monitor human capital strategy

8/7/2019 Monitor Human Capital Strategy

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monitor group

Human Capital Strategy PULLING AHEAD OF THE COMPETITION AND STAYING THERE


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MONITOR GROUP

Monitor Group is a family of professional service rms, linked by shared ownership,management philosophy, and knowledge assets. Each entity in the Group is dedicatedto providing products and services which fundamentally enhance the competitivenessand capabilities of our clients. We operate globally in a closely-linked network, sharingour core assets knowledge, expertise, skill and capital. Those assets are brought tobear for the benet of our clients through a blend of channels including;

consulting interventions; management development programs; customized software and intelligent tools; cutting-edge market research; venture capital and advisory services; and private equity.

LATTICE PARTNERS

Lattice Partners helps companies build sustainable competitive advantage throughtheir organizations, leadership teams, and people. We adopt a highly pragmaticapproach in our interventions:

Seamlessly combining structural, process, and incentive design withcoaching and counseling capabilities

Using software technology to make diagnosis and intervention fast

and cost-effective Integrating broadly across our experience in general management

consulting and expertise in human capital disciplines

Our range of tools and interventions help clients sense and adapt to changingcompetitive and leadership dynamics, improve organizational performance, and buildinstitutional capability.

ACTIVITIES, PROCESSES AND SYSTEMS (APS)

APS (Activities, Processes and Systems) is Monitors center of expertise on OperationsStrategy. APS helps companies make the critical choices about how to congure theirassets and operations in order to drive sustained success in the marketplace. Specicareas of focus include: overhead management; manufacturing and supply chain strategy;product, customer and channel protability. APS works closely with its sister businessunits, such as Lattice Partners, to offer clients integrated solutions to their most pressingoperational challenges.

Copyright 2006 by Monitor Group All Rights Reserved


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In most organizations, business leaders con-

front a stubborn dilemma. On the one hand,they know that managing their people well is

vital to winning in the market. With wrench-ing changes from restructuring, off-shoring,and industry consolidation; turnover in topmanagement; and heightened competitionfor skilled workers now, more than ever,companies need a clear and compelling hu-man capital strategy. On the other hand, thepressure to cut human capital spending is re-

lentless. In short, the business needs humancapital initiatives that create more strategic valueyet cost less.

The Missing Link

In response to these pressures, many compa-nies have focused their attention on the HRfunction. Company after company has setabout transforming its HR function settingup new centers of excellence, redening the

role of the HR business partner, establishingshared service centers, and outsourcing basic

functions. Though such efforts have saved

real money and started to move HR into morestrategic roles, few companies have fully re-alized their human capital potential. Indeed,in many organizations, there remains a per-sistent disconnect between business strategyand HR functional strategy. What these orga-nizations lack is a clear and coherent humancapital strategy to link their business and HRchoices (SEE FIGURE 1) .

In developing a human capital strategy,there are three important principles to keepin mind. First, a human capital strategyshould be grounded in the rms competi-tive strategy, which can be articulated as acascade of choices:

What are our goals and aspirations(e.g., mission, vision, values)?

HUMAN CAPITAL STRATEGY Changing the Value Equation

Human Capital Strategy

Attraction

Performance

ManagementDeployment

InvestmentNetworks

LeadershipCulture

Values

HR Function Strategy

What are our goalsand aspirations?

Where will we play?

How will we win inchosen markets?

What capabilities must be in place to win?

What managementsystems are required?

FIGURE 1Human Capital Strategy The Missing Link

In many organizations, there remains a persistent disconnect between businessstrategy and HR functional strategy.

Competitive Strategy


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M O N I T O R G R O U P

2

Where will we play (e.g., markets, customer

segments, geographies)?How will we win (e.g., choice of businessmodel, value proposition)?

What organizational capabilities must bein place?

What management systems are needed?

Second, for a human capital strategy to betruly robust, it must not only consider thestrategy of today but also its potential evo-

lution in the future. This evolution will bedriven by a range of external uncertainties,such as whether the competition for top tal-ent will occur on a regional or global basis.The pools from which the company sourcestalent, the consistency of rewards and recog-nition, and the choice of career paths for top

talent will all vary depending on how this

uncertainty plays out. Robust human capi-tal strategies factor in a range of potentialuncertainties (SEE FIGURE 2) and assess their overall implications.

Finally, in addition to being grounded in theexternal competitive reality, effective hu-man capital strategies start with a simplepremise people are an asset of a company,not unlike its physical, nancial, knowl-edge, and social assets. Though human assetsclearly have distinctive qualities relative toother assets (e.g., personal choice, individual

variability), they can be deployed using asimilar lifecycle management approach. For each organizational capability required tosupport the business strategy, the key dimen-sions of human capital choice are:

REGIONAL

HEAVY

LOW

GEARED TOWARDCOST CUTTING

TRADITIONAL ANDHIERARCHICAL

TOP-DOWN

GLOBAL

LIGHT

HIGH

GEARED TOWARDGROWTH

NETWORKED OR VIRTUAL

BOTTOM-UP

Competition for Talent

Regulatory Constraints in HR Management

Adoption of Online HR Services

Organizational Priorities

Dominant Type of Organizational Structure

Sources Of LeadershipInnovation and Change

FIGURE 2

Examples of Human Capital Related Critical Uncertainties


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Attraction: how will we attract and retain

the required talent?Deployment : what are the pivotal roles inthe organization and what performancemust we have from people in those roles?

Investment : what new skills and compe-tencies must we develop in our people andthrough what means?

Networks : what are the key organizationalinterfaces where collaboration matters (e.g.,marketing sales) and how can we estab-lish the right person-to-person connectionsacross these interfaces?

Performance Management: how will wemeasure and reward success?

Culture and Values: what sets of norms,principles, and behaviors should weespouse and how do we embed them inthe organization?

Leadership: what kind of leadership system

do we need and how can we enable adiverse range of leadership styles?

For a human capital strategy to betruly robust, it must not only consider

the strategy of today but also its potential evolution in the future.

Rethinking the HR Function

A well specied human capital strategy can deliver a rangeof business benets greater organizational alignment,better execution against the organizations key capability requirements, improved yields in recruiting, higher levelsof talent retention, and greater employee engagement andproductivity. But perhaps the most immediate impact is

in redening the role of the HR function. Effective humancapital strategies require companies to view HR not as amonolithic function but rather as a portfolio of distinctactivities that deliver different kinds of value:

1. Strategy enabling the critical few activities that driveadvantage in the marketplace by directly supportingthe rms human capital strategy (e.g.; talent man-agement, organizational strategy)

2. Risk mitigating activities that mitigate downside risk(e.g.; continuity planning, labor relations)

3. Efciency enhancing discretionary investments that

reduce costs and enhance productivity (e.g.; employeeportal/self-service administration)

4. Basic services transactions that keep the business run-ning (e.g.; benets administration, employee records)

Dividing HR into these activity classes allows executivesto more effectively manage the investment portfolio. Justas nancial investors expect different risk and return pro-les from equities and bonds, business leaders shouldhold each HR activity class to different standards and ex-pectations. Benets administration, for example, shouldbe managed to be as efcient as possible while meeting

standard (undifferentiated) quality levels. On the other hand, the potential enterprise benets of a carefully de-signed and well-executed talent management programfar outweigh the associated HR costs in this case, thediscussion should be focused not on how much the pro-gram costs but how to drive and measure the value thatit creates.

It is no longer okay to put HR under a single managementstructure, apply a single set of performance measures andrewards, source people from the same hiring pools, andtrain them to a common set of competencies. Doing so

has the benet of allowing for quick and easy compari-sons with other companies and simple ways to keep score(headcount and spending benchmarks). But it also erodesHRs value just when the company needs it most. Ignoringthe different activity classes drives hundreds of companiesto virtually identical approaches to stafng, objective set-ting, performance management, talent, and employee en-gagement. This march toward standardized best practicereally creates undifferentiated average practice, and canlead companies to inadvertently eliminate the things they do that are truly distinctive.


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C A S E S T U D

Y Undiscovered Savingsand ValueASSESSMENT

Companies that articulate their human capi-tal strategy and assess the implications for HR often nd signicant cost savings inour experience, anywhere from 15-25% of addressable costs. Yet the most profoundchange is not the reduction in headcountand low value activity or a faster move tooutsource basic services. Rather, it is the re-balancing of the HR investment portfolio,which often results in greater spending onstrategy enabling and risk mitigating activi-ties, as well as a renewed focus on improvingthe ROI for efciency enhancing activities.

Take, for example, the case of a leadinghealth care provider. HealthCo risked losingits market leadership because of regulatoryand competitive pressures not to mentiona public crisis of condence stemming from

glaring quality issues. As part of its turn-

around, the company sought to dramaticallyreduce non-clinical support spending whilereestablishing itself as a leader in the qualityof patient care.

HealthCo began by taking a close look at itsoverhead spending, and discovered that whilethey traditionally only looked at corporateoverhead spending that took place in cor-porate and regional headquarters in realitythis represented only a fraction of their totaloverhead activity, with the majority beingembedded within individual facilities intheir medical network (SEE FIGURE 3) .

Within the HR function, for example, for ev-ery dollar spent by corporate, ve additionaldollars were being spent in the facilities, fre-quently with high degrees of duplication and

very little coordination or sharing of bestpractices.

TOTAL Facility Admin

Billing/Collection

HR/Education

Medical Affairs

Corp.Other

RegionalOperations

Facility Admin

Med Records/Transcription

IS Marketing/Communication/

Business Dev.

Finance Legal FacilitiesManagement

Corporate

Embedded

12%

88%$MM

FIGURE 3HealthCo Corporate and Embedded Overhead


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To supplement the cost data, HealthCo alsoconducted an internal survey of all of its fa-cilities leadership teams, to assess the valuethat corporate overhead functions were cre-ating for the line. Figure 4 shows the resultsfor the HR function: every point on the chartrepresents a specic service that corporateHR was performing to support the facilities,with each service being evaluated in terms of its importance to the line and how well it wasperforming. As the chart shows, the majorityof corporate services were deemed by usersto be of limited value, including a number of

services meant to support the recruiting anddevelopment of nurses.

Notably, when asked about the general im-portance of recruiting and retaining nurses,facility leaders declared that this was one of their most critical strategic challenges. They

just felt that corporate recruiting serviceswere disconnected from the realities of their markets, highly ineffective and therefore notto be counted on. Unfortunately, their effortsto do their own recruiting at the local facilitylevel were not succeeding either, largely be-cause individual facilities did not have the scaleto invest in developing professional recruitingfunctions. As a result, the number of nurse

openings had been steadily increasing acrossthe HealthCo network, with a correspondingincrease in expensive contract (temporary) la-bor hours and costs (SEE FIGURE 5) .

Performance

HIGH

LOWHIGHLOW Importance

Nurse Communications/Online Services

Leadership Skills Training

International Nurse Recruiting

Nurse Recruitment/Retention

FIGURE 4User Perceptions of Importance and Performance

for Corporate HR Services

The most profound changeis the rebalancing of the HRinvestment portfolio.


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SOLUTION

All of this was of particular concern giventhat HR-related activities would need toplay a critical role in HealthCos strategicturnaround. Specically, HealthCos overallobjectives were to improve the quality of pa-tient care while continuing to drive earningsgrowth. To do so, they developed a strategythat consisted of focusing on higher margin,complex procedures and developing a uniquein-patient care experience within the com-panys regional clusters of medical facilities.Nurse practitioners, with deep clinical exper-tise and the ability to deliver consistent andhigh quality patient care, were central to thisstrategy. However, as Figure 4 above dem-onstrates, the nationwide shortage of nurses,competitive labor markets, and unionized la-bor pools made it extremely challenging toexecute the strategy. As a result, HR leader-ship faced the all too common dilemma: de-

velop and execute a winning human capitalstrategy that is critical to the rms success,and simultaneously nd ways to cut overallHR spending. Led by top line and HR execu-tives, HealthCo launched a systematic humancapital and HR overhaul. Specic elements of the human capital strategy included:

Attraction: Targeting early career nursepractitioners, with an employee valueproposition focused on superior learningand development programs to build deepclinical expertise and policies to supportexible engagement; Deployment: Creatingregional resource pools that supportedexible engagement, and dening career progression paths that enabled greater choice of specialty for early career nurses;

Development: Shifting the mix of learningand development programs scaling backgeneric training programs and reinvestmentof savings in best-in-class specialty training;

Year 1

RN Hires as a Percent of Total Hires

RN Openings as a Percent of Total Openings

Year 2 Year 3

60%

50%

40%

30%

20%

Contract Labor Costs

HealthCo Corporate and Embedded OverheadNurse Hires/Openings as a Percentage of Totals FIGURE 5

C o s t

C A S E S T U D Y


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Networks: Creating formal mechanismsfor senior practice specialists across thecountry to share best practices and denenational quality standards and policies;

Performance Management: Changingmeasures and rewards to focus on demon-strated expertise and patient care, rather than tenure;

Culture and Values: Dening and embed-ding a quality of care culture at everypatient touch point; and

Leadership: Redening the role of theChief Nursing Ofcer to lead developmentof practice expertise.

RESULTS

The HR function required a signicant trans-formation in order to deliver on this humancapital strategy while at the same time driv-ing efciencies in HR spending. Specicelements of the HR program included:

Investing in regional nurse recruitment andresource management capabilities in par-

ticular, hiring skilled recruiters to managenurse recruiting and deployment across allof the facilities in a particular labor market(strategy enabling )

Working jointly with organized labor todevelop and execute key human capitalinitiatives ( risk mitigating )

Moving to on-line and outsourced learn-ing programs for basic training ( efciency enhancing )

Developing shared services for benets ad-ministration, employee records and vendor negotiation/management ( basic services )

The result was a signicant rebalancing of the HR activity portfolio (SEE FIGURE 6) .

Overall, this led to a 15% reduction in HRspend with an equivalent level of savingsexpected in contract labor costs as a resultof lling nurse vacancies. Most importantly,it enabled signicant reinvestment in patientcare and quality management systems todrive increased patient satisfaction.

HR Investments Before and After Redesign FIGURE 6

Benets Labor Relations

Recruiting EmployeeRelations

Research/Reporting

Compensation

C A S E S T U D Y


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Getting Started

Companies should revisit their human capi-tal and HR functional strategies when theydo not have convincing answers to or clear alignment among line and HR executives onthe following questions:

1. Capabilities. Is it clear what organizationalcapabilities are required to support thecompetitive strategy?

2. Human Capital Priorities. Is it clear what

initiatives, focused on the specic em-ployee segments, are needed to deliver therequired organizational capabilities andengage each segment? Can executiveleadership articulate the companys top 5human capital priorities?

3. HR Priorities. Are there clear and compel-ling links between the competitive, humancapital and HR functional strategies? Whereis the HR function over- or under-deliveringrelative to its strategic priorities? Is there asystem that tracks HR value creation relativeto strategy, needs, and costs over time?

4. Mode of service provision. Have HR andthe line appropriately divided responsibil-ity for delivering on the human capitalstrategy? Has the company considered thefull range of options for providing key HRactivities (e.g., shared service centers, cen-ters of expertise, automation, outsourcing)?

Human capital strategy gives companies thetools to answer these questions and to breakout of the HR dilemma. The result is an HRfunction that succeeds not only on the usualbenchmarks, but on the only one that reallycounts: pulling ahead of the competition,and staying there.


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SAMEER SRIVASTAVA is a Partner in Monitor Group and a co-founder of Lattice Partners, the rms human assets and organizational strategy unit. Hehas helped clients drive major organizational change initiatives and align their

organizations with competitive requirements. He holds a degree in Economicsfrom Harvard College and an MBA from Harvard Business School.

AMBAR CHOWDHURY is a Partner in Monitor Group and a leader of APS, the rms operational strategy unit. Previously, he was an assistantprofessor of mathematics at the University of Connecticut. Ambar received hisPhD from the University of Notre Dame and his BA from Oxford University,both in mathematics.

DOUG M ACKENZIE is a Partner in Monitor Group and the leader of Lattice Partners West Coast practice. Before Monitor, he was a Senior VicePresident and head of Worldwide Human Resource Development (HRD) at

American Express Company, where he also served as Corporate Chief QualityOfcer. He earned his Masters of Business Administration from the HarvardGraduate School of Business, and a Bachelor in Environmental Economics fromColorado College.


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CONTACT

Monitor Group Two Canal Park

Cambridge, MA, 02141p 617.252.2000f 617.252.2100

Sameer Srivastavap 617.252.2475

[email protected]

Ambar Chowdhury p 617.252.2856

[email protected]

Doug MacKenziep 415.278.5885

[email protected]

www.monitor.com www.latticepartners.com

www.adaptiveoverhead.com

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