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Building an effective human capital strategy in a diversified media businessThe MultiCo Case Example

February 20, 2008

www.mercer.com

pHaig Nalbantian, New York

CONFIDENTIAL

This presentation contains proprietary methodologies and tools which remain the property of Mercer. These methodologies and tools cannot be used or disclosed without written consent by Mercer.

© 2004, Mercer Human Resource Consulting LLC

What is human capital strategy?

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“Human capital” defined

“ the accumulated stock of skills. . . the accumulated stock of skills, experience and knowledge that resides in an organization’s workforce and drives productive labor.”

Source: Play to Your Strengths

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Human capital strategy, therefore, is a form of asset management . . .

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. . . a plan for securing, managing and motivating a workforce to achieve business goals

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Most companies operate several profit models

Prof

it

0

Customer Solutions Profit

Price

/Uni

t

Innovation Led Profit Brand Profit

rice/

Uni

t

Other Forms

Profit Multiplier ModelAdd-on Product/Services Profit

P

Time

Example: Mercer

Cost

$/

Post-Launch

Q2 Q4 Q6 Q8 Q10

Example: HP

MarketPrice

P

BrandPrice

Example: Gucci

Switchboard ProfitBuyers Sellers

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Key Asset

Base Product

Follow-on Products/Services

Example: GE Example: Pfizer Example: eBay

An effective Human Capital Strategy must balance enterprise and business segments goals

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Companies say they prefer a one-company approach to talent…

One-company Segmentation

approach

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p yapproach

…but, in fact, they are segmenting based largely on pain points and external market conditions

Factors driving Factors driving segmentationsegmentation

Factors Factors notnot driving driving segmentationsegmentationsegmentationsegmentation

Ability to attract and Ability to attract and retainretain

GeographyGeography

segmentationsegmentation

Profit modelsProfit models

CultureCulture

MobilityMobility

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Building a Human Capital Strategy in a Global, Diversified Media Company

MultiCo: A Global, Diversified Services Company

Strategic situation – Diversified company looking to accelerate global growth, leveraging

strength of brands, while maintaining financial performanceC l ki li it h it l t t f l b l th– Company lacking explicit human capital strategy for global growth

Critical questions– Are people aligned with MultiCo’s future business requirements...

which workforce practices should be maintained or changed?– How do we maximize business results by adjusting talent

management practices?What practices should be enterprise wide versus specific to

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– What practices should be enterprise-wide versus specific to business units?

– Which combination of practices will best remove barriers to meeting our diversity goals?

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MultiCo’s Human Capital Strategy was designed to ensure that its workforce will meets its current and future business challenges

Accelerate shift from product focus to customer focus developing

Diverse and experienced “homegrown” talent (e g deep knowledge of

WORKFORCE REQUIREMENTSBUSINESS OBJECTIVES

?to customer focus, developing integrated, customized solutions to client needs

Harvest synergies within and across business segments

Better leverage technology, both in product/service delivery and in internal operations

Enhance speed, quality and cost-effectiveness of innovation

talent (e.g., deep knowledge of MultiCo markets, customers, products)

Superior leadership and management skills (e.g., know how to grow business and people)

Leaders at all levels who take initiative (and risk) in support of goals

Ability to leverage technology and innovate

HUMANCAPITAL

STRATEGY

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?effectiveness of innovationBehavior and values consistent with performance culture

Blend of technical specialists and cadre of “leaders” with experience across multiple business lines – “the catalysts”

Illustrative example

Careful examination of MultiCo’s internal labor market dynamics revealed commonalities . . .

10 7 5 / 17123

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MultiCo internal labor market (ILM) map

2,330

1,210

246

7

6

5

4

8

9

373

171

114

105

41

25

244 / 494

113 / 214

63 / 125

61 / 111

36 / 70

14 / 31

828

674

574

9

40

31

20

12

1

234

160

115

78

88

36

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890

3,099

2,326

Average active employees: 12,300

3

1

2

Levels

211

662

381

109 / 297

New hires: 2,090

396 / 999

255 / 508

Vol. / Total Exits: 1,296 / 2,866

7

28

Promotions

120

252

234

Illustrative example

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. . . and differences across business units

Segment 1 Segment 2 Segment 3

MultiCo ILM maps by segment

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Illustrative example

MultiCo’s dependence on new hires at middle and upper levels is high, undermining the ability to develop homegrown talent

Ratio of hires to promotions, by level and business unit

Level Unit 1 Unit 2 Unit 3 Corp Overall

Values > 1 indicate that entries are dominated by hires

p

11 1.8 0.8 0.8 1.0 1.1 10 0.8 0.9 0.6 1.0 0.7 9 0.3 0.5 0.5 0.1 0.5

8 0.5 0.3 0.5 0.6 0.5 7 0.3 0.6 0.5 0.4 0.4

6 0.3 1.2 0.5 0.9 0.7 5 0.8 1.3 0.7 1.2 0.9

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5 0.8 1.3 0.7 1.2 0.9 4 0.8 1.4 1.2 1.4 1.3 3 0.9 1.2 1.6 1.8 1.4 2 3.2 4.3 5.0 7.6 5.5

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Inter-company moves, which enhance synergies within and across units, are rare

Employees who changed units

Changed TO

Cha

nged

FR

OM

Unit-1 Unit-2 Corporate

Unit-1

Unit-2

Unit-3

Corporate

Changed TO

Unit-3.03% .25% .78%

.08% .19% .59%

1.22% .41% .05%

21% 67% 2 40%

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Corporate .21% .67% 2.40%

In examining otherwise comparable employees, thosewho move within and across units are not rewarded.

There are systemic misalignments between Executive views of the “desired state” and the reality of reward practices

Firm-specific human capitalMinoritiesBroad experience in MultiCo

Business degree / backgroundIndividual performanceHigh-potential

ant

Risk-taking / entrepreneurshipForeign language capabilities

Length of service

FemalesManagerial positions

Being in the “right” divisionEducational attainment / degreeHaving attended top-tier school

Shou

ld b

eVe

ry

impo

rta

ss

rtan

t

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Hired from agenciesPast performance history

Les

impo

r

ActualVery

prevalentLess

prevalent

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There is little performance differentiation and the value of higher performance ratings is minimal for otherwise comparable employees

$3,000Average impact of

5 rating v. 4

Value of rating (5=high,1=low) in terms of next year’s direct compensation

($s)

-$4 000

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

pay

rate

gro

wth

+ in

cent

ive

(

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-$6,000

-$5,000

-$4,000

Unit 1 Unit 2 Unit 3 Corp Overall

1/2 v. 4 3 v. 4 5 v. 4

Average impact of 1/2 rating v. 4

Average impact of 3 rating v. 4

Bas

e p

Performance rating

MultiCo’s People Strategy specifies a system of practices to deliver requisite workforce and business outcomes

WORKFORCE OUTCOMES• Selectively acquire diverse and

high performing talent with focus on early career hiring

• Ensure coordinated, efficient

TALENT ACQUISITION AND DEVELOPMENT: Build over buy

• Consistently apply global performance measurement framework, reflecting MultiCo’s performance priorities and values

PERFORMANCE MANAGEMENT:Emphasize growth and performance

Diverse and experienced “homegrown” talent (e.g., deep knowledge of

BUSINESS OBJECTIVES

Accelerate shift from product focus to customer

TALENT ACQUISITION AND DEVELOPMENT

REWARDS

HUMANCAPITAL

STRATEGY

PERFORMANCEMANAGEMENT

sourcing based on measured results

• Establish clear, well-defined career op-portunities and focused development paths

• Enhance technical training and continuous learning and emphasize management / leadership development

values• Encourage results

achievement as well as business and personal growth and development

• Clearly differentiate between exceptional, effective and ineffective performers

• Encourage continuous learning and performance improvement

• Provide employee discretion to act and pursue calculated risks

MultiCo markets, customers, products)

Superior leadership and management skills (e.g., know how to grow business and people)

Leaders at all levels who take initiative (and risk) in support of goals

Ability to leverage technology and innovate

Behavior and values consistent with performance culture

focus, developing integrated, customized solutions to client needs

Harvest synergies within and across business segments

Better leverage technology, both in product/service delivery and in internal operations

Enhance speed, quality and cost-effectiveness of innovation

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• Value MultiCo-specific experience, deliver strong career rewards with clear calibration of advancement and pay opportunities

• Strengthen link between total rewards and individual, team, and organizational performance; enhance total rewards differentiation for high, effective and low performers

• Recognize and reward exceptional contributions to growth; value intra- and cross-segment / geography entrepreneurship

• Offer high potential track for accelerated development / rewards

REWARDS: Value careers • Increase spans of control and accountability

Blend of technical specialists and cadre of “leaders” with experience across multiple business lines – “the catalysts”

Illustrative example

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Implementing with accountability requires the right metrics

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Summary and Discussion

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Key messages

Human capital strategy matters

- Yet for most organizations, HCS is implicit, arrived at by default

- This approach is no longer good enough- This approach is no longer good enough

Human capital strategy is a form of asset management

- It requires the same kind of discipline associated with finance andother forms of asset management and a continuous eye towards ROI

- The tools to support this new discipline are finally emerging

There are three key principles for building an effective human capital

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There are three key principles for building an effective human capital strategy

- Think systems

- Get the right facts

- Focus on value

Key messages (cont’d)

Master your ILM – and secure HR’s place at the table

- HR’s “strategic” role is to help secure, motivate and manage theworkforce required to achieve business goals

- This role is facilitated by measuring and understanding the dynamicprocess that “produces” your organization’s workforce

Capitalize on what no one else can know about your business

- Modern electronic information systems combined with newmeasurement methods permit organizations to continuously reviewthe running record of their own performance to determine what works

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g pand what doesn’t

- In the process, you can increase the return on your substantialinvestments in these systems as well as on your enormousinvestments in human capital

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Applying this new discipline will improve the decision process around human capital

Develop metrics on a par with other functionsPredict and produce cause-and-effect outcomes Reduce squabbling . . . make decisions fasterImplement . . . and change the organization faster Strengthen accountability for human capital performanceEstablish the HR function as a true business partner whose value is continuously demonstrated

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Create a competitive advantage that is 1) long-lasting and 2) impossible to copy

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Profit models describe how profit happens

How Profit HappensHow Profit Happens(Profit Models)(Profit Models)(Profit Models)(Profit Models)

Where do we make profit?Where do we make profit?

What drives profit improvement?What drives profit improvement?

What profit models (and how many) do we operate What profit models (and how many) do we operate today?today?

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What profit models (and how many) will we operate What profit models (and how many) will we operate in the future?in the future?

Talent segmentation means to differentiate talent management practices to meet the requirements of:

Specific profit modelsSpecific profit models

Employee needs

External talent markets…

… to optimize business performance

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Mercer’s approach to creating a new strategy was based on a systematic comparison of MultiCo’s “current” and “desired” states

Qualitative

“CURRENT STATE”

Qualitative

“DESIRED STATE”BLUEPRINT COMPONENTS

Capabilities

Behaviors

Attitudes

existing policies and practices

workforce attitudes (e.g., employee survey)

senior leadership perspectives

senior leadership perspectives

external benchmarking (e.g., high growth and “best to work for” companies)

Quantitative Quantitative

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People Practices

patterns of hiring, development, movement, rewards, exits (i.e., Mercer’s Internal Labor Market Analysis)

levels and sources of firm performance risk (i.e., Mercer’s Performance Sensitivity Analysis)