HR Optimization

HR OOptimization
From Personnel Administration to Human and
Organizational Capital Development
Rick BBellingham, EEd.D.
with
Russell JJ. CCampanello,
Contributing EEditor
HRD Press, Inc.
Amherst, Massachusetts

Copyright © 2004, HRD Press
All rights reserved. It is a violation of the law to reproduce, store in a retrieval
system or transmit, in any form or by any means, electronic, mechanical, pho-
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written permission of HRD Press, Inc.
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Cover design by Eileen Klockars
Editorial services by Suzanne Bay

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

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

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

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

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

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

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

We believe that many contemporary HR organizations have unique and sub-
stantive capabilities—it is our responsibility as an HR community to share our
thinking and our models with the wider HR community in the hopes that more
companies will invest significant resources in people and culture.
This book is not meant to be a cure-all for all HR departments within all
companies. Each company and each HR department has unique needs that
require thoughtful tailoring. We hope that this book will be a stimulus to
help you think through your particular challenges and distinguish yourself as
an HR professional independent of organizational support for HR. As such,
this book is incomplete; it will be completed by your participation. In each
chapter there will be opportunities for you to assess the current level of func-
tioning of your organization, to identify reasons for you to change, to reflect
upon the critical success factors in your organization, and to summarize the
lessons you have learned in your efforts to implement initiatives in each
function.
Your organization may only want or demand personnel administration from
HR. This book provides guidelines and strategies for optimizing that role. On
the other hand, many organizations are demanding more from HR. In a service
economy, compliance and reporting are necessary but insufficient requirements
for HR. Many businesses are asking HR to add value, to act as strategic part-
ners, and to develop individual and organizational capabilities. Whatever your
organizational reality is, this book will help you and your colleagues grow as
HR professionals.
We would like you to see this book as an invitation to change because it repre-
sents the tone with which we would like to see the book received. It imposes nei-
ther participation nor use. We see the writing of this book as a dynamic process
that will encourage you to journal your experience in transformation. We
Preface

believe that every one of you will have a different perspective on and experience
with the changes you are making.
The book is divided into three sections: Introduction, Core Solutions, and
Account Management. The Introduction describes the purpose of transforma-
tion: for organizations to evolve from good companies (or bad companies, if
that is the case) to great companies; and for people to be able to describe their
jobs as a great experience. Sections II and III discuss how HR can contribute to
the creation of great jobs in great companies.
The 14 chapters in this book each discuss one HR function—each chapter has
seven parts:
1. Introduction
2. Scale
3. Why Change
4. Critical Success Factors
5. Reality
6. Lessons Learned
7. Conclusions
The Introduction describes the function and discusses why the function is an
essential element in a great job. The Scale enables us to assess where we are and
where we want to be in the function. Why Change addresses the reasons we need
to look at things differently and to elevate our thinking. It should be noted that
examples in this section represent a composite of over 200 companies. Critical
Success Factors summarizes our strategy for change and incorporates theoretical
constructs that support the change. The Reality is a place for all of us to describe
our journey along the way—it’s a place for sharing the human-interest stories that
will bring this book alive and make it real for the reader. It’s also the place to
describe the organizational realities and context in which the implementation will
take place. Lessons Learned encourages us to identify potential pitfalls and to cap-
ture and share our insights about transformation and the evolution of people and
functions. Conclusions organizes the key points from the chapter into compo-
nents, functions, processes, conditions, and standards. We used this organizing
construct so that by the end of the book you will not only have a path for
transforming your function, but also a framework for ongoing analysis and
development.
As you will see, everyone has an opportunity to contribute to this book. You
may have a strong feeling about why change is required. Write it down. You may
have an interesting story to tell that helps the reader understand the barriers and
HR OPTIMIZATION
xiv

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

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

respective organizational communities. As Dave Ulrich, a leading HR strategist,
would say, our work is more than becoming administrative experts, we need to
be employee champions, change agents, and strategic partners. In doing so,
however, we need to keep in mind the desired outcomes of all our efforts: to
improve the quality of life of our colleagues and to add measures of success that
give people real meaning. As Jim Collins, a noted author and consultant, would
say, our organizational goal is to transform our organizations from Good to
Great. Our goal at the human level is to enable all employees in our company
to respond to the question “How would you rate your job?” with a resounding
“Great!”
It may be helpful to start this journey with an assessment of how you would
rate your job. Simply complete the following survey to determine if your work
experience is for better or for worse.
Job Satisfaction Survey
1. I look forward to going to work on Monday morning.
2. I feel positive and up most of the time I am working.
3. I have energy at the end of each work day to attend to the people I care
about.
4. I have energy at the end of each work day to engage in personal interests.
5. I have the time and energy in my life to read books that interest me.
6. Most interactions at work are positive.
7. I have good friends at work.
8. I feel valued and affirmed at work.
9. I feel recognized and appreciated at work.
10. Work is a real plus in my life.
11. I’m engaged in meaningful work.
12. I feel free to be who I am at work.
13. I feel free to do things the way I like at work.
14. My values fit with the organizational values.
15. I am aligned with the organizational mission.
16. I trust our leadership team.
17. I respect the work of my peers.
18. I have opportunities to learn what I want to learn.
HR OPTIMIZATION
4

19. I feel involved in decisions that affect our organizational community.
20. Creativity and innovation are supported.
21. I feel informed about what’s going on.
22. I know what is expected of me at work.
23. I have the materials and equipment that I need in order to do my work
right.
24. I have the opportunity to do what I do best every day at work.
25. My manager cares about me as a person.
26. I know someone at work who encourages my development.
27. My opinions count.
28. My co-workers are committed to doing quality work.
29. My manager reviews my progress.
30. I am fairly compensated.
Give yourself 2 points for each statement you answered positively. Use the fol-
lowing scale to evaluate your job:
50–60 points: Great Job
40–49 points: Good Job
30–39 points: OK Job
20–29 points: Bad Job
0–19 points: Depressing Job
Now that you have an assessment of where you are on this scale, we can begin
our discussion of how to create the conditions and standards that will enable
you to answer more of the questions positively. Before we begin the process of
assessing where you are on all of the HR functions, it is critical to get a sense of
the context in which we are trying to make changes as individuals and as organ-
izations. This introduction will help you evaluate not only how you are feeling
about your current job, but also how you view your organizational culture. As
we mentioned earlier, our organizational goal is to transform our organizations
from good to great. Jim Collins conducted extensive research on this subject and
wrote a book about the findings, Good to Great.
What follows is an adaptation of the timeless characteristics that Collins discov-
ered in his research:
1. Undaunted curiosity
2. Rigorous not ruthless
INTRODUCTION
5

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

5. Staffing
6. Leadership Development
7. Communications
8. Process Excellence
9. Business Consulting
10. Employee Relations
11. Change Management
12. Performance Management
13. Diversity
14. Measuring Human and Organizational Capital Development
Each chapter contains principles for improving the delivery of services. As you
read each chapter, remember the goal: to elevate the human and organizational
capabilities of the company from good to great. At the beginning of any inter-
vention or transformation effort, the first question that needs to be addressed is
“What are the desired outcomes of this investment?” For an HR Optimization
project, we answer that question as follows:
The compensation system rewards desired behaviors and core values.
The benefits package promotes and encourages wellness and wise medical
consumerism.
The HR information system is user-friendly and serves as the foundation
for capturing, maintaining, and reporting on all employee data worldwide.
Learning and development programs have real business and personal
impact.
Staffing processes result in attracting, hiring, and retaining the right talent
in a short amount of time at low cost per hire.
HR business partners add value to all discussions related to strategy, struc-
ture, and business issues.
Great talent stays with the company and employee satisfaction ratings are
high.
HR leads change management initiatives and helps to define desired end
states.
Leaders are promoted from within and are extremely successful in achiev-
ing business results.
All employees have contribution and capability plans written and
reviewed.
INTRODUCTION
7

Employees are inspired by the company vision and direction; everyone is
certified to tell the story.
HR is easy to do business with; processes are smooth and efficient.
The company acts as one team and leverages its collaborative processing
capabilities.
There is significant diversity of talent in all organizations at all levels.
At the beginning of each chapter, there is a scale that outlines the range of pos-
sible outcomes for each of the items listed above. For example, while the ideal
outcome of changing the compensation system is to reward desired behaviors
and values fairly and appropriately, there is no guarantee that the ideal will be
achieved. There may be too much resistance to change or too much attachment
to old ways of rewarding performance. Some people will prefer reward systems
that are based solely on revenue production and that compensate them for
achieving the ends independent of the means. Rewarding people based on a bal-
anced scorecard and company performance may represent a dramatic shift in
philosophy and threaten people. Therefore, it is critical to construct a range of
possible outcomes, assess the gap between the current reality and the future pos-
sibility, and determine the amount of resources required to achieve the goal
given the level of resistance. Each of the scales presented was built on a generic
construct that can be represented as follows:
5: Ideal End State.
4: Very Positive, but Less Than Optimal End State.
3: Acceptable End State.
2: Less Than Acceptable End State.
1: Totally Unacceptable End State.
The key to all change is seeing possibilities against the backdrop of reality. It is
just as important to envision the possibility as it is to assess the reality. Having
a broad range of outcome measures with specific indices for measuring success
guides the transformation efforts and enables change leaders to determine
dynamically what additional resources or shocks will be required to achieve the
desired end-state—the scales simply facilitate that process. In reading the scales,
it is important to understand that the scales are cumulative from level 3 up to
level 5, i.e., a level 5 outcome incorporates the positive aspects of level 3 and
level 4 outcomes.
Each chapter in this book is designed to help HR departments achieve success
in each of the 14 solutions addressed herein. If you are using this book to engage
your team in the work of transforming HR, we suggest you welcome contribu-
HR OPTIMIZATION
8

tions from any source. When people contribute ideas for transforming your HR
organization, acknowledge their input. With your team, you can establish a
model for your own HR transformation. When you complete the journey, your
whole team will own it.
If you are able to “move up the scale” in the 14 functional HR areas, you
will be contributing to human and organizational capital development. The last
chapter of this book, “Measuring Human and Organizational Capital
Development,” explores ways to measure the business impact of your
progress—a new way for assessing the strength of your strategy and for
measuring human and organizational capital.
INTRODUCTION
9

IInnttrroodduuccttiioonn
How people are compensated for their work in regard to base salary, bonuses,
and stock grants has a large bearing on how they feel about their job and their
company. People need to feel they are being compensated fairly and competi-
tively. Most importantly, people need to believe that their compensation is
directly linked to their personal performance, as well as corporate performance,
and is in line with their contribution. Fairness is the operative word.
Compensation strategy needs to be linked to corporate strategy. Decisions on
the richness and mix of compensation depend on “who” the company is and
what it is trying to achieve. For example, a company that positions itself as a
dependable, steady organization may not want or need a compensation strategy
with a high variable component. It is a mistake for companies to promote some-
thing that is not real. HR professionals need to make sure that the compensa-
tion strategy is consistent with the organizational reality. While we all aspire to
doing great things (at least that is our assumption about the reader of this book),
“great” needs to be defined relative to the organizational context in which you
are working.
SSccaallee
There is a range of possible outcomes in any effort to change the compensation
system. Here is a scale to envision possibilities and assess current realities:
Compensation
Chapter
1

5: Reward systems tied to desired behaviors and core values.
4: Reward systems tied to company performance.
3: Rewards tied to individual performance.
2: Rewards in line with market/no internal equity issues.
1: Rewards not tied to performance or to market. System lacks integrity and
is not perceived as equitable.
Where are you on the scale now? ______
Where do you want to be on this scale in one year? ______
WWhhyy CChhaannggee
Company A grew very rapidly as a result of superior engineering technology.
As a high-flying, high-tech company, Company A was able to attract and retain
great talent with relatively low cash compensation and rich option packages.
As competition became more intense and the economic climate deteriorated
(i.e., devaluation of high-tech stocks), stock options became a less important
component of the compensation package. Whereas in the past, Company A
could easily attract and retain people by offering base pay and total cash com-
pensation at the 50th percentile with a great deal of upside potential on stock
options, conditions have changed. The company now needs to take a hard look
at each component of the mix. Company A needs to move toward the 75th per-
centile on total cash compensation and reduce its reliance on and use of stock
options. In order to attract and retain key talent, it needs to design a compen-
sation system that drives a high-performance culture and that is intimately
linked to the performance management system. In short, Company A’s reasons
to change are the need for greater flexibility, fairness, and attractiveness as an
employer.
YYoouurr RReeaassoonnss ffoorr CChhaannggee
CCrriittiiccaall SSuucccceessss FFaaccttoorrss
The two essential ingredients in transforming a corporate culture are leader-
ship role modeling behaviors and the reward system. People take their cues
HR OPTIMIZATION
14

from their leaders. Thus, leadership behaviors must be consistent with the
values and philosophy of the compensation system. If behaviors that support
the desired and required norms and values of the new culture are rewarded,
then people will get the message that compensation is tied to cultural leader-
ship. If the compensation system continues to reward old ways of doing busi-
ness, then cultural proclamations and business imperatives will ring empty
and employees will become increasingly cynical. In order to create an envi-
ronment in which people feel great about their jobs, the compensation
system must be aligned with stated values and operating principles. Leaders
must be clear about performance expectations and how associates will be
rewarded.
At the foundation level, rewards need to be in line with the market and sup-
port the business strategy. Organizations need to make a policy decision to
pay at the 50th percentile, the 75th percentile, or whatever is appropriate.
If a company pays less than the 50th percentile, there will need to be multi-
ple factors in the culture to “compensate” for a lack of compensation or it
will be impossible to attract great talent or star performers. On the other
hand, the strategy may not be to hire stars. The compensation strategy may
be to attract solid performers by paying fair wages in exchange for security
and growth opportunities. In essence, the compensation strategy should
reflect the needs of the business strategy in attracting the most appropriate
talent.
Once a company decides the strategy and the corresponding pay percentile,
benchmarking analyses are required to determine the comparability of each job
in relation to market rates. In order to execute business strategy, it is usually nec-
essary to compete for appropriate talent. Business strategy drives decisions
related to compensation because it specifies requirements for critical talent that
can only be acquired and retained through competitive compensation programs.
The corporate culture also influences compensation decisions because it either
consists of a number of compelling reasons for joining or staying with a com-
pany (for example, a winning company, great branding, quality of life, career
development, or any of the Great Job/Great Company indicators listed in the
Introduction) . . . or it doesn’t. If there are few compelling reasons for joining
or staying with a company other than compensation, then the compensation
package will need to be very rich. A good compensation system does not keep
people focused on their compensation, it keeps them focused on other com-
pelling aspects of the organization because pay is not a distraction. Again, the
operative word is fairness. Employees will always ask, “Am I being paid fairly
and rewarded appropriately for my contributions to what the company says is
important?”
COMPENSATION
15

Decisions surrounding compensation present a terrific opportunity for HR busi-
ness partners to take a leadership role with their clients. Since compensation
usually tops the list of what’s most important to corporate clients, business
partners can add real value to their clients through their consultation on
compensation issues. In any company, the way compensation issues are handled
is critical to the perceived effectiveness of HR.
It is also important to minimize inequities within departments. Over a period of
time, because market rates vary according to supply and demand curves, there
may be several people in a department doing very similar jobs but who are paid
at significantly different rates. For example, one person may have been hired as
a computer programmer in 1997 when the market value for such jobs was
$50,000. Another programmer could have been hired in 2000 when the market
rate for the same job was $75,000. Thus, while appropriate market measures
were used to determine salary, the changing rates create inequity issues within
the department. These issues are compounded when gender and race come into
play. Salary offers, merit increases, and other compensation decisions must take
into account both comparability and equity considerations. These issues typically
consume a large share of compensation specialists’ time.
While it seems to be common sense to tie rewards to individual performance,
this practice is far too uncommon. We have worked in multiple corporations in
which the compensation team and performance management team did not talk
to each other. Unfortunately, very few organizations are satisfied with their per-
formance management system and even fewer believe that performance is linked
fairly and accurately to compensation. In too many cases, employees perceive
that rewards are tied more to who you know than to what you deliver. This per-
ception violates one of the primary characteristics of a “great job”: I am fairly
compensated. While performance management will be discussed in more detail
in Chapter 12, it is important to make the connection here. The other common
factor that causes employees to rate a job as “depressing” is to have an opinion-
ated boss who uses only one source of input to make compensation decisions—
his or her own perception. Not only are managers often not in the best position
to evaluate performance, they may also suffer from biases that could taint their
evaluations. In the worst of cases, the manager may be a golfing buddy of an
employee who is of the same age, race, sex, background, and sexual orientation.
This employee may benefit from a “halo effect,” while another employee from
a different set of circumstances may be unjustly compensated. These situations
feed the negative perception among employees that compensation decisions are
based more on “how you dance vs. what you do.” In single-rater situations,
quiet contributors are also often ignored unless the manager is finely attuned to
each employee’s various levels of contribution. When compensation is linked
HR OPTIMIZATION
16

closely to performance and employees feel that evaluation decisions are done
fairly and accurately, employees are much more likely to proclaim, “I’ve got a
great job!”
Assuming that a company has addressed internal equity and market comparabil-
ity issues and that compensation is linked intimately to performance, the next
level of achievement is to tie compensation to organizational performance. This
linkage is typically accomplished through incentive programs. When bonuses are
given every year independent of the financial performance of the firm, then
employees begin to see this form of compensation as an entitlement. If bonuses
are tied to company performance, employees are more likely to think interde-
pendently and the company has a greater chance of survival in tough economic
times. If employees know that they will be compensated based on how well the
company achieves its revenue and profitability goals, then everyone will actively
seek ways to help each other succeed. A one-team mentality starts to take form
in which all members of the community work collaboratively for the greater
good. This phenomenon is what makes people experience their everyday work
experience as a great job. Feeling part of a community in which all members are
focused on common goals leads to greater satisfaction than simply working inde-
pendently to collect a pay check each week. It is important to point out, however,
that variable compensation can only be leveraged so far. Base salary needs to be
fair enough for employees to “hang in” during tough times. The perception of
fairness is based on both structural fairness and reward fairness. Structural fair-
ness relates to how the job fits into the career path framework; reward fairness
relates to the amount and timing of incremental increases.
At level 5 on our compensation scale, reward systems are tied to desired behav-
iors and values. Stock option grants are the most common way of making a
statement that particular behaviors are valued and that the organization wants
the person to remain in the community. When stock option grants are awarded
to people who achieve financial goals at the expense of all other stated values
in the culture, employees rightly conclude that they are simply a member of a
mercenary community with one value—money—not a growth community in
which several values are rewarded and recognized. Linking rewards to desired
behaviors and values requires three key elements: (1) a clear articulation of what
the desired behaviors and values are; (2) a commitment to tie compensation to
those behaviors; and (3) a reward system that takes into account the contribu-
tion that individuals make to the desired culture. Articulating the desired values
is not an event that the executive committee performs; it is a process in which
employees at all levels of the organization participate. If employees are involved
in the process of stating desired behaviors and values, they will be much more
likely to own them. When values are clear, they can become a vital part of the
COMPENSATION
17

performance management system, so employees get regular feedback on how
well they are contributing to the values or detracting from them. That feedback
should influence compensation adjustments.
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While the theoretical constructs of compensation appear logical, the reality
often presents many challenges. Here are some examples from our experience.
Tenured vs. new employees. With changing economic conditions, it is not
unusual for people to be recruited into the organization in boom times with
inflated salaries. When this happens, loyal employees who have served many
years may find themselves with far smaller salaries than new employees with less
experience. These situations, which are difficult to avoid, are even more difficult
to resolve when the economy slows and profit margins come under pressure. Do
you always pay market value for new jobs? Do you always limit pay raises for
existing employees to a certain amount? What happens when you refuse to pay
inflated market values or if you start making exceptions for certain employees?
If rigid adherence to a philosophy of limiting pay raises to a certain percentage
results in a situation in which employees have to quit and return to get signifi-
cant bumps in compensation, how do you deal with those employees and the
ones who stayed with you and came up short?
Legacy products vs. new technologies. Supply and demand curves sometimes
create bidding wars for people who have skills in hot products. For example,
when SAP first emerged, consulting companies were paying “hot skills” bonuses
to attract people who had SAP implementation skills. The problem occurs when
the supply and demand curve shifts and the hot skills cool off. What happens if
the bonuses for these skills are baked into base salary? Do you take away the
bonus? Should you use variable compensation to deal with “hot skill” pressures
on compensation?
Transfers between organizations. In many organizations, some departments
follow the compensation rules, while other departments don’t. When an individ-
ual transfers from a department that doesn’t follow the rules into a department
that does, what do you do if the person’s compensation is far above his or her
HR OPTIMIZATION
18

colleagues in the new organization because he or she benefited from exceptions?
For example, a Web designer in marketing with essentially the same job as a
Web designer in IT makes much more money because the marketing department
tended to pay higher wages and regularly made exceptions to the rules. In
addition, the person in marketing has an incentive plan and the person in IT
does not. What do you do when the marketing person gets transferred to IT?
What do you do when exceptions become the rule?
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TToopp TTeenn LLeessssoonnss LLeeaarrnneedd
1. It is important to start with a guiding philosophy and stick to it.
2. HR business partners can have a tremendous impact on the business by
optimizing the compensation value proposition.
3. Effective compensation policy requires a balanced approach with thought-
ful consideration for how compensation is configured among base, variable,
and stock incentives.
4. As the business climate changes and business strategy changes, compen-
sation must adjust policies to be aligned with the changes.
5. The leadership team must own and believe in the compensation strategy.
6. It is critical to be able to accommodate exemplars and star performers
without destroying internal equity.
7. Compensation is as much art as science.
8. Compensation decisions need to take into account performance, equity,
and market conditions.
9. Structured flexibility is the best policy. There is always a need for discretion.
10. Compensation must be interdependent with other initiatives such as
performance management, career development, etc.
COMPENSATION
19

CCoonncclluussiioonnss
The components that need to be taken into account in any comprehensive
compensation program are base salary, bonuses, incentives, and stock grants.
The right levels and mix of these components should result in improved
performance and motivation. The three critical processes of compensation are
benchmarking, performance management, and continuous calibration. Clearly,
economic conditions play a major role in compensation decisions, but the stan-
dard of fairness should remain constant.
HR OPTIMIZATION
20

The benefits package is an essential part of the employment agreement. Employees
need to feel that they are financially protected from catastrophic loss or dis-
abling disease. In the United States, this level of coverage is necessary to meet
the social service threshold—the level at which basic health care needs are met.
Many benefits address fundamental needs for safety and security (which accord-
ing to Maslow’s hierarchy must be met first). Other benefits, such as tuition
reimbursement, address higher-order needs. If people do not feel safe and secure,
they cannot move up the transformational ladder to feel belongingness, esteem,
and self-actualization (a great job provides all of these). A comprehensive
benefits package should address the full range of needs of a diverse workforce:
financial, social, emotional, physical, and intellectual.
SSccaallee
There is a range of possible outcomes in any effort to change a benefits package.
The following scale helps to envision possibilities and assess current realities:
5: Benefits package attracts the right talent and promotes and supports total
employee well-being for a diverse population.
4: Benefits package promotes wise consumerism and employee well-being
and engages people as healthy partners.
Benefits
Chapter
2

3: Benefits package is competitive with market in comprehensiveness and is
cost-effective.
2: Benefits package is competitive with market in comprehensiveness, but
more costly than most.
1: Benefits package is not competitive with market and promotes unwise
consumerism; policies promote sickness behaviors.
Where are you now on this scale? _____
Where do you want to be on this scale in one year? _____
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Historically, Company B offered one of the richest benefits packages of any
high-tech company. Company B was one of a few companies that provided 100
percent medical coverage. When health care costs were rising at 5 to 7 percent
per year and profit margins were robust, Company B was able to afford a com-
paratively rich benefits package. Now health care costs are rising at 15 to 20
percent per year and company profit margins are declining. It is prohibitively
expensive to continue to offer the same benefits package. In 2002, Company B
paid approximately $17 million in U.S. health care costs. With no changes in the
benefits package or economic conditions, those costs would exceed $50 million
in 2008. In addition, the benefits package was designed to address the needs of
a male, family-oriented employee base. As the workforce becomes more diverse,
benefits packages need to change to take into account different demographics
and life style orientations. There is also a growing body of research that sup-
ports the idea that partnering with employees on health care management and
focusing on prevention can lead to significant cost savings and to healthier
employees. By targeting high-risk employees, promoting positive health practice,
and educating employees on wise medical consumerism, health risks and their
associated costs can be reduced. In short, the reasons to change are lower costs,
more flexibility, and better health care.
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Benefits can be a compelling part of the great job equation. Some of the funda-
mental benefits employees expect in their benefits package are health, dental,
HR OPTIMIZATION
22

and life insurance. In today’s environment, an enhanced level of benefits usually
includes an employee stock purchase plan (ESPP), a 401(K) plan, dental care,
Employee Assistance Programs (EAPs), and vision care in addition to the stan-
dards mentioned above. Many progressive companies offer elder care, child
care, paternity and maternity leaves, as well as provide comprehensive wellness
programs, encourage work-life balance, and take seriously the idea of creating
a healthy work environment.
Transforming benefits requires an elevated perspective of health. Benefits should
address the physical, emotional, intellectual, and financial issues that are impor-
tant to employees. For example, particularly in this economic climate, the
401(K) plan is a very important component of the benefits package. Employees
want to have flexibility in how they access their retirement accounts.
With medical care costs rising at 15 to 20 percent per year, it is cost prohibitive
for companies to pay 100 percent of all health-related claims. Companies need to
form healthy partnerships with employees in which both parties actively seek ways
to keep the other healthy and whole. Since benefits make up a significant portion
of the overall rewards program, employees need to be educated about the eco-
nomic value and true cost of health care. Most employees do not appreciate the
real value of the benefits provided because there has been little or no communica-
tion to the employees about the benefits and there are typically few educational
programs to increase awareness and to promote behavioral change. Providing
employees with total compensation statements that detail both pay and benefits
helps educate employees about the economic value of their benefits package.
Ongoing communications about benefits programs reinforce the mutual nature of
the healthy partnership and keep employees informed of changes and options.
Essentially, benefits programs need to be dynamic and sustainable for the long
term. HR professionals need to engage employees in productive dialogue about
the economics of benefits and their role in the dual goals of increasing health
and decreasing costs. This dialogue also makes it possible to design benefits that
fit the needs of employees so that they realize the value of what is provided. The
overall theme of benefits programs should be to promote the wellness of
employees and their families.
Employees are more apt to embrace change if they understand the context,
reasons, and benefits of the change. When a company makes the decision to
redesign benefits programs to reduce costs, it must also find creative ways to offer
more choice and greater flexibility so that selected programs can be enhanced to
balance those programs that are being reduced. Changing behavior takes time and
requires a great deal of communication and education in order to be successful.
Communication campaigns should incorporate both Web-based and print media.
The benefits program needs to be branded in order to promote recognition and
BENEFITS
23

consistency. Ongoing communications are needed to announce open enrollment
choices and to educate employees about their options. One extremely useful
communication tool is to send annual benefits statements to employees
that explain the financial value of benefits provided in the total compensation
package.
Medical premium plans may be converted to self-insured plans in order to
reduce fixed administrative costs, eliminate state premium taxes, and allow for
a uniform plan design. In self-insured plans, the company pays for all covered
health care costs (e.g., dental, vision, medical, etc.), but carries insurance to
cover catastrophic events. Self-insured plans allow for more flexibility, better
financial management, and gain sharing. Full flexibility programs can then be
explored to increase employee choice. Full flexibility programs mean that bene-
fits are assigned price tags and employees are given credits to purchase benefits
to meet their individual needs. It should be noted, however, that the transition
to self-insurance and to self-service requires robust systems and consistent com-
munications. All of these elements—self-service, communications, systems, and
education—are intimately connected and interdependent and constitute an inte-
grated health management system.
Shifting to self-insured, full flex programs requires benefits professionals to
keep a constant watch on cost drivers to insure that spikes in certain areas
don’t undermine the economic viability of the programs. These cost drivers
may come from mandated legislative changes, new coverage and procedure
requirements, medical price inflation, or changes in utilization of services,
e.g., increases in the frequency of claims driven by improved diagnostic pro-
cedures, an aging workforce, and so forth. Advancements in technology can
also drive costs because they result in new medical equipment, procedures,
and medications that impact the intensity of care. Also, the trend toward
reduction in Medicare reimbursement generally results in cost shifts to the
private sector.
One critical advantage of self-insured plans is that they enable gain sharing with
employees. Gain sharing means giving back a percentage of cost reductions
achieved through healthy lifestyles and wise medical consumerism to the
employees who practice positive health practices and use health care resources
wisely. Additional cost savings, not distributed to employees, can be used to
fund wellness activities and programs. It is a win-win solution.
In addition to all the fundamental components of a comprehensive benefits
program, there are additional perks to consider such as fitness centers, free
breakfasts and drinks, cafeteria subsidies, and concierge services. The
challenge is to figure out not only what benefits to offer to employees but also
how to make them connected and integrated with the organization.
HR OPTIMIZATION
24

Whether one views health care from a national perspective or an organizational
perspective, the same six factors need to be taken into account:
Quality
Cost
Access
Choice
Simplicity
Responsibility
The reason the health care problem is so difficult to solve is because any
solution requires a trade-off among those six values. It is impossible to provide
universal access and freedom of choice to the highest quality care in a simple
way at low cost. The only way to achieve a win-win solution is for all parties to
take responsibility for wise medical provision and consumerism and for healthy
choices. Forming healthy partnerships appears to be the most promising avenue
for change, but it will take a great deal of work to create an interdependent atti-
tude in which both employer and employee look for ways to help each other
grow.
While the theoretical constructs underlying benefits packages appear logical,
reality often presents many challenges. Here are some examples from our
experience.
Entitlement vs. empowerment. Theoretically, one would think that communi-
cating to employees about the economic value of their benefits package and
educating them about the options and choices they have would lead to a sense
of empowerment. Unfortunately, in many cases, employees view benefits as
something HR does to them and they take the benefits for granted. It’s hard to
educate employees about economic value and the marriage of compensation and
benefits. Particularly in paternalistic cultures, employees don’t understand that
benefits need to change in response to changing economic and competitive
BENEFITS
25

conditions. Therefore, any changes in benefits packages need to take into
consideration the sense of entitlement employees have and how strongly pater-
nalistic the culture is.
Competitive differentiator vs. cost drain. A competitive benefits package not
only has value to the employee but also to the company. Excellent benefits are
a critical component of a compelling employment offer. Smart candidates com-
pare the benefits packages of competing offers as well as the salary component.
In many cases, a benefits package that meets the particular needs of a candidate
can offset a lower salary offer. Benefits can be a powerful differentiator, partic-
ularly when an individual puts a heavy weight on vacation, wellness, or even
coverage for fertility treatments. In times when competition for talent is severe,
having flexibility in the benefits package can make a difference. Flexible cafete-
ria plans, however, require more work to implement.
Emotional vs. intellectual factors. While some changes in benefit plans make
good sense from an intellectual point of view, they can meet with strong emo-
tional resistance. People don’t like to change benefits, particularly on coverage
that is personal. A change in plans may mean a change in relationship with a
health provider with whom an employee has close ties. Therefore, any changes
in plans need to consider emotional as well as economic factors.
1. It’s important to ensure that management understands how benefits are
tied to organizational strategy.
2. Employees deal better with open, honest, direct communications than
with surprises.
3. Before making any changes, ask for input and feedback from multiple
groups.
4. It’s important to stay close to and manage health care providers.
5. Education of employees is crucial, particularly as it relates to the
economic value of benefits.
6. Employees need accurate decision support information to help them
choose among their options.
HR OPTIMIZATION
26

7. Wise medical consumerism can result in significant cost savings.
8. Organizational culture is a major factor in the success or failure of any
program—we must understand what people value.
9. Timing is everything—changes must be introduced at a time when there
are few competing announcements.
10. A dynamic and sustainable benefits plan requires a dynamic and sustain-
able relationship with employees.
Level 5 benefits programs promote wellness, encourage partnerships, and enable
wise medical consumerism. A comprehensive benefits program should take into
account the physical, emotional, and intellectual dimensions of a person’s life
through all life stages. Physical factors might encompass medical coverage and
health insurance. Emotional factors might include an EAP program. Intellectual
factors might involve financial planning or legal assistance. The functions of a
benefits program are to reduce costs, increase flexibility, and improve care. These
functions are discharged by facilitating enrollment, partnering for health, and
communicating effectively. Clearly, the age and diversity of the workforce may
affect the range of benefits programs offered, but the standards of protection and
support should remain constant.
BENEFITS
27

Having access to the information you need to do your work is a fundamental
requirement for a great job. Effective information systems and infrastructure
make it easier for people to acquire meaningful decision support information.
Clearly, that decision support information needs to be accurate so that business
leaders can make intelligent and informed business decisions about investments
in human capital—the combination of commitment and capability that gener-
ates new sources of gain.
Without sufficient information, decision making and individual/organizational
development are made more difficult, if not impossible. Systems need to support
our ability to develop individual and organizational capabilities. As such,
HCMS is different from HRIS (Human Resource Information System) to the
extent that it provides knowledge vs. data. Data are simply discreet facts.
Knowledge is processed information which means it requires human analysis.
Therefore, an HCMS is the output of information technology and human pro-
cessing. The information technology component may include learning manage-
ment systems (for example, THINQ and SABA), staffing systems (for example,
WebHire and Brass Ring), and human resource systems (for example,
PeopleSoft, Oracle, and Lawson).
An efficient HCMS fully integrates all component systems, reduces the hassle
factor in a job, and provides the knowledge platform on which a great com-
pany can be built. Above all, it ensures data accuracy and protects employee
Human Capital Management
System (HCMS)
Chapter
3

confidentiality. Employees need to know that their personal data are strictly
confidential. Managers need to know that the information they are being pro-
vided is trustworthy. And organizations need to know that confidentiality safe-
guards are government mandated. HR earns the right to engage in higher level
work only when it is able to ensure employee confidentiality and data integrity.
It should be noted, however, that management and employees own responsibil-
ity for accurate data.
SSccaallee
There is a range of possible outcomes in any effort to change the systems related
to managing human capital. The following scale helps to envision possibilities
and assess current realities for HCMS in your organization:
5: One global, efficient, best-of-breed, user-friendly, seamless system that is
the foundation for capturing, maintaining, and reporting on all employee
knowledge worldwide.
4: Global, efficient, and integrated enterprise solution for capturing, main-
taining, and reporting employee information and competencies world-
wide.
3: Adequate and efficient means of centrally capturing and maintaining all
employee information and skills worldwide.
2: Adequate but inefficient means of capturing and maintaining employee
information worldwide.
1: Inefficient, inadequate, individual systems for capturing and maintaining
employee data worldwide.
WWhhyy CChhaannggee
Company C’s current system doesn’t have data integrity, and it is passing
inaccurate information to numerous downstream systems. In order to be
credible, it needs to be able to provide reports that are reliable and
repeatable. Currently, the lack of reliability and repeatability is damaging
credibility. In order to be cost-effective, Company C needs to reduce redun-
dancies. Currently, many of the systems and processes are redundant. These
redundancies result in unnecessary costs. In short, Company C does not have
the basics in place.
HR OPTIMIZATION
30

Company C needs to capture worldwide employee data with high integrity.
Business leaders need accurate and timely decision support information to be
effective. Company C has an incompatible and inadequate set of systems and
technology that makes it difficult and time consuming to ensure information
integrity. The current HRIS does not have global capabilities and does not
enable the company to feed related systems in an efficient way. As a result, dif-
ferent countries use different spreadsheets to account for information that could
all be processed with better contextual knowledge with a more robust system.
Essentially, Company C is currently at level 1 on the scale and it needs to be at
least at level 3 to be able to respond reliably to business requests.
Finally, new requirements are imposing new demands on HR systems. With the
advent of the Internet, business leaders expect to have access to information they
need to make informed decisions. Timely, accurate, and meaningful information
is required for intelligent strategic positioning. When HR fails to meet manage-
ment requirements and expectations for accessible and accurate information, or
if these requirements and expectations are ill-defined, HR’s perceived effective-
ness is damaged. In short, Company C’s reasons for change are the need for
integrity, accuracy, timeliness, and efficiency.
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HR typically has an abundance of data. Unfortunately, the data does not usu-
ally translate into accurate, timely, and usable information that can facilitate
effective decision making. In addition, the information usually resides in multi-
ple locations and there is no easy way to access the information from a single
view. This fragmented amalgamation of data results in redundancies, unin-
formed decisions, and an enormous waste of time. Ideally, an information man-
agement system should make it easy for decision makers and employees to get
the information they need quickly and easily and in a form that facilitates good
decision making.
Simply stated, an effective HCMS increases efficiencies and leverages informa-
tion. At the foundation level, an HCMS needs to reduce the time it takes
employees to do certain activities, thereby reducing labor costs. Reducing time
and costs associated with routine HR activities can be achieved by enabling
HUMAN CAPITAL MANAGEMENT SYSTEM (HCMS)
31

managers and employees to access a portal or a self-service application instead
of requiring human intervention. These activities can include enrolling in or
changing benefits, registering for training, changing home and mailing address
information, applying for a job, making a salary change, checking pay stubs,
accessing organizational charts, getting approval for a promotion, or creating a
job requisition. All of these activities normally require a great deal of labor costs
and time. An HCMS system can reduce these costs significantly. It should be
noted, however, that transitioning to self-service requires a transformation in
culture. Moving to self-service means that employees need to own the data and
take more initiative in getting the information they need. In addition, openness
has risks and rewards. The risk is that giving people access to information that
can be interpreted in multiple ways could generate more questions and create
unfounded angst. The rewards are that employees feel more empowered and
self-sufficient and can find information they need to support personal and pro-
fessional decisions.
Having acknowledged the cultural requirements and confidentiality risks, the use
of self-service applications can reduce many of the costs associated with printing,
publishing, and binding manuals as well as distributing forms, letters, reports,
statements, etc. An effective HCMS can make it much easier to do business with
HR. Self-service applications can make administrative tasks much simpler and
more accessible. This goal requires that processes are well defined and simplified
and people are trained in how to use the system. By giving employees direct
access to services, HR is relieved of administrative tasks and is freed up to work
on higher level issues and change initiatives. Having one portal for all HR-related
information makes it possible to present pertinent information to all employees
on a consistent basis. A self-service application not only enables employees to
view their paid time-off balance, benefits elections, or paycheck data, it also
serves as an excellent vehicle for communicating company information.
At level 1 on the scale, critical information can get buried in an e-mail file or
somehow get lost in a “wall of noise” that arises from multiple communication
channels bombarding employees from every direction. As a result, there is no
way to capture, maintain, and use employee information worldwide.
Since so many employees work remotely and function as virtual teams, an effec-
tive self-service application should be accessible through a browser. Making the
portal accessible through the Internet allows employees to be connected to criti-
cal information wherever they go. Employees should be able to use any Web
browser to take advantage of a server doing all the processing. Self-service func-
tionality enables employees to be empowered and more productive.
Building an effective HCMS starts with defining the requirements for success.
The next step is to ensure that there are processes in place to achieve those
HR OPTIMIZATION
32

requirements. Then, decisions can be made about how to capture, organize,
distribute, and use the information contained within the system. Capturing
knowledge means collecting implicit and explicit information from new and
existing sources. Organizing knowledge means categorizing information to facil-
itate its use and value. Distributing information means making decisions and
accessibility rules to ensure that information gets to the right people at the right
time in the right format. Using knowledge means leveraging information both
internally and externally to continually achieve better results. An effective
HCMS drives knowledge to people who can use it.
Thus, in essence, an HCMS is a transactional-based knowledge management
system. Knowledge management is the process of getting the right information
from the right source to the right person using the right vehicle at the right time
in the right format so that people can make the best decision or take the wisest
course of action. The decision or action may require different levels of knowl-
edge. Data consist of basic facts. Information is contextualized data or concepts
and ideas made up of related facts. Knowledge is processed information or
causal relationships between interrelated elements of information. Wisdom is
applied and tested knowledge. It results in the ability to forecast and control
situational outcomes within a particular domain.
An effective HCMS needs to provide accurate information capital and manage
our human capital accurately throughout the employee life cycle. A global sys-
tem is required to support worldwide initiatives and processes. In addition, suc-
cess requires leadership and cultural support. It is a mistake to assume that all
leaders want information that an HCMS can provide and that the culture is one
that values openness, responsibility, initiative, and ownership. It is also a mis-
take to underestimate the amount of planning, process development, and IT
support required to implement any new system. Successful implementation of an
HCMS involves a thoughtful consideration of leadership needs, cultural resist-
ance, IT requirements, and data ownership.
While HCMS theory appears logical, reality often presents many challenges.
Here are some examples from our experience.
33

Manual vs. electronic. While there is clearly a rapid evolution to electronic
processing, there is still a lot of paperwork to be completed manually. HR is
frequently asked to fill out employee change forms and performance manage-
ment documents. And no matter how sophisticated the system, there are always
requests for information that require manual effort. For example, headcount
reporting may take into account temps, contractors, or part-time employees.
Without a full understanding of FTEs (full-time equivalents) in the organization,
it is difficult to manage expenses and achieve profitability goals.
HR vs. management responsibility. Even though there is a clear trend for
employees to own responsibility for data input and processing, accountability for
data integrity is typically assigned to HR. When management gets inaccurate data,
HR gets blamed. In many cases, management will often talk about the need for
adequate infrastructure and information systems, but investments do not always
match the rhetoric. It is always a challenge to put responsibility for data audits,
common review, or performance management in the hands of management.
Independent systems vs. integrated systems. In global companies, it is fairly typ-
ical for each company or geographic region to use home-grown spreadsheets to
handle reporting and compensation responsibilities. When it becomes necessary
to roll up data into company statistics, it becomes a nightmare to piece together
all the disparate data and processes. A variety of independent systems causes
a great deal of frustration not only for corporate leaders but also for new
employees who might be accustomed to more integrated, enterprise solutions.
1. Providing integrated sources of information elevates the role of HR.
2. Distribute and use knowledge instead of burying management with
data.
3. Don’t build in silos (for example: learning management, staffing, HRIS,
performance management) without an integration plan.
4. Leverage small improvements—demonstrate that systems work. Million dol-
lar investments are not always required to improve the way work gets done.
5. Engineer processes before buying systems, but recognize the fact that
sometimes new systems provide a catalyst for developing new processes.
HR OPTIMIZATION
34

6. Educate management on the value of effective HCMS.
7. Use process improvement to change the culture.
8. Invest in training people in the tools—it must be a process, not an event.
9. Conduct training in new technology for all HR staff—it’s the foundation
of HR.
10. Ensure that the HR system is integral to and connected with other
systems.
An effective HCMS takes into account the business needs for data, information,
and knowledge. Data needs might relate to headcount or demographic numbers.
Information might address trends in each organization and geography over
time. Knowledge might include an expert resource network and/or skills bank
that enables employees to leverage the experience of subject matter experts to
gain competitive advantage. The functions of an HCMS are to develop informa-
tion capital, human capital, and organizational capital. The processes required
to optimize capital development are defining requirements, capturing relevant
tacit and explicit information, organizing the information into meaningful cate-
gories, distributing the information to the right people in the right way, and
leveraging knowledge to achieve results. Clearly, cultural conditions such as
openness and risk taking influence the effectiveness of an HCMS, but the stan-
dard of trustworthiness remains constant.
35

One of the defining characteristics of a great job is the opportunity for growth.
In many ways, the purpose of life is to grow. Learning and development provide
multidimensional opportunities for growth at work. If individuals are learning
and growing, the company has a much greater chance to grow also. Without
individual growth, there is rarely organizational growth. Given the dynamic
nature of today’s marketplace, there is no chance for sustained company growth
unless individuals are learning and growing. In order for individuals to sustain
growth, the organizational culture must support growth and recognize progress
on learning and development goals. In order for organizations to sustain
growth, learning activities must be aligned to performance improvement and
business results. In a great company, learning and development support both
individual (personal and professional) and organizational growth.
SSccaallee
There is a range of possible outcomes in any effort to change learning and devel-
opment programs. Here is a scale to envision possibilities and assess current
realities regarding learning and development:
5: Employees average 10 days per year of business impact development; mul-
tiple learning options are leveraged and zero latency exists.
Learning and Development
Chapter
4

4: Employees average 7 days per year of business-related development; mul-
tiple learning options exist, and there are minimal time lags between skill
requirements and skill availability.
3: Employees average 5 days per year of excellent development; several learn-
ing options exist, and time lags between skill requirements and skill avail-
ability do not disrupt performance.
2: Employees average 3 days per year of random development; a few learning
options exist, and time lags between skill requirements and skill availabil-
ity cause performance problems.
1: Employees average less than 3 days per year of out-dated development;
very few learning options exist, and skill availability never meets skill
requirements.
WWhhyy CChhaannggee
Building relationships has not been as important to Company D as generating
revenue. Company D now realizes that growing revenues is dependent on
improving relationships internally and externally. While Company D ranks
highest among its customers on the most comprehensive solution in its market
space, it ranks lowest among its competitors on customer satisfaction. The
biggest reason for the low customer satisfaction rating is the fact that customers
don’t trust Company D. Since organizational growth is dependent on people,
Company D needs to teach people how to become trusted advisors with cus-
tomers and with employees. Unfortunately, many managers not only discourage
development as trusted advisors, they enable and permit destructive behaviors.
In addition, Company D has been an “on your own” culture. Employees learned
what they needed to know through their own initiative, peer networks, and
Internet searches—there was no development culture at Company D. In order to
realize its mission, Company D needs to provide employees at all levels with the
knowledge, skills, and experience to be helpful to customers. It also needs to be
seen as the first choice for helping employees win in their careers. In short,
Company D needs to make relationships as important as revenue.
Company D offers a variety of disparate programs, but they are all random and
inductive. Even though the programs are well designed, they do not relate to cor-
porate objectives. There is no consistent process to register employees in classes,
track progress, or estimate a return on investment. The company culture does not
support learning and development—it is viewed more as a cost than an investment.
HR OPTIMIZATION
38

The functional test of learning and development is whether or not the programs
and activities make any impact on the business. Having said that, it is important
to set an organizational standard for development in order to send the message
that employee learning and growth are important. The scale in this chapter is
defined in both quantitative and qualitative terms so that both impact and
expectations are taken into account.
The best way to ensure that learning and development will have a business impact
is to design all interventions around the competencies required for success in par-
ticular jobs. Involving client groups (e.g., Sales, Services, Marketing, R&D) in the
development of job models and related competencies is critical for accuracy and
success. The organization is responsible for defining competencies required for
maximum business impact in each job, and the individual is responsible for assess-
ing himself or herself on those competencies and then acquiring the skills related
to those competencies. Again, this type of disciplined process requires cultural sup-
port in order to sustain the system. The key is to create simple, empowering, think-
ing tools that enable managers to improve business processes.
One critical success factor is a clear learning strategy. A learning strategy is
designed to address all of the learning demands created by the business strategy,
organizational needs, and cultural requirements. A learning strategy is an imple-
mentation road map for the competency, skill, and knowledge requirements and
takes into account system needs and cultural support. Developing and imple-
menting a learning strategy is critical to the business because it ensures that indi-
vidual and organizational capabilities are aligned behind its marketplace
positioning and organizational needs.
A learning strategy is designed to achieve four major goals:
1. To enable colleagues to acquire the skills and knowledge they need to per-
form optimally on their jobs and to fulfill their personal development goals
by providing easy access to the right content delivered in the right way at
the right time.
2. To develop and/or acquire programs, processes, systems, and technologies that
support the business strategy, the cultural requirements, and the competency
model and that meet organizational needs for learning and development.
LEARNING AND DEVELOPMENT
39

3. To create an environment that supports innovative thinking, organizational
learning, personal development, and high performance. Learning needs to
be a part of the greater organizational change management plan.
4. To link knowledge management and people development strategies to
financial success, i.e., to demonstrate positive return on investment.
Finally, with the strategic context and competency requirements in mind, the
learning strategy must take into account three critical learning processes that
will enable the improvement of individual and organizational performance:
1. How to improve access to learning.
2. How to develop and deliver learning opportunities.
3. How to manage learning and realize value.
Another critical success factor is the belief employees have in the culture. People
need to believe that corporate-sponsored learning will be useful to them and that
their efforts will be rewarded. In addition, learning and development cannot be
delivered in isolation from other organizational initiatives. Success depends not
only on an integrated approach, but also on other systems, processes, guidelines,
and procedures.
On an individual level, there are two primary reasons to grow: to improve per-
formance on current job realities and to improve positioning for future job pos-
sibilities. It is important for individuals to understand both the economic and
personal value of development. On an economic level, competency-based incen-
tive plans reward individuals for acquiring and applying certain skills. On a per-
sonal level, the acquisition of new skills usually translates into heightened
confidence and a sense of empowerment.
On the organizational level, there are multiple objectives for a long-term learn-
ing strategy:
1. Align learning investments to performance needs and business requirements.
2. Ensure fair access to learning.
3. Develop the right learning options and opportunities.
4. Deliver learning in the right way at the right time to the right people.
5. Create an environment that supports learning and development.
6. Install the right systems to manage the learning process most cost-
effectively.
7. Maximize return on investment.
8. Achieve zero latency (ensure that people get the skills and knowledge they
need to meet project deliverables just in time).
HR OPTIMIZATION
40

9. Reduce turnover.
10. Improve performance.
11. Improve the attractiveness of the organization.
12. Leverage opportunities for collaboration.
These objectives can be summarized by level in the organization and by process,
impact, and outcome variables.
One of the biggest challenges in HR is to sell the value proposition of programs
it offers. The chart above is a helpful tool for thinking about what the value
proposition is for clients at different levels in the organization. A project man-
ager simply wants to ensure that he or she has the right skills available at the
right time to do the job so that performance can be improved. The value propo-
sition for executives focuses on capital development: organizational capital, cus-
tomer capital, cultural capital, and financial capital. This chart helps the HR
professional personalize the value proposition to the audience, i.e., become
more thoughtful about what value is responsive to whom.
In the five-point scale described in the second section of this chapter, there is
mention of how many learning options are being offered and how well they are
being leveraged. The list on the following page provides a stimulus for thinking
about the various learning options that might be considered in a comprehensive
learning and development strategy.
41
Process Impact Outcome
Executive Cultural
Management
Organizational
Development
Reduced
turnover
Achievement of
business goals
Manager Performance
Management
Human
Development
Zero latency
Improved
performance
HR Learning
Management
Competency
Development
Improved cost-
effectiveness
Improved
quality

LLeeaarrnniinngg OOppttiioonnss
1. Classroom learning
Internal courses
External courses
Technical training
2. Interactions
Peers
Customers
3. Benchmarking
4. Cross-functional teams
5. Mentor
6. Self-Study
7. Online learning/Web-based training
8. Knowledge sharing
Central repository
Expert resource network
Networking
Communities of practice
Professional associations
9. OJT (on-the-job training)
10. New hire training
11. Corporate University
12. Web site surfing
13. Modeling
14. Coaching
15. Road shows
16. Reading
17. Laboratory
18. Lunch and learn
19. Application success sharing
20. After action reviews
21. Product demos by experts
22. Webinars
HR OPTIMIZATION
42

23. Seminars
24. Workshops
25. Webcasts
26. Conferences
27. Conference calls
28. Intranet connector
29. Town meetings
30. VP forums
31. Action learning interventions
32. Virtual teaming
33. Multiple rater assessments
34. Customer satisfaction surveys
Access to most of this learning is a function of cultural support for thinking and
learning. Leaders are the primary gateway to learning access, i.e., if leaders sup-
port and encourage participation in many of the activities listed above, col-
leagues will have continuous access to learning. Beyond cultural and leadership
support, however, access involves connecting learners to learning options out-
side day-to-day activities at the workplace. Access to classroom training, online
courses, educational materials, expert and knowledge resources—both inter-
nally and externally—requires assistance beyond what can be expected from
leaders. The chart below is a thinking tool for helping you consider a variety of
ways to improve cultural and leadership support for learning:
This chart will help you think through what needs to happen before, during, and
after any learning opportunity in order to maximize its impact.
43
Before During After
Learning
Provider
Participant
Sponsor
Manager
Leader

There are several critical decisions that need to be made concerning access to
learning opportunities. Here are a few of the key questions that need to be
answered:
1. What is the right blend of learning options, i.e., what percentage of learning
should be done online, what percentage should be in the classroom, etc.?
2. How much freedom do you give your employees to select learning options?
What is the spending authority of each employee?
3. What level of support will be required to institutionalize continuous learn-
ing? For example, what policies need to be created to support learning and
development?
Question #1: What is the right blend of learning options, i.e., what percentage of
learning should be done online, what percentage should be in the classroom, etc.?
We recommend converting as much compliance-level training as possible to
e-learning delivery and developing the technological capacity to make it easy for
employees to access Web-based training at home and at work. We also strongly
recommend that selected training, such as leadership development and team
development, be done in a classroom setting. Most important, however, is to
ensure that all employees have access to a multitude of the informal learning
opportunities listed earlier. The reason for providing multiple learning options
is that learning delivery needs to match the learning style of the participant. And
it is critical to apply adult learning principles to guide decisions regarding learn-
ing options.
Question #2: How much freedom do you give your employees to select learning
options? What is the spending authority of each employee?
We recommend giving colleagues freedom in pursuing learning objectives.
Respect and trust are key values in a learning culture. The decision on this issue
will send a loud message about how we walk that talk. In addition, we believe
that personal development of any type has transfer power to the business. As
people grow, the business benefits from their increased insight, creativity, and
wisdom. In order for this policy to work, however, employees need to know
how their jobs fit into the big picture, what competencies are required for their
jobs, and how any learning is aligned with business objectives.
Question #3: What level of support will be required to institutionalize continu-
ous learning? For example, what policies need to be created to support learning
and development?
While we don’t recommend creating a raft of policies that would dizzy even the
most bureaucratic of organizations, we do recommend developing policies
related to:
HR OPTIMIZATION
44

Tuition reimbursement
Dollar limits for classroom and online learning
Approval process
Line item allocations and charge backs
A critical success factor is to list all the questions that will need to be addressed
in order for learning and development to realize its potential. The three ques-
tions discussed above may trigger additional questions for you. The most impor-
tant outcome of answering these questions is to institutionalize learning in the
culture. This will not happen with a random, event-based approach to learning.
Implementing a learning strategy requires several critical decisions concerning
the development and delivery of learning opportunities. Here are a few of the
key questions that need to be answered.
1. What programs best support your performance needs, competency require-
ments, culture, and business strategy?
2. Should you develop your own programs or buy programs that are already
developed?
3. Should you build an internal staff for learning and development or out-
source most of the programs?
4. How should you deliver your learning opportunities: online, self-paced, or
in a classroom?
5. How can you customize all learning opportunities so that they reflect your
way?
Question #1: What programs best support your performance needs, compe-
tency requirements, culture and business strategy?
All skills need to be mapped against the business strategy, the cultural require-
ments, and competency model to ensure that you are linking all of your course
offerings to business needs. You also need to link the learning options to the
competency requirements. Development and delivery must take into account not
45

only what courses should be offered, but also who teaches them and how they
are best delivered. Start by identifying the company’s business goals. Next, align
performance requirements to those business goals. If there is a gap, investigate.
The gap may exist because of non-skill and knowledge issues (i.e., a process
needs to be modified). On the flip side, you may find that the gap exists because
the majority of the performers do not have the right skills and knowledge. At
this point, seek out the highest performers. Interview these performers (internal
or external) and use their help to identify the skills and knowledge used to per-
form the process. Next, determine if the majority of performers truly do not pos-
sess the required skills and knowledge (you may do this via surveys,
observations, assessment reviews, leadership insight, etc.). If they do not, you
will be much more inclined to buy or create the learning program.
Question #2: Should you develop your own programs or buy programs that are
already developed?
We recommend that, whenever possible, you should buy programs that are
already developed. There are a multitude of courses available to teach most
required skills and it is very expensive and time intensive to develop courses
from scratch. However, there may be certain courses that can only be developed
internally because of the uniqueness of your culture, products, methodologies,
and leadership style. Another dimension of this question is whether to provide
programs electronically or in live classrooms. The answer to this question must
take into account costs and learning styles, but one factor is to ask how results
will be measured. A simple rule of thumb is if it can be tested on the Web, it can
be delivered on the Web. For example, teaching swimming might be hard to
measure on the Web, but spreadsheet mastery could be tested on the Web.
Question #3: Should you build an internal staff for learning and development
or outsource most of the programs?
We recommend an outsourced model. Hiring internal staff is not only expensive,
it tends to be ineffective over time because skill requirements are constantly
changing. However, most companies need a driver and sponsor of learning as
well as a core infrastructure to coordinate the customization of all content by
subject matter experts and to develop and oversee all internally developed pro-
grams listed in the development recommendations. The roles of the internal
learning and development organizations need to be clearly defined and collabo-
rative opportunities agreed upon. We suggest that the learning and development
organizations (Learning Council) should have the following roles:
Develop and implement the learning strategy.
Select and administer the appropriate systems and technologies for imple-
menting the strategy.
HR OPTIMIZATION
46

Help develop cultural support for thinking and learning.
Orchestrate and manage the delivery of internal and external courses.
Question #4: How should you deliver your learning opportunities: online, self-
paced, or in a classroom?
Overall, it usually makes sense to deliver most of the technical courses online,
whereas the leadership, marketing, sales, and professional development courses
are better taught in a classroom situation. You will need to continually evaluate
the blend of high-tech and high-touch delivery. You should also continue to look
at how you can convert some of the course content you now deliver in class-
rooms into online versions, particularly as you grow globally.
Question #5: How can you customize all learning opportunities so that they
reflect your way?
Your company surely has some “secret sauce” it doesn’t want to share with the
outside world. You need to ensure that your sauce gets mixed into the learning
recipe without compromising its integrity. We recommend forming a close rela-
tionship with an outside training provider with whom there is a high degree of
trust and who can help to customize some of the courses. We also recommend
that associates participate in the development and delivery of courses where it
makes sense. Some courses, particularly in leadership development and opera-
tions, should be home grown so that you can continue to differentiate your com-
pany in the marketplace by your leadership style, corporate culture, and
intellectual capital. Most important, all learning opportunities need to be built
around the core competencies.
The underlying dynamic in most of these questions is whether programs are being
offered to justify HR existence and survival or are being offered to enable busi-
ness growth. To the extent that HR gets caught up in its own survival needs, it
will continue to miss opportunities to partner effectively with its business clients.
TThhee WWoorrkk CCoonnttrraacctt HHaass CChhaannggeedd.. DDiidd WWee TTeellll AAnnyyoonnee??
The work contract used to be: Loyalty for Security. Now it is Commitment for
Development in a safe and secure environment.
For most of the 20th century, workers felt that as long as they remained loyal to
the company, they could expect job security and health coverage. Even though
there were always issues about pay inequity, market comparability, benefits
design, and work environment, workers did not typically feel anxious about los-
ing their jobs through restructuring, downsizing, or re-layering. While there
have always been fairness issues, lack of security was not a predominant con-
cern. As a result of that psychological contract, many workers never worried
47

about their market value, i.e., what their current skills were worth in the mar-
ketplace. In essence, these workers engaged in planned obsolescence. When lay-
offs became more common toward the end of the century, these workers found
themselves scrambling for jobs at significantly reduced wages.
The old contract is dead. Very few companies are now willing to guarantee job
security for any length of time, so it is a bit unrealistic to think that employees
should be totally loyal. On the other hand, most companies provide develop-
mental opportunities for employees that make it easier for employees to find
new jobs if economic conditions require significant cost and headcount reduc-
tions. In exchange for the ability to learn new skills, it is reasonable for organi-
zations to expect that employees demonstrate high commitment while they are
employed. The new contract can be graphically depicted by the following grid:
Expecting high commitment in Europe and Asia, however, can be problematic.
The reaction is, “How do you know what my commitment is?” More accept-
able language in Europe and Asia is “personal accountability and support.”
Development has to include consideration for expatriate assignments as well. In
a global economy, one of the most critical skill-sets a person can learn is how to
conduct business in multiple cultures.
1. Educate people about possibilities for growth.
2. Demonstrate the impact of programs through ROI analysis.
HR OPTIMIZATION
48
Responsibility Expectation
Organization Provide developmental
opportunities
High commitment
while employed
Individual Learn the skills
required to increase
market value
Respect, fairness, and
integrity during time
of employment

3. Be more concerned with quality than quantity.
4. Understand what it will take to be successful in the organizational culture.
5. Map learning to performance needs and business results.
6. Create a value proposition and reasons to change.
7. Don’t forget the basics: Skills + Support = Success.
8. Leverage the power of sponsorship.
9. Involve stakeholders.
10. Solve business problems through networking, relationship building, and
collaboration.
A comprehensive learning and development program encompasses the compo-
nents of professional development, sales development, technical training, and
product training. The functions of learning and development are individual
growth, organizational growth, and company growth. Multiple processes are
employed to discharge these functions: self-paced learning, e-learning, and
instructor-led training. Clearly, the extent to which the company embraces the
notion of organizational learning impacts the effectiveness of learning and
development initiatives, but the standard of positive and sustainable perform-
ance remains constant.
49

A great company is built by great people. The search for world-class talent is an
ongoing priority for a great company. One critical requirement for a great job is
to be able to work with great people. Exceptional talent attracts exceptional
talent. All of these principles underscore the importance of staffing.
SSccaallee
There is a range of possible outcomes in any effort to change the staffing process.
The following scale helps envision possibilities and assess current realities:
5: World-class talent attracted, hired, retained, and aligned behind corporate
objectives. Staffing is measured on the performance of people hired.
4: Great talent attracted, hired, and retained. Staffing is measured on reten-
tion of mission critical/highly capable talent.
3: Adequate talent attracted, hired, and retained. Staffing is measured on cost
per hire, time of open requisitions.
2: Fair talent attracted and hired. Staffing is measured on number of positions
filled.
1: Poor talent attracted and hired. Staffing effectiveness and efficiency are not
measured.
Staffing
Chapter
5

WWhhyy CChhaannggee
Historically, Company E relied heavily on outside agencies to conduct a high per-
centage of searches. While the agencies were able to source excellent candidates,
the costs were very high. In fact, average cost per hire in some departments
exceeded $15,000. While a reasonable standard for agency usage is around 10
percent of hires, several groups had agency usage in the 35 to 40 percent range.
In addition, Company E sourced a large number of employees from personal con-
tacts. While employee referrals can be a rich source of candidates for a company,
it can also lead to an extremely homogeneous workforce. For Company E, the
sourcing pool consisted predominantly of white, male, military athletes. This
DNA (organizational gene pool) served Company E well when the sales strategy
was to be the most aggressive player in the market and when the primary clients
were white male engineers. But in the new competitive, relationship-oriented
marketplace, this strategy no longer makes sense. Company E needs to attract a
diverse workforce through a more cost-effective mix of sourcing strategies. It
needs to not only recruit a more heterogeneous workforce, but also to encourage
its diverse workforce to recruit from diverse talent pools. To compound the prob-
lem, managers within the company perceive HR as résumé finders instead of
staffing consultants who could add value to the entire staffing process. In short,
Company E needs staffing to attract and retain the right talent.
One of the most critical factors of a great job is working with great people.
Waging the war for talent requires real commitment from senior leadership and
processes that result in excellent choices. There are five phases within a Staffing
Methodology or Process: Planning, Sourcing, Assessing, Closing, and Engaging.
People, culture, and technology support and enable these five phases. The
people enabler includes interviewers, managers, business partners, etc. The
HR OPTIMIZATION
52

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