HR Business Modeling to Sustain Competitive Advantage

HR Open Source Society

First Who, then What

Objectives
Introduce the concept of business models and why we need them for our work. Identify the practical linkages between an business model and day-to-day work. How to develop Powerful HR Business Model to Sustained Competitive Advantage Redefine The Future of HR (Professional) Get Coffee & Coaching from Neutron Jack!

Todays HR Dashboard
Business Challenge SCA Culture

Business Strategy

Strategic HR Metric Execution & Result

Kaizen

HR Strategy

Integrated HR Business Model

GTMP
HPLO

The Future of HR

Business Challenges
Tough Times for Top Executives
Over the past three years, nearly 40 percent of the top 2500 CEOs have been removed from their posts. Nearly all of them, due to a failure to execute the strategy.
Bossidy and Charan

Food for thought

it is not the lack of a strategy that causes [Senior Executives] to lose sleep, but rather their organizations inability to execute against a strategy Booz-Allen & Hamilton Having a great strategy is no longer enough lots of companies can develop great strategies. To win, companies must be able to turn great strategy into great performance. In short, they must be able to execute. Marion Associates Execution is a disciplined process or logical set of connected activities that enables an organization to make its strategy work. Execution can itself be a source of competitive advantage. Hrebiniak, Making Strategy Work, Wharton

EXECUTION
Strategy

Alignment = Successful Execution

People

Processes

To execute strategy you need to align your strategy, process and people!

The Alignment Challenge

Fast Logical !
Strategy

Alignment = Successful Execution

Slow . . . And follows a different logic . . .

People

Processes

Fast Logical !

Success and speed of execution depend on people alignment, Yet this is the hardest element to align!

BUSINESS STRATEGY
Building Sound Business Strategies

The Marketing Strategy

The Product Strategy

The Financial Strategy

The Organization Strategy

The Customer Service Strategy

Building Sound Business Strategies: Processes

Start Here.?.

Business Mission & Objectives

Start Here ?..

WOTS External

WOTS Internal

Start Here ?..

(Refined) Goals & Objectives Formulation

Strategy Formulation

Implementation

Feedback & Controls

Strategy Typology
Porter: Overall cost leadership Differentiation Focus Miles and Snow: Defenders Prospectors Analysers Reactors

Our Checklist
Economic Performance
Valuable ? No Rare? -Costly to Imitate? Exploited by the Organization? -Competitive Implications Competitive Disadvantage Competitive Parity Temporary Competitive Advantage Sustained Competitive Advantage Economic Performance Below Normal --

Yes

No

--

--

Normal

Yes

Yes

No

--

Above Normal

Yes

Yes

Yes

Yes

Above Normal

MAKE STRATEGY A CONTINUOUS PROCESS

STRATEGY

60% of organizations dont link strategy & budgets

update the strategy

Strategic Learning Loop

BALANCED SCORECARD

test the hypotheses

85% of management teams spend less than one hour per month on strategy issues

BUDGET

78% of organizations lock budgets to an annual cycle 20% of organizations take more than 16 weeks to prepare a budget

funding

Management Control Loop

PERFORMANCE

reporting

92% of organizations do not report on lead indicators

Input (Resources)

Initiatives & Programs

Output (Results)

Kaplan & Norton, SFO

HR & BUSINESS STRATEGY

Internal drivers

Business strategy

HR strategy

Business plans

Implementation

Monitor

External drivers

HR STRATEGY-1
Quality Enhancement Defender Prospector Analyser Reactor Innovation Strategies Cost Reduction Strategies Strategic Management Matching Model HR Strategy

Universalistic Cost Differentiation Focus Innovation HR Design Contingency Configurational HRM Practices

Architecture

Policies

Practices

HR STRATEGY-2
SW OT ANALYSIS High Value Resource Based View of the firm Firm Strategy Good HR Practices Competitive HRM Unique In-imitable Scarcity

Institutional

Human Capital (Source of Competitive Advantage)

HR Outcomes

Organizational Performance

Employee Social Capital

Employee Knowledge, Experience, Skill, Commitment

Org & Social System, Culture

Operational Outcomes Financial Outcome

CULTURE
Levels of Culture
Manifest Manifest culture Expressed Values Expressed Values
water line

Basic Assumptions

Basic Assumptions

Iceberg

Onion

CULTURE
Flexibility and Discretion
Culture Type: ADHOCRACY Leader Type: Facilitator, Mentor, Leader Type: Innovator, Parent Entrepreneur, Visionary Effectiveness Criteria: Effectiveness Criteria: Cohesion, Morale, Human Cutting-edge output, Creativity, Resource Development Growth Management Theory: Management Theory: Participation fosters Innovativeness fosters new commitment resources Culture Type:

CLAN

External Focus and Differentiation

Internal Focus & Integration

Culture Type:

HIERARCHY Culture Type:

MARKET

Leader Type: Coordinator, Monitor, Organizer Effectiveness Criteria: Efficiency, Timeliness, Smooth Functioning Management Theory: Control fosters efficiency

Leader Type: Hard-driver, Competitor, Producer Effectiveness Criteria: Market share, Goal achievement, Beating competitors Management Theory: Competition fosters productivity

Stability and Control

KAIZEN CULTURE

HR-KAIZEN CULTURE
Quality Performance Employee satisfaction Employee quality awareness Customer satisfaction Company's image Training of quality tools QCC activity Human resource planning Recruiting & selection Project team of improvement

Flexibility and Discretion

Daily management
Culture Type:

CLAN

Work design & analysis Training & education Job rotation Leadership development Performance appraisal Incentive compensation Benefits & profit sharing Employee development Employee security & health Employee relations

Cross-functional management Usage of SQC Customer service system Managing customer satisfaction Leadership Supplier's cooperation Quality management system Business process re-engineering

Internal Focus & Integration

Leader Type: Facilitator, Mentor, Parent Effectiveness Criteria: Cohesion, Morale, Human Resource Development Management Theory: Participation fosters commitment Culture Type:

Culture Type: ADHOCRACY Leader Type: Innovator, Entrepreneur, Visionary Effectiveness Criteria: Cutting-edge output, Creativity, Growth Management Theory: Innovativeness fosters new resources

External Focus and Differentiation

HIERARCHY Culture Type:

MARKET

Leader Type: Coordinator, Monitor, Organizer Effectiveness Criteria: Efficiency, Timeliness, Smooth Functioning Management Theory: Control fosters efficiency

Leader Type: Hard-driver, Competitor, Producer Effectiveness Criteria: Market share, Goal achievement, Beating competitors Management Theory: Competition fosters productivity

Stability and Control

Quality goal-setting, MCRS Hoshin management Empowerment Culture change & development

Culture Movement

The Clan
50 40 30 20 10

The Adhocracy

10 20 30 40

The Hierarchy

The Market

50

Red: Now Green: Preferred

Talent Management

GTMP

Future of HR Manager
Impact/Contribution to the Business
Add Value & Maximize Upside Strategic HR Planning Organizational Design Survey Action Planning Staffing Employee Relations Labor/Union Relations Benefits Limit Liability & Protect Downside Safety & Workers Compensation Compliance Training & Development Compensation EEO/AA

continue to grow
Culture & Image HR as Business Partner

Performance Management HR Information Systems (HRIS)

Labor Relations

Employee Relations

Personnel

Human Resources

Organizational Effectiveness

Source: Rich Vosburgh

A Century of Evolution in the Function

Competence of HR Professional
Business Understanding Change Management Personal credibility Culture Management HR Processes & Practices

Wall Street Journal Vice President, Human Resources

Global Fortune 500 Company of 30,000 employees, the leader in its field, is seeking a Corporate Vice President of Human Resources with a strong background and focus in organization effectiveness, development and training. Partnering with corporate senior management and business sector heads to bring forth a new business culture, the VP will establish HR as a strategically focused internal consulting arm to the company. The successful candidate will have a businesspersons perspective and a demonstrated track record in change management, re-engineering, leadership development and training. Respond to: M-67, P.O. Box 17182, Philadelphia, PA 19105 EOE.

The Role of HR
The 2002 Human Resource Competency Study found that 43% of HRs impact on business performance came from its strategic contribution.

Source: University of Michigan Business School

PRIORITY
The Top Seven People-Related HR Issues
Retaining Talent Attracting Talent with Critical Skills Improving Workplace Performance Gaining Control of Health Care Costs Using the Web Effectively for Information/Service Delivery 6. Creating People Measures for a Balanced Scorecard 7. Building New Workforce Skills for the Next Round of Growth SOURCE: Towers Perrin interview of HR Professionals 1. 2. 3. 4. 5.

The Role of HR
Future / Strategic Focus

Strategic Partner
Strategic HR Planning HR as Business Partner Culture and Image

Change Agent
Staffing Organizational design Survey action planning Performance measurement Training and development

Processes

People

Administrative Expert
Compensation Benefits HR information systems Compliance

Employee Relations Expert

Employee relations Labor relations Safety & workers compensation Diversity and EEO

Day to Day Operational Focus

Administrative Expert
Compensation
Payroll as %--total operating costs (benchmarked); compensation targets benchmarked against peer companies; turnover rates; quality of management review and Board material.

Benefits
Medical cost per participant; dental cost per participant; 401K employee participation rate; $ saved in union negotiations.

HRIS Systems Support

HRIS implementation on time and within budget; customer satisfaction.

Compliance
# Good corporate citizen, Permits

Employee Relations Expert

Employee Relations
Turnover rates, Best Place to Work rankings, legal compliance, efficiency, union activity (or lack thereof).

Labor Relations
Absence of the extreme negative (strikes, slowdowns, sit-downs, boycotts); $ outcome of new contracts, both immediate & longer term; timeliness & quality of new contracts; productivity per employee; safety & quality measures.

Safety and Workers Compensation

# Incidents & $ value of accidents; # employees trained; % required training & certifications completed; audit results.

Diversity & EEO

Attitude survey measures of perceived fairness; # people trained in Diversity Awareness and Diversity Leadership programs; perceived tolerance.

Strategic Partner
Strategic HR Planning
Quality of succession management program assessment. Quality of Bench Strength. Quality of Succession Plan Follow-up (% Actions Completed).

HR as Business Partner
Any business measure of effectiveness. 360-Degree Feedback on the extent to which HR is considered a partner by those they support.

Culture and Image

Employee Satisfaction data; quality of the description and utilization of culture & image understanding; standing on the Fortune 100 Greatest Places to Work.

Change Agent
Staffing
$ to Fill; Days to Fill; # Filled; Quality of Hires; Retention of Hires.

Organizational Design
Benchmarking headcount; effectiveness of communications & key processes (no bottlenecks); spans and layers; management ratios.

Survey Action Planning

Employee satisfaction results at the work group level; rolled up to Business Unit level; norms available for Business Unit analysis.

Performance Management
Performance Reviews: Timeliness and Quality; #/% Positions with written accountabilities and measures; other measures vary with the position.

Training & Development

# Programs; #Days/Person Training; Impact of Training; effectiveness measures within new groups.

SCA
The primary objective of business-level strategy was to create sources of sustainable competitive advantage (SCA). How do we know SCA when we see it? What is it? When is it considered sustainable? To produce SCA, the capability must:
1. Produce value 2. Be rare 3. Imperfectly imitable, i.e. not be easily imitated or substituted 4. Be exploitable by the organization

Stages in Human Resources HR Competitive Advantage

COMPETITIVE ADVANTAGE (Consolidation) BUSINESS PARTNERS (Integrated) Total line manager accountability Internal consultants Add value Integral to company success Long term vision and strategy

Integral contribution to business plan Strong influence on other departments Member of top team Quality systems and processes Service management PROACTIVE Intellectual capital/knowledge management (Rapid growth) Customer/needs focused Workforce empowerment and teams Pro-active/improvement Return on investment Management development Cost/benefit Leadership training analysis INTERNAL Comprehensive database Policies and manuals Succession planning POLICE ControlsWorkforce planning headcount, hiring, (Emerging) restructuring, travel, relocation Performance management Reporting systems & budgets Workforce productivity Basic measures turnover, KIND HEARTS absenteeism (Lending Support) Cafeteria Technical and skills training Car park disputes, grievances IR Security OH&S procedures BASIC Recruitment Gymnasium NEEDS Induction Social club Payroll Party Admin/Records Leave

SCA
Competencies vs. Core Competencies vs. Distinctive Competencies
A competency is an internal capability that a company performs better than other internal capabilities. A core competency is a well-performed internal capability that is central, not peripheral, to a companys strategy, competitiveness, and profitability. A distinctive competence is a competitively valuable capability that a company performs better than its rivals.

SCA
Strategy
Human Resources

Congruence Approach: Balancing People, Culture and tasks

Component tasks Critical Tasks

Executive Leadership

Capabilities and Competencies

People

Culture

Norms, values Informal Roles Informal Power

Organisational Structures

Reward systems Formal linking Structures

Adapted from: Nadler, D & M, Tushman

HR to move from a traditionally administrative focus to a more specialist consultative role

HR has started to shed the traditional role of:

a little strategic work, a little consulting, and a lot of administrative duties empowering line management to perform necessary HR roles

Strategic Consultative

Strategic Consultative
Value adding service & delivery

Strategic Strategic

Consultative

Administrative

Admin
Old paradigm Our Emerging paradigm

Admin

Potential future state

Increasing Relevance

A new reputation and value proposition for our HR requires a fundamental mind-set change in the organisation, however more critically mindset change from the HR Leaders.

HR Strategy Unique value proposition, tailored chain of activities, trade offs, Reinforcing activities fitting in together, continuity and continuous improvement
Technology (Enabler) Leadership and Culture Change Management Business Strategy

Skills and Talent Management

Job Grading (market related)

Business Model

Employee
Line-of-sight Performance Management Competitive Remuneration, Rewards and Incentives

Focused Learning

The Importance of Measurement

Improve Control Understand Measure

If you cant measure it, you cant understand it. If you cant understand it, you cant control it. If you cant control it, you cant improve it.
James Harrington The Improvement Process

Metric Design
Assess
Your Data

Build Your
Metrics

Create
Meaningful Measures

Three Levels of Metrics

Efficiency
What range of resources (financial and non-financial) should be considered? What is the appropriate level of investments? How should investable resources be allocated to maximize results?

Impact Effectiveness

Efficiency

Source: Boudreau and Ramstead

Three Levels of Metrics

Effectiveness
What unique combination of policies and practices would best build the necessary human capital? What factors link policies and practices to human capital enhancement? What attributes distinguish effective from ineffective policies and practices?

Impact

Effectiveness

Efficiency

Source: Boudreau and Ramstead

Three Levels of Metrics

Impact
What is the link between sustainable strategic success and human resource management? Which talent pools are most critical for competitive advantage? How could improving human capital increase value?
Source: Boudreau and Ramstead

Impact Effectiveness Efficiency

What Can Be Measured?

Staffing and Hiring

Work Processes

Competent Employees

Reduced Time-toFill for Vacancies

Turnover Rates Number of Employees Trained

Training Costs

Cost per Hire

Voluntary Separations

Example KPI report

HR Key Performance Indicator Report
For Period ended Criteria Number of FTEs Headcount Total hours utilised Workforce turnover (unplanned) Workforce absenteeism (unplanned) % of total w orkforce terminating Total $ cost of turnover % total hours lost to absenteeism Total $ cost Number of lost time injuries (LTI) Number of lost time days Workers com pensation Average duration rate of LTI Frequency rate of LTI $ cost of w orkers compensation Number of discrimination complaints recd Number of sexual harassment complaints recd Number of physical harassment complaints recd Equal employm ent opportunity Number of w omen in management positions - senior management - middle management Ratio of female appointments vs male % of w omen returning to w ork after mat leave Equal employment opportunity and affirmative action performance throughout the organisation ER Status Report Occupational health and safety performance throughout the organisation Occupational Health & Safety Report Measure Description Changes in w orkforce numbers and hours utilised by employee category Turnover performance and cost impact upon the organisation Absenteeism performance and cost impact upon the organisation Associated report Workforce Headcount Report Workforce Utilisation Report Workforce Turnover Report Last period This period Change YTD (avg)

Workforce Absenteeism Report

Workers Compensation Costing Report

Example KPI report (continued)

Criteria Measure Description Associated report Last period This period Change YTD (avg)

$ labour cost as % of sales Revenue generated per FTEs Unit production per FTEs Productivity and utilisation Labour utilisation rate Quality reject rate (employee error) Number of credit returns (linked w ith employee error) Number of customer complaints (employee related) Recruitm ent Average days vacancy duration - management Average days vacancy duration - staff Average cost recruitment - management Average cost recruitment - staff % new hires achieving 6 months service % new hires achieving 12 months service % new hires achieving sat. appraisal at first assessment Average $ cost per vacancy filled Company training expenditure (% of salaries & w ages) Average training hours per employee % training course participant satisfaction % training course attendance Number of employees completing sponsored tertiary studies Number of employees completing sponsored MBA programs Learning centres - number of courses offered - % course participation - Internet hours utilised - e-learning courses utilised - % e-learning pass rate Learning centre effectiveness throughout the organisation Staff retention performance throughout the organisation Recruitment Status Report Recruitment performance throughout the organisation Employee satisfaction levels/organisational culture Workforce productivity/employee relations performance

Average cost of vacancies filled $ commitment to staff training and development Time commitment to staff training and development Participant satisfaction w ith training courses provided Participant attendance at training courses provided Commitment to professional development of staff throughout the organisation Training & Development Expenditure Report Training Hours Allocation Report

Training Performance Report

Training and developm ent

Example KPI report (continued)

Criteria Measure Description Associated report Last period This period Change YTD (avg)

% of internal appointments above level __ Succession planning Avg length of service of staff apptd above level ___ Number of unf air dismissal claims Workf orce lost time (hours) Number of f ormal union grievances % w orkf orce on individual contracts Internal communications - number of bulletins issued - number of emails issued Em ployee relations - number of staf f brief ing sessions conducted Work/lif e balance - number of active flexible w ork agreements - number of active w orking f rom home agreements - number of active job sharing agreements Workf orce teams - number of active teams - number of team meetings % compa ratio $ pay f or performance gaps Rem uneration $ pay equity gaps % employee share scheme take-up rate Level of outstanding annual leave liability Adm inistration Number of manual payroll adjustments Number of employees aged under 25 Number of employees aged 2535 Number of employees aged 3545 Number of employees aged 4555 Organisation profile Number of employees aged over 55 Avg length of service (current employees) Avg length of service (terminating employees) % ratio of salaried staf f to w aged staf f Adequacy of w orkf orce planning % ratio of surplus staf f to required staf f Average length of service of employees across the organisation and terminating Demographic prof ile of employees by age across the organisation Organisation perf ormance in managing annual leave Payroll performance Organisational competitiveness and equity in remuneration packaging/policy Organisational ef f ectiveness in creating and sustaining a team-based structure/culture Organisational success in providing an ef f ective w ork/lif e balance program f or all employees Staff alignment and commitment to the organisation Employee relations performance throughout the organisation Succession planning eff ectiveness

Succession Planning Status Report

ER Status Report

Accrued Annual Leave Report

Example KPI report (continued)

Criteria Measure Description Associated report Last period This period Change YTD (avg)

Number of FTEs in HR HR FTEs as % of total w orkforce (FTEs) HR headcount HR labour cost as % of sales/revenue HR $ cost as % of total w orkforce (FTEs) Level of satisfaction w ith w ages/salary/benefits Level of satisfaction w ith conditions/physical w ork environment Level of satisfaction w ith job Level of satisfaction w ith personal relations Exit interview s Level of satisfaction w ith participation and recognition Level of satisfaction w ith opportunities for development Number of employees w ho w ould recommend company Number of employees w ho w ould seek reemployment w ith company % of appraisals completed on time Number of formal staff grievances raised Perform ance appraisals % of individual training plans completed % of employees above competent % of employees below competent Workforce attitude surveys Average satisfaction % vs norm Average satisfaction % vs previous survey Staff satisfaction levels w ithin the organisation. (This section is likely to be produced on an annual basis.) Performance management effectiveness throughout the organisation. (This section is likely to be produced on an annual basis.) Staff satisfaction levels w ith the organisation and reasons for leaving. (This section may not be reported on a regular monthly basis, dependent upon the volume of exit interview s received and the need to create meaningful data and protect employee confid Human resources efficiency/cost effectiveness

Workforce Headcount Report

Exit Interview Report

Integrated HR Business Model

Basic Process for HR Strategy
Scan the External Environment Identify Strategic Business Issues Identify People Issues Develop HR Strategy Communicate the HR Strategy

The Common HR Approach

The Inside-Out Approach

HR practices, processes, and systems

Articulate how what we do adds value to The business

Communicate to the business what a good job we are doing

Source: Patrick Wright

The Better HR Planning Approach

The Outside-In Approach

Identify the business model components and areas to drive value

Develop an HR strategy to execute the business model with relevant metrics

Use the metrics to demonstrate or prove how we are driving business performance

Source: Patrick Wright

HR Framework

Vision & Mission

Key Success Factors

Challenges and Opportunities

Strategic Priorities

High-level Action Plans Short-term Mid-term Long-term

HR ROAD MAP

Key Success Factors for HR Management

Key Success Factors can be defined as: What must happen to be successful over the longer term Criteria against which to assess priorities and performance.
Key Success Factors for HR Effectiveness
Organization-Wide People Effectiveness Successful labour relations climate Recognition (international reputation and eminence) Excellent employee relationships harmony and commitment People leadership and encouraging innovation, creativity and involvement Succession planning Workforce pride and loyalty (retention, commitment, passion, sense of belonging, excellence and competence) HR Functional Effectiveness Client service (accessible, responsive, advisory approach, confidential and quality driven) Business awareness/knowledge of best practices Knowledge/expertise of HR Visible and visionary/HR leadership Cost effective and efficient Proactive and analytical (data and research driven) Team stability

In order to make these key success factors tangible and meaningful, enabling In order to make these key success factors tangible and meaningful, enabling performance measures will need to be applied for each and every key success factor. performance measures will need to be applied for each and every key success factor.

HR Strategic Priorities
The following table provides a best practice example of four HR business model categories and specifically-related priorities.

Strategic Priorities Strategic Priorities

Clarity and Strength of Clarity and Strength of Accountability Accountability Framework Framework Enabling Performance Enabling Performance Measurement Measurement Framework Framework Structured and Structured and Consistent Approach to Consistent Approach to Strategic Change Strategic Change Management Management Organizational Design & Organizational Design & Resource Analysis Resource Analysis

Operational Operational Priorities Priorities

Leadership/Mgmt. Leadership/Mgmt. Development Development Corporate Competency Corporate Competency Framework Framework Compensation and Compensation and Classification Systems Classification Systems Performance Performance Management Management Top Talent Retention Top Talent Retention
Alternative Work Alternative Work Arrangements Arrangements Resource Planning Resource Planning

HR Service HR Service Delivery Priorities Delivery Priorities

HR Department HR Department Structure and Capability Structure and Capability

Enabling Priorities Enabling Priorities

HR Information HR Information Management Management

Integrated HR Processes Support Mechanisms Integrated HR Processes Support Mechanisms and Programs and Programs Role of Line Management Role of Line Management Cultural Readiness HR Policy Framework Cultural Readiness HR Policy Framework
Technology/Systems Technology/Systems

Priorities for HR Management

Strategic Priorities

Operational Priorities

HR Service Delivery Priorities

Enabling Priorities

Accountability framework Workforce analysis/HR planning/transition/succes sion planning Supported HR vision & strategy approved by the Board of Trustees and Senior management

Classification Performance management Leadership/development Union/management relations Internship (recruitment)/ mentoring Wellness Conflict resolution Training strategy Employment equity Staffing process Organization & work design HR service delivery model and cost profile Service to retirees Sick leave/disability management

Communication plan HR marketing/education/ promotion HR performance measurement/reporting HR policies HRIS (databases, technology architecture)

High

Change management capability Competencies HR process mapping

Medium

Organizational integration

Career paths

Low

Compensation/benefits (review of plans)

Consideration of outsourcing of HR activities

HR PROJECTs