managing human capital in changing times edward b. yost ph.d., sphr august, 2012

Ohio University College of Business Executive Education

Managing Human Capital in Changing Times

Edward B. Yost Ph.D., SPHR

August, 2012


Boa vinda a Ohio University


What is Strategic Success?

Delivering high value results to significant stakeholders

Financial SuccessOperational SuccessCustomer Success Workforce Success

Strategic Success Hierarchy

Industry

Firm/Company

Business Unit/Function

Position

Person



Defining the Business Strategy

Strategy is:The central, integrated,

externally oriented concept of how we will achieve our objectives. (Hambrick & Fredrickson)


Pharmaceuticals

Farmaceutica

Business Unit/Function

Position

Person



Start with a Strategic IntentLooking for operational, financial customer,

workforce success through…1. Betting on the incompetence of competitors 2. Acquiring and utilizing the competencies of

others3. Using existing resources & competencies

differently


Organizational Competencies

• Tangible and intangible resources and capabilities that enable the organization to:

develop, choose and, implement value enhancing STRATEGIES.


3 Basic Properties of Organizational Competencies

1. Potential to add VALUE (stakeholder)Utilize strengths/eliminate weaknesses and exploit opportunities/neutralize threats2. HETEROGENEOUS:Very few firms have it or can provide it3. NON-TRANSFERABLEDurable, immobile, hard to duplicate


Where do I Get Competencies?

From a firms internal resource endowments

Buy or shared resources (M&A)From resource deployments, systems

and processes that cannot be imitated.All depends on the workforce to enhance

the exploitation of these resources.


The Secret Revealed!

What is the SECRET of obtaining a Strategic Competitive Advantage?

Not just having a strategy and competencies but

executing the strategy.

Applying the Concept Aplicando o conceito

1. What competencies does your organization have?2. How are the competencies exploited?

1. Que competências é que a sua organização possui?2. Como são as competências exploradas?


WHAT IS HUMAN CAPITAL?

Developing Human Capital in Changing

Times



Human Capital Defined

The collective sum of the attributes, life experience, knowledge, inventiveness, energy, and enthusiasm that people choose to invest in their work. Weatherly 2003


Human Capital Markets

Various levels of valueAppreciates and depreciatesTraded in markets and regulatedIndividually owned but

collectively realized


Human Capital Value

• Unlike conventional assets human capital does not appear on the balance sheet.

• How would one value the asset?• What rules for appreciation in

value? Depreciation?


Human Capital Value

• If assets are an investment how can we calculate the ROA/ROI

• Is there a scrap value?• Is there an off setting liability?


Human Capital is Invisible

• It is vested in the human resources often in the form of intellectual and social capital.

• It is acquired, developed, utilized, and sustained through the management practices.

• Being invisible it is harder to duplicate.


Human Capital

Value inherent in the form of individuals collectively interacting in the context of formal and informal systems

• Individuals are the repository for human capital

• Systems, process, culture and context extract the value

“People are our most valuable asset”


Human Capital Has Value

“People are our most valuable asset”

PROVE IT! Must be demonstrated by management practices and actions that compose the Human Capital Architecture

Expectativas de Todos que Possuem Interesse Direto ou Indireto na

Organização• Acionistas(proprietários) desejam um retorno que

consideram justo no investimento feito.• Clientes desejam um alto valor agregado ao produto ou

serviço que consomem, e uma manutenção(garantia) que mantenha seu valor.

• Empregados desejam uma relação de emprego que forneça compensações intrínsicas e extrínsicas em contrapartida às contribuiçoes que fazem.

• Publico espera que a organização tenha responsabilidade social e se preocupe também com o bem estar dos cidadãos (cidadania corporative)


Instruções para o preenchimento das questões

Pense em uma organização com a qual você está familiarizado. Talvez a organização que você trabalha agora. Para cada par de partes interessadas selecionar o que você sente é mais importante para a organização que você escolheu. Pense sobre os recursos dedicados ou as políticas que afetam o grupo de partes interessadas. Quando você completa você irá gravar o número de vezes que você selecionou o grupo de partes interessadas e escrever o número no espaço fornecido.


Stakeholder Pesquisa

Permite Compartilhar - Qual dos 4 clientes interessados , proprietários, funcionários públicos e que a sua organização ser mais provável para atender:Em primeiro lugar?Última?


Stakeholder Survey

• Lets Share – Which of the 4 stakeholders Customers, Owners, Public and Employees would your organization be most likely to attend to:

• First?• Last? • Under Jack Welch how did GE order these?



Human Capital and The Bottom Line

• To create value through Human Capital requires a fundamental change in how it is recognized and managed in most organizations.

• The firm’s human assets have a value that corresponds to the present value of future net cash flows and are derived from the skills, motivation and adaptability of the firm’s workforce.

STRATEGY EXECUTION AND HUMAN CAPITAL


Times


Sustainability

• Goes beyond the traditional financial measures of firm performance and shareholder value - focused on achieving high levels of success in the short term without compromising the future


Executive Education College of Business Ohio Universaity

Competitive Advantage

Sustainability

Strategic Success Chain


What is “Strategic Competitive Advantage?”

Enacted or Utilized Distinctive Competency that: 1. Allows the organization to differentiate itself

from competitors

2. Cannot be readily duplicated or imitated

3. Provides a positive economic benefit(s) – KPIs


Strategy Execution


Sustainability

Strategic Success Chain

What is Strategy Execution?

• Value Creation – Enables the Value Proposition for all stakeholders

• The combination of the firm’s resources applied by the strategic business units

• Results from managerial decisions for resource allocations and tradeoffs


Strategy ExecutionEnables the Value Proposition for Stakeholders

Focus on a Strategic Business Unit -Primary Pharmaceutical Industry

Production

Marketing

Research & Development

Human Resources



Pharmaceuticals

Farmaceutica


Position

Person


Research & Development Group

Critical Outcomes for Strategy Execution – Primary Pharmaceuticals1. New Product Applications 2. Reduce Time to Market


MANAGING TALENT FOR STRATEGIC SUCCESS


Times


Talentship

• Talentship requires a redefinition of the traditional service role of HR managers in organizations.

• This involves a process of "talent segmentation" and the need to focus managerial attention on "pivotal talent pools".


Talent Segmentation

• Talent segmentation is as vital to strategic success as customer segmentation.

• Talent segmentation involves identifying pivotal talent pools where human capital makes the biggest difference to strategy execution


Human Capital (Pivotal Talent Pools)

Strategy Execution


SustainabilityOhio University College of Business

Executive Education

Pivotal Talent Pools

• Positions in the organization where quality or availability of human capital makes the biggest difference to strategy execution

• Positions that leverage the strategy execution



• Those talent pools that with a 20% improvement in quality or availability (quantity) would make the biggest difference in strategy execution and organizational success

• Example: Research & Development in Primary Pharmaceuticals



The Importance of Human Capital


Pivotal PositionsDetermine the Pivotal Positions

to Deliver Strategy Execution

Mickey Mouse VS Sweepers


Talent – Performance Yield

Yield Curve - understanding where differences in quality or quantity of talent and organization have the greatest impact on strategy execution (steepness, elasticity,D, slope)

Find the Pivotal PositionOhio University College of Business

Executive Education

Yield Curves = Pivotal Positions


What is a Pivotal Position?

• Not necessarily the highest paid/ranked position

• Not necessarily most critical• Not necessarily the most common/number• Not necessarily the most visible• Not necessarily the most obvious• Not ever a person


Pivotal Positions in Primary Pharmaceuticals

• What is the Pivotal Position for executing strategy?

• Provides the most significant (relative to others in the pivotal talent pool) improvement in strategy execution– Leveraged by the Human Capital Architecture

• Research Scientist



Pharmaceuticals

Farmaceutica


Research Scientist

Person


Yield Curve Primary Pharmaceuticals

Best Sales Rep

Worst Sales Rep

Stra

tegy

Exe

cutio

n

Performance

Best RS

Worst RS

Sales Representative

Research Scientist


Yield Curve Primary Pharmaceuticals

Performance

Research Scientist

Best Sales RepWorst Sales

Rep

Stra

tegy

Exe

cutio

n

Best RS

Worst RS

Sales Representative

20%


FINDING PERFORMANCE DRIVERS

Developing Human Capital in Changing Times


Performance Drivers Support Strategy Execution

Performance Drivers identify the most critical capabilities, the required behaviors and define the culture necessary for support of strategy execution by pivotal positionsVertical Alignment; Congruence


Finding Performance Drivers

• Starting with the critical talent pools focus down to pivotal positions

• Within that position look for the pivotal role challenges

• Identify the specific capabilities, behaviors and culture necessary to succeed at the pivotal role challenge.


Human Capital (Pivotal Positions)

Strategy Execution


Sustainability

Human Capital CapabilitiesHuman Capital BehaviorsWorkforce Culture(Performance Drivers)


Constructing the Factors of Strategy Execution

• Capability = knowledge, skill, ability or competency inherent in a unit of human capital

• Behavior = Actions, reactions, interactions exhibited by a unit of human capital

• Culture = a system of shared values, understandings and affect that distinguishes the unit that contains human capital


Performance Drivers

Strategy Execution

Culture

BehaviorCapability


New Product Applications; Research Scientist at Primary Pharmaceuticals• Capabilities: 1. Deep knowledge of specific

products, 2. Creativity and Innovation Skills, • Behaviors: 1. Scans multiple sources for

potential applications beyond present uses, 2. Share tacit knowledge with the team

• Culture: 1. Innovation and risk taking, 2. Team orientation


Reduce Time to Market; Research Scientist at Primary Pharmaceuticals

• Capabilities: 1. Project management skills, 2. Current on regulatory requirements

• Behaviors: 1. Deal with regulatory agencies effectively, 2. Design efficient processes

• Culture: 1. Outcome oriented, 2. Attention to detail


CREATING AND MANAGING HUMAN CAPITAL ARCHITECTURE

Developing Human Capital in Changing Times


Human Capital Architecture

• Depicted in the “Blue Print” of the combined human resource practices of the organization.

• To be effective and efficient in delivering strategy execution the HCA must be designed, constructed and maintained with the environmental requirements in mind - SWOT


Procurement & Retention

Compensation & Rewards

Knowledge Management

Performance Management




Why is Human Capital Architecture Critical?

• Provide a basis for a sustained competitive advantage

• Things like financial structure operational processes and technology can be easily copied or purchased


Why a HUMAN CAPITAL ORIENTED STRATEGY?

Because…...The organization can leverage

human capital by managing the architecture to achieve a higher return for owners


The Power Of HCA

Share Holder Returns

Invested Resources & Capital



The Power Of HCAShare Holder Returns

Invested Resources & Capital


Human Capital (Pivotal Positions)

Human Capital Architecture components (Enablers)

Human Capital Architecture components alignment (Vertical & Horizontal)

Strategy ExecutionCompetitive AdvantageSustainability

Human Capital CapabilitiesHuman Capital BehaviorsWorkforce Culture(Performance Drivers)




The Key Question is…

What is the appropriate Human Capital Architecture required

to provide the capabilities, behaviors and culture to

support successful strategy execution?


Benchmarking: Adopting “Generic Best Practices”

The foundation for transforming the human capital into a strategic asset

The use of “best practices” is a first step toward differentiation but be careful with importing the practice wholesale.

Best Practices from GE

• Vitality Curve • Management Development• Stretch Goals• “A” performers compensation 2 to 3

times more than “B” performers


Performance Drivers Support Strategy Execution

Components of the human capital architecture must support the most critical capabilities, the required behaviors and define the culture necessary for support of strategy executionVertical Alignment; Congruence


Designing an Effective Human Capital Architecture

Develop an integrated mix of human capital architecture components that is differentiated to deliver the performance drivers for the pivotal positions

Horizontal Alignment; Consistency


Strategy ExecutionEnables the Value Proposition for Stakeholders


Beha

vior

Strategy Execution

Cultu

re

Capa

bilit

y

Creates a Culture & Mix of Capabilities & Behaviors

Enables the Value Proposition for Stakeholders


Beha

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Strategy Execution

Cultu

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Proc

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Reta

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Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions





Align HC Architecture with HR Deliverables

• Congruence is the causal linkages between the HR systems and the realization of the strategic competitive advantage Vertical Alignment

• Consistency is the extent to which the HR policies and practices interact and support the other HR policies and practices Horizontal Alignment

Beha

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Strategy Execution

Cultu

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Proc

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Verti

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Consistent & Integrated

• Maximize the positive synergies between the critical Human Capital Architecture components

• Minimize the adverse interactions between the critical Human Capital Architecture components

Ohio University College of Business

Executive Education

Beha

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Strategy Execution

Cultu

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Horizontal; Consistency across HCA Components


HCA Must be Differentiated• The Human Capital Architecture that

supports reduced time to market may not be the same as supports new product application.

• Remember the Human Capital Architecture will be different across positions and possibly individuals too.


Beha

vior

Strategy Execution

Cultu

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Proc

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Horizontal; Consistency across HCA Components



Um descanso curto10:15 – 10:25

Managing Human Capital the Person

While the human capital architecture is designed to support the highest level of performance for pivotal positions it must ultimately be differentiated at the level of the person.



Pharmaceuticals

Farmaceutica


Research Scientist

Person


Shifting Employment Relationship

• The employer/employee relationship is shifting to a contractual relationship that is more a partnership than economic exchange.

• Larger spans of control, fewer employees delivering more output.

• Decline in traditional communications increase in cyber communications.


Shifting Employment Relationship

• Increase in the importance of a work/life balance.

• Needs, wants and behaviors of the talent pool drives changes in human capital architecture.

• Acquiring and keeping Star Performers is essential


Employee Engagement

• The biggest challenge for managers today is the employment relationship.

• Just procuring and retaining talent is not enough to excel and win

• Managers must find a way to fully engage the human capital in the organization.


Employee Engagement in Practice

• “Engagement describes how an employee thinks and feels about, and acts toward his or her job, the work experience and the company.” Intuit

• “Employee engagement is the involvement with and enthusiasm for work.” Gallup


Employee Engagement in Practice

• “Engagement is the extent of employees’ commitment, work effort, and desire to stay in an organization.” Caterpillar

• “Engagement: To compete today, companies need to win over the MINDS (rational commitment) and the HEARTS (emotional commitment) of employees in ways that lead to extraordinary effort.” Dell


Three Levels of Engagement

1. Cognitive Engagement – Employee beliefs about the company the leaders and the culture

2. Emotional Engagement – Employee affect for the organization, leaders, colleagues

3. Behavioral Engagement – the value added component of effort exerted above required minimum.


Three Key Behaviors of Engagement

1. Say: Employees speak positively about the Company to coworkers,potential coworkers, and current and future customers.

2. Stay: Employees strongly desire to continue working for the Company.

3. Serve: Employees exert extra effort and are dedicated to doing the best job to contribute to business success.


Employee Engagement

• The extent to which employees are committed to something or someone in the organization, how hard they work and how long they stay as a result of that commitment.

• Employees with high level of engagement are 87% less likely to leave and 20% more productive.


Levels of Employee Engagement

• Engaged Employees – work with passion and exuberance, feel a profound connection to the organization can’t wait to contribute more



• Not Engaged – “checked out” of the organization, effort put forth is minimal and barely acceptable, lack passion and do not identify with the organization – often the majority of employees



• Actively Disengaged – not just disconnect but unhappy, the behaviors are counterproductive and at times destructive, degenerates the culture and based on cognitive dissonance Fosters TIMJ and DGMGE


What is your organization's ratio?

• In world-class organizations, the ratio of engaged to actively disengaged employees is 9.57 to 1.

• In average organizations, the ratio of engaged to actively disengaged employees is 1.83 to 1.


Engagement and Strategy Execution

• Molson-Coors - Safety and Engagement• Average cost for a safety incident• $63 for engaged employees• $392 for a non engaged employee• Saved $41,721,760 in costs by strengthening

the employee engagement levels


Engagement and Strategy Execution

• Molson-Coors - Sales and Engagement

• High Engagement teams had $2,104,823 less performance related costs than Low Engagement sales teams


Employee Engagement and Health

• 62% engaged workers – work positively affects their health

• 39% for non engaged employees and 22% for actively disengaged

• 54% of disengaged - work has a negative impact on health and 51% say work has a negative impact on their wellbeing.



Richard and Mary

Practicing Management and Employee Engagement


How Richard sees Mary

How Mary sees Richard

Engagement Survey1. Do you know what is expected of

you at work?2. At work do you have the

opportunity to do what you do best every day?

3. In the past month have you received recognition or praise for doing good work?

4. Does your supervisor or someone in authority seem to care about you as a person?

5. At work do your opinions seem to count?

1. Voce sabe o que é esperado de voce no trabalho?

2. No trabalho lhe é dada a oportunidade de f

3. Nos últimos sete dias, alguém reconheceu o seu esforço ou elogiou o seu trabalho?azer aquilo que faz de melhor, todo o dia?

4. O seu supervisor, ou alguém a quem se reporta, parece se importar com voce como pessoa?

5. No trabalho alguém se importa com o que pensa ou suas opiniões não importam?


Bad Boss, Bad Boss

• 40 per cent of workers in the business world think they work for bad bosses.

• 39 per cent said their managers failed to keep promises.

• 37 per cent said their bosses did not give them the credit they deserved.

• 31 per cent indicated their supervisor gave them "the silent treatment."


Bad Boss, Bad Boss

• 27 per cent reported negative comments from their management.

• 24 per cent claimed their bosses invaded their privacy.

• 23 per cent stated that their supervisor blamed them or other workers to cover up personal mistakes.


A Model of Employee Engagement

Serve

Stay

Say

EmployeeEngagement

OrganizationCulture/Purpose

TotalCompensation

Relationships

Quality of Work Life

CareerOpportunity

OrganizationLeadership

WorkActivities

Model used consistently over time to assess and track engagement


Isn’t it COMMON SENSE?

Managers know that they should create functional Human Capital

Architecturesbut

They have elaborate excuses why they can’t

Performance Drivers

Strategy Execution

Culture

BehaviorCapability



Its Only Common Sense!

Half will never see the connection between People and Profits

Half will embrace the potential of the connection between People and Profit




Half will engage minimal change

Half will engage comprehensive change




Half will engage minimal change

Half won’t stay the course

Half will succeed

J


It is Difficult to ImitateOnly about 1 in 8 even come close!Implementation of a viable human capital

architecture requires deep change and a commitment to “stay the course”.

It is often slow and paybacks are a long time coming

Most of the requirements defy “Conventional Wisdom”


Just Do It?Managers to succeed in the new

normal must rely on a human capital architecture that defies

traditional practices and conventional wisdom


Obrigado para sua atenção amável

managing human capital in changing times edward b. yost ph.d., sphr august, 2012

Documents

business strategystrategy

strategic intentlooking

intangible resources

high value results

que competncias que

competncias exploradas

oriented concept

changing times edward