Culture Management

In high-performing firms, HR professionals exhibit the competencies of culture management as an integrated framework. They take care to define the culture as consistent with the balanced requirements of external customers, business strategy, and engaged employees. They ensure that the company’s HR practices are designed and delivered to create and reinforce the desired culture by translating it into specific employee and executive behaviors.

Fast Change

In high-performing firms, HR professionals make change happen successfully and thoroughly. They are centrally involved in planning and implementing change processes. But their most critical contribution is making sure that change happens quickly. They focus on implementing decisions quickly. They involve key leaders in fast change. They ensure that human, financial, and information resources are aligned with the desired changes. They monitor progress of key change initiatives, and they capture important lessons and apply them to improve future change efforts. They not only set the broad framework for effective change management but also exercise their facilitation skills to move change initiatives forward.

Strategic Decision Making

In high-performing firms, HR professionals play two roles in key decisions. First, they know the business in enough detail to be able to set the direction of change. They walk into the strategy room with an opinion about the future of the business. They are willing to take strong stands. And they bring intellectual rigor to business decision making—that is, when HR walks into the room in a high-performing firm, the average “business IQ” in the room goes up, not down. Second, they play a reactive role relative to business decision making. They ask insightful questions; they encourage others to be strategic; they anticipate obstacles to achieving the strategy. This requires both the interpersonal skills and the intellectual capacity to look at things from all sides of an argument.

Market-Driven Connectivity

The first three competency subfactors are reasonably well known in the HR literature. This last factor, market-driven connectivity, is new—first identified in the 2002 iteration of our HR Competency Study. In high-performing firms, HR professionals play an important role in amplifying important signals (customer information) from the external environment and ensuring that these signals spread throughout the company so people act in harmony as they respond to marketplace demands. Furthermore, HR professionals prune back the relatively unimportant information that so often blocks attention to more critical matters, and thus help the organization navigate through changing customer and shareholder requirements.

Example of Strategic Contribution

Mike Tucker (senior vice president of human resources for Baxter Healthcare) has been effective at building HR agendas based on strategic contribution. As a member of the innovation leadership team (ILT), whose task it is to keep Baxter on the leading edge of pharmaceutical innovation, Tucker has helped champion several agendas:

• Align management systems with the innovation agenda, including the financial resource allocation process. Inherent in the financial resource allocation process are not only the criteria for continued investment in specific R&D efforts but also the criteria for discontinuing R&D efforts.
• Build the cultural underpinnings of successful R&D undertakings and promote knowledge transfer among various R&D silos. Mike ensures the continual balancing of long-term, creative R&D agendas with the need for short-term financial performance. He values and protects the brilliant but sometimes highly opinionated scientists who make major scientific breakthroughs.
• Track the progress and commitment of key innovative talent. He engages key employees in the acquisition of future talent and works to provide an environment in which the capabilities of these talent leaders are optimally applied.
• Build internal ILT discipline to focus on a limited number of agendas. He helps ensure that the company’s innovative agendas do not disintegrate into chaos while concurrently encouraging the ongoing examination of innovative R&D alternatives.
• Keep the research agendas relevant to specific market applications. Having a culture of innovation is good; having a culture of customer-focused innovation is better.

Because Mike Tucker and his HR team have possessed and applied strategic contribution competencies, they have been able to play a higher value-added role at Baxter.

Achieving Results

Credible HR professionals have a track record—a reputation for meeting their commitments, for doing what they say and saying what they will do, and for getting error-free results. They improve others’ results by asking questions that help them frame complex ideas in useful ways. And they do all this with personal integrity. In the HR Competency Study, the factor analysis showed the integrity variables grouped with the achieving-results variables. That is, according to line executives, how results are achieved is as important as the results themselves. HR professionals must achieve results in a way that meets the highest standards of integrity.

Effective Relationships

Given that HR professionals focus on the human side of business, it is reasonable to expect them to be able to foster and maintain effective interpersonal skills. These skills enable them to work well with HR colleagues, individual line executives, and the management team as a whole.

They must be able to diagnose and deal with intrapersonal challenges with their colleagues as well as interpersonal problems. They must also be able to create an atmosphere of trust within the team and with individuals with whom they work. In working with teams and individuals, they personally follow agreed-upon behavioral and achievement standards and encourage others to do likewise. They develop “good chemistry” with their colleagues, highlighting whatever core values they share and building on elements of common interest that frequently go beyond work boundaries. Effective HR professionals are helpful and empathetic in addressing concerns whether or not directly work-related, and they can decompress tense interpersonal issues.

Communication Skills

HR professionals must communicate well, both on paper and face-to-face. As organizations have flattened out over the past twenty years, the average span of control has more than doubled. As is noted in chapter 2, the speed of information processing and transfer has increased dramatically within this same period, so the mandate to communicate quickly, clearly, and effectively is obvious.

Multiple messages compete for the mental space of virtually all organizations. To have personal credibility, HR professionals must be able to accurately select and then clearly present the messages most critical for organizational success. (See chapter 6.) And they can’t restrict themselves to formal communication channels; virtually all HR activities have an important communication component. When HR professionals hire, promote, and fire certain people, when they design and implement measurement and reward systems, and when they offer specific training programs, they are sending powerful messages about what is important to the organization and to its success.

Example of Personal Credibility

Chuck Nielson, who is now retired as senior HR executive at Texas Instruments (TI), has an outstanding ability to build effective relationships. His remarkable breadth of business and general knowledge enables him to connect with a broad range of people, and he is extraordinarily clear and concise in his verbal and written communications. During his career at TI, his personal credibility often made a difference to the success of the company:

• Under Chuck’s leadership, TI was one of the first companies to have a direct line of sight between HR practices and central and critical business issues and to build efficient and accurate HR processes housed in a service center.
• He successfully established a top-down competency-based evaluation process for the top three thousand TI executives.
• When TI’s highly regarded chairman and CEO died of a sudden heart attack, Chuck helped the board and the senior leadership keep the company on an even keel as a new CEO was selected—a CEO who became equally highly regarded.
• Chuck established himself with individuals throughout the company as a sounding board for difficult business and personal issues.

Not a bad record for anyone, let alone a person who is 99 percent blind as a result of retinitis pigmentosa.

Staffing

From the point of view of many line managers, HR is first and foremost about the staffing process. HR professionals must know how to hire, promote, transfer, and fire people—both as individual and discrete decisions and as part of an overall staffing agenda. They must integrate the full breadth of staffing practices into a comprehensive system. (See chapter 5 for choices in this area.)

In a world of change, the individual competencies and organizational capabilities in each company need to be continually defined and created. Some individual competencies will be kept by aggressive programs that retain the key talent. Other competencies may need to be developed. Still others may no longer be relevant as the competitive environment changes, necessitating divestitures or outplacement. Staffing thus plays a central role in updating individual competencies that contribute to overall organizational capabilities. Of the HR basics, staffing practices have greatest influence on financial performance.

Training and Development

In high-performing firms, individual training and overall organization development activities are integrated into a cooperative whole. Conceptually and practically, they are linked as a single comprehensive agenda. Elsewhere, they often turn into a tug-of-war between psychologists who emphasize individual training (classroom and on the job) and organizational development (OD) specialists who focus on team or organizational interventions and tend to ignore individuals. One-upmanship between the two groups—each trying to outdo the other in importance, impact, and image—can become so dysfunctional as to undercut performance.

Training programs may consist of five major sets of activities:

• Training in basic skills (reading, writing, arithmetic), technical skills (activity-based costing, inventory management), or leadership skills (strategy, organizing, coaching).
• Pursuit of overall culture and strategy agendas.
• Individual career development.
• Filling cultural and technical performance gaps.
• Providing experience in high-value-added and challenging work assignments. Cognitive training must include an application component in which the individual is able to synthesize and practice lessons before applying them on the job.

Organization development is also a key component of an overall developmental agenda. OD probably has as many different definitions as there are companies employing OD specialists. At a minimum, OD generally refers to change interventions at the organization and team levels. In the HR Competency Study, we identified two key OD activities:

• Designing developmental intervention programs that facilitate change
• Orchestrating large-scale communication initiatives that help people know where the organization is headed and how it will get there

Organization Design

Organization design itself has two aspects: overall structure and process design. (See chapter 6 for review of these choices.) It also is very closely related to two other categories of HR competencies—measurement and legal compliance.

Given that structure is an important driver of human behavior in formal organizations, HR professionals should be able to apply these four key principles:

• Bring together those people who are mostly likely to create wealth within the company (differentiation).
• Create alternative coordinating mechanisms—meetings, task forces and committees, common goals, measures and rewards, lateral and diagonal transfers, and work process integration—for people who are not brought together via the organization structure (integration).
• Create more efficient and productive organization structures through reduction in managerial and support staff layers (configuration).
• Design and implement alternative control mechanisms to make up for the reduction in hierarchy (rationalization).

When designing organizational structures, HR professionals should work with the design teams to minimize political considerations and maximize attention to business logic. They should defend the strategic objectives of the restructuring and shepherd its integrity. They should make sure that the right people are placed on the design team and given the correct instructions, along with free access to information and instructions from key stakeholders. Finally, HR professionals should ensure that measures are in place to evaluate the effectiveness of the new structure within specified time frames.

The current trend in organizational structure is to redesign organizations around processes. This effort begins with a target customer or group of target customers in mind. Work processes then trace information and activities as they flow from the customer into the organization through market research, R&D, product or service design, manufacturing (or its service-based company equivalent—logistics, delivery, sales and service). The key issue at each stage is maintaining consistency of customer focus.

The resulting processes must be concurrent and integrated. The idea is that heretofore sequential steps will be planned and executed so that they happen at the same time whenever possible. Simultaneous processes take advantage of team-based work flows rather than individual assembly lines, allowing integration to improve time, quality, and cost controls across the board.

HR Measurement

HR professionals must have a concept of the full HR value proposition and be able to measure their specific value-added element. That effort requires measures for each component of the HR value proposition that validate and verify statistical relationships between HR activities and the actual well-being of the firm and its stakeholders. Two categories of HR measurement may be distinguished: efficiency and effectiveness.

The HR measurement literature has traditionally been dominated by measures of efficiency. These measures tend to focus on how well HR does specific things:

• Costs per hire
• Retention time per hire
• Time to fill a job
• Percentage of nontraditional hires
• Employee satisfaction with pay, benefits, and so on
• Training hours per year per employee

While these measures do serve useful purposes, they have no direct relationship to outcomes—to what HR delivers to the organization or its customers and shareholders. In recent years, substantial progress has been made in measuring the contributions of HR. It turns out that measuring HR is easy; the hard part is not the measurement but rather knowing what to measure.

Before you can take measurements, you have to identify HR’s dominant and focal contribution to your firm. For example, HR’s strategic contribution as described in chapters 3, 4, and 7 suggests that HR creates great value as it creates and sustains powerful organizational capabilities and a market- and strategy-focused corporate culture. This results in a clear formulation of the HR value chain: results in the marketplace for products or services and capital are driven by results in executing the business strategy, which are driven by the identification of key organization capabilities and a competitive corporate culture, which are driven by HR practices that create and maintain the required culture.

This formulation of HR’s value proposition readily suggests an HR measurement logic, shown in table 10-2.

The measures for each portion of the HR value proposition must be customized for specific companies. With each of the measurements taken, you may then examine the relationship among the measures. This will establish that increasing HR practices increases the presence of the desired culture; and that increasing the desired culture increases the level of strategy execution; and that increasing the level of strategy execution increases marketplace results. By performing this array of measurements, companies can establish which HR practices are delivering the desired results and which are not, so that they can initiate appropriate improvements.

Legal Compliance

To be effective in working with the human side of business, HR professionals must know the legal issues that influence and safeguard people at work and the organizations they work for.⁷ They need to understand people’s rights to work free from discrimination based on gender, race, religion, sexual orientation, ethnicity, age, or disability, and to work in a safe environment that is free from physical threat or psychological harassment. They should understand the legal rights of people at work relative to testing, evaluation, discipline, compensation, and privacy. They must be familiar with legal issues that have direct influence on union relations and other components of the workforce. And increasingly, HR will also play a role in helping to address legal issues that have ethical overtones, including honesty in financial and other kinds of reporting.

Performance Management

Performance management is a foundational element of HR, and needs attention even though it is the element of HR delivery that is the weakest differentiator of business financial performance. (See chapter 5 for a review of performance management choices.) In part, this loose coupling is due to the many other influences on pay and incentives besides performance—seniority, guaranteed base pay, hierarchical level, and functional category—plus the tendency to set large compensation packages as part of preemployment agreements rather than solely on the basis of performance. In addition, most companies link compensation to performance when business is good and cash flow is strong, but revert to base pay entitlements when business is bad and cash flow is weak.

Performance management systems consist of two basic elements: measurements and rewards.⁸ Effective measurement systems have four important features:

• They differentiate high-performing teams and individuals from low-performing teams and individuals.
• They are simple but complete, measuring both results and behaviors—including ethical integrity. This both captures past performance and provides important predictors of future performance.
• They draw data from several sources so as to be credible to the people being evaluated and to capture the richness of multiple perspectives.
• They provide comparable measurements for key benchmarks such as previous year-to-date performance, other individuals doing the same tasks, and preset targets or goals.

Reward systems include many elements required to encourage and reinforce performance. And of course, without some form of compensation and probably some benefits, you won’t have a workforce at all. However, these baseline offerings are insufficient to drive performance.

Effective rewards systems have six important characteristics:⁹

• They are linked to performance.
• They offer rewards of value to the receiver, not just to the giver.
• They are visible both to the receiver and to those whose opinions the receiver values.
• They provide feedback soon after the achievement of the desired results or the expression of the desired behaviors.
• They include rewards that can be taken away if performance is not sustained.
• They include nonfinancial rewards valued by the recipient.

Nonfinancial rewards need not be limited to physical and social perks—office size, titles, public acknowledgment, and the like. For many employees, the greatest motivation comes from the option to do challenging and high-value-added work in an area outside the formal job description. HR professionals need to be alert for ways to provide such opportunities, to the mutual benefit of the firm and the employee.

Example of HR Delivery

Steve Kerr worked at General Electric as VP of leadership development and chief learning officer from 1994 to 2001. During this time, he worked closely with other HR professionals and senior line executives to build GE’s success. Here are the highlights of effective HR delivery at GE, as Kerr sees them:

• The John W. Welch Corporate Training Center (best known as “Crotonville”), where courses are built on a foundation of leading concepts and application projects that are framed as part of the training experience. Within the context of a feedback-rich environment, participants are encouraged to take responsibility for their individual careers.
• A series of large-scale change programs—Work-Out, Change Acceleration Program, and Six Sigma—that support aggressive productivity, quality and debureaucratization initiatives in the context of ongoing restructuring and work process design.
• Performance management systems that drive company performance by monitoring and responding to clear indicators of achievement of results and expression of behaviors. Results targets are negotiated at the beginning of each time period and updated as conditions change for better or worse. Behavioral criteria are communicated through competency models and through company value statements.
• Measurement information provided by multiple sources, including a rigorous 360-degree interview process.
• Forced ranking requires management to distinguish among “A players” (most productive), “B players” (solid midlevel productivity), and “C players” (must improve).

Knowledge of the Value Chain

The value chain is what links market demand with internal supply. HR professionals need to understand the firm’s external customers, suppliers, and competitors well enough to see how the dynamics and requirements of the competitive environment translate into internal financial and production requirements, and how the firm’s products and services are distributed to the marketplace. This knowledge allows HR to make a major contribution toward enhancing the value chain—to make the value chain whole greater than the sum of the parts. By finding ways to build the capabilities of suppliers, to design and deliver organizational capabilities for their own firms, and to improve the performance of customers, HR professionals can increase the size of the pie that all share.

Knowledge of the Firm’s Value Proposition

Three key categories of wealth creation determine the context within which other value-creating activities occur. HR professionals should be familiar with each aspect of the firm’s value proposition:

1. Companies create wealth by developing a portfolio of businesses that maximize returns while mitigating risks. Company leaders determine which businesses to buy, which to keep, and which to close or divest. This must be done with focused consideration of the risk tolerance of the investment community. HR professionals play a role in determining which activities to conduct through which internal channels (within business units, within corporate headquarters, and within shared services) and which to outsource.
2. In harmony with determining which businesses to emphasize, companies must also determine which markets to pursue and which marketing activities to use to approach their selected markets.
3. They must know the basic processes through which products and services will be provided and the quality standards to which these processes will be held accountable.

Labor Knowledge

Knowledge of labor issues is essential to HR’s key staffing functions. Labor issues may be divided into four categories that HR professionals need to understand:

1. Both the infrastructure and logic of unions in general and of the local unions they deal with, along with the personalities of key local and national labor leaders. In unionized companies, HR professionals must know how to make use of the positive aspects of an organized workforce. (Example: Ford Motor Company.)
2. How to avoid unionization by being aware of which issues matter most to the workforce, maintaining accurate mechanisms to track employee satisfaction relative to these key issues, ensuring that their company is meeting the key needs of employees, and maintaining ongoing two-way communications with the workforce. They also need to be able to advise management on plant and office locations on the strength of local organized labor. (Example: Wal-Mart.)
3. The key issues of collective bargaining. What are the legal requirements of collective bargaining? How do you work smoothly with the National Labor Relations Board? How do you make your business case to union leadership and to union members? What personality issues need to be managed during bargaining sessions? How do you maintain an atmosphere of trust before, during, and after bargaining? (Example: Dow Corning.)
4. How to work within the provisions of the labor contract and within the spirit as well as the letter of the law. For example, they need to know how to handle grievances and, what is more important, how to create an atmosphere where grievances are less likely to occur. (Example: General Motors.)

Example of Business Knowledge

In the wake of the Enron upheaval, Michael Johnson of The Williams Companies has played a centrally active role—as senior HR executive and later as senior vice president of strategic services and administration—in an ongoing, high-pressure effort to identify the energy firm’s key wealth-creating propositions and to emphasize them to the satisfaction of the financial markets. He has helped Williams answer the following questions:

• Which businesses will we keep and which will we sell?
• How do we identify and respond to requirements from the investment community?
• What are our target markets and how do we best serve them?
• What core processes will we establish to create value for customers and shareholders?
• How do we identify the quality and ethical standards to which our products, services, and processes will be held accountable?

Addressing such complex issues requires a considerable knowledge of the company, its value chain, and its value proposition. From the edge of bankruptcy in 2000, Williams is now ranked in Standard & Poor’s top fifty companies in terms of shareholder value—a remarkable achievement. Williams’s executives are realizing that it is valuable to have HR professionals such as Michael Johnson at the heart of the dialogues and decisions.

Examples of HR Technology

A variety of firms have found ways to improve their HR operations via technology:

• Boeing uses HR technology for basic administrative transactions and to track individuals through the employment cycle. Employees can update their own employee records and files, and enroll in and modify benefit preferences. Managers can enter and track individual performance indictors and compensation numbers. Boeing also applies HR technology to communicate static information such as policy manuals, new-employee orientation materials, technical data, and key announcements.
• Unilever uses HR technology to assist in identifying key individual and team capabilities, in disseminating job expectations, in conducting online employee surveys, and in facilitating 360-degree online evaluations and feedback.
• Hewlett-Packard uses HR technology to help build and sustain key capabilities in the workforce through online training programs, through interactive learning modules, or through online career planning.
• Microsoft uses HR technology to allocate key capabilities accurately and quickly by tracking individual talent profiles, by communicating job openings and requirements, and by matching talent needs with talent profiles.
• British Petroleum uses HR technology to facilitate greater clarity and effectiveness of project management through virtual project management tools and through chat rooms and other 24/7 communication tools.