ohio university college of business executive education strategic management of human capital edward...

Ohio University College of Business Executive Education

Strategic Management of Human Capital

Edward B. Yost Ph.D., SPHR

September 1, 2008


Bom dia

Boa vinda a Ohio University


What is Strategic Success?

Delivering high value results to significant stakeholders

Financial Success

Operational Success

Customer Success

Workforce Success


What Companies are Most Successful?

Name some companies that are consistently delivering strategic success to the stakeholders.


What determines strategic success in business?

• Being in the right (growth) industry

• Size

• High Technology

• Low cost

• Global Reach

• Strategic Intent


The “Right” Industry

• The best returns are from “Growth”– In terms of returns to shareholders there is no

evidence that this is true


Bigger is Better?

• While there may be some truth to this it is far from universal– Only about 1% of returns on total capital

and/or returns on net worth are explained by revenue

– In some industries the relationship is negative– Big is nice but not very important


Is High Tech. the Answer?

• Technology may not be an automatic route to Success– while some high tech organizations top the list

it is lonely at the top and the staying power is questionable


Low Cost = High Returns?

• Manifestation of cost control is “rightsizing”– The problem is that cost cutting ignores the

other half of profit making - revenue.– Cost cutting is like the thrill show of jumping

w/o a parachute -you can only do it once!– Cutting people cuts loyalty not a simple lay off

and recall process.


Global is Good!

Being Global doesn’t hurt but isn’t almost everybody?

And… to be successful requires significant changes in all management systems


Defining the Business Strategy

Strategy is:The central, integrated,

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


Start with a Strategic Intent

Looking for operational, financial customer, workforce success through…

Betting on the incompetence of competitors

Acquiring and utilizing the competencies of others

Using existing resources & competencies differently


Strategy as a Process

StrategicStrategicIntentIntent

Emergent Emergent StrategiesStrategies StrategicStrategic

SuccessSuccess

Strategy Strategy ExecutionExecution


What is “Strategic Competitive Advantage?”

Any Enacted or Utilized Organizational Competency that:

Allows the organization to distinguish itself from competitors

Cannot be readily duplicated or imitated

Provides a positive economic benefit(s)


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

• Potential to add VALUE (shareholder)

• Utilize strengths/eliminate weaknesses and Exploit opportunities/neutralize threats

• HETEROGENEOUS:

• Very few firms have it or can provide it

• NON-TRANSFERABLE

• durable, immobile, hard to duplicate


Where do I Get this Stuff?

From a firms internal resource endowments

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

processes that cannot be imitated.All of this is dependent on the workforce to

enhance the exploitation of these resources.


The Secret Revealed!

What is the SECRET of obtaining a Strategic Competitive Advantage?

Simple:Just do what everyone else

ISN’T! Don’t imitate – INNOVATE!


Strategy execution requires active management PROCESSES that:

Focuses organizational attention on winning & motivate the people to seek the end through communicating the value of the target



Provides for individual and team contributions with contingent and equitable recognition and rewards



Sustains the level of commitment and enthusiasm by providing for new operational definitions of the target as circumstances change.



Using the strategic intent consistently to guide and sustain resource allocation decisions


The Key to Strategy Execution

Workforce Capabilities (Select & Develop Skills)

X

Workforce Mindset and Culture

=

Leadership & Workforce Behaviors to Strategy Execution


Human Capital

Right HR Practices

Right types of HR alignment

Strategy Execution

Leadership & workforce behaviors

Workforce Capabilities

Workforce mindset & culture


What is Human Capital?

Talents and abilitiesKnowledge and skillsSocial networks (capital)Desire and visions


Human Capital Markets

Various levels of valueAppreciates and depreciatesTraded in markets and

regulatedIndividually owned but

collectively realized


Human Capital Defined

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


Human Capital and The Bottom Line

• To create value through the HR requires a fundamental change in managing human capital.

• 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.


Why a HUMAN CAPITAL ORIENTED STRATEGY?

Because…...The organization can leverage

people with capital to achieve a higher return for owners


The Power Of HR

Share Holder Returns

Capital

Human Resource Systems


So What is Important?

Successful organizations understand the importance of implementation, not just strategy, and moreover, recognize the critical role of human capital in the process”

“People are the Strategy”- and to be successful organizations need

to manage human resource systems


Why are people important?

Provide a basis for a sustained competitive advantage

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


How Human Capital Helps

• Workforce behaviors are the only way to achieve strategic outcomes like:

• World class customer service

• New product development

• Cost controls

• You name some more…


Human Capital is Invisible

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

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

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

• Being invisible it is harder to duplicate.


Basics of an HR System

• More than the traditional functional components of HR.

• Staffing, Training, Appraisal and Rewards are still important functions but…

• They must be managed as a system; designed to produce employee behaviors that focus on key business priorities and drive profits, growth, and market value.


High Performance Work Systems

• HPWS are generally firm specific and designed around the needs of the firm.

• HPWS requires a strategic collaboration between traditional HR and CEO.

• Requires alignment with the broad strategic infrastructure of the firm.

• Must contain opportunity to participate, incentives, and skills


HPWS & The Employment Relationship

Any intervention, and especially transformational interventions, that alter the Employment Contract

EconomicPsychologicalSocial


HPWS --- Pfeffer’s 7

• Employment Security

• Selective Hiring

• Self Managed Teams

• High and Contingent Compensation

• Extensive Training

• Reduced Status Distinctions

• Extensive Information Sharing


A True HPW System

• Goes beyond the cost center to a market base measurement.

• Today’s HR interventions directly impact present value of tomorrow’s cash flows.

• One estimate of impact of HPWS is $15,000 to $60,000 increase of market value per employee.


Human Capital Index

0

10

20

30

40

50

60

70

5 Yr TRS

LowMediumHigh

In a Watson Wyatt study companies that scored higher on HCI delivered significantly higher Total Return to Shareholders over a five year period.


Practices That Lead to High Performance Organizations

*Impact on

Market Value

Recruiting & Retention Excellence 7.9% *based on 1 standard deviation

improvement



Impact on

Market Value

Total Rewards & Accountability 16.5 % *based on 1 standard deviation improvement



Impact on

Market Value

Collegial, Flexible Workplace 9.0% *based on 1 standard deviation

improvement



Impact on

Market Value

Communication Integrity 7.1% *based on 1 standard deviation improvement


Obtaining Strategic Success

Financial SuccessOperational SuccessCustomer Success• All are LAGGING indicators of

strategic success


Obtaining Strategic Success

StaffingTrainingAssessing PerformanceRewards• All are LEADING indicators of

Strategy Execution


Staffing

• Buying Human Capital

• A procurement function

• An inventory management and valuation function

• Matches human capital resources to needs

• Provides for retention and divesting of human capital


Training & Development

• Creating Human Capital

• Matching competencies and skills to strategic needs

• Capturing, maintaining, allocating and protecting knowledge

• Preparing for the future


Assessing Performance

• Measuring the critical behaviors that support strategic success

• Evaluates the effectiveness of staffing

• Identifies training & development needs

• Evaluates the effectiveness of training & development

• Provides a basis for allocation of rewards


Rewards

• Provides a culture and mind-set to support strategic execution

• Encourages critical behaviors

• Attracts critical and capable human capital

• Retains effective and removes ineffective

human capital


Interaction of HR Systems

Staffing

Rewards

Training Assessment


The Key Question is…

What type of HR management system is required to deliver a workforce capable of successful strategy execution?


HR System Differentiation Drives Strategy Execution

Strategic

Impact

Workforce Differentiation

Low Medium High

Generic Best HR Practices

Core HR System Differentiation

Strategic HR System Customization


Generic Best Practices

The foundation for transforming the human capital to a strategic asset

It is the combination of HR policies and practices that support the management of the workforce

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


Core Workforce Differentiation

High level HR management systems to support high-level business strategies

Differentiation based on firm’s core strategy

Assumes a small number of relatively generic core strategies

Attempt to match elements of the HR system to the core strategy


Using the Core Approach

It is relatively easy to implement and a good place to start the process of aligning the HR strategy with corporate strategy – because there is only one point of alignment which is the core value proposition

Yet the limited options prevents this approach from developing significant competitive advantage


Strategic HR System Customization

Differentiated HR management systems in support of strategic value drivers

The focus is more explicit than core workforce differentiation with clear linkages between the HR system and strategic performance drivers

There may be great variation of HR systems within the organization


Avoiding Execution Imitation

To develop strategic activities that creates value for customer in inimitable form

First, the organization articulates the system of strategic activities that define successful strategy execution

And define the KEY performance drivers in the strategy execution process and their relationship to one another


Fitting to the Internal Requirements

Differentiate the core HR systems sufficiently to meet the unique human capital needs of each performance driver

This approach is increasingly required as different elements in strategy execution require different workforce behaviors, mind-sets, and competencies


Positioning Customization of HR Strategy

A continuum from best practices to customization

Selecting the degree of customization depends on the cost benefit calculation

Creating differentiated HR system creates costs at the same time it adds value

As with all strategic decisions – a tradeoff


Align HR Architecture with HR Deliverables

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

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


Deadly Combinations and Powerful Connections in HPWS

Deadly combinations - result from adopting or adapting HR practices in isolation.

Powerful connections - result from synergies obtained from complimentary HR practices that occur as a function of the environment.


Deadly Combinations • Often result from rewarding A while hoping

for B.

• Example: Train on customer service and reward on a percent of sales bonus.

• Example: Recruit highly talented people and promote on seniority.

• Often a result of random benchmarking!


Powerful Connections • Based on a Human Capital Management

approach not a simple collection of HR functions.

• Example: Investing large sums in developing employees and then assessing and rewarding based on performance.

• Others????


For Alignment to Work…

HR practices need to be strategically redundant

It is not enough for the selection or the training or the compensation to be aligned with desired workforce outcomes

All of the HR programs must work together as a synergy creating system for workforce success


HR Systems

Value Creation

Strategy Execution

The Product of Workforce

Capabilities X Mindset and Culture

Leading Indicators

Lagging Indicators


Creates Value because it is tied to Performance Results!

Innovation Customer Service Organizational Learning and Skill Development Productivity Speed Cost Reductions All of which lead to increased returns to owners

over time.


Um descanso curto


Richard and Mary

Practicing Management


The Key to Strategy Execution

Workforce Capabilities (Select & Develop Skills)

X


=

Leadership & Workforce Behaviors to Strategy Execution


Start with Workforce Capabilities

Select & Develop Required Skills

–Staffing contributions did they have the right skill set to start?

–Training contributions did they have the opportunity and rewards to develop required skills?


Workforce Mindset and Culture Richard and Mary

Individual perception of the situation?

• Their Role – Performance measures, – Rewards

• The role of others?– Performance measures, – Rewards


Leadership & Workforce Behaviors

• Do we know what we should be doing?

• Do we know what others should be doing?

• Do we clearly communicate & understand the strategic intent?


Workforce Capabilities: Richard & Mary

Select & Develop Required Skills

–Staffing contributions did they have the right skill set to start?

–Training contributions did they have the opportunity and rewards to develop required skills?



Individual perception of the situation?

• Their Role – Richard/Mary – Performance measures, – Rewards

• The role of others – Richard/Mary– Performance measures, – Rewards



• Does Richard know what he should be doing?

• Does he know what Mary should be doing? His superiors?

• Does he clearly communicate & understand the strategic intent?



• Does Mary know what she should be doing?

• Does she know what Richard should be doing? Her subordinates?

• Does she clearly communicate & understand the strategic intent?


Mary

• Does she have capabilities?

• What is her mindset and culture?

• Is she maximizing strategy execution?


Richard

• Does he have capabilities?• What is his mindset and

culture?• Is he maximizing strategy

execution?


How Richard sees Mary

How Mary sees Richard


Explaining Attributes of Performance

• Subordinates attribution of their own performance

• I have the ability - more than enough

• Opportunities are available; if I want them

• But my supervisor’s mind set holds me back – I could do so much better if….


Explaining Attributes of Performance

• Supervisors attribution of their subordinate’s performance

• They have the ability – I gave it to them

• Opportunities are available; if they want them

• But my subordinate’s mind set holds them back – They would do so much better if….


Solving the Problem

What can be done?Is it Human Capital?

Is it HR Practices?

Is it a Lack of Support?


Human Capital

Right HR Practices

Right types of HR alignment

Strategy Execution

Leadership & workforce behaviors

Workforce Capabilities

Workforce mindset & culture


Isn’t it COMMON SENSE?

Managers know that they should implement high performance

factors

but

They have elaborate excuses why they can’t


Its Only Common Sense!

Half will never see

the connection between

People and Profits

Half will embrace

the potential of


People and Profit



Half will never see


People and Profits

Half will engage minimal change

Half will engage

comprehen-sive change



Half will never see


People and Profits

Half will engage minimal change

Half won’t stay the course

Half will succeed


It is Difficult to Imitate

Only about 1 in 8 even come close!Implementation requires deep

change and a commitment to “stay the course”.

It is often slow and backsliding is common

Most of the requirements defy “Conventional Wisdom”


Just Do It?

Managers will need to know WHAT to do but they will

also need to know HOW to do it and must have the

competencies and support with which to do it!


Obrigado

para sua atenção amável

ohio university college of business executive education strategic management of human capital edward...

Documents