONculture and therefore attract the best people. This isn’t necessarilyso straightforward for a company with intangible products, suchas energy; it’s a very different proposition from establishing anemployer brand where the company products are glamorous cars,
56. for example. In addition, we are facing an often negative public per-ception of all major electrical power and gas suppliers that is large-ly inspired by environmental concerns. Against this background, itis even more important to put all of our effort into establishing anemployer image that communicates the opportunities E.ON offersto its employees. Second, our rapid international growth has created both lo-gistical and cultural people issues. We clearly need to get the bestpeople leading and working in our international operations andvery quickly come to grips with how different business environ-ments operate. And third, we need to deal with the demographic challengesposed by a gradually aging workforce. In particular, the shortage ofengineers, whom we need if we are to realize our growth and invest-ment program, is an issue we have to deal with in an urgent, serious,and sustainable way.S+B: You say that the environmental debate can sometimes harm thepublic image of the energy industry. How do you overcome this in orderto build a positive employer brand?DÄNZER-VANOTTI: Our best weapon against myths is the truth,58 strategy+business Readerwhat we actually are and what we actually do. The reality is that ourefforts to reduce CO2 emissions and support environmental climateprotection are ongoing and thorough. We are far from being new-comers in renewable energy, and we continue to make substantialinvestments — € 6 billion [US$9.2 billion] by 2010 — in this sec-tor. We are Europe’s most significant private generator of hydro-power, and recently completed a large-scale acquisition of windparks. We are actively trying to grow our expertise in geothermalenergy, biomass, and solar technology. Geothermal energy, I mightadd, is a dedicated area of interest at the E.ON Energy ResearchCenter at the University of Aachen.
57. Corporate responsibility is a managerial priority within E.ON.We have a management team that is specifically responsible for deal-ing with environmental and social issues arising within the com-pany, and steering our efforts throughout the group. Our goal is tobe a pioneer in corporate responsibility and sustainable manage-ment, and to live up to what is expected of us as a market leader. It takes time to communicate all of this to potential employees,of course, but we believe that our evident commitment in this fieldwill gradually seep further into the public consciousness if we con-tinue to talk honestly and clearly about what we’re doing. The envi-ronmentally and socially aware will want to join us, and they’ll wantto stay with us. Energy is a dynamic and fast-growing sector thatprovides early and varied opportunities to our people. We just needto get that across.S+B: What is your employer brand and how did you choose it?DÄNZER-VANOTTI: We set up a groupwide project to work out anemployer brand message. We conducted a large amount of internaland external market research so we could crystallize in our mindsexactly what it is that makes E.ON stand out. The message we settled on was “Your energy shapes the future.” E.ON AG 59This phrase reflects the huge difference that this company, and itsemployees, can make for the environment and, consequently, for theworld in general. We are in a position as a company to influence thedirection of the energy industry and develop innovative technologyto protect the earth’s climate. For the individual employee, this pre-sents a rare opportunity to make a significant personal impactthrough highly challenging work.S+B: Tell us more about the “early and varied opportunities” that youmentioned. What do they actually involve, and how do they differenti-ate you from other employers?
58. DÄNZER-VANOTTI: For one, we offer international assignments. Wenow have an active presence in more than 30 countries, and we obvi-ously need people to manage and work in all these internationaloperations, so we encourage our best employees to be geographicallymobile. To this end, we aim to double the number of E.ON employ-ees on foreign assignments by 2009 to about 800 people. Quite apart from the logistical necessity of filling these inter-national positions with talented, qualified staff, opportunities likethis also happen to appeal very much to the Generation Y workerswho have been entering the workplace in recent years. As well asbeing environmentally and socially conscious, they tend to craveaccelerated personal development and learning opportunities. Weare an expanding company in an ever-changing business environ-ment; therefore we are in a great position to satisfy this yearning forcareer progression.S+B: Beyond promoting international mobility within your workforce,how do you deal with the numerous staffing demands of E.ON’s inter-national growth?DÄNZER-VANOTTI: I can’t deny that this growth is a permanentstrain on our human resources function, so we have to handle the60 strategy+business Readerchallenge imaginatively and proactively. We have to make adequate provision for the burgeoning peopledemands of international growth, particularly after the privatizationof the energy industry in central and eastern Europe and our strate-gic decision to expand into those regions. We quickly discoveredthat we needed experienced, talented people to run those new unitsand to coach and train their employees from Day One. We have learned to launch an ambitious and proactive recruit-ment drive in anticipation of those needs. This might cause a tem-porary managerial “underload.” But when the rapid expansioncomes, we can hit the ground running.
59. Now, we don’t hesitate to invest in people development when welaunch an operation — this is an integral feature of our growth strat-egy. When we invest in ventures or make acquisitions, we make surethat we include professional training and development plans forlocal staff as part of our negotiated agreements. And this emphasison training has been well received in these local units. Underpinning our international people strategy, which isnamed “OneHR,” is a focus on sensitivity to all the different work-ing cultures we operate in. Our philosophy for OneHR is “thinkglobally, act locally.” The strategic framework might be decidedcentrally, but the business units will know best how to implementit locally.S+B: Demographic change seems to have a particular significance for theenergy industry because of its comparatively aging workforce. How areyou dealing with the challenge of shifting work currently done by thosenearing retirement?DÄNZER-VANOTTI: The aging population in Western societies willundoubtedly affect E.ON. About 7 percent of our workforce is age56 or older, so we can expect 6,000 employees to retire in the next10 years. E.ON AG 61 One thing we have done is to establish specific initiatives with-in the framework of OneHR in order to create an environment inwhich older employees can be most productive. For example, weprovide employees with lifelong learning, and offer older workersopportunities to retrain for jobs that are less physically demanding.We also offer a combination of extended employment and part-timereemployment of retirees to keep on board those older workers whostill want to contribute. These initiatives help us lessen the immedi-ate impact of demographic change and retain talent in the organiza-tion for as long as possible. We’re also taking steps to ensure that the knowledge of older
60. workers stays in the company after they retire. To address this,we set up knowledge transfer programs. The implementation of these programs is a prime example ofhow OneHR works. We determine the overarching strategy, butthe local units devise their own specific programs, based on theirown understanding of the knowledge resources they require forfuture success.S+B: Are there enough younger managers to take on the work that thosepeople who choose to retire are leaving behind?DÄNZER-VANOTTI: We’ve benefited from a considerable injectionof new talent because of the pace of our international growth. Soperhaps we are not in the same boat as other energy companies. Andas I have said, we have been busily recruiting so that we can runthese international operations effectively. Aside from recruitment and acquisition, we also want to encour-age internal mobility, not just geographically but also between busi-ness units, so we can fill those areas with the most urgent needs. We’re keen to increase the share of women in leadership posi-tions to meet any lack of qualified employees and counter the effectsof demographic change, too. In Germany, for example, we have a62 strategy+business Readercooperative agreement with Femtec, an organization that worksclosely with the business community and leading technical universi-ties to develop programs for girls and women at all education levels.The programs are designed to encourage women to study science orengineering and to make it easier for female graduates to find a job.Femtec helps E.ON to identify ambitious and highly qualifiedwomen early on and then provide them with appropriate supportfrom the very beginning of their careers.S+B: How do you identify those employees with high leadership poten-tial, and how do you develop them?
61. DÄNZER-VANOTTI: Identifying “high potentials” is the responsi-bility of the line manager with the support of HR. The annualappraisal discussions between line manager and employee, and thesubsequent management reviews conducted by HR and the linemanager, specify development needs but also highlight those withexceptional performance and potential. We then provide these leadership candidates — we call them“senior management potentials” — with tailored development pro-grams. They all undergo an Assessment Center evaluation, an iden-tical process wherever you are in the world. On the basis of thesefindings, we work with them to design programs around theirunique development needs, revolving not only around the areas theyas individuals particularly need to focus on, but also around the spe-cific requirements of the jobs they are designated to take on next. Senior management potentials attend the annual E.ONCampus, where they learn about E.ON’s current strategy, as well asget an opportunity to build networks with their peers and sharetheir views with top executives in workshops and Q&A sessions.S+B: What does E.ON look for in a potential leader in these appraisals?Is there a set of characteristics, behaviors, or experiences that you believe E.ON AG 63predisposes an employee to become an outstanding leader?DÄNZER-VANOTTI: We have just launched a project calledLivingLeadership@E.ON that asks the very same question. Fol-lowing our strong international growth, we felt that we needed todefine more precisely, across different cultures, what leadershipreally means. In this respect, not only do we understand executive perform-ance in terms of economics and market presence, but we also lookat leadership performance and qualities. This includes the ability tocollaborate and communicate, the accountability for what has beenachieved and for how the obtained results came about in terms of
62. communicated and lived values. We believe that when we recruit,appoint, reward, and promote E.ON managers, we must not onlylook at business results. We also assess how our leaders run theirbusinesses, how they manage change, how they lead and develop thepeople who are entrusted to them, and how they contribute person-ally to moving E.ON forward. It is the major task of our leaders to enable our people and ourorganization to achieve our company objectives.S+B: Do you distinguish between technical and managerial leaders? Arethese separate roles at E.ON?DÄNZER-VANOTTI: No, we hardly have any leaders who focus sole-ly on the technical side of the business. It just wouldn’t work. Thenature of our business as a large-scale international service providerinvolves daily contact with millions of customers, so all our leadersmust have a customer orientation. They also need to develop rela-tionships with public authorities, as well as engineering and servicepartners. As a result, we avoid developing leaders in functional silosbecause that would leave them underprepared and unqualified forthe demands they’ll face. We ensure, therefore, that they frequentlymigrate between national and international commercial, technical,64 strategy+business Readerand staff functions as they develop.S+B: And is this learning on the job your principal method of develop-ing your leaders once they have been identified and are in position?DÄNZER-VANOTTI: Yes, absolutely. Our culture, perhaps influ-enced by our rapid growth and the resulting pressing staffing needs,encourages our senior management potentials, our emerging lead-ers, to assume responsibility at quite a young age, and with a largeamount of latitude.S+B: Do these emerging leaders get more formal educational opportunities?
63. tional level above them, and E.ON Academy learning programs. +DÄNZER-VANOTTI: We are very proud of the E.ON Academy. Itwas founded a little more than five years ago, and in 2007, it served30,000 E.ON learners worldwide. In 2008, we estimate it will sup-port 70,000 learners. It was recently cited as a benchmark in a lead-ing European commercial journal. The academy has various facets. It supports individual develop-ment programs for more than 2,500 top executives, senior man-agers, and senior management potentials through both instructor-led programs and distance learning. For the organization as a whole,it provides a great variety of courses. Moreover, it is currently devel-oping functional academies, such as Trading, Project Management,Sales and Marketing, and Human Resources Management. Theacademy also boasts the Electronic Learning Center, which managesthe learning platform “Academy Online,” our online managementlibrary, and our in-house Web-based training for all E.ON units. The E.ON Academy does not just serve to promote knowledgeand expertise. It also helps to achieve a consistency in approach thatcontributes to our “OneE.ON” culture and helps integrate ourmanagement teams across national and organizational boundaries. But in a very real sense, we believe that people must take respon-sibility for their own development. We don’t develop them as such, E.ON AG 65but we can help them develop themselves through on-the-job learn-ing, the coaching and mentoring administered by the organiza-
64. by Jeffrey Akin and Andrew TippingReporter: Sally HelgesenFedEx Ground Inc.:Where People Drive the BusinessHR must learn to use its influence to createrobust corporate strategies and customizedcareers, says Senior Vice President for HumanResources Shannon Brown.Senior Vice President for Human ResourcesSHANNON BROWNFedEx Ground Inc.
65. by Jeffrey Akin and Andrew TippingFedEx Ground Inc.:Where People Drive the BusinessFEDEX IS Aworldwide network of companies that provide customersand businesses the broadest array of supply chain services, trans-portation services, business services, and related information ser-vices. FedEx Corporation generates more than US$36 billion inannual revenues and has more than 290,000 employees and contrac-tors. The company serves more than 220 countries and territoriesworldwide. Founded by Fred Smith in 1973, it has been widely cel-ebrated and recognized as one of the best places to work and mostadmired companies in the world. FedEx Ground Inc. is the company’s $6 billion small-packageground shipping business, specializing in business-to-business deliv-68 strategy+business Readerery and residential service through FedEx Home Delivery andFedEx SmartPost. The company was created through the acquisition ofCaliber System Inc. in 1998 and rebranded FedEx Ground in 2000.Today, FedEx Ground alone handles more than 3.5 million pack-ages each day in the U.S., Canada, and Puerto Rico with a work-force of more than 66,000 employees and independent contractors. As senior vice president for human resources for FedEx Ground,Shannon Brown plays a key role in developing strategies that shapethe organization. Ebullient and astute, Brown radiates confidencewith a strategic stewardship that is not always apparent amonghuman resources professionals.
66. Brown spent the majority of his 29-year career at FedEx in oper-ations, transitioning into a leadership position in human resourcesfour years ago. Hired as a package handler at age 21, he worked hisway up through a series of line positions, as a customer service agent,a service manager, and an information manager, and later directingunits including airline ramp and hub operations. Along the way,he moved his family through nine geographic locations and earneddegrees in applied behavioral science and intermodal transportation. Brown is a passionate and persuasive advocate for the view thathuman resources must be a key player in strategic decisions at everylevel of a corporation. He also never loses sight of the foundation ofFedEx’s corporate culture — the people of FedEx are the key to itssuccess. “If you’re in finance, it is paramount that you work veryclosely with human resources because people are the biggest expensein your operation,” he notes. “If you’re evaluating the business needsover the next five to 10 years, human resources absolutely needs tobe part of that conversation. As leaders, we must strategically planto have the right people in the right place at the right time and atthe right price. If you don’t have that, you can’t get where you wantto go.” From FedEx Ground headquarters just outside Pittsburgh, FedEx Ground Inc. 69Brown spoke with strategy+business about how his company’s work-force will be the key to getting FedEx Ground where it wants to goin the future.S+B: What do you see as the biggest challenge your company faces interms of talent management?BROWN: Aligning the people strategy with the business strategy. Wecan’t succeed unless we do that right. If we need a new hub, we haveto plan for the people who will be needed to fill the wide range ofjobs in a hub. If we need engineers, we need to fill those jobs. If weneed call centers, we have to consider the wide range of geographies
67. available and evaluate where the talent is and what it will cost. Wemight have lower labor costs in a particular location, for example,but finding health care is more costly. All those factors must be con-sidered. Business decisions are talent decisions. You can’t plan for thebusiness without planning for the people.S+B: Do you think most companies understand this?BROWN: They’re starting to, but human resources professionalsmust be the front-runners when helping business leaders make thatconnection, and that doesn’t always happen. HR as a function beganin response to the labor movement, which required companies toprovide benefits to employees, and expanded when Social Securityand other government mandates were put into place. So the field isbasically operating on a model that’s around 70 years old and has ahistory of being wedded strictly to compliance. As a result, the pro-fession has been very siloed, seen as a staff function, considered dis-tinct from the real business, and viewed solely as an expense. Andthat approach simply doesn’t work anymore. Of course, benefits, compensation, compliance, training, andthe rest are critical to the company’s success, but they’re just individ-ual components of HR — they’re functions. In my opinion, they are70 strategy+business Readeressential functions within the broader corporate HR mandate, butthey’re not the whole game. The game is also strategically planning,identifying, providing, and developing the right talent to keep thebusiness running and growing, and that requires knowing where thejobs are in the marketplace, what you need to do to attract andretain the people you want, where they need to work, and howmuch they’re going to cost. If you don’t do that right, the businesswill not succeed.S+B: Should talent planners collaborate directly with financial planners,or should HR have a financial team of its own?
68. BROWN: Financial planning and talent planning need to work incollaboration. We’re working to make that happen here at FedExGround. For example, our financial planners are responsible formodeling and forecasting package volume down to the terminallevel. We use that data to determine our needs in terms of people.Where do we find our package handlers? What are the demographicchanges that are going to impact our business? What are the turnoverrates for that entry-level position, and what drives those rates? Then, if you move a percentage point, you need to know howthat will affect the bottom line. Is it better to invest in this group ofworkers or that group? Do we need to add specific benefits? At whatlevel? Should tuition reimbursement be part of the package? Are thesefinancial decisions or people decisions? The answer is they’re both.S+B: Does this kind of integrated approach encounter resistance?BROWN: It could, and in some organizations it often does. But wecollaborate with finance up front, which gives us more leveragewhen it comes time to act. It’s a partnership. We give them informa-tion that helps them drill down into expenses. For example, financeworks with our compensation manager to figure out what themarket is saying about how they should pay a specific group of FedEx Ground Inc. 71employees. That gives them more accurate numbers when they’redeveloping the long-range outlook. In return, we get informationfrom finance that helps us clarify the vacant positions and profile thetalent needed to fill them. It’s a strategic approach, but it also worksat the tactical level. Collaborating with finance at the onset of our projects helps usavoid unnecessary negotiation and explanation when it comes timeto deliver the numbers. We are able to avoid objections that thenumbers are unrealistic, because finance played a role in developingthe numbers. Human resources is able to present numbers to theCEO with a significant amount of support from finance because
69. everyone’s been working together from the same data, and, as a result,the decisions are based on a common understanding of the facts.S+B: A lot of HR executives would like to implement this kind of inte-grated planning. What makes the partnership work at FedEx Ground?BROWN: I believe that my extensive experience in operations playsa key role. I’m accustomed to being in control and rapidly makingdecisions that don’t require extensive justification after the fact. I’vebeen able to manage similarly in human resources. Also, I’m accus-tomed to being a significant contributor to the organization andaffecting the bottom line. Just because I joined HR from an opera-tions background doesn’t mean I lose the skill set of leadership andstrategic decision making. Based on my experiences, I know that ourHR professionals can provide a similar impact in their respectiveareas of responsibility and add value to the bottom line.S+B: What is your role on the executive team?BROWN: I am a member of the FedEx Ground management com-mittee. Since I’ve been on the committee, I’ve worked to change thepast mind-set and drive a new understanding that human resourcesis not just an administrative function, something that takes place in72 strategy+business Readerthe back office. It used to be that management would come up withthe business plan and pass it off to HR with the idea that it was HR’sjob to administer it. I’ve worked to change that paradigm. It’s an issue of being willing to use your positional responsi-bility, which is not always understood in HR. I didn’t fully under-stand it before I got here, but I quickly recognized the significanceand influence of HR. HR is responsible for all compensation andrecruitment activities, so there’s a significant amount of responsi-bility and influence vested with our HR professionals. Once wefocused on the appropriate exercise of that responsibility and influ-ence, we were able to start having much more productive dialogues
70. about the role and potential for HR in the overall organization as abusiness partner as well as an independent protector of the FedExbrand. We start from the point of view that managing people isessential to the enterprise rather than focusing on how we do ouradministrative tasks. This means HR has to be included on the frontend of the planning process because no one can achieve their goalsif HR isn’t appropriately engaged.S+B: Does this view of HR change what you look for when you hire yourstaff and other HR employees?BROWN: Yes. I’ve gotten very focused on designing the HR functionto support senior managers in dealing with business complexityand risk. That’s when a company needs its management team toexcel. If the sun is always shining and all the trucks are always ontime, you don’t really need managers. But when you’re facing astorm in the Midwest, for example, you need managers who canadapt, evaluate, and implement contingencies and potentiallyreroute from the impacted hub and shift multiple loads to rail.Managing complexity is the core competency in this businessbecause every day brings a new set of challenges and uncertainty,and you never know what’s going to happen. That uncertainty FedEx Ground Inc. 73increases the risk of a company not meeting its customers’ expecta-tions, so you need to develop people who are comfortable with man-aging and responding to risk.S+B: How do you help people become comfortable with that?BROWN: You give them a lot of support. Support is always impor-tant when there’s risk. And you do a lot of training. Change man-agement and the speed and effectiveness with which business plansare executed, in my opinion, are essential to any organization’ssuccess. Therefore, being adaptable and comfortable with change isparamount to any employee’s success. It’s the leader’s role to act as
71. an advocate for change and to visibly display confidence in the faceof uncertainty. This helps employees overcome their fear of riskwhen mitigating challenges that arise. I pride myself on the abilityto effectively communicate the message of change and successfullylead during times of uncertainty. For managing directors, FedEx Ground offers an extensiveseven-month program that explores the company’s core principles.The team is then asked to make a recommendation about dealingwith a problem or an opportunity in the company based on whatthey’ve learned.S+B: Do you use hypothetical or real problems in the program?BROWN: Real problems. For example, our last class made a recom-mendation about how we in headquarters communicate with ourfrontline managers in the field. They looked at different technolo-gies. Some managers aren’t always eager to adopt new technologiesand they typically like to talk directly to people. But many of today’sfrontline managers grew up with technology and use cell phones andBlackBerrys as standard communications tools. Our goal is to bridgethat difference in a constructive and cost-effective way. We need tolook more creatively at how our frontline managers send and receive74 strategy+business Readertheir messages, and consider new technologies like streaming videothrough an iPod. The team came up with some very intriguing com-munications options. Our operations are global, and in order for usto communicate and have impact on a broader scale, we must con-sider all clients, enterprise-wide.S+B: How do you manage employees of different generations? A lot oforganizations are trying to develop different management techniques touse with different employee perspectives. Are you doing that?BROWN: Like most major companies, we now have four generationsin the workforce at the same time — “veterans,” baby boomers,
72. Generation X, and the new millennial generation. But I’m not con-vinced that they all need and want something different. Regardless of generation, people have very similar objectiveswhen it comes to their work. They want to know why they werehired in the first place. They want to know what’s expected of them,how they’re supposed to accomplish it, and what resources will beavailable to them. They want some kind of review process in aneffort to know how they’re doing, how the company’s doing, andhow their team is doing. I don’t care what generation you’re in, thoseare basic things that all employees want. Our continued success willbe dependent on meeting these common, and I might add reason-able, employee expectations. Now there is a whole industry of consultants today coming in totell you how everything is different with the millennials. They’ll tellyou that you need to bring in pizza every evening, have valet park-ing out front, and let people bring their dogs to work. But I don’tbelieve you can make categorical statements about different genera-tions. The market for employee talent will always determine whatpeople demand and how much you have to accommodate thosedemands. As long as the market provides options, an organization isgoing to have to figure out how to adapt to the labor market from a FedEx Ground Inc. 75more global perspective.S+B: Do you think you’ll need to change the support you offer in termsof, say, career planning in order to attract new workers?BROWN: Yes. Just because human nature stays pretty much the samedoesn’t mean we don’t need to adjust our policies and practicesso we can continue to attract, develop, and retain the best and thebrightest. We must be change agents for the corporation and con-tinue to be adaptable. It’s more about tailoring the support andopportunities we provide to individuals than dealing with a genera-tion we assume has some kind of particular needs. It’s like putting
73. your coat on when you’re cold and taking it off when you’re hot: Yousuit your actions to your needs. And that’s where the leadershippiece comes in, knowing when to be flexible and when something isjust a short-term trend. Here at Ground, we’ve developed core com-petencies that specifically address the skill set needed in order to besuccessful in a specific job. Core competencies provide managementwith opportunities to select the right candidates for open positions,specifically for those requiring a certain skill set (for example,human resource information systems support, metrics reporting).Again, it all goes back to basics: getting the right people at the righttime in the right place for the right price. Career planning has toadapt to support that.S+B: Are there demographic trends that you think are more significantfor your business?BROWN: One thing we’re definitely looking at in terms of demo-graphics is the growing impact of a diverse customer base and work-force. The projection is that 50 percent of the U.S. population isgoing to be minorities by the middle of this century, so the diversityof customers, workers, and future leaders of our organization willcontinue to increase. We need to prepare for this demographic shift.76 strategy+business ReaderAnd we also recognize that the education system isn’t necessarilypreparing workers for what we’ll need, so we’re going to have toaddress that if we want to keep our business healthy. There is realstrength in understanding global demographics as they relate to ourclients both internal and external. Providing a workforce that appro-priately meets the needs of everyone is the ideal.S+B: FedEx has a history of promoting from within. Does that help sup-port your talent management strategy?BROWN: We learned a long time ago that people drive the success ofa service-oriented business, and promoting from within lets people
74. know there’s something in the game for them. It also gives themhope. That was certainly true for me, starting out as a package han-dler. Seeing that I could do a lot of different things — that I couldmove up and across the organization, holding a variety of jobs —kept me engaged. I didn’t need to leave the company to get differ-ent kinds of experience. FedEx was willing to invest in me, as longas I could give them a return on their investment. That was, andcontinues to be, a big motivator for me.S+B: Didn’t it also help that FedEx was on a strong growth trajectory,which meant it could provide opportunities for individuals?BROWN: Well, yes, but again that comes down to leadership. If yougive your people the chance to make a great contribution, the orga-nization’s going to grow. It’s not the other way around. One reasonan organization stagnates is the leaders are stagnant and don’t pre-pare for the future, so people don’t grow and expand. Here at FedExGround, our leaders understand the importance of employee con-tributions and prepare for the future based on the needs of ourclients, both internal and external. That’s why the people side of thebusiness — including the role of HR — is so important to a com-pany’s success. FedEx Ground Inc. 77S+B: Are there other ways that FedEx bolsters its talent pool?BROWN: One thing we do is internally post every job opening inthe company below the managing director level so people knowwhat’s available. That puts the decision about whether an employeewants to compete for a particular opportunity in the individual’shands. It’s up to the individual to figure out if they have the capac-ity and the desire to take on a new challenge. It’s not the manager’sdecision; it lies with the employee. Here’s the bottom line: Whenpeople have a sense of individual control over their career, the indi-vidual and the company will be prepared for continued success, and
75. that’s powerful. This approach also keeps the pressure on our man-agers, because every manager or leader knows he or she had betterhave a powerful team, or people will vote with their feet and go towork for another manager. Another advantage is that people want different opportunitiesat different phases in their lives. Maybe someone isn’t ready for acertain job now, but will be later. I had a managing director, anexcellent employee, who came to me and said, “You know, I havefour young children that I’m not spending enough time with. I onlyget one shot at being there for them and I’ve got to take it now. Ilike this company, so I’d like to apply for the open part-time posi-tion working three days a week. If I can do that, I’ll stay with theorganization, and if not, I’m going to have to leave the company.”In 15 years, her children are going to be in the workplace, whichmeans that if I keep her, I’ll probably get a chance at four moregood people. Basically, it’s what Fred Smith figured out many years ago: If yougive people a chance in the company, they’ll have an incentive tomake an impact on the organization, which allows you to delightcustomers and will drive your continued growth and success. Thatgrowth will allow FedEx Ground to provide more opportunities for78 strategy+business Readerits employees. Fortunately, we were able to provide the employee I just men-tioned with the part-time opportunity and provide ourselves withthe possibility of employing her children in the future. She wasthrilled. It worked with her, and I think it works with people gener-ally. People want someone to believe in them, tell them they’re val-ued as a professional, motivate them, coach them, and help themdevelop. If they can get that at FedEx Ground, why should they gosomewhere else? The point I’m trying to make is that a successfulbusiness like FedEx is dependent on its people. That’s why webelieve in putting our people first.
76. S+B: How do you keep that personal touch when competition keeps get-ting tougher and managers are stretched more and more?BROWN: You have to maintain a strategic vision that accurately fore-casts opportunities and challenges in the future so you don’t have tochange the execution of your business plan. People don’t want to livein an organization that tells them they have to stop this or that. Ifyou stop them, you strip away creativity and reduce motivation,which is not our job. Our job in human resources is helping peoplegrow so they can create an environment where they can develop andthe company can be successful. If you don’t create that environment,you can’t get real engagement and create a business that can raise thecapital it needs to grow.S+B: Does FedEx subscribe to any specific mentoring philosophy?BROWN: We evaluate and consider a number of philosophies.Mentoring is such a personal thing. You can’t just say, “OK, it’s 1:20,time to do some mentoring.” It doesn’t work that way. You have towait for a teachable moment, and you can’t control when that willoccur. The best lessons from my experience have been when some-one has caught me and said, “Now, Shannon, let me tell you thereasons that what you just did didn’t work.” Let’s face the facts: FedEx Ground Inc. 79A successful mentoring relationship, whether it’s formal or informal,is difficult to create in the first place and even more difficult toreplicate. You can’t try too hard to engineer this very personal dynamicand assume you can throw two individuals together to form aneffective mentoring relationship. You can’t match people together ona computer. It’s a human process, and you can’t dehumanize it. Weare trying to, and will, find the right balance, because there is animportant role for mentoring.S+B: Where do you see challenges for HR in the future?
77. BROWN: I think our work is going to be more reflective of the indi-vidual. The HR profession developed at a time when doing that wasvery difficult. For example, why did corporate pay practices essen-tially remain unchanged for more than 50 years? The practice wasbased primarily on the assumption that employees would be issuedensuring organizational success. +manual paychecks. Today, that’s not the case. Technology advances have allowedemployers to meet individual employee needs such as direct depositinto a checking account while also improving the efficiency of deliv-ering wage payments. Here’s my point: With all the technologicaldevelopments over the past decades and increasing market com-petition for superior employee talent, I believe employers will beforced to interact with their employees in new and different ways inthe future. It’s the same thing if you come to me and say, “Shannon, I wantto take the next three months off.” I need to figure out if there’s away I can do that. It goes back to what I was saying about flexibil-ity and leadership. People want to be treated as individuals; theywant to work on high-impact projects and add value to the corpo-ration. They don’t just want to show up. One thing I value is that since I’ve been in management at80 strategy+business ReaderFedEx, which is since June 1981, about 27 years, I’ve always beenencouraged to put our people first. I don’t care what the issues wereor how bad the financials were, we have always looked and will con-tinue to look for business solutions premised upon one core value— our people are FedEx’s most important asset. Over the past 30years, FedEx has allowed me to make my dreams a reality. Helpingindividuals recognize their dreams is the secret to keeping talent and
78. FedEx Ground Inc. 81
79. by Jeffrey Akin and Gary L. NeilsonReporter: Sally HelgesenKraft Foods Inc.:Raising the Talent BarEvery human capital decision must be alignedwith strategy to establish a new corporate model,says Executive Vice President of Global HumanResources Karen May.Executive Vice President of Global Human ResourcesKAREN MAYKraft Foods Inc.
80. by Jeffrey Akin and Gary L. NeilsonKraft Foods Inc.:Raising the Talent BarWITH MORE THAN US$37 billion in revenues and upwards of 90,000employees, Kraft Foods Inc. is a behemoth of American enterpriseand a repository of many classic brands. Nevertheless, the foodproducts giant, which boasts no fewer than nine $1 billion brands,faces a challenging future. Many of its products are mature, includ-ing perennial family favorites such as Jell-O, Oreos, Milka, andMacaroni & Cheese; the cost of raw ingredients is rising; and high-profile activist investors are buying up shares. Spun off from Altria in 2007 and fully independent for the firsttime since 1988, Kraft today is in the middle of a three-year trans-formation plan aimed at stepping up performance, ramping up84 strategy+business Readermarketing, and accelerating brand innovation. It’s a demandingbalancing act for CEO Irene Rosenfeld, who is pursuing a strategythat delivers both short-term improvement and sustainable growthwhile managing shareholder expectations, but one that has alreadypaid off in accelerated volume. Transforming a huge company with a storied past and long-standing traditions requires fundamental change in its culture andimposes new demands on the development, management, and re-cruitment of human talent. To help Kraft accomplish this shift,which is built more on philosophy and mind-set than on tactics,Rosenfeld turns to Karen May, who has been the company’s execu-
81. tive vice president of global human resources since 2005. May comes from a finance background, having begun her careeras a public accountant, an experience she credits with giving hera strong business focus. “I’m a businessperson first, which means Isee everything through that lens,” she says. “For example, I don’twant or need to be a pension expert. My role is to help the personwho knows all about pensions to be more firmly grounded inthe business.” May’s unorthodox route took her from accounting to a varietyof finance and audit positions with the health-care giant BaxterInternational. She became a vice president at Baxter while in a job-sharing arrangement that she had requested in order to spend moretime with her three young children. “Three times I’ve been told that I was destroying my career,” sherecalls. “When I left public accounting, when I took a part-timeposition, and when I made the move into human resources.”Instead, each time she flourished. May spoke with strategy+business at Kraft’s world headquartersin Northfield, Ill., where all the conference rooms are named forKraft products. Our conversation about how Kraft is living its newbusiness model and what May believes will be the major workforce Kraft Foods Inc. 85trends in the future — flexibility, zigzagging career paths, anddiverse experience — took place in the Cheese room.S+B: What is the top talent-related issue facing Kraft right now?MAY: Our biggest challenge is getting people to think about talentin the future, focusing on the new Kraft as opposed to the Kraft theyknow. We need to raise the bar on talent — increasing empower-ment and accountability. The old Kraft’s matrix structure was abarrier to accountability and made it hard for our people to act onbusiness opportunities. Today, our number one business strategy isto rewire our organization for growth.
82. S+B: How do you rewire for growth?MAY: One way is by acting on all our people issues, including cur-rent talent, recruiting, workforce of the future, and culture, in thecontext of business strategy as it relates to growth, innovation, andtechnology. We have made tons of changes in the past 18 months —people, communication, structure, compensation — all in the con-text of driving growth.S+B: What does HR need to do to support and help achieve this kindof initiative?MAY: HR needs to establish the linkage between the changes we’remaking and business outcomes. We also need HR processes thathelp managers make good business decisions. And everyone on theHR team needs to think of themselves as business leaders first. It’sfine to bring your HR skills and employee advocacy to the table, butyou’ve got to do it through the lens of the business. Employee goals, shareholder goals, and customer goals arerooted in the same need –– the need to build a healthy, viable, suc-cessful, and sustainable business. If we can do that, we can link theseconstituencies in an integrated fashion. This by definition helpsthe employees.86 strategy+business ReaderS+B: You’re talking about a mental shift on the part of Kraft’s HR com-munity. Do business and strategy professionals also need to shift theirthinking in order to achieve this kind of integration?MAY: Business and strategy people are a product of their experiences,as HR people are. Strategy has historically been a financial exercise,removed from concerns about talent. But once a business opportu-nity is identified, the immediate next questions must be, What arethe capabilities needed to be successful, and do we have them? We need to work with each of our 23 accountable business units(ABUs) so that the talent implications of what they’re doing get fac-
83. tored into their plans. This means HR has to be at the ABU tablefrom the start. Historically, HR has not necessarily been at the pre-sentations, let alone played an integral part in the decisions.S+B: How does Kraft’s move from emphasizing cost control and reduc-tion to emphasizing growth affect talent management?MAY: Growth is exciting, but it also demands that we rethink ourtalent needs. In our current situation, that requires that we haveboth a buy and a build mentality. In the past, we always tried tobuild all our talent. But our focus on growth means we don’t alwayshave time to do that. So ramping up our talent-buying skills hasbecome an urgent matter.S+B: So for you, talent management is now something of a balanc-ing act?MAY: Definitely! We also need to balance a long-term view withshort-term interventions, being strategic and tactical at the sametime. For example, we can look tactically at the director level in mar-keting and match everyone against a list of competencies that we’regoing to need over the next, say, 90 days so we can position themwhere we’ll need them in order to get things done. We also have to Kraft Foods Inc. 87pull in some new talent to rapidly expand our competency base. Butat the same time, we must continue building the competencies wewill need in the longer term.S+B: You’re talking about moving a huge company from cost cutting togrowth. What kind of cultural shift is required on the part of Kraft’sworkforce?MAY: It requires a sense of urgency, what I describe as a feeling thatyour hair is on fire. That’s the best way to express it. Although we’veaccomplished the vast majority of the first-year objectives in ourthree-year turnaround plan, there is much more work ahead. But
84. again, it’s about balance. We need to create a major sense of urgencyaround growth, but do that without losing our focus on cost,because this is still a commodity-based business. We still have the heart and soul of our workforce, but they’releaning back in their chairs and waiting because they have beenthrough so much change over the last few years. We need them lean-ing forward in their chairs, and that requires us to be careful aboutsending consistent signals about our need to change. The pressurethis puts on communication is just massive.S+B: The most resilient organizations are skilled at resetting expecta-tions, not just among those at the top, but among people at every level.Any thoughts about how you do that?MAY: I think the key is having a very simple message, a clear way ofexplaining precisely what we are trying to accomplish and why it isimportant for the future of this business. Our business units are sovaried and are spread over huge geographic regions. If our messageto them isn’t simple, we create room for misunderstanding. Also, we’ve got to align our leaders around the message, andcreate incentive plans that really support it. People may buy intothe need for change logically, in their heads, but when a good part88 strategy+business Readerof their equity starts to come to them in stock options and theysee that their compensation will come down unless they perform,they begin to understand it emotionally. They also need to un-derstand the upside that stock options can create when we doperform well, which, by the way, creates a perfect alignment withour shareholders.S+B: What else does it take to reset expectations throughout a company?MAY: You have to be credible, which means you have to level withpeople. When something doesn’t work, you’ve got to be the firstto say, “Darn, that didn’t work. Let’s fix it.” That means we need
85. leaders who operate transparently and are willing to have real discus-sions about real issues, such as risk. We can’t just hope that the busi-ness units will know how to model new behaviors. We in HR haveto embody these behaviors. We also need to provide the tools andthe success stories, and create the right conversations to help peoplestart to put the new behaviors into action.S+B: How do you keep this effort authentic?MAY: You can’t do it through a PowerPoint presentation; you needto have two-way, face-to-face conversations. Over the last severalmonths, our leaders have been conducting roundtable conversa-tions. They meet with groups of 10 to 15 people from across thecompany, at all different levels, to discuss what we are trying toaccomplish and, most important, the responsibility each and everyemployee has in bringing the new Kraft to life.S+B: How do you identify leaders who can hold those kinds ofconversations?MAY: For some it comes naturally; others need a bit of coaching. Asleaders, we have to admit that we don’t have all the answers andinvite employees into the process of finding solutions. This creates Kraft Foods Inc. 89the need for a different kind of leadership that isn’t as much aboutgiving out answers as it is about setting a clear direction, coachingpeople along the way, and holding everyone, including ourselves,accountable for the outcomes.S+B: How do you foster that level of leadership?MAY: For a start, I spend more time on leadership talent and help-ing people build their communication and teaching skills than onspecific HR issues. That’s how I look at HR: We’re here to help thepeople in the business units develop and provide the support theyneed to meet their objectives. So one of our roles in HR is to help
86. managers learn to be good managers. I can best illustrate thisthrough a story. Early on in my HR career, I had a case in which a business unitleader called to say that his HR guy had done a great job mappingout feedback to give one of his employees, delivering it, working theexit with the employee, and then starting to recruit. I asked theleader what he had learned. He said, “That I should have called HRearlier.” I put down the phone and went up to his office and toldhim that he really hadn’t learned anything. HR’s job is to help himthrough his problems, not handle them for him. Then I sat downwith the HR person and said, “We got the right result, but in thefuture I need you to teach people to fish instead of fishing for them.There just aren’t enough of us to do that.” That’s the kind of real-time learning in response to events that HR needs to stimulate.S+B: What shaped your approach to HR?MAY: I would say three things. First, I started out in public account-ing, which means I had different clients all the time. That gave mea chance to see companies I loved and clients who were a blast aswell as companies I didn’t like and clients who were awful. Thatexperience gave me a wide view of what makes a great boss and what90 strategy+business Readermakes a great organization. If I’d just worked for one company, beenpart of one culture, it wouldn’t have been the same. Second, because I was in finance I always looked at myself as abusinessperson. It didn’t matter whether I was a line manager or anauditor or in HR, I have a mind-set about how the business is doing.Part of that is also that I am not an HR expert, and I never will be,so I’m not uncomfortable saying, “I don’t know.” My role is to bringthe expert into the discussion, and keep that person grounded inthe business. The third element that shaped me was a major career detour Itook when at Baxter, where I worked part-time for eight years when
87. I had young kids. Everybody said, “Karen, you’re really never goingto be taken seriously again.” But that wasn’t true. Instead, I got ashared job at the VP level as division controller. It was very liberat-ing. I realized that you’ve got to find your own path and figure outwhat works for you. And that has helped me immensely in HR,because I understand the value of career flexibility and opportuni-ties inherent in leaving traditional career paths.S+B: How has your experience influenced your views on talent develop-ment here at Kraft?MAY: I think it’s one of the reasons that I look for and try to developbreadth as opposed to depth. My advice to anybody is that yourcareer should be as zigzagged as you can make it. A career is a 30- or40-year investment. So the more experiences you can bring to thetable, the more value you will offer. As a talent leader, I look for people who can do a lot of differ-ent things. This is especially important for our general managers.They need more than just expertise in marketing; they need to leadintegrated business teams. We have a couple of people with verybroad and diverse experiences here at Kraft, but instead of feelingvalued, they have often felt rudderless because they didn’t fit a mold Kraft Foods Inc. 91or follow the traditional path.S+B: How do you change that?MAY: You provide lots of different opportunities so people canget a lot of experience, and you communicate very clearly whatyou are doing. For example, when I look at someone’s overall poten-tial, I tell them all the different things I could envision them doing:“You could run an acquisition integration; you could take on asales role; you could fit in here or there.” Plus, it’s important toaccept a lot of variation around form in order to get the rightsubstance. This takes flexibility and an understanding of how differ-
88. ent individuals work. We need to know who are the morning guysand who are the night guys; who is the tech gal and who doesn’t havethose skills. We have to be willing to play to people’s strengths. Itdoesn’t matter if you work in your pajamas from Mars if you’re theright person. It all comes back to where we started this interview — thinkingabout talent needs in the future, rather than what has been desirablein the past. We need to deconstruct our policies so we can makeroom for new behaviors, because talented people today don’t wantto be put in a box. I was lucky enough to have bosses who were will-ing to adapt policies in order to keep me, so I know that thisapproach is effective.S+B: This brings up the issue of managing different generations in theworkforce. How do you approach that?MAY: We do it by engaging people instead of adhering to rigid rules.Just as one size does not fit all in terms of what talents and skillspeople have to offer, so one size does not fit all when it comes to howpeople break down in terms of generations. So categorizing by gen-eration can put you on the wrong track. Again, this makes sense if we approach it through a business92 strategy+business Readerlens. Each of our businesses is different, each of our customers isdifferent, and each of our employees is different. So we’ve got tohave a framework that allows for differentiation around some sort ofcore base, as opposed to looking at doing one thing for older work-ers and another for younger. If we bring a lot of fixed impressions toour work with different generations or age groups, we won’t be ableto work creatively to find a solution that works for both the businessand the employees.S+B: It sounds as if you think that talent in the future will be managedin a more individual way.
89. needed to get a business on the path to sustainable growth. +MAY: Each business and individual situation is unique. We needframeworks and guidelines to help managers make good peopledecisions, but we don’t need rigid rules. As long as we are all work-ing from the same values and guidelines, the outcomes will follow. At the same time, managers need to be accountable for makingthe right decisions for their business and talent. And our role in HRis to help leaders make the right, and sometimes hard, decisions Kraft Foods Inc. 93
90. by Christian Burger and Klaus MatternReporter: David BolchoverNovartis AG:The Science of TalentCompelling visions without measurable resultsdon’t mean much. There has to be substancebehind the words, says Head of HumanResources Jürgen Brokatzky-Geiger.Head of Human ResourcesJÜRGEN BROKATZKY-GEIGERNovartis AG
91. by Christian Burger and Klaus MatternNovartis AG:The Science of TalentNOVARTIS , ONE OF the largest health-care companies in the world, istransforming its Basel, Switzerland, industrial site into a modernR&D and management center. Its new international headquartersis designed to inspire and support innovation and businessexcellence, ultimately helping the company to achieve its businessobjectives. This architectural emphasis on functionality and enhancedcommunication sits well with Jürgen Brokatzky-Geiger, the com-pany’s head of human resources. Whether the topic is successionplanning or diversity and inclusion, Brokatzky-Geiger tends toreject abstract generalities, preferring to focus on “something con-96 strategy+business Readercrete.” For him, words must be supported by demonstrable progress.And progress comes not from glossy brochures and inspirationalspeeches, but from clear thinking, open conversation, and the steadyimplementation of realistic plans. Brokatzky-Geiger is a scientist by training and, as he happilyadmits, by nature. He is also a Novartis veteran, who 25 years agojoined predecessor company Ciba-Geigy as a laboratory head in thepharmaceuticals division. After a stint in the United States, he helda number of increasingly important positions, including headof process R&D and then head of process development and pilotplant operations.
92. In 1996, Ciba-Geigy and Sandoz merged to form Novartis, acompany that now boasts annual net sales of US$38.1 billion andemploys nearly 100,000 people in 140 countries. At the new com-pany, Brokatzky-Geiger was initially appointed integration officer oftechnical operations, charged with the considerable operational andhuman challenges of bringing two large, complex organizationstogether. The work also placed him in an ideal position to developa deep understanding of the new and very different corporate cul-ture produced by the merger. After the merger and a four-year spell as global head oftechnical R&D, Brokatzky-Geiger was appointed head of humanresources in September 2003, and he has been a member of thecompany’s executive committee since January 2005. In his office inBasel, he talked candidly and in detail about his company’s currentpolicies in talent management and development, and the constantsearch for tomorrow’s leaders.S+B: What exactly do you look for in “high potentials” at Novartis?What attributes or behaviors convince you that someone is a leader?BROKATZKY-GEIGER: We have a list of eight leadership standardsthat have been defined by the corporate executive group, which Novartis AG 97comprises our 350 top managers. But when I’m asked what we lookfor, I normally boil it down to three principal traits. The first is competence, both technical competence in one’sfield and social competence, the ability to work with people. Thesecond is ambition. By this I don’t mean just the ambition to climbthe ladder, to build a power base, or to increase your salary; thatkind of empty ambition will eventually lead to failure. I mean anintrinsic drive to go in to work every day and do a great job. Wemust be careful to distinguish one from the other. The last of thethree is crucially important: integrity. Do managers pass on whatthey know or keep it hidden? Are they open and transparent in the
93. way they operate within the organization? This is behavior we verymuch seek to encourage in this company.S+B: What are the processes involved in filling these top 350leadership positions? What strategies do you have in place for successionplanning?BROKATZKY-GEIGER: We have processes for talent managementand succession planning that are deeply embedded within theorganization. By examining in detail the current availability of tal-ent in individual business units and countries, we gradually build upa comprehensive, groupwide picture of the talent areas we need toaddress and where we might soon have a shortage of leaders. The entire process starts in December when country manage-ment teams sit down to discuss the talent needs in each of their busi-ness units. So, for instance, the German management team wouldtalk about talent in Novartis Pharma in that country. They wouldfirst identify the high potentials, which we define as those peoplewho have the capability to go two steps up the ladder. They alsoidentify those who have the potential to be promoted one step up inthe near future, as well as the “high professionals,” those specializedfunctional experts who perform an invaluable role but are not nec-98 strategy+business Readeressarily interested in or capable of becoming managers. Pharma management subsequently discusses the specific talentsituation with the management of each country unit. In May orJune, the head of Pharma and his HR head meet with Chairmanand CEO Daniel Vasella, myself, and the head of talent manage-ment. We talk talent, high potentials, and succession plans inPharma. And exactly the same process takes place for all the otherbusiness units.S+B: Can you walk us through one of those discussions on successionplanning in more detail? And what is the upshot of these discussions?
94. BROKATZKY-GEIGER: We start off with organization charts for dif-ferent business units, global functions, and major countries. At thetop of the chart, we have the name of the current leader. And belowhim or her, we have those people who are classified as “ready now”to take on the role, according to the assessment of line managers, ofHR, and, sometimes, through external assessments. So, in our talks,we confirm that the “ready nows” are genuinely ready — or, alterna-tively, we identify their development needs. And then we have cate-gories of people who should be “ready in one to two years” and in“three to five years.” Multilevel succession planning discussions give us an excellentoverview of how to develop leaders across the company. It quicklybecomes apparent where significant gaps exist in the talent pipeline,and where there might be problems in one, three, or five years unlesswe do something. HR then works with the business units to plugthese gaps. So, say there is a clear problem on the horizon withPharma in a top 10 country, with nobody in the “ready now”category for a certain role. We can determine whether there issomeone internally who could be ready with the appropriate train-ing and development or we can get to work on hiring someone fromthe outside. Novartis AG 99S+B: You mentioned people who may be excellent technically but whoare not, in the opinion of the company, suited to management positions.Are there opportunities for these people to continue to develop andprogress without taking on management roles?BROKATZKY-GEIGER: In a company like this, you have lots of sci-entists who are motivated solely by the opportunity to do research.Make them manage people and, very often, they hate it. So we havea dual career ladder, which someone can climb without ever goingoutside the laboratory. He or she can become a senior scientist, withthe same salary and benefits as the manager of the department.
95. This system keeps people doing what they want to do and whatthey do best. It encourages them not to seek managerial positionsjust for the sake of career progression if that will ultimately makethem unhappy.S+B: Many companies have very definite opinions on whether they wantto promote senior leaders from the inside or bring in a high proportionof outsiders to inject some fresh blood. What are your views on this?BROKATZKY-GEIGER: At present, our emphasis is on promotingpeople from the inside. Take the 350 people in our corporate exec-utive group as an example. Our continuing aim is that 70 percent ofthese management appointments be delivered from the inside. Andwith the help of our talent development and training programs, wefirst reached this target in 2006. In 2000, the figures demonstrated the exact opposite, with thevast majority of senior executives at that point having been recruit-ed from outside. This didn’t happen by accident; it was our plan afterthe 1996 merger. The intention was to remove the different culturesof the predecessor companies and replace them both with an entire-ly new one, a Novartis culture. The quickest way to build this uni-fied culture was to bring in a considerable number of top executives100 strategy+business Readerfrom other companies — from Glaxo, from Pfizer, from Pepsi, fromHeinz, and elsewhere — who had no affiliation to either of the pre-vious companies. Since that flurry of recruitment, we have been con-solidating this new culture, so we turned our attention inward.S+B: The shortage of women in senior leadership positions in the corpo-rate world is well documented in the media. Does a similar situationexist at Novartis?BROKATZKY-GEIGER: Yes, we do see a significant problem here.At the entry level, 50 percent of new recruits are females. At thesenior management level, we’re struggling to get to 20 percent. We
96. need to make sure we don’t continue to lose such a vast pool oftalent along the line. We’ve created a series of policies and programs designed todevelop talented women within the organization. First of all, thereis the specific task of getting women into senior positions. We haveset a target of 20 percent for female representation in the corporateexecutive group. So, when we build our succession plans, we knowthat more than 20 percent of the potential successors for these sen-ior executive roles in the global organization have to be women. We also explicitly ask each business unit to provide HR with alist of high-potential females, so we can regularly discuss their careerprogress at a high level and thereby raise their individual profilesamong senior management. And when we appoint recruiters tocarry out a search for a senior management role, we explicitly statein the contract that at least 30 percent of the candidates should behighly qualified females. Of course, you must adopt measures to retain women at lowerlevels if you hope to produce internal candidates for senior manage-ment. Let’s take Switzerland as one example of many. Around fiveyears ago, we discovered a discrepancy in the salaries of men andwomen doing the same jobs. We’ve eliminated that inequality, and Novartis AG 101we check the salary data regularly to ensure it does not reoccur. Wealso offer child care, paid for partly by Novartis and partly by theemployee, as well as part-time work and work-from-home optionsfor working mothers. I think these choices appeal to women and help them recognizethe opportunities we offer. Even if they don’t benefit right now, theyknow these options are available to them in the future.S+B: Are you concerned about a demographic shortfall at Novartis infuture years? And, if so, have you adopted any measures to counter theeffects of an aging workforce?
97. BROKATZKY-GEIGER: We don’t envisage any difficulties in staffingour company with high-quality people. We hired around 17,000people worldwide in 2006, and received in excess of 300,000 appli-cations. This is clearly an extremely popular place to work. We also would very much like to keep older workers here afterretirement age if their expertise is valuable and they still wish to con-tribute, whether it be on a full-time, part-time, or consultancy basis.But the role of HR is not to just talk broadly and academically abouta subject. Rather, we must concretely improve processes and imple-ment projects. For instance, in Switzerland, because there is some demandamong retiring workers to stay on in some capacity, our countryhead of HR initiated “Primeforce,” a program for retired managers.He established a database to match our demand for expertise to theexperience of retiring workers. So someone who retires at a seniormanagement level can say, “Put my name and expertise in the data-base, and if a suitable project comes up in production or develop-ment or if they are looking for a consultant, I would be interested indoing some work.”S+B: By your reckoning, in what area of HR does Novartis achieve its102 strategy+business Readermost outstanding performance?BROKATZKY-GEIGER: What we do very well is training and devel-opment. I say this based on constant and consistent feedback fromemployee surveys. People award us very high marks for professionaland personal development. One of the strengths of our development programs is thatcontent is not imposed from the outside by HR. We work with thebusiness units to determine precisely what they need to improveeveryday operations as well as to prepare for future success. The pro-grams have a genuine business use; we don’t teach blue-sky theorywith limited or no application.
98. A notable example of this practical business orientation is thecustomized program we created with Harvard Business School thatis attended by around 200 members of our corporate executivegroup each year. The course is rooted in the current strategic chal-lenges facing our senior managers. Daniel Vasella personally enrollsin one of the courses every year; he also spends one day at each ofthe courses to present and discuss our corporate strategy.S+B: How do you develop fresh perspectives on challenges you face inHR? Are there any examples of innovations you have introduced afterlearning of developments elsewhere in the corporate world?BROKATZKY-GEIGER: Targeted reading often serves a specific, prac-tical purpose for me in terms of building a picture and triggeringideas. I especially like the overview articles that appear in businessschool magazines. When I started to think about the subject of diversity and inclu-sion in its entirety, not just in terms of gender and age, but also race,ethnicity, and other areas, I read a great deal about it. We had awell-developed diversity program in the U.S., but I wanted to findout whether we could introduce something with high impact on aglobal level. One of the principal conclusions that came from this Novartis AG 103was that global diversity and inclusion is a relatively new andextremely complex area, and that we didn’t have all the answerswe needed within the organization. We decided to seek expert exter-nal assistance, and thus, we set up the Diversity and InclusionAdvisory Council. There are nine people on this council, including me. For exam-ple, we have Kurt April, a business professor from Cape Town whospecializes in diversity and inclusion, and David Thomas, a pro-fessor at Harvard Business School who researches cultural diversityin organizations. We also invited current and former business lead-ers such as Ted Childs, who was IBM’s global head of diversity
99. programs; Manisha Girotra, the managing director and chair ofUBS in India; and Lan Yang, cofounder of Sun Media in China, aswell as Sir Nicholas Scheele, former president and COO of FordMotor Company in Europe. They, and the remaining council mem-bers, provide invaluable insights and constructive suggestions as wedevelop our policies.S+B: How has your own background in product and process R&D andas the global leader of Technical R&D influenced your work asNovartis’s senior HR leader?BROKATZKY-GEIGER: I think it has been immensely helpful. Myrole as general manager has helped me to see the important role ofline managers in an effective HR function. Line managers havemuch of the responsibility for the day-to-day implementation ofHR initiatives. It has also helped because I know so many people inthe “engine room” of the organization and have an understanding ofhow they think. This gives me a clearer idea of how effectively anHR initiative might work in practice. One specific example comes to mind: We created a wonderfuland full-fledged competency model. The model defines what com-petencies individuals need for different jobs and encourages employ-104 strategy+business Readerees to have regular discussions with their line manager about whichof these competencies they need to develop to do their current jobbetter or to become eligible for promotion. In practice, however, the model could have been extremely time-consuming, with line managers easily distracted by other, morepressing, priorities. If enthusiasm and momentum are lost, the dis-cussions could become increasingly irregular. But having been a gen-eral manager, I understand how these downward spirals develop,and it encouraged me to seek an implementation plan that was sim-pler in setup and more grounded in reality, rather than absolutelyperfect. There was nothing wrong with our competency model —
100. behind the words. +we just needed to reduce the time demands that the implementationmade on line managers. So my instincts might be sharper as a result of my experience.And the fact that I know so many people here keeps me fromgetting too detached from what is really happening within the com-pany. I get phone calls from people, e-mails, all kinds of informa-tion, suggestions, and, yes, complaints. I have a reputation here.People know what I’m like. They know that I want them to be openand honest with me, that I won’t hold it against them. I guess my background in science also makes me focused onprovable results and less interested in nice words. I come from afunction where you had to deliver something tangible prettymuch every day. Sometimes in HR, you can have some really lovelydiscussions, but without measurable results to demonstrateimprovement, they don’t mean much. There has to be substance Novartis AG 105
101. by Thomas StarrReporter: Sally HelgesenThe PNC Financial Services Group Inc.:Building Brands with Human CapitalCreating an engaged, committed workforce isthe secret to growing a strong service brandand minimizing service risk, according to RetailBanking Executive Vice President Neil Hall.Retail Banking Executive Vice PresidentNEIL HALLThe PNC Financial Services Group Inc.
102. by Thomas StarrThe PNC Financial Services Group Inc.:Building Brands with Human CapitalPITTSBURGH - BASED PNC has become one of the largest financial-services companies in the United States by pursuing a disciplinedstrategy of regional acquisition. PNC’s Retail Bank is the heartof the company and its largest business, comprising 1,100 branchesin markets from New Jersey to Kentucky. Over the last sixyears, the Retail Bank has been breaking sales records while alsomanaging to achieve ever-higher scores in customer and employeesatisfaction. As executive vice president, retail banking, Neil Hall is athoughtful and articulate advocate of the belief that his operation isabove all a retail business and as such can thrive only by providing108 strategy+business Readersuperior levels of service. Superior service, he believes, requires a sus-tained commitment to the development of people, not only in man-agement but also on the front lines. Hall’s distinctive background shaped his approach, for althoughhe has had a distinguished 30-year career in banking, his academicfocus was philosophy and theology and he began his working life asa teacher. While pursuing graduate studies in the 1970s, he took apart-time job at a local bank in order to support himself. “I had absolutely no business training or knowledge beyond asingle statistics course, but I let myself be coaxed into a training pro-gram, and then talked into taking on some low-level supervisory
103. roles,” he recalls. “That experience showed me that there was a realexcitement in managing people and helping them develop. Itappealed to me because I’m basically a teacher at heart.” After holding positions at several corporate banks, Hall movedto retail as head of consumer banking at Chemical Bank New Jersey,which gave him further scope to realize his passion for “motivating,recognizing, rewarding, and challenging people.” In 1995, Hallcame to PNC, where, according to James Rohr, chairman and CEOof PNC, he has been instrumental in building an extraordinaryretail sales team, creating a productive and efficient distribution net-work, investing in branch technology, and delivering highly cus-tomized service to both businesses and consumers. Hall shared with us a senior executive’s perspective on humancapital and learning in a sales- and service-driven business at PNC’soffices in New Brunswick, N.J.S+B: How important is human capital in your business?HALL: Retail banking is a service business, executed and deliveredby people. This makes human capital integral to the business.The key is maintaining a synergy between the interests of the share-holder and the interests of the customer. When you focus only on The PNC Financial Services Group Inc. 109the shareholder, the role of human capital gets lost. And that createsproblems when it comes to service.S+B: So how do you keep the focus on developing and investing inhuman capital when the analytic community looks for short-term finan-cial results?HALL: You do it by keeping an eye on all of the variables that con-stitute a successful business model. In today’s environment, theflat yield curve puts pressure on revenue, which drives you to createa scorecard based on financial underpinnings. But you still haveto weight your priorities appropriately: service quality, commitment
104. to customers, commitment to brand. Brand is more about cus-tomers than shareholders.S+B: Do you use a balanced scorecard?HALL: We do. Metrics related to people, risk management, andcommitment to customers are essential in retail banking. Plus, weuse financial metrics like revenue growth, operating leverage, andefficiency ratios. We use customer components like customergrowth and share of wallet, and qualitative metrics like employeeengagement, customer engagement, and commitment to commu-nity. All these variables affect our brand and must be continuallyrecalibrated as the external environment shifts. Right now, we’reemphasizing human capital metrics.S+B: How do you explain that to analysts and shareholders who want tohear only quantitative financials?HALL: It’s a challenge, especially because talent development isinherently a long-term process. So being able to articulate how itworks to the advantage of the shareholder is key. You don’t do thisby focusing on press or PR strategy, but by educating people to givethem a better grounding in what constitutes a sustainable formula110 strategy+business Readerfor success. For example, Harvard did a study showing the directconnection between employee engagement, customer satisfaction,and revenue growth. We use that research to architect our plansaround customers and employees in a way that reflects the impacton revenue. Operationally, you confront the same kind of tension aroundlong- and short-term goals. Say you ask an operating managerwhat he thinks it will take to develop and mature someone into arole. Chances are, he’s looking at the org chart and saying, “I can’tthink about that! I’ve got to fill this spot tomorrow morning with awarm body.”
105. S+B: So it’s easier and quicker to replace talent than to grow anddevelop it?HALL: Yes, but that’s not the way to build a sustainable brand. Youneed to consider the value of growing and nurturing your ownworkforce inside the brand rather than poaching from your competi-tors. If you do the latter, you just keep cycling through talent, whichmakes it impossible to sustain the brand. We’re in transition right now when it comes to developing tal-ent. We’re coming to understand that we’ve got to take a longer viewand have the patience to build competencies over time. And we can’tjust focus on technical or functional competencies. We need toinstill a deeper understanding of PNC’s brand and business objec-tives so we can create a workforce that reinforces the brand.S+B: How do you create a workforce that reinforces the brand during acycle of aggressive acquisition?HALL: We’re in the middle of discovering that now, but I think Ihave some perspective on how you do it because I came to PNCthrough an acquisition. So when I speak to acquired companies, Ican speak from my own experience about the role that our cultureof inclusiveness plays in terms of how we develop our people. I can The PNC Financial Services Group Inc. 111show newly acquired senior managers and employees how we foldthe best of who they are into the company, and emphasize thatdoing this is what enables us to grow. There’s no set process for this, no 12-week plan that suits everyacquisition. But we’re very good at thinking about the cultures ofthe companies we acquire and figuring out how they relate to thecustomer so we can provide a continuity of service. We’re not justlooking at dollars and cents; we’re trying to determine if there’s astrategic and cultural fit with companies we acquire. As our brandmatures, we’re getting better at articulating our approach, whichenables people coming into the company to appreciate it.
106. S+B: Given your strategy of acquisition, how do you create alignment onthe management team?HALL: By fostering a culture based on respect and picking managerswhose behaviors reflect that culture. There are definitely big banksthat would not be dissuaded by the fact that a target bank’s brandwas based on being small. They’d just say, “That’s OK, we’re still tak-ing you over.” That’s not our culture. We make qualitative distinctions that have quantitative implica-tions, but we always keep the qualitative aspect in mind instead ofletting the data alone drive our decisions. For example, our focus oncontinuity of customer service when we do an acquisition meansthat we need to provide training to everyone who interacts with thecustomers, giving them a thorough grounding in what it means tobe a part of PNC. At the same time, we also need to create revenueenhancements or cost reductions. The challenge is to fit these thingstogether. I don’t know of any business that can just cut costs whole-sale and expect to keep customers.S+B: So it’s a question of balancing the risk of disrupting service withoverall financial goals?HALL: Yes, because the more employee turnover we have during a112 strategy+business Readertransition, the more turnover we’re going to have with customers, aswell. Remember, retail banking is a business that makes money afterthe sale, not at the sale, which means that we need to keep ourcustomers for a long time. There’s no point to bringing in new cus-tomers if we’re losing the ones we have. Economically, that’s coun-terproductive. So continuity of service is pretty quantifiable from arisk management point of view. Recognizing that and being willingto articulate it enables us to link the quantitative to the qualitative.S+B: Who in your workforce really makes a difference in terms ofperformance?
107. HALL: In retail, one key group is the tellers. You’ve got a routine buthighly complex business that, from a cost point of view, must bedelivered through a fairly low-paid workforce. So you’ve got to lookat that and say, “OK, so what is a teller?” A teller is somebody who guards our money. And since theadvent of the Patriot Act, a teller is also involved with compliance.Plus, a teller has to be reasonably proficient with technology andhave some ability to connect and interact with the customer andrepresent the brand while maintaining high levels of productivity. You pay them US$10, $12, or maybe $14 per hour at the most.That’s very tough, and you need thousands of them. They’re theones who most frequently interact with your customers. So it’s aretail function that’s also compliance, operating, and production. It’sa little more tricky than giving out coffee at rush hour.S+B: How does your emphasis on the retail as opposed to the banking as-pect of your business impact your approach to managing human capital?HALL: It influences it very strongly. For example, 10 years ago, thebanking industry expected that there would be no more tellers in thefuture and that technology would mean far fewer branches. Thisapproach resulted in many in the banking industry looking at tellers The PNC Financial Services Group Inc. 113as a commodity. But our retail customers were not happy with thecommodity approach. They wanted tellers they could interact with.So we had to reconcile our retail customers’ desires with our inter-est in creating a highly productive and cost-efficient function.S+B: How do you do that?HALL: For one thing, you need to redefine what constitutes a goodteller. Years ago, we’d ask our managers, “What’s the production perhour per teller?” That was how we measured them. But now that we’vebegun to integrate customer feedback into our thinking, we putmore emphasis on how the client feels about the experience that the
108. teller is able to provide. The customer wants someone who’s fast andaccurate, but who is also personable and good at handling questions.That changes how we weight our scorecard. It also changes how wetrain and screen tellers, and the criteria we use in hiring them. Socustomers strongly influence how we think about human capital. Also, this part of the workforce has gone largely to part-time. Sothe question becomes, How do you then get tellers to commit to thebrand full-time and help them see themselves as part of a larger fam-ily? How do you recruit, train, and cultivate a single mother whocan work only 18 hours a week but must feel as engaged as some-body who is with the organization full-time and hopes to build acareer here? We can no longer assume that because someone is notfull-time, he or she isn’t actively engaged in the work every day.S+B: What does it take to create that sense of engagement?HALL: It all depends on the environment we create in the branch,because the branch, not corporate, is where our tellers work. Lastnight at an employee recognition dinner, I sat next to one of ourtellers, a 20-something single mother who used to be a bartender.We were talking about what motivates her at work, and she said it’sall about liking her work group, liking her branch, and liking her114 strategy+business Readermanager. That’s what keeps her at PNC.S+B: That anecdote points to the importance of the manager.HALL: Yes, and that presents another human capital issue. In thepast, we’ve tended to judge managers based on technical competen-cy. After deregulation, people needed to know their products welland be able to sell them. So our best salespeople became the man-agers, and those who were, say, most knowledgeable about creditbecame supervisors. The problem was that these people didn’t nec-essarily know how to nurture or develop a workforce. That becamean issue, especially as our workforce became more diverse.
109. These days, we have to give more thought to what it takes tobe a good manager, including variables such as a demonstrated com-petency in developing people and creating an environment thatoffers customers a positive experience. Again, that brings us to man-aging for the brand and rooting the business in behaviors that reflectthose goals, which in turn gives our people a clearer understandingof what is required to succeed at PNC, rather than just succeedingat banking.S+B: Do you see that as potentially differentiating PNC from biggerbanks?HALL: Yes, but it’s a struggle. There are days that I wish we wouldjust go back to telling everyone what to do. But that would notwork, and it’s not going to distinguish us in the marketplace. Weneed to create a work environment that enables people to put theirown personality into their job while understanding that we prescribecertain behaviors. And we need to realize that there’s freedom insideprescribed behaviors.S+B: That seems to challenge the heroic model of leadership that hasbecome part of our business culture, where you expect that a new leader The PNC Financial Services Group Inc. 115is going to totally change the organization.HALL: Change can be a particular problem in retail because cus-tomers expect consistency. Too much “shaking up” undermines that.It can also be a problem at the middle level, for example, when youget an obviously talented person in a new job who wants to distin-guish him- or herself by showing what he or she can do. When thathappens, things can get shaken up for no reason — or no reasonthat makes sense from a business or customer perspective.S+B: Does the Retail Bank have its own HR department, or is HR acorporate PNC function?
110. HALL: Both. The corporate function is a kind of utility that looks atprocesses and procedures. Then in retail we have centers of expertisethat craft solutions for the businesses we manage. For example,wholesale banking and investment banking don’t have tellers, sothey have very different needs. In retail, we’re trying to be less transactional so we can think interms of long-term planning and solutions. That has big human tal-ent implications. We have to get more precise about bringing in theright people and articulating what they’ll need to develop and grow.It’s a more holistic approach, looking at everything through the lensof a business solution.S+B: Does taking a more holistic and long-term approach change therelationship between the HR and business functions?HALL: Very much so. Line managers need to better appreciate theHR dimension of their own jobs, and HR professionals need a bet-ter understanding of the business. Right now, we’re looking to blurthose distinctions, which is tricky because of legal requirementsaround HR. Also, HR people are usually eager to get closer to thebusiness side of the equation, but line managers rarely see HR asintegral to their own jobs. A business manager might see HR prima-116 strategy+business Readerrily as a source of recruiting. His attitude is “just send me people.”But what kind of people? And how do you develop them? And howlong do you want them to stay in one job? All that goes well beyondcompliance.S+B: Is this blurring of distinctions especially important in retail?HALL: Yes, because it’s a service business, and customers don’t reallycare about your need for compliance. They want people who candeliver a good customer experience. And if that doesn’t happen, weneed to look at it as a risk management challenge, and try to map away to provide interventions.
111. S+B: Does looking at service in terms of risk management create a poten-tial bridge between HR’s compliance role and the more holistic, value-creating model you’re aiming for?HALL: It certainly does. At PNC, we’re trying to look very carefullyat our definition of risk and define all its components. I could savea lot of money quarter to quarter by making short-term decisionsthat would drive up revenue. I could hire fewer people or less com-petent people or pay less. I could mess around with their incentives.But that would expose us to service risk.S+B: Does increased automation and self-service also affect the servicerisk?HALL: Yes, because it affects the nature of what people expectwill occur in the branch. Years ago, people needed to go to thebranch to do their banking. With today’s technology, of course, cus-tomers have a number of choices. This has a big impact that relatesdirectly to service risk. For example, people today are likely to rely on technology forroutine transactions. In other words, they get in their car and go totheir branch only for things they consider to be really serious.Because of that, their expectations once they get there tend to be The PNC Financial Services Group Inc. 117higher. So from a risk management point of view, if your customerspersonally touch their branch less often, you’ve got to get it rightmore often because it matters more.S+B: So technology can have the effect of raising expectations?HALL: Yes, and high expectations usually result in people experi-encing a greater letdown if they encounter any problems. We sawthis when we started measuring customer satisfaction in our newbranches. Customers expect a lot when they walk into a brand-new branch. Everything is clean and the tellers are eager andfresh from training, so you’d think the deck would really be stacked
112. in our favor. But we found that scores on new branches were lowerthan those at some of our mature branches, primarily becausepeople’s expectations were higher when they entered a new branch,which made them less forgiving if their problems weren’t handledsmoothly.S+B: What approach to human capital helps minimize the risk?HALL: What we’re coming to see is that you need a mix of people tomake everything work well at the branch level. If you have a new,perky, enthusiastic person who doesn’t know much about PNC, thecustomer isn’t going to have a great experience. So we need to lookat this in terms of our hiring specs. We need a lot of variation. It’smore choreography than formula.S+B: Do you pay attention to generational differences when you do thechoreography?HALL: To some extent, yes. But generational differences are just oneaspect of having a more diverse workforce — culturally, ethnically,and in terms of age. Not all boomers or Gen Y’ers think alike.Diversity is very much about looking at employees and customers asindividuals, getting the blend you’re looking for, and finding various118 strategy+business Readerways to bring different people along. I talked before about having a lot of part-time workers in retail.That’s also a diversity issue, because it means that individualemployees will have very different needs in terms of development.That, in turn, requires us to be more conscious about offering peo-ple a diverse range of career paths. This is just one more arena whereproviding options is more important than in the past. As I said, theteller is a very important job in the retail bank. You have some tellerswho don’t want to be there forever. And you have other tellers wholike the work and will want to stay with it so long as they like theirbranch. We’ve got to take all those differences into consideration
113. when thinking about career development, while also factoring in theneed to maintain service continuity.S+B: These particular human capital concerns are internally focused.Do they also have an impact on the customer?HALL: Customers prize some degree of continuity. They like to seethe same faces; they think about those faces when they think aboutthe branch. Those faces are PNC to them. So we’re looking at howpeople can embrace. +we structure our incentive plans so we can pay for continuity insteadof just performance. We don’t want the best people to be the peoplewho are always moving on. So we need to create systems and struc-tures that don’t force employees either to sacrifice their individualcareer aspirations or to leave.S+B: How do you do that?HALL: By making the opportunity for individual career develop-ment a strong part of our brand. We want to provide our employeesas well as our customers with strong reasons to be here. Why shouldthey be at PNC? Why should they be in retail banking? Not toomany people start out in grade school or high school wanting towork in a bank. So the clearer we can get about helping our people The PNC Financial Services Group Inc. 119understand why they want to be here, the more we can distinguishourselves from our competition and get customers to subscribe toour value proposition.S+B: What do you see as the biggest challenge you face in terms of humancapital as you look out over the next five years?HALL: The challenges will be to create an engaged, committedworkforce that appreciates the business we’re in and wants to be hereas a result, to develop people who want to be at PNC as opposed tojust being in banking, and to articulate a future at PNC that our
114. by Jeffrey Akin and Brenda WorthenManaging the ImpendingWorkforce CrisisAGING , UNDEREDUCATED , AND rife with shortages: These are just a fewof the descriptors commonly attached to today’s global workforce.The workforce of the future may be even more problematic; manyexperts are anticipating a deepening talent crisis that could extendover the next several decades. Organizations in many sectors are already responding to tight-ening labor markets, particularly in the G8 member states (Canada,France, Germany, Italy, Japan, Russia, the United Kingdom, and theUnited States), with more aggressive recruitment and retention pro-grams. But these programs are expensive, and leaders who do notthink beyond them risk adding costs to their people base that are120 strategy+business Readerunsustainable over the long term. Instead, leaders must understand that the talent crunch is creat-ing a tectonic shift in the nature of the economy and in the archi-tecture of how work gets done. Five specific practices will helporganizations develop platforms capable of addressing emerging tal-ent demands in a sustainable way: (1) redefining knowledge man-agement, (2) fostering flexibility, (3) supporting transparency, (4)decoupling resources from locations, and (5) breaking down silos. First, knowledge management has traditionally been an infor-mation technology function, a way to archive competencies thatcan be plugged into the larger structure. But knowledge embedded
115. in IT often can’t adapt or grow to meet changing needs. Knowledgedoes not reside in technology but in people, and knowledge man-agement is essentially how people share their insights and expertisewith others. Only a comprehensive mapping of individual capabil-ities within the organization can accurately reveal where knowledgeis housed and where it needs to be adapted or retained. Many organizations declare that people are their greatest asset,but the real asset is the knowledge that people apply. If knowledgeis to be developed and retained, it must be woven into the fabric ofthe organization. This can be accomplished through standard prac-tices that capture and develop employee strengths. These practices,which could include programs such as job shadowing, apprentice-ships, and mentoring, must be flexible enough to reflect the needsof operating units while staying consistent enough to support theorganization’s overall culture. For this to happen, knowledge man-agement must be jointly owned by human resources and the busi-ness units. Second, to attract and retain diverse, global workforces andenable them to quickly adapt to constantly changing customerneeds and real-time demand, organizations must build flexibilityinto their talent infrastructure. Managing the Impending Workforce Crisis 121 This flexibility can come in the form of cross-functional orcross–business unit career mobility, job sharing, part-time work,flexible work schedules, consulting engagements for retirees, and soon. The more receptive organizations are to a variety of work ar-rangements, the better their structure and operations can be shapedto mirror demand, and the more likely they are to be able to attractand retain high-quality employees with the right skills. Third, transparency must be extended to employees. Just ascustomers and clients today want to know the full range of ser-vice and product options available so that they can makeinformed choices, talented people want their organizations to
116. share information that could affect their careers. One example of transparency is posting all job openingscompany-wide, not just in a specific business unit, and allowingemployees to apply directly without gaining the permission of orworking through their managers. Employees want the freedom todrive their own careers, and leaders have to recognize that talent,being at a premium, must be optimized across the entire company,not just within a single function or business unit. Transparency isessential to achieve this outcome. Fourth, although globalization creates instability in the market-place, it can also create a more stable supply of talent. Mobile laborpools are increasingly able and willing to migrate to wherever theirskills are in demand. Further, technology has enabled talent to fillneeds in far-flung locations without leaving home. Organizations that rely on specialized talent must adopt aglobal approach that takes full advantage of these possibilities. Sucha strategy responds to a shrinking local talent pool by first evaluat-ing how work actually gets done and how people, processes, andtechnologies might become more efficient. Then, it makes strategictalent decisions, considering options aimed at building a flexible tal-ent portfolio, such as whether to outsource work or in-source it at122 strategy+business Readeralternative locations. Finally, organizations must abandon silo structures that ration-alize the flow of information up and down the chain of commandbut permit little communication across functions and operatingunits. Silos stifle the free flow of knowledge as well as workforcedevelopment and retention efforts. Cross-training and matrix structures help break down silos bymaking it more difficult to hoard information and promoting coop-eration. The collaborative architectures inherent in today’s technol-ogy and delivery systems also help erode silos. The impending workforce crisis can be managed if leaders seize
117. tainable competitiveness of organizations in the years ahead. +the opportunity to transform their approaches to the recruitment,management, and development of human talent. Nothing less thana fresh understanding of how talent is leveraged will ensure the sus- Managing the Impending Workforce Crisis 123
118. by Thomas StarrReporter: Lawrence M. FisherC.K. Prahalad:HR Is StrategyAs human capital becomes more valuable as botha resource and a competency, HR must define itsmethods and metrics, says C.K. Prahalad of theUniversity of Michigan’s Stephen M. Ross Schoolof Business.Stephen M. Ross School of BusinessC.K. PRAHALADUniversity of Michigan
119. by Thomas StarrC.K. Prahalad:HR Is StrategyTHE CREATION OF a winning business strategy requires a surfeit of thecurrency of human capital — competence that is a combinationof raw brainpower and teamwork. Thus, HR is strategy, accordingto C.K. Prahalad, the Paul and Ruth McCracken DistinguishedUniversity Professor of Corporate Strategy at the University ofMichigan’s Stephen M. Ross School of Business, best-selling author,and one of the world’s preeminent consultants. A leader in articulating the strategic importance of intellectualcurrency, Prahalad has made his mark in both the East and the West.Born in India, he was educated at the Indian Institute ofManagement Ahmedabad and Harvard Business School. He has126 strategy+business Readertaught at business schools in both countries, too. Never less thanprescient, provocative, and, at times, polemical, he has built adynamic consulting career by insisting on telling corporate leadersnot what they want to hear, but what he believes they desperatelyneed to hear. Among Prahalad’s many ideas is the paradigm-shaking conceptof “core competence,” the subject of his 1994 book with GaryHamel, Competing for the Future (Harvard Business School Press),which prompted a revolution in managerial practices. Rejecting thedownsizing and reengineering trends of the day, Hamel andPrahalad presented instead a blueprint for vitalizing a company by
120. transforming the very structure of its industry and, in the process,outrunning competitors by “getting to the future first.” A decade later, Prahalad, who is a tireless advocate for and keenobserver of the economic potential of the developing world, gainedadded acclaim for his book The Fortune at the Bottom of the Pyramid:Eradicating Poverty through Profits (Wharton School Publishing,2004). In it, he insists that enterprises view the billions of peoplewho are the world’s least privileged not as a drain on resources, butas the most dynamic new market on earth — a market that encom-passes two-thirds of the world’s population and that is valued in thetrillions of dollars. Forward-looking corporations aren’t just makingmoney by serving these markets, they’re helping millions of peopleescape poverty, he asserts. From his pioneering 1970s study on the role of multinationalcorporations, undertaken with his Harvard classmate Yves Doz, tohis most recent book, The New Age of Innovation: Driving Co-Created Value through Global Networks (McGraw-Hill, 2008), writ-ten with M.S. Krishnan, which describes a new, global model forcreating and delivering innovation, a common theme in Prahalad’swork is that human capital and learning are absolutely vital elementsof corporate competence, driving organizational change and C.K. Prahalad 127enabling companies to adapt rapidly and fluidly to a constantlychanging environment. And though the professor has famously saidthat he does not know how to tell a joke, we found him witty,engaging, and a fascinating partner in conversation. Prahalad satdown with strategy+business at his office in Ann Arbor, Mich.S+B: How do you define human capital?PRAHALAD: By human capital, I mean not individual skills, butthe capacity to work together toward common tasks on a program-matic basis. Business consultants know this instinctively. You don’tassign people to the same job; every consulting project gets a differ-
121. ent team. The real issue is, How do you pick the right people for aspecific project? How do you integrate them into the team rapidlyso that the frictional losses in becoming and operating as a teamare low? Increasingly, firms have to work with multicultural teams acrossthe world. You can have a Chinese, an Indian, and a German work-ing with an American team, and the question is, How do they worktogether effectively? Equally interesting is the process of globaldeployment of an initiative, be it a deployment of corporate valuesor an ERP system.S+B: As you say, that’s a very natural way for consultants and otherprofessional-services firms to work. How does this work in other kindsof organizations?PRAHALAD: Indian IT companies, for example, are at the cuttingedge. These companies work on-site and off-site, and deploy systemsglobally. Their clients are not just Americans but Germans, Chinese,and Japanese. These companies have to train young graduates rap-idly to perform these roles. They have to do this at low cost. Theirbusiness models do not allow for two years of training for newrecruits. So they hire young graduates from local engineering col-128 strategy+business Readerleges, train them for two months, and then send them to work inanother country, where the graduates have to learn the business cul-ture, the social norms and mores, and the substantive issues of theproblem to be effective. In the process, these IT companies are teaching people how tobecome part of the global enterprise. Often, with every new project,employees may work with a new client, perhaps Siemens or GM orsome small company in Arkansas. They may not know where they’regoing to go next. They have to be very sophisticated interculturallyto survive. Global project management is going to evolve out ofIndian IT companies as a unique skill, because that is their business.
122. S+B: When you start including global customers and suppliers on yourteam, when you start creating a global forum, how do you go about cap-turing and disseminating those learnings?PRAHALAD: I would argue that this is not complicated. First,resources can no longer be contained within the firm. So resources— talent or materials — must be available globally. Second, access,not ownership, is important. That means you may not directlyemploy any of this talent. Then the real question is, How do youbuild project-based relationships across a range of resources that youdo not employ?S+B: Isn’t it particularly hard to retain talent in that model?PRAHALAD: Yes, because people are free agents. But people gravitatetoward Google. Why? Because they believe democratizing informa-tion is good. Why do people like eBay? Because it democratizescommerce. In other words, there’s a big idea and a noble goal. It goesbeyond shareholder wealth; it’s something intellectually demandingand emotionally satisfying.S+B: So you attract and retain talent by engaging them in a compellingconcept? C.K. Prahalad 129PRAHALAD: Yes. I think the first task is to build an intellectualagenda. It must be at least intellectually challenging, and appeal toyour emotions, either to your nationalistic identity or to your senseof what is good for humanity.S+B: We are still talking about one organization. How do you spread acompelling concept throughout a company’s extended business network?PRAHALAD: By becoming a nodal company. We use the term “nodalcompany” to describe a company that builds a whole ecosystemwith other companies and organizations, for example, with suppli-ers and customers. A nodal company sets common standards for this
123. distributed system. It must define and share standards of engage-ment with all of the parties involved or else the system will not work.S+B: Becoming the kind of nodal company that co-creates value with itscustomers and suppliers across global boundaries involves asking peopleto play new roles and interact in new ways. Does that mean HR nowhas to play a role closer to strategy?PRAHALAD: I think HR is strategy. If I look at developing a totallyknowledge-based business, whether in manufacturing, design, em-bedded software, or global logistics, they’re all very, very knowledgebased. What else is strategy? Think of it this way: The competitive advantages of the past —technology, financial resources, access to raw materials, manufactur-ing capabilities — are all becoming easily available to everybody.Their availability isn’t perfectly symmetrical, but it’s not as asym-metrical as it used to be. For instance, there is a lot of money float-ing around, so if you have a good idea, you can get funding. Poorcountries can access global markets for money; they also can accessglobal markets for technology and licensing. They can go toFlextronics to get whatever they want manufactured. So the uniqueadvantage today is human capital.130 strategy+business ReaderS+B: How do you capture the value in the interactions among all of theparties in the network?PRAHALAD: The old idea that “In every transaction, I will gain” willnot work. For these nodal enterprises to work, if you win very well— too well — you will lose the idea of partnership. You have to leavesomething on the table for everybody. That means you may not max-imize your gain in each transaction, but you will win big by buildingan enduring relationship over the course of multiple transactions. Once you accept that premise, then you must develop thecapacity for intercultural competence, not just interpersonal compe-
124. tence: How do you understand differences in the ways peoplethink and how they are motivated? We may have a certain view ofhuman motivation in the U.S., but it doesn’t work in India or Chinaor Germany. If you start with the understanding that you must work acrossorganizational and cultural boundaries, this is very easy to do. Onthe other hand, if you start with the traditional ways of thinking,you may find a widening gap between the demands of the new com-petitive landscape and the managerial capabilities of the firm. It ispossible to create a disconnect between strategy (our thinking) andoperations (our ability to do).S+B: Can you use HR practices and distributed learning to bridge thatdisconnect between strategic vision and operational capability?PRAHALAD: Unless senior management has a clear point of view, Idon’t think you can move the organization. This is not about aBand-Aid; this is about fundamentally rethinking the modern cor-poration and the new social compact that the modern corporationhas to evolve into. That means senior managers must start with apoint of view about how the world will be in, let’s say, 2015, andthen start folding the future in. C.K. Prahalad 131 Once you develop a point of view, you recognize that the biggestimpediment is not resources but legacy mind-sets, legacy practices,and legacy skills. Not just in terms of IT, but also in terms of man-agerial practices, managerial mind-set, skills, and attitudes. Then thequestion becomes, How do you take this group of people and movethem systematically by creating unique experiments inside theorganization that de-risk and speed the migration?S+B: Are there companies that are already bridging the disconnect?PRAHALAD: Like consulting firms, the IT farms in India havefigured this out. The expectation is that each project will be prof-
125. itable and the project manager is responsible. Therefore, competi-tion is fierce for the best people. Assuming you pay everyone moreor less the same, and a highly effective employee can produce threetimes as many creative solutions as the average employee, then forthe same amount of money, you’re likely to get more profit. Generally, these Indian companies understand that it is peoplewho are going to make a difference. There are no other assets. Thereis no plant, there is hardly any equipment. It is only people. That’sall they have. So it’s a pure “HR = Strategy” case. If there are nophysical assets and you don’t necessarily have great financial assets toallocate, you have only people assets to allocate. It forces people tobe much more HR-oriented.S+B: Are there other organizations that have elevated HR to astrategic role?PRAHALAD: Not many that I know. And the reason, I think, isthat most companies still have physical assets. It’s very hard, whenyou have physical assets and human assets, to shift from the legacymind-set of minding the physical assets. Physical assets go on yourbalance sheet, capital goes on your balance sheet, and people do not.On the other hand, if people are all you have, your mind-set is132 strategy+business Readerdifferent. I believe that is why the consulting firms and the account-ing firms may have a better understanding of HR than manufactur-ing firms.S+B: What about Google? That company has physical assets, but that’sjust a few computers. Certainly the intellectual horsepower of the peopleis its key asset.PRAHALAD: Yes, and look at what Google is doing. It is competingworldwide for the best talent. And they’re not waiting for the talentto graduate and then come to them. They have their own assessmenttests for potential candidates. They also provide enormous perks
126. to make their employees’ lives easier. And then, more important,they let them spend 20 percent of their time on projects of theirown choice. In a sense, Google, because of the nature of its work, mirrors thefuture. But at most companies, the physical assets still dominate thethinking. So as we shift more and more away from physical assets asa source of competitive advantage and as our new products and ser-vices become increasingly knowledge intensive, we have to come toterms with recognizing, measuring, and managing intangible assets.S+B: So knowledge is embedded in products too.PRAHALAD: Yes. Consider the iPod. Apple doesn’t make the iPod. Itconceptualizes; it designs; it provides the intellectual capital thatgoes into the iPod. Also, the Chinese company that makes the iPod is putting a lotof energy into plant management, and that is an equally importantHR skill. How do you take farm boys and create Six Sigma qualityin four years? That question is not trivial. We haven’t done it in theU.S. after 20 years. Everybody complains about China: “These guysare cheap.” I say, “Yeah, maybe they’re cheap, but they all produceSix Sigma. Why don’t you? Indian IT professionals might be cheap, C.K. Prahalad 133but they are producing Six Sigma quality. Why don’t you?” Peoplein China and India recognize the strategic importance of HR,partly because of tremendous competition for talent.S+B: If you can take farm boys and create Six Sigma quality, is thatanother reach into the bottom of the pyramid as an asset base?PRAHALAD: Absolutely. It’s all about intellectual capital and inno-vation. If you think about innovation — not physical asset–basedrevenues, but innovation-oriented revenues — then human capitalcannot be ignored, because innovation is all about human capital.As we move more and more toward innovation-oriented profits,
127. then whether they are being created at the bottom or the top of thepyramid doesn’t make any difference.S+B: Does this mean that companies must look at the emerging marketsas a source not only of lower costs and new sales, but also of human cap-ital and innovation?PRAHALAD: There are two persistent themes in my work. One isinnovation; the other is intellectual capital. It’s all about access tointellectual capital and, therefore, human resources. But I am nottalking just about single individuals. Single individuals provide theraw material, but it is the ability to work together that allows us tobuild something. The best way to think about it is, How do you look at talentaround the world, and how do you access it on a privileged basis?I’m very task specific and very project specific. So the winningattitude is not, “You are either with me or without me.” It is reallyasking, “How do we come together?” I coined the term “Velcroorganizations” to describe how we can come together and disengageseamlessly without pain, without reorganizing.S+B: How does an organization begin to get its human resources and134 strategy+business Readerknowledge management up to speed?PRAHALAD: The first task is to really look at the technical archi-tecture — the business processes and the information and com-munications technology — of the firm. And usually the technicalarchitecture just does not meet the requirements of a moderncorporation. The modern corporation has to sell one experience to oneconsumer at a time. That’s Starbucks, right? You serve 100 millionconsumers, but one consumer at a time. The resources needed to do that are exactly the opposite ofHenry Ford. If you think about Henry Ford, he was serving an
128. undifferentiated consumer. Therefore, any color car was OK so longas it was black. And technical structure was totally vertically inte-grated. I’m arguing that the world is turning 180 degrees fromwhere we started with the Industrial Revolution and the Model T.The information revolution will take us to one consumer at a timeand one unique personalized experience at a time for that one con-sumer. That’s what you monetize. That is Google, eBay, Starbucks,and Apple. The resources to do this can come from anywhere in the world.Google’s content does not come from Google. OnStar’s contentdoes not come from OnStar. So, if that is how it is, how do youdevelop new business processes and information and communica-tions systems to challenge the internal legacy systems that perpetu-ate the old ways? Legacy systems include the social infrastructuremade up of organization, performance, metrics, rewards, and man-agement, as well as your existing information and communicationstechnology systems and applications.S+B: Isn’t the legacy social infrastructure even more difficult to breakaway from than the legacy technology infrastructure?PRAHALAD: Well, I think both of them are difficult because you C.K. Prahalad 135can’t fix just one or the other. You can have new skills, new behav-iors, and so on, but unless they are embedded in the way the organ-ization works, in the business processes, they are not going to bereinforced. It is IT infrastructure and the social infrastructure com-ing together as business processes that you have to change. You can’t compete in this new environment without analytics.And that’s not just transactional data but unstructured data. Theanalytics engine is focused on strategic priorities so that you getactionable insights. Information is free today, so insights are themost valuable thing, and insights require human intervention andvery sophisticated interpretation of data. This is all about human
129. resources, whether you get access to people who can glean thoseinsights or not. And you can’t directly employ most of them.S+B: So we come back to the critical ability to gain privileged accessto talent?PRAHALAD: It’s all about the competition for human resources. Theand belief rather than conviction. +art of outsourcing does not concern sending jobs abroad anymore;it’s not about exporting jobs, but importing competitiveness. Andimporting competitiveness is all about people.S+B: Does that suggest that HR executives will be playing an ever moreimportant role in their companies?PRAHALAD: Yes. Look at Infosys. The new head of human resourceswas the CFO. He just took on HR, not because it’s a financial issue,but because access to talent is becoming business’s biggest problem. Think about the past 30 years. We have moved from the ascen-dancy of executives from manufacturing and marketing back-grounds to the ascendancy of those with finance backgrounds. Thesuccess of the CFO as a function is easy to understand. Finance hasa very simple organizing paradigm — shareholder wealth. We knowhow to measure it, and we possess capital allocation algorithms that136 strategy+business Readerare precise. The problem with HR is we don’t yet have a well-developed andcommonly accepted organizing paradigm. We do not even have acommon unit of analysis. HR attempts to measure human capitalwithout a broadly accepted methodology. We don’t have any alloca-tion algorithms that are widely understood. We don’t have amethodology or a metric to measure the implications of humanresource allocation decisions. Until we do, we’ll have to rely on faith
130. C.K. Prahalad 137
131. by Andrew ClarkReporter: Rhea WesselRoyal Dutch Shell PLC:Learning as a Value PropositionWhen knowledge flows throughout an organiza-tion, it can become a selling point in its ownright, according to Vice President for Learningand Organization Effectiveness Garmt Louw.Vice President for Learning andGARMT LOUWOrganization EffectivenessRoyal Dutch Shell PLC
132. by Andrew ClarkRoyal Dutch Shell PLC:Learning as a Value PropositionPOWERED BY MORE than a century of success in the energy businessand the recent rise in oil prices, Royal Dutch Shell PLC is one of thecorporate world’s best revenue generators — US$355 billion in2007. The primary engine behind Shell’s success is its vertically inte-grated oil and gas business, which stretches across the petrochemicalvalue chain from exploration and production activities in about 40countries to retail operations, including 45,000 gas stations. Shell is almost as well known for the quality of its human capi-tal, derived from more than 110,000 employees, as it is for its oil. Apioneer among learning organizations, the company is a seven-timeGlobal MAKE (Most Admired Knowledge Enterprises) award win-140 strategy+business Readerner. In 2007, it was recognized by the MAKE judges for organiza-tional learning (first place) and ability to transform enterpriseknowledge into shareholder value. Shell’s visitors quickly understand the importance of humancapital and learning. Upon entering company headquarters inThe Hague, visitors are almost immediately confronted by thewide, open staircase that leads to the Learning Center, which islocated in the heart of the building and within steps of senior exec-utive offices. The Learning Center’s placement and design, which includesplenty of informal spaces and a coffee bar, is practical as well as sym-
133. bolic. “It is a networking design,” says Garmt Louw, Shell’s vicepresident for learning and organization effectiveness, “a meetingplace where people from our different businesses compare notes onwhat works well and what doesn’t work, and where teams can sharetheir knowledge.” Louw has a global mandate that he summarizes simply as “any-thing to do with developing people in an individual capacity, as ateam, or as part of an organization.” An economist by training, thetall Dutchman has worked for Shell for almost 30 years in Europe,Africa, and the Far East, holding a variety of human resources man-agement positions. He left the company briefly to serve as groupHR director of ABN Amro Bank, but returned to Shell in 2004 toassume the role of chief learning officer. We interviewed Louw in his office off a corridor connected tothe Learning Center. He explained how Shell’s focus on learningmakes the company more competitive and actually helps it sealdeals, as well as how knowledge cannot be managed, but mustbe shared.S+B: Shell was one of the first companies to be called a learning organ-ization. Is this just a matter of philosophy, or is learning linked to your Royal Dutch Shell PLC 141business strategy?LOUW: Our business requires that our people have deep knowledgeand experience. So our learning investment per capita is very high.But people enable our business, not vice versa. That is the ultimatelearning strategy: developing people to enable the business.S+B: How have Shell’s capabilities as a learning organization beentransformed into a competitive advantage in the marketplace?LOUW: When we negotiate with a government about developing acountry’s oil and gas resources, the whole learning dimensionbecomes an important part of our value proposition. Governments
134. look carefully at our ability to groom their population and providestaff for complex and deeply technical projects, and we have aproven track record in this respect. In Qatar, for instance, we’re building a very large energy com-pany together with the government. The company will exportliquefied natural gas and products made from the gas from one ofthe biggest fields in the world. To build this totally new organiza-tion, we are investing heavily and have to introduce a lot of technol-ogy, but the labor pool is small and many people lack technicalskills. This requires that we focus on learning and development forstaff early on. When we develop new leads, sometimes we ask government rep-resentatives to come in and see how our partnerships with other gov-ernments have improved skills in those countries on a continualbasis. My senior learning managers are out there contributing to dis-cussions with new prospects, and they present our learning strategyas a major component of the project proposal.S+B: Training a country’s workforce sounds like a huge challenge and ahuge responsibility. How do you make a difference in a task this large?LOUW: Shell invests US$20 billion to $25 billion each year, and142 strategy+business Readermuch of it goes into greenfield operations in the Middle East andRussia, for example. In some of these countries, we have to help cre-ate an educational infrastructure where one does not exist. The key is for Shell to become a long-term partner of the gov-ernment, as we have done in joint ventures in Brunei, Oman, andMalaysia, for instance. It takes a deep commitment and an under-standing of the local culture. We have to introduce our technicaleducation, and the local population has to internalize it. Sometimesthis takes a generation. In general, however, local capabilities are improving, whichmeans that our learning support model is changing too. Look at
135. it this way: The children of our staff in many countries are nowbeing educated abroad, where they receive professional technicaltraining and earn MBAs. As the education level rises, we adjustour own offerings. It’s becoming a more collaborative and cooper-ative model.S+B: Do you have a set process for building a technical workforce indeveloping countries?LOUW: We recruit people before we build. We take them to ourother operations in neighboring countries or other parts of theworld, where they see similar plants in operation. As we are con-structing the infrastructure, the people who will operate and man-age it participate in the work so they will understand the facilityonce it’s in their hands. In the meantime, we also educate them. Sometimes that startswith language training, although we do many technical things inlocal languages, such as Russian. We give university-trained engi-neers hands-on experience at regional sites, and occasionally theycome to regional or central learning events. We have a very strict process of establishing where people are intheir development and competence by measuring them on a yearly Royal Dutch Shell PLC 143basis against defined criteria. We then know what gaps need to befilled, and much of this will happen on the job.S+B: Does Shell’s emphasis on learning also create a competitive advan-tage in the job market?LOUW: Young people choose companies based on how much theycan learn, how those learning opportunities will improve their CVs,and how quickly they can progress in their careers. We now use theseopportunities as part of our value proposition for recruits. In the Far East, this is particularly important. There, we advanceour local talent faster in order to be competitive in local markets.
136. Our business units in those specific regions realize that in order toget and keep the brightest people, they need the best “progressionmachine” possible. The basic idea driving this is that you have to deliver all thelearning necessary for speedy progression through various roles orpeople will leave. For some areas of the company, we need to delivera high volume of offerings; others require less.S+B: Is “brain drain” an issue at Shell?LOUW: You cannot avoid brain drain; it is a demographic given. Insome areas of our business, half of our experience will walk awaywithin the next five years. The way to combat this is through creat-ing a compelling knowledge transfer proposition and better inte-grating people development programs into the business. Ten years ago, many companies had learning centers that weredisconnected from the business. Now, learning has to be part of theway we operate, it must be exciting, and people must feel compelledto learn and progress. This is a key point. Their career paths must bebased on their own ability and desire to learn.S+B: Has Shell changed how it delivers learning in the face of changing144 strategy+business Readerdemographics?LOUW: The younger generation is actively searching for knowl-edge, and this puts pressure on us to offer innovative learningopportunities. In 2006, when I told my university-age childrenthat Shell had just introduced a wiki, they stared at me in disbelief.They expect a company like Shell to invent this stuff, not functionwithout it. Young people have become accustomed to getting the informa-tion they need in the form they need it whenever they need it. Thisis the normal state of affairs to them, and it makes traditional learn-ing approaches, such as classroom training, seem outdated. They are
137. easily disappointed when they realize that some companies haven’tcracked this yet.S+B: What kinds of learning does Shell deliver and in what forms?LOUW: We have formal and informal learning. There is formal, pro-grammatic learning that is delivered via classes and structured inter-ventions: leadership; professional development, such as accountingfor accountants and engineering for engineers; and general businesseffectiveness skills and commercial skills, which basically are appli-cable wherever you work in the company. Then there is the informal part: how people acquire skills whiledoing their jobs and being very deliberate about that process. Thatconnects to how you assign people to roles, how many deliveryobjectives you put in a role, and people’s development objectiveswithin the role. There are three dimensions to learning. In addition to the indi-vidual development I just described, there is team development. Itis a different angle on learning, but certain subjects are better deliv-ered on a team basis than on an individual basis. For instance, beforea team starts a project, it might learn how other teams have done itin the past. Finally, there is an organizational dimension to learning. Royal Dutch Shell PLC 145There is such a thing as an effective organization, and to becomeone, organizations need to adapt to new experiences or new tech-nologies or new business models. That adaptation process is also anintegral part of learning.S+B: Do you think programmatic learning is effective?LOUW: Well, we all know that the classroom has its limitations andwe all know that e-learning has its limitations. So we’re trying todevelop integrated models, what the industry calls “blended learn-ing.” We try to make learning as relevant as possible in the localenvironment, where we have a host of resources, such as centers of
138. expertise and leaders who can help develop the next generation ofleaders. By using an integrated model, we can speed up the learningprocess and make it more effective. Integrated, fast-track learning programs not only help our valueproposition as an employer, they directly boost the value proposi-tion we make to our customers. The company that can develop itspeople quickest and most effectively is the winner.S+B: As you steer the learning activities at Shell, what conditions do youhave to consider as you try to facilitate the flow of knowledge?LOUW: Let me first say that my working assumption is that peoplewant to exchange knowledge, not just in cases of shared destiny —such as on an oil rig, where any mistake puts everyone at risk — butin all situations. Our principle is that knowledge should flow as easily and trans-parently as possible, with obvious constraints around intellectualproperty and commercial confidentiality. Our approach is to try toinstill the instinct to share knowledge and lessons learned, ratherthan retain them.S+B: How does the drive for profitability impact learning?146 strategy+business ReaderLOUW: There are times when the necessary financial governance ofa company can hinder the free flow of knowledge. In the past, forinstance, people cooperated without thinking about it. I know of acolleague who flew from Canada over a weekend to show hisMalaysian counterparts how to remove sulfur, which is corrosiveand can be lethal, from their gas. He didn’t have to ask the boss, andmoney never changed hands. Today, this is not the case; our busi-ness is structured much more tightly. Organizational accountabilityand financial processes make this behavior nearly impossible. Infact, I’d have to say that bureaucracy can be the biggest enemy oftrue learning.
139. S+B: Given these conditions, how do you cultivate a free-flowing learn-ing environment within Shell?LOUW: In many ways. For instance, in our upstream business — theexploration for and production of oil and gas — we achieve a learn-ing culture with staff mobility. We have an international cadre ofpeople who work in different parts of the world throughout theircareers. Right now, 8,500 people work outside their home country.They actively collect expertise and pass it along — creating a hugetransfer of knowledge. This is a Shell-specific characteristic. We also have all the obvious tools, like conferences and commu-nity events. And we are always working to encourage people to pickup the phone and ask a question. In the upstream business, our slo-gan is “Ask, Learn, and Share.”S+B: How do you measure the success of Shell’s learning activities andinitiatives?LOUW: There are a variety of methods. We conduct annual em-ployee surveys in which we always ask the same question: “Do youfeel you have the information you need to do your job well?” Ouremployees rate us, and we can break down the answers based on therespondent, such as people who have been in the company for three Royal Dutch Shell PLC 147years versus those who have been here longer. We perform exit interviews. When someone retires or leaves thecompany, we try to have a frank and open discussion and allow theperson to speak his or her mind. For technical skills, employees must pass tests. So we can meas-ure success rates. To measure the impact of leadership programs, wedo 360-degree interviews of all the people who work with a singlemanager. In some areas, it’s more difficult to demonstrate our impact —for example, in sales, negotiating, and deal making. A big part of ourbusiness is generating the next deals and the big deals. But how do
140. That is the most important role of a chief learning officer. +you prove that learning is making you a better competitor? That ismore difficult. Probably the only way is to look at our project deliv-ery record as compared to others’ or at secondary indicators, likeability to meet project deadlines within budget.S+B: How do you define your role as chief learning officer?LOUW: Many people think good knowledge management is thebasis for creating a learning organization. Knowledge managementis a part of it, but I don’t like that term. Knowledge is an entity thatflows; it cannot be managed. Knowledge sharing is much moreimportant. The whole world of knowledge management has movedthrough cycles. It started with IT people building large relationaldatabases. But those systems never really worked despite their pop-ularity because they stored knowledge instead of sharing it. It is onlynow, with desktop connectivity, that you can really share knowledge. A true learning organization has a mind-set of internal andexternal permeability in the biological sense of the word — knowl-edge should be like a fluid flowing through tissue. It doesn’t matterif information is passed on via a knowledge network, a wiki, or amaster class. It took me two years to come to that conclusion and to148 strategy+business Readerstart taking ownership of the process of knowledge sharing at Shell.
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142. by Vikas SehgalReporter: Sally HelgesenSatyam Computer Services Ltd.:Learning Drives TransformationChannels of learning and systematic metricssupport the innovative changes required toprosper in a global economy, says ChairmanRamalinga Raju.ChairmanRAMALINGA RAJUSatyam Computer Services Ltd.
143. by Vikas SehgalSatyam Computer Services Ltd.:Learning Drives TransformationSATYAM COMPUTER SERVICES Ltd., based in Hyderabad, India, is oneof the fastest-growing providers of information technology servicesin the world. Ramalinga Raju, the company’s chairman, foundedSatyam in 1987, just in time to catch the outsourcing wave that wasthen beginning to transform the delivery of business services.Satyam joined this revolution quietly by winning a single contractto provide technical support to a farm equipment company based inMoline, Ill. Today, Satyam provides application development, businessprocess consulting, enterprise solutions, system integration, and ITconsulting to about 630 global customers, almost one-third of152 strategy+business Readerwhich are Fortune 500 corporations. It serves various market sec-tors, including automotive, manufacturing, financial services, healthcare, telecommunications, and media. With US$2.1 billion in rev-enues, 53,000 employees, and a network that spans 61 countries,Satyam has been a pioneer in the globalization of services, and isan active and influential participant in India’s ongoing transforma-tion from a low-cost manufacturing center to a knowledge and eco-nomic powerhouse. Satyam has also established itself as a premier human capitalorganization. In 2007, the company received the American Societyfor Training and Development’s BEST award, which ranked it num-
144. ber one in the world for commitment to employee learning. Thecompany has consistently ranked among the top employers in Asiaand the top training organizations in the world. Ramalinga Raju has also earned his own share of honors, includ-ing the 2007 Ernst & Young Entrepreneur of the Year award.Educated in India and the United States, he established successfulventures in real estate and textiles before moving into computers. In addition to his varied business interests, Raju has been activein developing the Indian social sector. One of his foundations estab-lished the equivalent of 911 emergency services. Its mission: toprovide the leadership, resources, and support, and establish theglobal standards in emergency management, research, and trainingneeded to respond to 30 million emergencies annually, saving 1million lives each year across India by 2010. Launched in the south-ern state of Andhra Pradesh, on Independence Day (August 15)2005, the service already responds to an annual 1.6 million emer-gencies and has saved over 30,000 lives in that state alone. Recentlylaunched in the state of Gujarat, the service is already respondingto over 400,000 emergencies on an annual basis in that state, thanksto learning transferred from Andhra Pradesh. By the end of 2008,330 million people in several states in India will be covered by Satyam Computer Services Ltd. 153the service. Using a Six Sigma approach, this emergency networkhas a faster response time than 911 service in the U.S. and exempli-fies Raju’s determination to position all his enterprises as leadersin innovation. Raju has a senior leader’s perspective on human and intellectualcapital that is evident in a highly articulated set of organizationalprinciples that link learning with value creation, leverage knowledgeas a strategic tool, position every employee as a leader, and requiretracking progress on all three principles by means of sophisticatedmetrics. We interviewed the precise, soft-spoken entrepreneur dur-ing one of his visits to New York.
145. S+B: To what do you attribute Satyam’s rapid growth?RAJU: When we started providing virtual services, we realized thatwe were developing an altogether different way of creating value anddistributing it across the world. The creation of value does not hap-pen because you work hard and embrace opportunities that presentthemselves. It occurs because you transform something that exists toa more desired state, a state your customers appreciate. When you are trying to effect this kind of transformation, youhave to be very good at managing change, because change is theessence of the value you have to offer. So change management is atthe very core of success these days, particularly in the technologyand IT services sectors. Companies that manage change well are ableto provide consistent growth. We are good at it, and that is why weare growing.S+B: What role does learning play in furthering transformative change?RAJU: You cannot transform anything unless you have the abilityto learn. This is true for both organizations and individuals. Intoday’s world, knowledge itself is rapidly expanding, which requiresthat you keep learning to keep up. This creates a need for organiza-tions with a fundamentally different structure than the hierarchical154 strategy+business Readercompanies of the industrial era. Those enterprises could aim formore efficient delivery of what already existed, for example, manu-factured goods. By contrast, we need to respond to new needs asthey evolve.S+B: How do you make the link between learning and value creation?RAJU: Innovation provides the link. Responding to needs as theyevolve requires innovation, which is why the capacity to innovatehas become the primary determinant of value in the marketplace.This is especially true in technology and services. And since innova-tion can take place only in an atmosphere of continual learning,
146. developing knowledge must be fundamental to our market strategy.This in turn requires that we focus our energies on furthering thecapacity to learn among all our stakeholders.S+B: What does furthering the capacity to learn among all stakeholdersentail?RAJU: You need to take a structured and systematic approach todefining who your stakeholders are and what they want. We havechosen a model that allows us to understand stakeholder demandsin separate and specific terms, while also permitting us to form anintegrated view of what we can offer to them as a company. Everyone at Satyam serves multiple and different stakeholdersdepending on their position. This requires each one of us to listento and learn from a variety of people and to constantly recalibrateour efforts. For example, I am head of the company, so my cus-tomers are the 630 client companies that we service; my investorsare the 220,000 people who have invested in Satyam; my associatesare our employees and strategic partners. These are the people I needto learn from. My colleague who heads human resources has a different set ofstakeholders. His associates are the few hundred people who work Satyam Computer Services Ltd. 155with him in the function, and his customers are our 53,000 employ-ees. His investors are our board members rather than our externalinvestors. He must find ways to listen to all of them in order to pro-vide superior service. The robust way we define stakeholders createsthe channels of learning that enable him to do so.S+B: How do business unit leaders at Satyam use this system of definingstakeholders to create more learning in their organizations?RAJU: Learning is integral to every business in Satyam. It startswith the definition of stakeholders. Identifying who the real stake-holders are, in fact, is an introspective exercise. It brings focus
147. and clarity to the leader’s business. Once the process of robustly defining stakeholders has beencompleted, we use benchmarks to further the learning process. Eachleader has to set benchmarks for his or her business. The process ofbenchmarking is itself integral to learning. The leader starts with thequestion, “Who is the best niche player in this area?” and thendetermines what her or his associates need to learn in order to becompetitive. To broaden the process, we use at least three bench-marks from best-in-class organizations. These provide a model ortemplate for learning. Each leader also determines business goals, which we call our“North Stars.” Everyone in the company has a North Star. As weoperate within our organizational ecosystem, each North Star mustalign with that of the overall business. For each business, the processof defining stakeholders expands the scope of learning and alsospreads the learning itself across the stakeholder community.S+B: How does engaging in the North Star process build human capac-ity within the organization?RAJU: By enabling everyone to track his or her progress in a well-defined way. In articulating levels of progress, our people discover156 strategy+business Readerwhat specific disciplines can move them forward. We use definedmetaphors. For example, if someone is performing at the highestlevel, we say his or her star is shining. Below that, his or her star maybe bright or it may be visible or it may be in the Twilight Zone or itmay be invisible. Wherever it is, there are specific practices that canmove it to the next level.S+B: How do you ensure that people identify the practices that will helpthem reach the next level?RAJU: We have a system we call “My Business Template.” It’s easyto claim that you are doing a wonderful job, but that is always rela-
148. tive. In order to bring a certain dignity to this learning, we need ametric-based scale. Part of what we try to teach at Satyam is an objective mind-set— at the company level, the business unit level, and the individuallevel. Language can be a great asset and a powerful tool, but it canalso be an impediment to learning because language is subjective.Therefore, we promote a metrics-led approach to measuring devel-opment. This is fundamental to how we do things. We have aninternal slogan that says our first language is metrics and our secondlanguage is English. Business success is all about discovering the right measures forthe business and ensuring that they meet stipulated norms, and thisis ingrained in all Satyam leaders.S+B: How does this facilitate learning?RAJU: In a fast-growing global organization, one of the biggest chal-lenges is creating an environment in which people understand oneanother and define reality in terms of what’s desirable for the cus-tomer. Metrics by themselves are not going to make this happen,and deciding which ones to use is more an art than a science. But ifwe follow a certain discipline, we make it easier for people to agree Satyam Computer Services Ltd. 157on terms and adopt a unified perspective, which in turn creates aplatform for shared learning.S+B: Can you give us an example of how this works?RAJU: Let’s take HR as an example. In a business unit, the functionwill have a set of benchmarks in performance management, recruit-ment, and so on. Each benchmark has an asset side and a customer-facing side. The asset side reflects the internal or support aspect forthe business, while the customer side is external. We can plot eachof these aspects along an axis. For assets, this axis is defined by the six Ps: people, process,
149. product, proliferation, patent, and promotion. The first three areself-evident. Proliferation involves disseminating best practices,patent is about innovation and creativity, and promotion requiresdemonstrating your contribution to stakeholders. So the questionwe ask is, What have you as an individual or a business done to pushthe envelope along these axis points? What could you do differently?And what do you have to learn?S+B: What about the customer-facing axis?RAJU: It measures outcomes, so we use a model called the five Rs.Just as the Ps describe the means by which we achieve our objectives,the Rs describe the ends. So we use words that end with R: faster,better, cheaper, bigger, and steadier. Most are obvious; steadiermeans increasing consistency in the face of variability and control.Taken together, these points on the axis enable us to determine howan individual or a business is performing for the customer.S+B: Are the same metrics used throughout the company?RAJU: Yes. This obviously means that we track thousands of metrics.But we have a rule that individual performance should never bejudged by more than a dozen metrics. This rule preserves simplicity158 strategy+business Readerand sharpens our strategic focus. If one metric is not behaving, wecan investigate the underlying causes and take away a clear and def-inite learning. We call this process “the Satyam Way.” It is now fairly wellingrained throughout the organization. Using it enables us to createa common language and a common platform, which keeps us cohe-sive even as we grow.S+B: What role does leadership play in the Satyam Way?RAJU: We say that every Satyamite is a leader, and we define a leaderas someone who is clear about his or her objectives and is able to
150. achieve them in an efficient manner. Being a leader doesn’t requiresomeone to have a large group of followers. Einstein with paper anda pencil was one of the greatest leaders the world has produced. Wetry to model leadership that way within the organization. Someone who is a specialist — an architect, for example — maynot be seen as a leader. But if that person provides the best solutionfor the customer and the organization, we define that architect as aleader. For practical application and differentiation at the most sen-ior levels, we have the concept of full life-cycle leadership, whichgives us a vehicle for creating leadership across the entire valuechain. How it’s implemented will differ from leader to leader,depending on which stakeholders he or she serves.S+B: Do the metrics you use enable you to gauge the innovative poten-tial of an individual?RAJU: Yes. Demonstrating creativity is integral to how we defineperformance. We place a lot of emphasis on the process of discovery.We live in a world where everything is changing dynamically, somaking ongoing discoveries is very important. Discovery of busi-nesses, discovery of metrics, discovery of new structures — any ofthese can further innovation. If you discover a new metric and in the Satyam Computer Services Ltd. 159process push the envelope a little bit, you have injected that muchmore creativity into the system.S+B: One of the criticisms of metric systems is that they measure the pastrather than the future. What do you do to instill a future focus?RAJU: Metrics is a language. If someone lacks a future focus, youdon’t blame the language they are using, you look at how they areusing it. Similarly, if you get bogged down in asset metrics and arenot mindful of outcome metrics, this is not the fault of the metrics. I find it unacceptable when people say that a metric-centeredorganization is not interested in creativity. I consider this a ri-
151. diculous statement. The question is, What do the metrics measure?If you choose them well, metrics can be used to further collab-oration, bring structure, reduce the dissipation of energy, andidentify resources. You can bring creativity to all these things byusing metrics.S+B: What is necessary for that to happen?RAJU: It starts by asking the right questions, which is more impor-tant today than having the right answers. Finding the right answersin today’s world is not very difficult because there’s so much accessi-ble information in the public domain. You just do a Google searchand you have your answer. So it no longer matters if, for example,you don’t know the height of a certain pyramid, and you can’t definea person as knowledgeable just because he or she does.S+B: Are you saying that the availability of knowledge changes what itmeans to be intelligent?RAJU: That is precisely the case. Discipline is now more importantthan intellect. If you are disciplined and you take a structuredapproach, you can demystify knowledge. This is of paramountimportance for an organization like Satyam. Any large organization160 strategy+business Readeris going to be comprised of many ordinary people. But if you candemystify knowledge, you can get ordinary people to accomplishextraordinary things.S+B: So systematic coordination of effort is what leads to the extraordi-nary outcomes, rather than being tied to individual contributions?RAJU: Yes. But this also requires coordination and building a plat-form that connects people pursuing an objective.S+B: How does Satyam’s emphasis on coordination and platform impactits leadership development?
152. RAJU: The ability to build leaders requires an organization to createan environment that provides each employee with an opportunity toachieve greatness. Satyam is in the business of growing leaders whocan make this happen. In my opinion, there is opportunity in tak-ing advantage of the leadership potential in a broad group of peoplerather than focusing on what you assume to be the elite. If we areskilled at capturing talent when it is raw and providing the rightenvironment, people will scale great heights very quickly. Remember, at Satyam our idea of a leader is not the traditionalimage of the head of a big group who has lots of people reporting tohim or her. We want to change that paradigm. We say that someoneis a leader if that person is doing what he or she is supposed to bedoing well and delivering strong results.S+B: How does your emphasis on ordinary people achieving extraordi-nary results shape Satyam’s approach to learning?RAJU: There is this mistaken notion that large companies that havebeen around for a long time have accumulated enormous knowl-edge, and that the job of companies like ours is to try to matchthem. But this is no longer true because of the pace of change. Justas knowledge is demystified, so does it also become obsolete. So Satyam Computer Services Ltd. 161being young makes it easier to adapt to change. You can learn faster,plus you have less unlearning to do. We consider this a huge strate-gic advantage for our organization. In addition, at Satyam we have had to reinvent ourselves half adozen times. Every few years, we find ourselves at an inflectionpoint. So we’ve developed competency in doing a certain amount ofintrospection. Again, this is perhaps easier for an organization thatdoesn’t have a long history.S+B: Do you have a process in place to encourage introspection, or is itdriven by events?
153. RAJU: We try to create an ecosystem where this can happen.Fundamentally, this requires communication and listening. If wekeep listening, we will be in tune with what is happening around usand recognize when it is time for a change. We will know more inti-mately what our stakeholders want. This is not easy, but our way of defining stakeholders helpsbecause it gives us so many different points of input. It also requiresthat we constantly balance the expectations of our various stake-holders with what is of value to deliver. For example, we mightdelight our customers by offering our services at a very low cost, butthis might not delight our investors. And what we do for ourinvestors and customers might exert too high a cost on our employ-ees, who, after all, are the foundation of our organization’s long-termgrowth. The struggle to achieve this balance requires constant listen-ing and skilled communication to create an ecosystem sensitive totracking change.S+B: Does having roots in India also influence Satyam’s approach?RAJU: We see ourselves as a global company that has significantcapacity in India. Ninety-six percent of our revenues and the bulkof our investments come from the rest of the world. Our domestic162 strategy+business ReaderIndia operations report to our Asian headquarters in Singapore, notto our global headquarters in Hyderabad. When we began, we hadno domestic market, so we are unlike IT companies in places likethe U.S. that did not venture overseas until they had firmly estab-lished themselves in their domestic market.S+B: How does this internationalism impact your development ofhuman capital?RAJU: We spoke before about the importance of demystifyingknowledge in order to build leaders who can enable ordinary peopleto achieve extraordinary results. But another requirement for leader-
154. ever-flattening world. +ship in today’s global culture is enabling people to gain greater expo-sure to the world. This is the advantage of being a truly global com-pany. You have the chance to provide so many people with such awide range of experiences. Because we are able to do this in a way that is both structuredand creative, we are building a transformative talent infrastructure.Satyam is in the business of growing global leaders as much as weare in the business of providing business services or IT. Our focus is to see what the future requires or, as we say, “pullfrom the future,” rather than to rely on what we have done in thepast, or “push from the past.” This exemplifies value creation in an Satyam Computer Services Ltd. 163
155. by Bahjat El-Darwiche and Charles SalibaReporter: William BostonSaudi Telecom Company:HR’s Role in Radical TransformationFundamental strategic change requires arestructuring of human capital and organizationalculture, says Vice President of Human Resourcesand Training Salah M. Al-Zamil.Vice President of Human Resources and TrainingSALAH M. AL-ZAMILSaudi Telecom Company
156. by Bahjat El-Darwiche and Charles SalibaSaudi Telecom Company:HR’s Role in Radical TransformationOVER THE PAST decades, many of the world’s public telecommunica-tions agencies were privatized and exposed to the rigors of free mar-kets and competition. Some prospered; some faltered. That SaudiTelecom Company (STC) has done better than most in transform-ing itself from a state-run bureaucracy to a fast-growing regionalplayer is not well known outside the industry. In fact, STC is expanding its business, increasing profitability,and, at the same time, restructuring its workforce with a determina-tion to put people first. Consider a few numbers: By 2005, STC wasgenerating US$416,000 in revenue per employee, ahead of its prin-cipal European rivals; between 1998 and 2005, revenues rose to166 strategy+business Reader$8.7 billion from $2.3 billion while profit margins surged to 38 per-cent from 20 percent; in the same period, the company’s customerbase grew to 15.6 million from 2.7 million. Behind the numbers is another story: how Saudi Telecom’smanagement is grappling with the human capital challenges posedby its transformation to a publicly listed company. In an interviewwith strategy+business in his Riyadh office, Salah M. Al-Zamil,STC’s vice president of human resources and training (the function’stop leader), described how the company is tackling thesechallenges. As STC goes through massive changes in business andtechnology, Al-Zamil says he is determined to create a human
157. resources regime that is focused on developing and retaining thebest people in the industry. Meanwhile, the challenges keep arising. In 1998, the govern-ment of the Kingdom of Saudi Arabia (KSA) transformed itstelecommunications agency into a corporation, creating STC. In2002, the company went public, and 30 percent of its stock was soldto Saudi citizens and pension funds. During this period, the Sauditelecommunications market was also opened to competition, andby 2006, STC had rivals, two mobile phone and two data operatorsin the KSA, the largest economy in the Middle East. Meanwhile,STC has set its own goal of boosting international revenues to 10percent of total sales in the next few years. So it has been expandingin countries including Malaysia, Indonesia, Kuwait, and India. InJanuary 2008, it bought a 35 percent stake in Dubai-based OgerTelecom, which holds a controlling stake in Turkey’s largest fixed-line operator. The future success of the company and its ability to meet andmaster the challenges it faces, says Al-Zamil, depend to a largeextent on how well it can use its new human resources model totransform itself into an organization that is constantly learning andimproving. Saudi Telecom Company 167S+B: What were the first major challenges the HR function at SaudiTelecom faced after privatization?AL-ZAMIL: Culture. It was definitely culture and getting peopleto accept the types of changes we had to implement. HR used towork like a babysitter. It was as if HR was there for everyone andhad a magic solution for every problem. Yet it was also an easyscapegoat, the group to blame if something went wrong. With pri-vatization, the business units had to solve their own problems andtake responsibility for assessing their workforce and ensuring thatbusiness ran efficiently. We had to change all of the systems and
158. then educate the people about them. Take performance-based compensation as a simple example.When we were a government bureaucracy, it was easy. Everyone gotthe same standard pay. Your performance was judged by your directsupervisor, but it was not linked to your compensation.S+B: Right, and then comes privatization.AL-ZAMIL: The first thing that happened was suddenly your payraise was dependent on your performance, and we had to introducea full cycle of performance management. It was not only a perform-ance evaluation. Now, it was a cycle that was linked to many things:promotion, compensation, and career development. It was easy tosay, “Implement these policies.” But resistance was fierce; peopledidn’t want to accept this change. It was very hard convincing employees and their supervisors tocooperate with us on the change. Sometimes they just didn’t believethe changes made any sense and would say, “Don’t waste my time.”S+B: How did you convince them?AL-ZAMIL: The most important thing for the managers was tounderstand how all of these changes would help us achieve our com-168 strategy+business Readermon goal of delivering good products and services to our customersand making a profit. If we in HR can show the people in the trench-es that what we require of them will actually help them achieve theirbusiness goals, then it’s not a problem getting them on board.S+B: It must have been a huge challenge to balance this kind of inter-nal structural and cultural reform without completely bogging downthe business.AL-ZAMIL: That was the other problem. The government nowwanted to see results. They felt we were far behind in delivering thekind of service to customers that the market expected and that is
159. necessary to become more profitable. Many customers were waitinga long time for mobile service, landlines, and DSL. So we werepushing to build out our network and the technical side of the busi-ness, and at the same time, working to change the culture — tochange the way our people think. In addition, of course, we’re a big organization, and having beena government agency, we had many employees when we moved tothe private sector. Our competitors didn’t have the same challenge.Both of our competitors started from scratch and could hirewhomever they wanted when they needed them. But we are movingin the right direction with our staffing policy.S+B: What kind of staffing policy have you adopted?AL-ZAMIL: We had to make a thorough, objective assessment of ourpeople and truly reorganize our workforce. One of the programs wedeveloped first was determining how many people we needed andhow to retain the best people. You can always move leaders around and they can adjust anddeliver results. Management skills and competencies are usuallytransferable. However, it’s much more difficult for technicians, espe-cially if their specialized skills just aren’t needed any longer. Saudi Telecom Company 169 Maybe, just to give an example, you’ve got 25 percent excessstaff because their skills are in a technology that the company doesnot need anymore. Some of those people are really talented people,and it’s hard to convince them that you just don’t need them becauseyou no longer need to do what it is that they are good at. Andbecause of our culture, we couldn’t just tell people, “You have toleave the company.”S+B: Then how did you handle rightsizing the workforce?AL-ZAMIL: We came up with what we called “Golden Check” anddecided we would not force anyone to leave the company. It’s not
160. a matter of being afraid of a labor union, as it is in some otherplaces. It’s about respecting employees who have spent their livesworking with us. We wanted to make clear to them that they areimportant to us, but now we have to reconcile these things becausewe are privatized. Golden Check pays the employee’s insurance, health-care costs,and salary for a certain amount of time. The time differs accordingto a set formula and can last up to five years. That allows the personto go out and find a new place where he or she can be an important,productive part of society. We gave people a new start, either to pur-sue their own businesses or to find another job in a way that ensuredthat they didn’t feel worthless.S+B: The transition to the private sector must have also required newleadership capabilities. What are the qualities of a great leader?AL-ZAMIL: The right leader is someone who has followers who dothe job because they love that person and, therefore, achieve resultsthat are in line with the strategic objectives of the company. I think because of our culture, people will work day and nightfor you, even without compensation, if they like you because of yourcharisma and the evidence of your moral and ethical character in the170 strategy+business Readerway you conduct yourself. This is hard to find, but it’s the right kindof leader for our team. In our culture, we feel a sense of belonging together. Here thedirect relationship, soul to soul, is most important.S+B: How do you find people with these qualities and develop them intoleaders in the company?AL-ZAMIL: The tool we use today is a custom assessment, whichwe developed based on our competencies. Our president met withall of the general managers (GMs) to discuss the latest round ofassessments. He mentioned areas where there was improvement,
161. such as teamwork, and the areas that could be improved further,not based on his subjective feelings but on the results. It was a veryopen discussion because there is a development agenda for each ofthe GMs. We are establishing new programs for “high potentials” as wespeak. It’s just getting started, but for those who go through the pro-gram, we will use our assessment tools and utilize the performancemanagement program. We have identified something like 350 peo-ple as high potentials. But we are just at the beginning.S+B: How do you ensure that potential leaders obtain the skills they willneed to take on responsibility in the future?AL-ZAMIL: One way is our rotation program. We move peoplethrough different locations, placing them in positions where theylearn the skills and gain the experience needed for leadership. Andnow we are starting a formalized succession program — a little late,perhaps, but it’s under way.S+B: You had a stable organization as a government agency. Was itdifficult to convince executives to leave their jobs and rotate into newareas? Saudi Telecom Company 171AL-ZAMIL: Yes. In fact, we first took the six GMs from HR and hadthem rotate in and out of each other’s positions. That was very dif-ficult. They put up a real fight, saying it would be such a risk. Theythought they were irreplaceable, so the man from Personnel worriedthat the company would collapse if he left Personnel, and so on. Itwas as if they’d be going to a completely new organization instead ofjust moving next door. So we tried to make it easy and kept the staysshort. But they resisted. I kept trying to sell the idea for threemonths before they finally accepted.S+B: What happened then?
162. AL-ZAMIL: We moved them around, a simple rotation. And aftertwo months, they came back wearing new hats and making recom-mendations for improvements. We worked it out at HR, and nowit’s company policy that 25 percent of our organization shouldrotate every year.S+B: That seems like a lot. How well does it work?AL-ZAMIL: It works well. If I have four GMs, at least one of themshould move somewhere else. And we took the idea further, devel-oping it into cross-functional exchange. People no longer stay com-pletely in their own sectors. And then we launched the individualdevelopment plan and succession planning. Now we think in a five-year time frame. So if we want to pre-pare GMs to become vice presidents, then they have to go tofinance. They have to go out in the field. They also have to spendtime in technical and market-facing functions. We have also identified two or three people who have the poten-tial to be presidents and for them, for example, we said finance is arequirement. You cannot become a president without spending sixmonths to a year in finance. One of them, who used to be on thetechnical side, was shocked at the thought of going to finance. There172 strategy+business Readerwas a lot of resistance, but now everyone accepts the rotation systemand thinks it’s very valuable. Now, people are asking, “Why is heallowed to go to finance and not me?” Finally, it is sinking in thatthis is really a career development tool.S+B: Is there a set rotational path?AL-ZAMIL: Not totally. In the high-level positions, we have a careerpath, but it’s not really a standard path. For instance, the technicalexecutive I mentioned may have to go to marketing and sales, andthen he has to go to finance, because this will improve his perform-ance and it will improve his capabilities. It will also show us how
163. much potential he has to progress to a higher level of management.But it is designed specifically for him.S+B: Is there a development path for those high potentials who are lowerdown the chain of command?AL-ZAMIL: We are designing a program for the newcomers and togive the young engineers and professionals in marketing, sales, andaccounting more experience. There will be some flexibility, but therealso will be a more standard framework.S+B: Is diversity an issue as you expand internationally? How do youintegrate non-Saudi employees into your organization?AL-ZAMIL: There will be a team responsible for diversity that re-ports to the president, but right now, it’s my responsibility to get theprogram going, and I have two people working with me on it.Diversity isn’t really a major issue at our local company in SaudiArabia. Any non-Saudis are most likely expert professionals alreadyin their positions. In some new projects and new investments, we dohave non-Saudis in leadership positions. We treat everyone the sameway. As a matter of fact, in our operations abroad we try to havemore local people on board than Saudis. Saudi Telecom Company 173S+B: How important is it for your future leaders to spend time at oper-ations outside Saudi Arabia?AL-ZAMIL: This is something else we are just starting to consider,because this is a new area for us and our foreign investments arerelatively recent. Our president has announced that the develop-ment of future leaders will include participation in those projects.So these people will have to spend some time in the countries wherewe have our businesses. This will give our executives experienceworking in different cultures, and their time and performanceabroad will be part of their assessments when they return.
164. International experience will become an integral part of our devel-opment programs.S+B: There is a lot of competition for skilled young professionals. Whatare you doing to retain younger people in the company?AL-ZAMIL: As part of the new changes we are implementing, near-ly 30 percent of the newly appointed GMs were young directors. Soyou can see we are really focusing on them. We offer a variety of high-profile management, technical, andsoft-skills training to attract and retain younger recruiting candi-dates and employees. We conduct surveys of employees to see whatkind of personal development they want and will offer any kind oftraining they require. We also developed a home loan program anda yearly incentive bonus targeting highly qualified and talentedemployees. We want all of our employees to know that we careabout them, even after working hours.S+B: How has the HR function itself changed to adapt to SaudiTelecom’s new structure and environment?AL-ZAMIL: From the beginning of the transition, our corporateemphasis has been to design operational strategy around the needs174 strategy+business Readerof our customers, and that focus has also driven the design of thenew HR function. It is based on a shared-services model in whichHR is a strategic partner with the business units. So we in HRbecome more of a service organization, accountable to our cus-tomers — the business units. That was really challenging, because HR used to have powerover others and now we have to think in terms of providing servicesinstead. For example, either HR is able to develop the right trainingfor its customers inside the company or the business units areallowed to get the training they need from outside vendors. HR alsohas to become a role model of service for the rest of the company.
165. is an ongoing challenge. +But we are already seeing a difference because of these demands.There is more teamwork in HR today and more alignment with thebusiness units.S+B: Now that you have the right structure and systems in place, do youstill see changing the corporate culture as the biggest challenge?AL-ZAMIL: Well, we spend a lot of time in HR organizing policies,putting information online, and creating reference manuals. Butyou cannot treat people issues the same way as you treat transport-ing cars or managing material stock. This is not just about installingsystems and moving products from one place to another. It’s aboutcreating a culture within HR and within the company as a wholethat nurtures the professional development of our people. And that Saudi Telecom Company 175
166. by Klaus Mattern and Joachim RoteringReporter: Rhea WesselThyssenKrupp AG:A Multifaceted Approach to TalentInnovative recruiting strategies and a willingnessto hire great people whenever they appear are keyin competitive job markets, says Chief PersonnelOfficer Ralph Labonte.Chief Personnel OfficerRALPH LABONTEThyssenKrupp AG
167. by Klaus Mattern and Joachim RoteringThyssenKrupp AG:A Multifaceted Approach to TalentTHYSSEN AND KRUPP, two of Germany’s most venerable manufac-turers, merged in 1999, creating one of the world’s largest technol-ogy conglomerates. More than 190,000 people now work inThyssenKrupp AG’s major business segments: steel, stainless, tech-nologies, elevator, and services. After the deal was signed, the new company spent two yearscombining the businesses and workforces of its predecessors. From2002 to 2006, the company focused on consolidation and activelymanaging its portfolio of holdings. Today, it has set its sights ongrowth. In the near term, ThyssenKrupp wants to raise annual salesroughly 20 percent, from € 51 billion (US$78.7 billion) to178 strategy+business Reader€ 60 billion ($92.6 billion) through sustainable organic growth andacquisitions. To support this goal, ThyssenKrupp’s HR function must pro-vide the company with a steady stream of both skilled techniciansand top executives, as well as manage the internal training of thou-sands of apprentices each year. It is also restructuring managementdevelopment activities for top managers and ramping up its recruit-ing efforts, as the company confronts demographic changes and apronounced lack of engineers, particularly in its home country. Ralph Labonte, chief personnel officer of ThyssenKrupp, isresponsible for this massive talent management effort. He heads a
168. decentralized function made up of an independent network ofHR departments located at 800 subsidiaries operating in more than70 countries. Labonte began his career as an engine mechanic, and these rootsare evident in his hobbies: restoring and racing vintage sports carsand collecting antique fire trucks. Early on, he gravitated towardGermany’s trade unions, where he served in management positions. By 1979, Labonte was in charge of policy for the steel industryat IG Metall, where he worked on various industry restructuringprojects until joining Thyssen Guss AG in 1994 as labor director. “Ispent nearly two decades at the unions,” he says, “and my decisionto join the private sector was one that required a lot of thought.” Labonte was appointed to his current position in 2002, and hiscontract to serve on the management board was recently extendedto the end of 2012. In addition to ensuring that the human capitaland learning needs of ThyssenKrupp are addressed, he is responsi-ble for IT, corporate real estate, and internal corporate services. Weinterviewed Labonte at group headquarters in Düsseldorf.S+B: The merger of Thyssen and Krupp was a massive task, and theintegration and consolidation phases must have created lots of change. ThyssenKrupp AG 179How did they affect talent management?LABONTE: After the merger, we had a huge restructuring programthat had a tremendous impact on the workforce. Approximately200,000 people were either transferred, hired, or let go, or left vol-untarily. Statistically speaking, none of our people are working in theexact same jobs that they had in 1999. This sounds absurd, but it’strue. We had to help people become acclimated to this new cultureof change and to find their places within it.S+B:Now growth is on the strategic agenda. How does that affect talentmanagement?
169. LABONTE: We are building acceptance for the idea that if you wantto produce the best possible products, you must have the best peo-ple available. We need to create careers for good people. It has taken a couple of years to change our thinking in thismanner, but we are really doing this now. For instance, in late 2007,we created a special budget for hiring exceptional talent inThyssenKrupp Technologies. This budget is for building our talentpool in that specific business, not for traditional hiring. When wefind great people, we’ll hire them first and then look around to seewhat they should do.S+B: How difficult is it to find talented people with the right combina-tion of skills in today’s job market?LABONTE: In 2000, we had a very enlightening experience. Everyyear, about 15,000 students who are finishing up their studiesattend a conference in Cologne, Germany. All the companies thatneed first-rate job candidates line up to meet potential recruits. We have always participated in the event. In 2000, when werealized that the CEOs of companies such as Deutsche Bank andBMW were present, our CEO, Ekkehard Schulz, decided to attendto help attract recruits. Far fewer young people showed up to see180 strategy+business Readerhim than we expected, and we realized that ThyssenKrupp had aproblem. A few weeks later, our management team began rethink-ing our recruitment strategy.S+B: What was the problem?LABONTE: For one, we had an image problem. ThyssenKrupp is acompany that makes very few end products. In most areas, we area supplier to others. The consumer, the citizen, the student — theyall know Porsche as a company because they see its cars. But theydon’t know that the steel in the Porsche comes from ThyssenKrupp.This means that we have to explain our place in the business
170. world to potential job candiates. This isn’t easy; we can tell them aPorsche won’t work without the axles we build, but most people findthat irrelevant.S+B: So how do you get the attention of talented people?LABONTE: Our head of communications started the ThyssenKruppimage campaign that is now known worldwide. We invested in amultiyear image advertising campaign called “My Father Does.” Itshowed the amazing things that happen because of the work of ouremployees. One tagline said, “My Father Makes Life in the DesertPossible” and showed the desalination plants we build. In 2000, globally, young engineers rated us 29th as an em-ployer; now we are ranked 12th. So we’re heading in the right direc-tion and our image has improved, but we can never stop presenting,advertising, and explaining ourselves. People have short memories.We will continue to work on this.S+B: Is advertising enough to keep a steady stream of high-caliber can-didates interested in working for ThyssenKrupp?LABONTE: No, that is not all it takes. We have to offer more.We have to offer professional development, for one thing. That’s ThyssenKrupp AG 181why we established and are expanding ThyssenKrupp Academy andour corporate management development division. The youngpeople who go into the trades come to us because they know thatwe offer excellent training. They know they will become highlyskilled and that their jobs will be secure. Managers also come be-cause they know that this is a solid company, and we hope initiativeslike the Academy will show them that we’re prepared to invest intheir futures.S+B: Is there enough talent available to maintain and expand yourworkforce in the future?
171. LABONTE: We have two big challenges — a lack of graduates in theright fields and poor general education. In Germany, for example,we face a severe shortage of technicians and engineers. Each year,Germany produces 40,000 fewer engineers than are needed tofulfill the demand in the job market. We’ve had this problem forabout six years. We have to pay premium prices to hire the best inthese areas and then use our management strategies to retain theseemployees. Here in Germany, we also have a tradition of apprenticeships, adual program that encompasses education in school and at work.We offer young people a chance to learn on the job. But it is increas-ingly difficult to find qualified graduates because many of them donot have basic reading, writing, and mathematics skills. We havethe same problem in the United States and also in Brazil, wherethere is an overall lack of education. This means that we have totrain young people in the basics during apprenticeships and intern-ships. And we often have to bring people to Germany to preparethem for their jobs.S+B: How are you addressing the problem of creating and maintainingan adequate candidate pool?182 strategy+business ReaderLABONTE: We go to the schools and universities across Europe tosing the praises of engineering to students and teachers, and we havestarted to offer our engineers as teachers in schools. This is a processthat has been catching on in Germany in the past two to three years.Of course, we can do this only in cities and regions where we havea business presence. We also cooperate with key universities, attend career fairs, andsponsor sporting events and teams. I serve on the board of theGerman Hockey Federation, and we sponsor the German RowingAssociation. Half of the German rowing squad are engineering stu-dents, and they are very ambitious, smart, and well disciplined. We
172. have already been able to hire a few of these top athletes. Another example: Each summer in Dortmund, we host a pro-gram at the technical university called “Do-Camping.” We build atent city and invite high school students interested in math and thenatural sciences to work on various projects. These weeklong proj-ects are led by ThyssenKrupp professionals and professors. We esti-mate that 40 of the students who attended in 2007 chose to studymath or the natural sciences at their universities.S+B: Once young talent joins ThyssenKrupp, what kinds of career oppor-tunities do they enjoy?LABONTE: We aim to hire 80 percent of our top managers frominside the company. We strategically hire the remaining 20 percentfrom outside the company, and I think that’s a good thing, too. Recently we actively started to encourage the rotation of “highpotential” managers among ThyssenKrupp’s five business segmentsvia a central succession-planning process. In this way, the CEOs ofeach segment are introduced to potential candidates from other seg-ments. Moreover, each year, each segment CEO provides a diagramof the segment’s succession plan, which includes ratings of indi-vidual managers. We note what further professional development ThyssenKrupp AG 183should be offered to these individuals.S+B: You mentioned operations in the United States and Brazil, the twocountries where you have your largest presence outside Germany. Howdo you ensure that people are treated with the same care in all of the 70countries in which ThyssenKrupp operates?LABONTE: We do that with a set of shared principles. We developeda code of conduct at the corporate level that prescribes exactlyhow we are to interact with our employees. We strongly believe thatpeople should have a central role in our company, not just in wordbut in deed. The code covers many of the basics: We forbid
173. discrimination, we aim to pay living wages, we recognize people’sright to organize unions, and we don’t employ children in develop-ing countries. We also make sure our suppliers and their suppliersfollow the same guidelines. We are not shy about firing managers who break these rules.Because we enforce the code, our employees all around the worldknow they can trust us.S+B: Germany is known for its model of consensual capitalism, in whichunions are represented on companies’ supervisory boards and have alarge say in a company’s personnel policies. How do you balance theinterests of trade unions with shareholder interests in a global and hyper-competitive business environment?LABONTE: The “Mitbestimmung” system, which is of particularimportance in the German metal and steel industry, ensures thatemployees have a say in our decisions. So the decision-makingprocess can take a bit longer. But one of its strengths is that once thesupervisory board comes to a decision, everyone is ready to go,which ensures faster implementation and results. We are finding a few creative ways to work cooperatively withour partners in the unions. We need to share responsibility with the184 strategy+business Readerunions to ensure the future of the company.S+B: How are you accomplishing that?LABONTE: Each case is different. For example, we reached anagreement at one of our business units in which we temporarilyreduced the weekly work hours from 35 to 34. With the time andpartial compensation saved till 2013, we agreed to hire 1,000young employees after finalization of their apprenticeships. Theywill fill the specialist positions that will open in the next few years,and we can improve the age and qualification structure of ourworkforce. Unfortunately, this is an instrument that cannot be
174. used everywhere, but it is one viable model. Another cooperative strategy that we are experimenting with ina few smaller locations is based on the idea of lifelong accounts forworking hours and overtime. In other words, employees who put inovertime now can save the hours in an account and redeem themlater in their careers. For instance, you could retire six months earlyusing the hours accumulated in such an account. And the companybenefits by deferring the wages. Of course, we must ensure thatthese accounts are secure. The claims must be able to be turned intomoney, and funds must be protected in the case of bankruptcy. Butif we must invest the monies in the program with third parties andreinsure everything, the whole endeavor becomes more expensiveand defeats the purpose. A third innovative compromise we reached with the unions isbasing work on employee-hours per project as opposed to a standardworkweek. This solved a major problem in our ship repair opera-tions because often we can’t predict when a ship will require repairs,or when we’ll have 14 days to renovate an entire ship and need1,000 people working on it at once. In 2000, IG Metall, the German metalworkers union, agreedthat our people could work whenever ships were in port — that ThyssenKrupp AG 185means they are allowed to work 80 hours one week if needed andnone the next. In turn, we created an account in which workers cancollect up to 500 hours, overdraw by up to 350 hours, and stillreceive a steady salary each month. People are having a lot of funwith this. The workers who love camping are really thrilled if there’sa week in the summer when there’s nothing to do. And if the QueenMary comes into port the next week, they gladly work 12 to 14hours a day. We have also created an overtime agreement with IG Metall. Weagreed on how many hours we need to build a containership — Ithink it was 120,000 hours. If we did not get the ship built in
175. ple are nothing more than cost. I’m glad to say we’re past that. +120,000 hours, our workers agreed to finish the job without over-time pay. If we finished earlier, workers got paid time off. Guesswhat happened? The workers moved faster and worked more sys-tematically — we all won.S+B: Isn’t that the ultimate personnel strategy — one with which every-body is happy?LABONTE: Yes, win-win is always best. It was a long process ofrealization in HR, but I think we have learned that developingpersonnel — both technical and commercial workers — isn’t a part-time job. It takes strong commitment, creativity, investment, andcompromise. Looking forward, I believe that our strategic goals won’t failbecause of a lack of money. We’re solid enough. But we could fail ifwe don’t have the right people on board. With the right team, you can always find and execute the rightstrategy. But if you have the right strategy and no one to execute it,you have a big problem. When we think like this, it’s proof that wehave successfully moved away from the old-fashioned idea that peo-186 strategy+business Reader
176. ThyssenKrupp AG 187
177. by Klaus Mattern, Joachim Rotering, and Ilona SteffenSupporting Corporate Strategy withManagement DevelopmentNEW CORPORATE STRATEGIES often create additional demands formanagement capacity and quality. Companies that ignore this real-ity can come up short when executing their strategic visions. Companies must prepare their leadership ranks for implement-ing new strategies and teach their top talent new skills and changebehavior. ThyssenKrupp AG, the German technology conglomeratethat recently turned its attention to organic growth, is one companythat is keenly focused on identifying and implementing practicalsolutions to these challenges. “We’ve got an ambitious long-term growth target,” explainsDetlef Hunsdiek, the head of ThyssenKrupp’s corporate manage-188 strategy+business Readerment development division and ThyssenKrupp Academy, its corpo-rate university. “Now, do we have enough talent to shape and man-age this growth? What criteria do we use to measure and evaluate ourmanagers? Are our leaders prepared for such a growth trajectory?” The company is seeking answers to these questions with“ThyssenKrupp PerspActive,” a system that links positions and peo-ple using a set of integrated processes for recruiting, evaluating,developing, and placing managers within the tech giant’s businessunits. The intent is to create new perspectives for individual man-agers in a way that actively yields new opportunities for themselvesand for the company.
178. To achieve this goal, ThyssenKrupp defined seven key manage-ment competencies, developed a groupwide evaluation process toensure cross-segment transparency and consistency, and created aplacement process for ThyssenKrupp’s top 300 managers across theorganization. These measures promote mobility among the compa-ny’s five business segments and ensure that the best managers arepromoted no matter where they are in the organization. ThyssenKrupp further encourages management developmentwith a set of career rules that specify the experience needed toadvance into the ranks of senior management. One example is the“3x2” rule. “Anyone who wants to become the head of a segment inthe foreseeable future,” says Hunsdiek, “will be required to haveworked in two different functional positions, two different busi-nesses, and two different countries.” Once a company understands the status quo of its managerialtalent, it must be able to address and bridge current and futuredevelopment gaps. ThyssenKrupp Academy was founded for thispurpose. “A corporate university needs to be integrated into thebusiness,” Hunsdiek says. “We designed the academy to be morethan just learning programs for individual management develop-ment needs. By involving internal stakeholders in the program Supporting Corporate Strategy with Management Development 189development process at an early stage, we ensure that all offeringsare in alignment with ThyssenKrupp strategy and business needs. Inaddition, managers use the academy for strategic dialogue and net-working. We are not just the central management training institute;we are a strategic development platform for ThyssenKrupp.” One way to ensure that ThyssenKrupp Academy would get thesupport it needed to fulfill its strategic role was to build a broad baseof executive support before and during the academy’s creation. InOctober 2006, Hunsdiek arranged a custom-designed pilot courseat Harvard Business School for 30 of the company’s top executives.As they studied globalization, strategy, innovation, leadership, and
179. • Management School, featuring classes developed in cooperation • Competence Forums, which include technical meetings, seminars,marketing, the executives also realized the importance of buildingan internal “talent machine” to prepare leaders for the future. A con-sensus quickly formed around the need for a learning center as a • Impact Workouts, which are work projects requested by individualvalue driver. Although the academy will not have an official home until • Horizon Sessions, which are freewheeling discussions about otherThyssenKrupp’s new headquarters in Essen, Germany, are complet-ed in 2010, the company has maintained the momentum by quick-ly instituting programs, including more courses at Harvard BusinessSchool, the European School of Management and Technology, andothers. In FY06/07, the academy’s first full year in operation, 500 ofits target audience of 2,000 managers — the top three tiers of thecompany’s leadership hierarchy — attended a program. By the endof 2008, Hunsdiek estimates, this number will more than triple. ThyssenKrupp Academy is establishing programs based on fourbroad learning platforms: with top business schools. and conferences designed to stimulate ideas on issues of current concern.190 strategy+business Reader executives and based on the latest academic research. cultures, untapped markets, and inspiring visions designed to help managers “look beyond the limits of their day-to-day work.” In 2007, for instance, the academy organized a CompetenceForum on the topic of mobility. “It was an exciting experiment,”says Hunsdiek. “We invited external speakers to discuss questionssuch as: What is mobility? How do mobility streams develop? andWhat kinds of infrastructures will be developed in the future? We
180. wanted to see what 120 ThyssenKrupp managers would get out ofthe sessions, how much of this could be transferred, and what thingsexcited and inspired them.” ThyssenKrupp’s senior leaders are helping to ensure the impactof the academy’s programs. There is at least one executive boardmember present at each Management School class, and board mem-bers as well as senior executives are consulted on the topics chosennal: Learning is part of a manager’s daily life.” +for Impact Workouts. “We collaborate with the top managementbecause it’s important that the academy does not become just anexpensive training institute and instead is addressing actual businessissues and enabling managers to master the strategic challenges,”says Hunsdiek. “This is how we create business impact.” The academy’s management established early and deep relation-ships with colleagues in corporate development and humanresources. In numerous interviews and discussion groups, manage-ment also seeks out the views of operations managers on programdesign. In these ways, the academy continually expands the numberof external advocates (who help promote the academy and thebroader value of management development), as well as learningfirsthand how to link academy activities to the needs and goals ofthe business. Supporting Corporate Strategy with Management Development 191 In 2010, when the academy moves to its permanent home in theheart of ThyssenKrupp’s new corporate campus, its central role willbe emphasized. “Some companies have virtual universities; otherslocate them up in the mountains or on lakes — two wonderful loca-tions in nature. We will go to the corporate campus and be rightin the middle of all the action,” explains Hunsdiek. “How doeslearning really occur? Blended learning, learning on the job, actionlearning — all of these ways. How do we integrate this? By placingthe building on the corporate campus. We are sending a strong sig-
181. by Cynthia L. McNeese and Thomas StarrReporter: Lawrence M. FisherToyota Motor Sales U.S.A. Inc.:Driving the Toyota WayChief Information Officer Barbra Cooperdescribes the learning challenges in transferringworld-class precepts across functional andcultural boundaries.Chief Information OfficerBARBRA COOPERToyota Motor Sales U.S.A. Inc.
182. by Cynthia L. McNeese and Thomas StarrToyota Motor Sales U.S.A. Inc.:Driving the Toyota WayJAPAN ’ S TOYOTA MOTOR Corporation has come a long way since itsfirst car, the Model A1, rolled out of the shop in 1935. It is now theworld’s most valuable car company in market value and is vying withGeneral Motors for the top spot in the global automotive industry.In 2007, Toyota sold 9.37 million vehicles in 170 countries. Toyota’s success in the United States, where its Camry was thebest-selling passenger car in 2007, is just as impressive. In that sameyear, subsidiary Toyota Motor Sales (TMS) U.S.A. Inc., which isresponsible for all of the company’s sales, marketing, and distribu-tion activities in the U.S. — including advertising, dealer support,and customer satisfaction — recorded sales of more than 2.6 million194 strategy+business Readervehicles across brands ranging from the luxury Lexus to the now-ubiquitous Toyota to the youth-oriented Scion. It was TMS’s 12thconsecutive year of record-breaking sales volume. Chief Information Officer Barbra Cooper is responsible for thestrategy, development, and operation of all the information systemsand technology that support TMS. In what seems an unusual pair-ing of responsibilities, she also heads the University of Toyota,which provides training and education for nearly 9,000 associates,as well as Toyota and Lexus dealership personnel throughout theUnited States. (Manufacturing and design training are managed sep-arately.) But then, Cooper has an unusual background for a CIO;
183. her undergraduate degree is in education, not in IT. Cooper’s vision is the same for both information systems andlearning: people first, technology second. And she sees a natural syn-ergy between her two roles, noting that since TMS neither makesnor sells cars, but instead acts as a marketing/sales arm and a con-duit between manufacturing and the dealer channel, informationand human capital are its natural currencies. “We’re all intellectualcapital here,” Cooper says. “It’s all about the people.” Cooper built her reputation by successfully transforming infor-mation systems and technologies at such diverse organizations asAmerican Express Company, MicroAge Inc., and Maricopa County,Ariz. In 1996, she joined TMS, where her first assignment was toharness runaway IT costs while simultaneously introducing state-of-the-art practices. To achieve that goal, she rebuilt the capabilities ofthe IT department, introducing cost transparency. Toyota executiveshad always known the exact manufacturing cost of each vehicle, butwith the new information technology structure, the IT costs per caror truck were revealed as well. More recently, Cooper decentralized the IT function and close-ly aligned it with TMS’s major business segments. She moved sen-ior information system executives into the business units, giving Toyota Motor Sales U.S.A. Inc. 195each direct accountability and responsibility for the unit he or sheserved while maintaining the direct reporting line. In 2005, ina scant six months, she revamped the jobs of over 50 percent of the400 IT employees, without losing any to layoffs or attrition. Cooper’s work at TMS has earned her numerous industryawards, a spot in the CIO Hall of Fame, and three appearances onthe annual Automotive News 100 Leading Women in the NorthAmerican Auto Industry list. She sat down with strategy+business atTMS headquarters in Torrance, Calif., where she discussed thehuman capital challenges inherent in both IT and independentdealer networks.
184. S+B: When you began reshaping the information technology organiza-tion a decade ago, what was the greatest human capital managementchallenge you faced and how did you handle it?COOPER: I was recruited by the company to modernize and align anIT organization that was viewed by the business as neither respon-sive nor credible. The team I inherited was all long tenured, hadbeen exposed to only a single vendor’s product line, and was stilllocked into a mainframe model. The biggest challenge I faced was staff development. There hadbeen no real technical or leadership development over the years, andas a result, employees were very isolated and unfamiliar with any-thing other than a command-and-control management model. Weneeded to transform the organizational culture, so I hired a team ofprofessionals from the University of Southern California to helpdesign a foundational development program for the entire staff. Thistraining established a new baseline, and allowed me to identify whoflourished through this experience and who did not. The second-biggest challenge was to understand the businessside and evaluate their expectations of the IT organization. This wasequally daunting, because here again many of them were longtenured and unfamiliar with business practices in other companies196 strategy+business Readeror industries. They knew they weren’t happy, but had difficulty envi-sioning and articulating what they needed. I had to help themdefine the gap and then prove that the new IT organization couldfill it.S+B: What factors are driving change at TMS now, and what humancapital challenges do they involve?COOPER: Traditionally, our job has been managing the vehicleordering process, coordinating distribution logistics from the factoryto the dealers, cultivating strong relationships with dealers, and pro-viding input on product design for the U.S. market. Until about
185. seven years ago, we were accountable only for volume; headquartersmanaged the profit side. But when Toyota became publicly traded,that implied new responsibilities for our management team. And asour market share and product line have continued to grow in theU.S., headquarters has been leaning on us more than ever to beaccountable for profit as well as volume. This is a normal progression for a successful corporation, but itis pressuring us at the University of Toyota to develop the trainingand education needed to support the shift. We need to help themanagement team meet new demands and ready the entire work-force to compete in a global market with a much higher degree ofcomplexity than in the past.S+B: What role does the University of Toyota play in preparing for thisnew context?COOPER: At the university, we are thinking in terms of strategy andthe delivery models that will ensure the development and readinessof tomorrow’s workforce. Many of the people here have decades togo in their careers. So as TMS deals with more complexity, as wedeal with go-to-market strategies that are ever more refined, I needto identify the survival criteria for leaders in the future. As a result, Toyota Motor Sales U.S.A. Inc. 197we’re building a multifaceted strategy to take people through theentire life cycle of development, where heretofore the University ofToyota has always had more of an à la carte catalog approach. We have two colleges within the university. One is the associatecollege for TMS employees, and the other is the dealer college. Inthe associate college, we’re in the process of revamping our leader-ship development strategy in response to Toyota’s decision to ensurethat we do not lose the core principles of the Toyota Way as thecompany scales up globally. Those principles are primarily theproblem-solving aspects of the Toyota business process, and theydictate our processes pretty directly. On the manufacturing side,
186. they’re used to that. But here on the sales side, especially among thecore sales and marketing personnel, there isn’t always patience forthat level of detail, for that very methodical set of processes. The dealer college is all about product. It’s how product knowl-edge and content is delivered to the dealers, for both sales andservice purposes. We have a group that designs all the product train-ing materials for Lexus and Toyota dealership technicians, andcertifies them. It’s a fairly comprehensive set of programs that offerstraining through various channels, such as the classroom, on-site, ore-learning. A lot of technicians come to TMS headquarters for hands-onexperience, which is really important at certain levels of certifica-tion. We have built training centers in our regions, and various techschools and community colleges offer our T-Ten programs [aimed atcreating a pool of educated technicians for dealerships]. We pay forT-Ten programs and support them with automobiles and specialtraining. On the sales side, we coordinate all the new model launch cam-paigns with the dealers. We also have several comprehensive pro-grams for dealership sales forces to ensure they are knowledgeableabout our products and confident in their work with customers.198 strategy+business ReaderS+B: Over the years, Toyota has proved that its manufacturing system istransferable between cultures. What is unique about promulgating thisphilosophy at Toyota Motor Sales U.S.A.?COOPER: In a joint training exercise comprising Western Toyotamanagers — American, Australian, and British — and headquarters-based Japanese Toyota managers, we found the teams approachedthe same case study completely differently. The Western teamsquickly conceptualized what the solution set should look like, andonce they all agreed on an idea, they would proceed with provingtheir solution was correct.
187. On the Japanese side, they would not speculate about the solu-tion. They took a step-by-step approach, using a very deliberatedecomposition of every possible element to identify root causes.They then worked their way through very measured and institution-alized steps to reach an answer. That methodology forms the foun-dation of the Toyota business practice and the foundation of oursuccessful commitment to quality. But it’s tough to apply that way of thinking to a sales operationand to have it supersede the Western way, which is more like, “Let’sjust do it.” So on the associate college side at the university, we aretrying to find the best compromise prompted by headquarters’ verystrong insistence that we deploy the Toyota business practice model.We’re seeking ways to take the best Toyota has, and use it success-fully in our culture.S+B: Your undergraduate work was in education, and you once plannedto be a history teacher. Did that background help prepare you for TMSand the University of Toyota?COOPER: My education degree served me well. It not only moti-vated me to be a lifelong learner, but set me up as more of a leader-coach or leader-teacher. That strong development mind-set is one Toyota Motor Sales U.S.A. Inc. 199that has worked very well throughout my career regardless of myrole. I was also a military brat and spent my childhood and collegeyears moving about every three years. That taught me how to adaptand to be comfortable with change. When I came to TMS I foundthat the culture — a hybrid between a Japanese and an Americancorporate culture — was easier for me to plug into than it seems tohave been for other executives hired from the outside.S+B: Toyota has had an enviable performance record in the U.S. —indeed, throughout the world — over the past half century. Is there anydownside to such success from a human capital perspective?
188. COOPER: The irony is that Toyota has been so consistently success-ful throughout its tenure in the United States that it is hard to cre-ate a “burning platform” to focus an organization’s attention onthings that need to change. With all our success, we still need to adapt to the new demandsof scale and complexity, and refine and deliver our competencymodel. We have to be able to discern the difference between thebaby and the bathwater and make sure we are keeping the elementsof the culture and infrastructure that got us here, at the same timewe shed the unnecessary and redundant elements that are a “drag”factor going forward. We also are working out how to best help our dealer body han-dle the challenges that come with scale and complexity, especiallysince our strategy is not to increase our dealer count significantly.Because dealers are independent businesses, this is an exercise inbalance. So the University of Toyota is constantly working in part-nership with our sales operations and marketing divisions to findeffective ways to help our dealers stay profitable and improve cus-tomer service.S+B: What human capital challenges will your IT organization face in200 strategy+business Readerthe coming years?COOPER: The IT organization of the future needs to assume a muchstronger leadership role vis-à-vis go-to-market strategy and in thedesign of a business infrastructure that enables the workforce to col-laborate in real time in highly effective ways with extremely rich,customized information. This is a tall order, indeed. But when Ithink about how companies are going to cope with the demands ofmaintaining successful growth on a global scale over time, I believeyou can’t do it with the traditional IT corporate model. The skill setand computing model need to evolve dramatically over the next 10years. Business needs to be flexible and agile while managing risk —
189. all at a lower unit cost than that of today’s IT model. Much of the future of IT is about sourcing and the changinglabor model. We are shifting from a generation of workers who havelearned to think of IT as a service and primarily a transaction-basedcost center to a generation that can not only help the business solveproblems, but also anticipate the market and design-in technologythat is more adaptive. This is not just a strategy for the future of theIT organization; it must be a parallel effort with the business organ-izations to upgrade and level the skills on both sides. It doesn’t domuch good to have a best-practice IT operation if your businesscommunity hasn’t evolved since the 1980s. The benefit of beingresponsible for both IT and the University of Toyota is that I canwork on both sides.S+B: How has TMS been adapting to the generational shift in theworkforce?COOPER: One example is our Scion division, where we have fo-cused the staffing model on younger associates. Scion is a relativelynew model aimed at the youth market and has given our youngeremployees a chance to develop not only a new, edgy marketing pro-gram, but a more fast-paced, flatter organizational model suited to Toyota Motor Sales U.S.A. Inc. 201Gen Y associates. The Toyota division is carefully picking new ideasand programs from the Scion experience and beginning to adaptsome of them to our mainstream Toyota marketing.S+B: Is that analogous to what you did with Lexus in the luxurymarket? The Lexus brand called for a completely different dealershipexperience than the Toyota brand. What kinds of human capital consid-erations did that create in the dealership network?COOPER: There were a few critical tipping points with Lexus. Onewas the covenant, which said you would treat each customer as youwould a guest in your home. Each dealer had to sign the covenant,
190. which created a strong initial bond between the dealer and thebrand. The second was the selection criteria for that first generationof Lexus dealers, which was tough, because the company didn’topen it up to everybody who was a Toyota dealer. We took smallsteps into it, which is another element of the traditional ToyotaDNA; it’s a lot more conservative. So we had to teach a whole newnetwork of dealers. Another interesting test is going to be our new big truck, theTundra. This is our market entry into the place where the domesticcar companies really live. We are going into the heart of that indus-try, and into a very well entrenched, long-established customer seg-ment. So I think this will be the bigger test for us, and we will seehow we do.S+B: Are you crafting programs in the learning organization to meet theTundra challenge?COOPER: We spend a lot of our energy on the relationship with ourdealers. So when we started to move into the truck segment, weasked, How do we get the dealers ready? It’s not just another car. Youhave to address the service facility issues, and you have a sales forcethat has never sold big trucks.202 strategy+business Reader We created a store-within-a-store concept like we did with Scionand established what we call “truck champions.” You have to havesomebody there for the customer who dares to walk in and snooparound a big pickup from a Japanese company — somebody whospeaks the customer’s language, somebody who can acquire thedeepest level of expertise in the product, and also the best techniquesto try to convert a third- or fourth-generation Ford truck loyalist.S+B: In the past year, there have been some headline-grabbing executiverecruitments out of Toyota. Has that affected your leadership develop-ment and succession plans?
191. COOPER: The company is not used to high-visibility defections.It is fairly typical in most big companies, but it had not happenedin TMS for many years. Although we had several happen closetogether, it was coincidental. We are confident that our successionplanning and development strategies are paying off, so we do not seea big impact from those recent departures. However, as at most large companies, a sizable percentage ofour population at the management and upper-management levelsis a part of the baby-boom generation. That issue is more problem-atic than the defection issue for us. We are trying to look at it alittle more scientifically in terms of the speed with which that attri-tion will start to take place, and ensure that our succession plansare solid.S+B: Who has primary responsibility for talent development withinToyota?COOPER: It’s mostly at the line level until you reach the more sen-ior management ranks. If you compare us with the average corpora-tion, we have a lot of the same catalog of training. What is differentis we do a lot of rotation of personnel, which makes the primarydevelopment theme about on-the-job training. Toyota Motor Sales U.S.A. Inc. 203 From a professional development standpoint, and in myUniversity of Toyota strategy, I’m trying to get more value out ofthat rotation. If you look at the core of the business, which is salesfield operations, it is extremely deliberate, and it hasn’t changedmuch over the years. There are a series of positions that staff rotatethrough. Over time, they gain a broad experience set that helps pre-pare them to compete for the executive-level jobs. This has workedwell over the years, but we are looking to add more complementarytraining, which would be developed and delivered through theUniversity of Toyota. I think we can elevate the development experience within each
192. itive Toyota team. +of the positions associates pass through, and create more of a life-cycle strategy that comes back to this issue of the Toyota Way. Wewant to respond to the push from our headquarters operation formore deliberate training around problem solving and methodology.We want to do that earlier in a career, let’s say the first five years, soassociates have a better context at each stage of their developmentand their career steps.S+B: What else do you want to accomplish at TMS?COOPER: On the development side, I’d like to be able to stand upa comprehensive workforce pipeline development strategy, end toend, that is very well grounded in the Toyota Way. We are cur-rently redesigning our leadership development strategy so it is com-prehensive enough to support all the elements of our corporatepresence in North America. We are partnering with ToyotaEngineering and Manufacturing North America to design a pro-gram that supports the leadership principles and competencies thatwe believe will allow us to continue to field a confident and compet-204 strategy+business Reader
193. Toyota Motor Sales U.S.A. Inc. 205
194. by Jeffrey AkinReporter: Sally HelgesenWachovia Corporation:Engaging Heads and HeartsSenior Executive Vice President for HumanResources and Corporate Relations ShannonMcFayden has yet to see a business problem orstrategy that doesn’t have people at its core.Senior Executive Vice President forSHANNON MCFAYDENHuman Resources and Corporate RelationsWachovia Corporation
195. by Jeffrey AkinWachovia Corporation:Engaging Heads and HeartsOVER THE two decades, the US$46 billion Wachovia PASTCorporation has followed an aggressive and highly acquisitive strat-egy of growth while undergoing successive incarnations of its own.The present company is largely the product of the joining ofWachovia National Bank and Trust of Winston-Salem, N.C., andthe First Union Corporation of Charlotte, N.C. In 2001, upon the merger of equals, the new entity assumed theWachovia name and continued acquiring and building strategicrelationships with national and regional financial-services compa-nies, including Prudential Securities, Golden West, Westcorp,SouthTrust, and the investment house A.G. Edwards. As a result208 strategy+business Readerof these purchases, Wachovia is now the third-largest diversifiedfinancial-services company in the United States based on deposits. Itemploys 110,000 people in 21 states. Starting as an HR associate at First Union, Shannon McFayden,senior executive vice president for human resources and corporaterelations, has stayed with the company throughout her 25-yearcareer. She received her initiation into the strategic environment ofacquisition when First Union sent her to Florida to help manage thepostmerger integration of Atlantic National Bank of Florida in 1987. “Atlantic Bank was our first acquisition in Florida, and our CEOwanted some human resources talent from headquarters to work on
196. the integration,” she recalls. “I thought I’d be there briefly, butended up staying for the next 11 years.” That’s because First Unionwent on to pursue more than 35 mergers in the state, with most ofthem occurring during McFayden’s first three years on the job. Inthe process, she, along with her organization, learned what shedescribes as critical lessons in managing talent through the uncer-tainties of acquisition. Spending so many years outside headquarters also shapedMcFayden’s perspective on HR. “There’s a completely differentmentality when you’re in the field,” she says. “You have fewer re-sources, fewer rules. You have to craft new solutions by yourself.And there’s less chance that your work in HR will get siloed becauseyou have to work so closely with the business decision makers.” Articulate, warm, and poised, McFayden speaks frequently ontalent issues at professional gatherings around the country. Wecaught up with her at Wachovia’s headquarters in Charlotte, whereshe shared her perspective on managing talent in the fast-changingfinancial-services sector.S+B: What do you believe HR’s focus should be in managing humancapital in the years ahead? Wachovia Corporation 209MCFAYDEN: I see three simple imperatives. First, those of us in HRhave to understand the business. If we invest time and energy onlyin learning more about HR, we’re investing in the wrong place. Weneed a much more disciplined emphasis on learning the business.Market dynamics, globalization, client demands, and cyclical shiftsare all business factors that we HR professionals need to understandso we can effectively and strategically consult with the leaders wesupport. Second, we have to be involved in creating strategies from thestart. Businesspeople typically look at problems from the revenue orrisk angle first, but I’ve yet to see a business problem or strategy that
197. doesn’t have people at its core. That means we’ve got to be at thetable with business leaders when the big decisions get made, becauseyou can bet the effectiveness of those decisions is ultimately going tobe determined by how people react to them and work through them. Finally, our job is to help the organization balance its people andbusiness needs. HR folks often enter the field because they want tohelp others, so they’re comfortable saying, “OK, we’ll be the heartin the company and let the businesspeople be the head.” Thatapproach leads to failure. Great HR leaders show up with both headand heart fully engaged, and they help business leaders do the same.S+B: How has your experience shaped your vision of HR?MCFAYDEN: Being outside headquarters for so long was veryhelpful. So was losing my position in HR as the result of a merger,which led to my spending a few years outside the function. Duringthis time, I led community relations, corporate communications,marketing, and customer analysis, all of which gave me the chanceto look at the company from an external rather than internal per-spective. Being a customer of HR as opposed to a provider and see-ing how users experience the function really influenced my pointof view.210 strategy+business Reader Losing my position in that way also changed how I think aboutthe inevitable, but never easy, need to displace talent. Too often, sen-ior management doesn’t have the level of empathy needed to effec-tively move people out of their jobs. So now, as HR director, I workto develop the emotional energy that our leaders and HR team putinto that very delicate act. Being deliberate and compassionate, notseeing those two things as opposed, is one of the core competenciesyou need to manage people through the merger cycle.S+B: You talk about the importance of HR being at the table when deci-sions are made. What is necessary in order for that to happen?
198. MCFAYDEN: The HR professional has to earn trust and a seat at thetable through being a credible, competent, and reliable source ofproblem solving and strategic thinking. We need to be viewed asbusiness enablers, much like a finance officer or communicationsconsultant. Once we prove that we can add value to business plan-ning and execution, we will be seen as an indispensable partner indefining and driving the business. There’s also a structural component. For example, we have HRheads for every line of business, and those people need to reportdirectly to me and to the heads of their business. That’s non-negotiable for me. If you run a business, your HR partner must bea member of your leadership team. So the business heads and Ijointly conduct their HR people’s performance reviews. We jointlydetermine their compensation, we jointly hire, and we jointly fire.S+B: What kind of development do you provide for your top-tier HRpeople?MCFAYDEN: We support them in learning what’s going on in theworld outside our company. We start there, rather than with devel-oping competencies. That’s because we want to get them focused onthe emerging business challenges, the ones we’ll be facing in the next Wachovia Corporation 211five to seven years. Competencies are relevant, but by themselvesthey don’t lead to a strategic approach. What’s worked in the past isbecoming less relevant every day. For example, we recently brought together the top 100 peoplein our human resources and corporate relations division. Therewasn’t one bit of “let’s learn about the latest employee-relationspolicy.” Instead, we brought in futurists who talked about what’schanging in technology and how globalization is affecting the econ-omy and our industry. That’s information our people will need ifthey’re going to be involved in developing business strategy in theyears ahead.
199. S+B: Does that echo how you develop the company’s high-potentialemployees?MCFAYDEN: We’re reviewing our whole leadership road map andasking what it means to be a leader at Wachovia. I can’t stressenough how important it is to have a unified vision that leaders buyinto, as opposed to just a model created by HR. So our operatingcommittee invested its time to help us identify how people emergeas high-potential leaders here and how we can help them developtheir talent. Our model is simple: Lead the business, lead your team,lead yourself.S+B: What do you mean by “lead yourself ”?MCFAYDEN: I’m a strong believer in self-awareness as a key leader-ship component. You need to understand what triggers affect you,what motivates you, and what happens when you feel unsure aboutyourself as a leader. Without this awareness, you won’t have thegrounding you need to be a good leader. I think the number onecause of derailment is a lack of self-awareness. So we put a lot ofemphasis on helping people develop it. Understanding your ownleadership style as an individual helps you to function with moreimpact at an organizational level.212 strategy+business ReaderS+B: How do you foster self-awareness among leaders?MCFAYDEN: We use a variety of techniques, because differentpeople respond to different things. For example, we have a robustand rigorous executive coaching process that typically involves 360-degree feedback, as well as intense one-on-one work. We use itselectively, because it can be costly and time-consuming. We alsouse a number of personality tools, such as the Enneagram or Myers-Briggs, which we have found extremely effective, though again,not for everyone. Although we have historically been most comfort-able relying on classroom and conference experiences, we are
200. working on being more intentional about on-the-job learning andstretch assignments.S+B: Wachovia is known for having a highly diverse workforce. Whatdistinguishes your approach?MCFAYDEN: We have deeply embedded into our culture the expec-tation that every leader has to be accountable for his or her owndiversity learning. We provide diversity training and learning tools,of course. But the difference is that leaders here go through a high-ly personal “diversity journey” around all types of differences. Wefocus on race, gender, and sexual orientation as three big differencesthrough which we seek to understand the dynamics between domi-nant and subordinate groups. The learnings that leaders develop inunderstanding these three traits are transferable and relevant to anysituation in which the leader encounters differences. It could be adifference of age, geography, culture, or thought. We want our lead-ers to understand and take responsibility for their own identitygroup biases and behaviors; this helps them to approach diversityfrom a more personal and emotional place.S+B: How important is the fit between organizational cultures in man- Wachovia Corporation 213aging talent during mergers or acquisitions?MCFAYDEN: It is important, but what matters more is the attentionand rigor you put into understanding cultural similarities and dif-ferences. Often you hear companies announce a merger with thestatement: “We believe this will work because we have very similarcultures.” And all the employees are going, “I don’t think so,” be-cause they are looking at the other company as a competitor. Also,it doesn’t really matter what we tell people about our culture. Theycan always come back with, “That’s not how we experience it.” The really important work is taking the time to operate notfrom assumptions about the two cultures, but from real facts, gath-
201. ered from employees at both organizations. You must have a deepand clear understanding of the cultural similarities and differences.S+B: How do you identify these cultural traits?MCFAYDEN: In the First Union/Wachovia merger, we sent a surveyto the employees of both companies. We asked fundamental andcandid questions about all the elements that define company culture.Their answers helped us identify true similarities and understanddifferences. This knowledge guided all our actions going forward,including defining the new core values of the combined company. The survey was so valuable that we have continued to useparts of it to measure how we are doing in the key areas that driveemployee engagement. The information is shared with leaders at acorporate and business unit level. Managers get specific feedback onengagement drivers for their group. They review and analyze the dataas well as develop customized plans to address specific areas of con-cern or leverage areas of strength in driving employee engagement.S+B: Engagement can be a fragile quality. How do you manage it inan authentic way?MCFAYDEN: For one thing, by making sure you know how to214 strategy+business Readerdescribe your company in a way that is recognizable to the peoplewho work there. Companies often say generic things when describ-ing their culture: “We value teamwork, we put customers first, wehave a culture that minimizes bureaucracy.” So these phrases be-come pretty meaningless. What matters is how you act and behavewhen it comes to making decisions, allocating resources, solvingproblems, and setting strategy. Too often that’s different from thestory that the organization is telling about itself. In terms of mergers and acquisitions, you need a team in placeto work on a cultural integration that is based on a real understand-ing of strengths, weaknesses, similarities, and differences. The biggest
202. risk comes when companies assume they have similar cultures justbecause they use the same stock phrases to describe themselves.S+B: What else supports authenticity when it comes to managing talent?MCFAYDEN: Keeping your communications genuine, both insidethe company and with customers. Letting people know exactlywhat’s happening and speaking from the heart. That can be a scarything for leaders. A lot of them say, “Just give me talking points.”But we’re trying to wean people off talking points so they are forcedto communicate more directly and authentically. It’s also vital to bevery direct when you have bad news, and to share it right away.S+B: Having gotten through so many mergers, what do you see as thebiggest challenges facing the organization in terms of managing talent?MCFAYDEN: Globalization is obviously a huge issue, although it willbe less of a problem for the generation that enters the workforce overthe next 10 years. They’ve grown up with it; they know how to dealwith it, whereas we baby boomers who are in leadership positionsoften need help. That’s one reason we have to strive to retain ouryounger workers. Also, having four generations in the workforce at the same Wachovia Corporation 215time means we can no longer assume that people are motivated bythe same things. Work styles are much more diverse, and the waypeople use technology differs wildly. But we still have leaders whothink everyone should do things the way they do them, who, forexample, resist the idea of an employee doing a job from a differentlocation. I think some of these leaders have expected all this diversity tojust go away. They figured that as younger people grew up, they’dbegin to understand the “proper” way to do things. But that’s notgoing to happen. When I was growing up, studying meant sittingquietly at my desk with a book. For my teenager, studying is being
203. on the computer looking at the text of the paper she’s writing whileusing Wikipedia and instant messaging her friends. And that’s justthe screen; she’s got the iPod and the TV going too. My impulse isto go in her room and tell her she needs to concentrate. But she isfocused, and this is the way she learns — and, I might add, learnsmuch more complex information and makes better grades than Iyears ahead. +ever did!S+B: What does that tell you?MCFAYDEN: It tells me we’ve got to change our environment tomake younger people want to be here, because the boomers arealready starting to retire. Four years ago, 42 percent of our hires wereunder 30 years old. Today, it’s 57 percent. And what we’re seeing isthat they don’t stay as long. They’ve got other options. It’s not enti-tlement; it’s the way things are. And that means we’ve got to lead dif-ferently, be much more flexible. When somebody tells me he wantsto move to France and work from there for a year, I’ve got to say,“How can we make that happen?” Before we can lead differently, we have to understand this gen-eration’s work space, technology, and communications preferences.What are the implications for how we recruit and reward them?216 strategy+business ReaderHow do they balance the desire for career success with the drive forsocial responsibility? If you do not know how 20-somethings viewthe world and their place in it, your ability to attract and engage thetalent most critical to your organization’s future success is at risk. So it goes back to the incredibly rapid changes we are livingthrough: social, technological, and economic. As leaders, we needto understand these changes at a profound level and incorporatethem into all our decisions. That’s the real challenge for HR in the
204. Wachovia Corporation 217
205. (email@example.com) is a principal with Booz (firstname.lastname@example.org) is a principal withJEFFREY AKIN ANDREW CLARKAllen Hamilton based in Herndon, Va. He Booz & Company based in London. He focusesfocuses on helping clients in the public and on human capital strategy and near-term per-private sectors achieve differentiated perfor- formance improvement of corporate functions.mance through strategic human capital man-agement programs.About the Authors (email@example.com) is a principal BAHJAT EL-DARWICHE with Booz & Company based in Beirut. He(firstname.lastname@example.org) is a management focuses on corporate and business developmentDAVID BOLCHOVERwriter based in London. He is the author of two and strategy-based transformation for commu-business books and a regular contributor to The nications and technology clients.(London) Times, the Daily Telegraph, and the (email@example.com) covered business and LAWRENCE M. FISHER technology for the New York Times for more(firstname.lastname@example.org), based in Berlin, than 15 years and is a contributing editor toWILLIAM BOSTONwas formerly a staff reporter for the Wall Street strategy+business. He is based in San Francisco.Journal. He is a freelance journalist who writesfor Time, Business Week, Fortune, and (email@example.com) is the author of five SALLY HELGESEN books and a strategic communications consultant. She is a contributing editor to(firstname.lastname@example.org) is a senior partner strategy+business and lives in New York’sCHRISTIAN BURGERwith Booz & Company based in Munich. He Hudson Valley.specializes in organization and changeleadership and leads the firm’s work forhealth-care clients in Europe. He also works (email@example.com) is senior editor of strategy+ THEODORE KINNIwith European telecom operators and business Books. Based in Williamsburg, Va.,technology clients. he has written or collaborated on 13 business books, including the forthcoming The Four Maximize Creativity, Accountability, and ROI by Leslie Moeller and Edward Landry (McGraw-Hill, 2009).Economist Intelligence Unit.218 strategy+business ReaderInstitutional Investor. Pillars of Profit-Driven Marketing: How to
206. (firstname.lastname@example.org) is a principal with Booz & (email@example.com) is a partner withCHRISTINE KORWIN-SZYMANOWSKA CYNTHIA L. MCNEESECompany based in London. She focuses on Booz & Company based in Chicago. She focusesoperating models for group functions and on delivering high-performance IT capabilitieson cost control in the banking and insurance and investments for energy clients.sectors. (firstname.lastname@example.org) is a senior partner GARY L. NEILSON(email@example.com) is the director of with Booz & Company based in Chicago. HeEDWARD E. LAWLER IIIthe Center for Effective Organizations and a focuses on organization design and transforma-distinguished professor of business at the tional change programs for clients in a broadUniversity of Southern California’s Marshall range of industries.School of Business. He is the author of Talent:(Jossey-Bass, 2008) and, with Christopher (firstname.lastname@example.org) is a principal with Booz & LAIRD POSTWorley, Built to Change: How to Achieve Company based in San Francisco. He focuses onSustained Organizational Effectiveness (Jossey- human capital management for the commercialBass, 2006). market in the U.S. and globally.(email@example.com) is a senior partner (firstname.lastname@example.org) is a partnerKLAUS MATTERN RICHARD RAWLINSONwith Booz & Company based in Düsseldorf. He with Booz & Company based in London. Hefocuses on large-scale, strategy-based trans- focuses on the leadership agenda forformations in infrastructure- and technology- consumer-oriented and public-sector clients.intensive industries in Europe, the Middle East,the U.S., and Asia. (email@example.com) is a partner with JOACHIM ROTERING Booz & Company based in Düsseldorf. He leads(firstname.lastname@example.org) is a vice president the energy, chemicals, and utilities team inWALTER MCFARLANDwith Booz Allen Hamilton based in Herndon, Va. Europe and specializes in transformationHe focuses on learning strategies and systems and operational improvement programs forand human capital management for public and chemical and steel clients.commercial clients.Making People Your Competitive Advantage About the Authors 219
207. About the Authors, continued(email@example.com) is an associate with (firstname.lastname@example.org) is a partner withCHARLES SALIBA ANDREW TIPPINGBooz & Company based in Beirut. He focuses on Booz & Company based in Chicago. He focuseshuman capital, learning, and change communi- on the organization and change leadershipcation strategy in the commercial market and aspects of customer-focused transformation inpublic sector. the commercial market.(email@example.com) is a principal with (firstname.lastname@example.org) is a partner withVIKAS SEHGAL SVEN UWE VALLERIENBooz & Company based in Chicago and the Booz & Company based in Düsseldorf. Hefirm’s executive director of India business. He focuses on strategy and operations improve-focuses on a broad range of issues dealing with ments for global chemicals and pharma-emerging markets. ceutical companies.(email@example.com) is a principal with (firstname.lastname@example.org) is a freelanceTHOMAS STARR RHEA WESSELBooz & Company based in Philadelphia. He journalist based in Frankfurt who writes aboutfocuses on learning systems and strategies for business and technology. Her work hasthe commercial market in the U.S. and globally. appeared in the Wall Street Journal, the New York Times, and financial and trade magazines.(email@example.com) is a director with BoozILONA STEFFEN& Company based in Zurich. She specializes in (firstname.lastname@example.org) is a senior associ- BRENDA WORTHENtopics related to organizational design for ate with Booz Allen Hamilton based in Herndon,financial-services and health-care companies. Va. She focuses on strategic human capital management for public and commercial clients.220 strategy+business Reader
208. BOOZ & COMPANYis a leading global management consulting firm,helping the world’s top businesses, governments, and organizations.Our founder, Edwin Booz, defined the profession when he estab-lished the first management consulting firm in 1914.Today, with more than 3,300 people in 58 offices around the world,we bring foresight and knowledge, deep functional expertise, anda practical approach to building capabilities and delivering realimpact. We work closely with our clients to create and deliver essen-tial advantage.For our management magazine strategy+business, visit www.strategy-business.com.Visit www.booz.com to learn more about Booz & Company.
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211. Edited by Theodore Kinni, Ilona Steffen, and Brenda WorthenWith an introduction by Richard Rawlinson, Walter McFarland, and Laird PostCapturing the People Advantage:Thought Leaders on Human CapitalWhat do the chief information officer of Toyota Motor Sales, the execu-tive vice president of retail banking at PNC Financial Services, the chair-man of Satyam Computer Services, and the chief personnel officer ofThyssenKrupp have in common? All of them, along with the 11 addi-tional executives and academics featured in this strategy+businessReader, recognize the value of human capital as a critical enabler ofbusiness results. They are devoting significant resources, creativity, andbrainpower to capturing the people advantage.The interviews in this book were conducted as a collaborative effortbetween Booz & Company and Booz Allen Hamilton. They provide aunique insider’s view of how leading companies, such as Novartis, SaudiTelecom, Barclays, Kraft, and E.ON, are separating the wheat from thechaff in human resources management. Leaders from both the humanresources function and the C-suite reveal how to ensure that investmentsin workforce-enhancing practices, including employer branding, leader-ship development, and corporate universities, will reliably contribute tobottom-line results.The insights of these expert practitioners are bolstered by the ideas ofleading academic commentators, including C.K. Prahalad, Jay Conger,and John Boudreau. And they are woven together in a special introduc-tion and overview written by Walter McFarland of Booz Allen Hamiltonand Richard Rawlinson and Laird Post of Booz & Company. Capturingthe People Advantage reflects the increasingly widespread conviction inglobal corporations that people are a primary asset and competitiveadvantage, and that a compelling people strategy is required to fullyrealize their value.