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
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
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
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
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,
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
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
• 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
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
• 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
• 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
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
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
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
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
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
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?
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
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-
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.
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?
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
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
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)
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).
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
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.
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?”
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.”
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
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’
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?
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-
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
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-
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
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
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
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?
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.
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
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
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.
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-
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
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
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
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,
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.
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?
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.
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
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?
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
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?
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-
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.