Human Capital Architecture - Ohio University College of Business
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Managing Human Capital in Changing Times Edward B. Yost Ph.D., SPHR August, 2012 Ohio University College of Business Executive Education Boa vinda a Ohio University Ohio University College of Business Executive Education What is Strategic Success? Delivering high value results to significant stakeholders Financial Success Operational Success Customer Success Workforce Success Ohio University College of Business Executive Education Strategic Success Hierarchy Industry Firm/Company Business Unit/Function Position Person Ohio University College of Business Executive Education Defining the Business Strategy Strategy is: The central, integrated, externally oriented concept of how we will achieve our objectives. (Hambrick & Fredrickson) Ohio University College of Business Executive Education Strategic Success Hierarchy Pharmaceuticals Farmaceutica Business Unit/Function Position Person Ohio University College of Business Executive Education Start with a Strategic Intent Looking for operational, financial customer, workforce success through… 1. Betting on the incompetence of competitors 2. Acquiring and utilizing the competencies of others 3. Using existing resources & competencies differently Ohio University College of Business Executive Education Organizational Competencies • Tangible and intangible resources and capabilities that enable the organization to: develop, choose and, implement value enhancing STRATEGIES. Ohio University College of Business Executive Education 3 Basic Properties of Organizational Competencies 1. Potential to add VALUE (stakeholder) Utilize strengths/eliminate weaknesses and exploit opportunities/neutralize threats 2. HETEROGENEOUS: Very few firms have it or can provide it 3. NON-TRANSFERABLE Durable, immobile, hard to duplicate Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education The Secret Revealed! What is the SECRET of obtaining a Strategic Competitive Advantage? Not just having a strategy and competencies but executing the strategy. Ohio University College of Business Executive Education 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? Ohio University College of Business Executive Education Developing Human Capital in Changing Times WHAT IS HUMAN CAPITAL? Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Human Capital Markets Various levels of value Appreciates and depreciates Traded in markets and regulated Individually owned but collectively realized Ohio University College of Business Executive Education 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? Ohio University College of Business Executive Education 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? Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education 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” Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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) Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education 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? Ohio University College of Business Executive Education 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? Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education Developing Human Capital in Changing Times STRATEGY EXECUTION AND HUMAN CAPITAL Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Strategic Success Chain Competitive Advantage Sustainability Executive Education College of Business Ohio Universaity 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 Executive Education College of Business Ohio Universaity Strategic Success Chain Strategy Execution Competitive Advantage Sustainability Executive Education College of Business Ohio Universaity 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 Ohio University College of Business Executive Education Focus on a Strategic Business Unit Primary Pharmaceutical Industry Enables the Value Proposition for Stakeholders Strategy Execution Production Research & Development Marketing Human Resources Ohio University College of Business Executive Education Strategic Success Hierarchy Pharmaceuticals Farmaceutica Research & Development Position Person Ohio University College of Business Executive Education Research & Development Group Critical Outcomes for Strategy Execution – Primary Pharmaceuticals 1. New Product Applications 2. Reduce Time to Market Ohio University College of Business Executive Education Developing Human Capital in Changing Times MANAGING TALENT FOR STRATEGIC SUCCESS Ohio University College of Business Executive Education 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". Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Human Capital (Pivotal Talent Pools) Strategy Execution Competitive Advantage Sustainability Ohio 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 Ohio University College of Business Executive Education Pivotal Talent Pools • 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 Ohio University College of Business Executive Education The Importance of Human Capital Pivotal Talent Pools Pivotal Positions Determine the Pivotal Positions to Deliver Strategy Execution Executive Education College of Business Ohio Universaity Mickey Mouse VS Sweepers Ohio University College of Business Executive Education 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 Position Ohio University College of Business Executive Education Yield Curves = Pivotal Positions Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Strategic Success Hierarchy Pharmaceuticals Farmaceutica Research & Development Research Scientist Person Ohio University College of Business Executive Education Strategy Execution Yield Curve Primary Pharmaceuticals Best Sales Rep Worst Sales Rep Best RS Worst RS Performance Ohio University College of Business Executive Education Yield Curve Primary Pharmaceuticals Best Sales Rep Strategy Execution Worst Sales Rep Best RS 20% Worst RS Performance Ohio University College of Business Executive Education Yield Curve Primary Pharmaceuticals Best Sales Rep Strategy Execution Worst Sales Rep Best RS 20% Worst RS Performance Ohio University College of Business Executive Education Developing Human Capital in Changing Times FINDING PERFORMANCE DRIVERS Ohio University College of Business Executive Education 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 positions Vertical Alignment; Congruence Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education Human Capital Capabilities Strategy Execution Human Capital Behaviors Workforce Culture (Performance Drivers) Competitive Advantage Sustainability Human Capital (Pivotal Positions) Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Performance Drivers Behavior Capability Culture Strategy Execution Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Developing Human Capital in Changing Times CREATING AND MANAGING HUMAN CAPITAL ARCHITECTURE Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Human Capital Architecture Procurement & Retention Performance Management Knowledge Management Compensation & Rewards Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Why a HUMAN CAPITAL ORIENTED STRATEGY? Because…... The organization can leverage human capital by managing the architecture to achieve a higher return for owners Ohio University College of Business Executive Education The Power Of HCA Invested Resources & Capital Share Holder Returns Human Capital Architecture Ohio University College of Business Executive Education The Power Of HCA Share Holder Returns Invested Resources & Capital Human Capital Architecture Ohio University College of Business Executive Education Strategy Execution Human Capital Capabilities Competitive Advantage (Performance Drivers) Human Capital Behaviors Workforce Culture Sustainability Human Capital Architecture components alignment (Vertical & Horizontal) Human Capital Architecture components (Enablers) Human Capital (Pivotal Positions) Ohio University College of Business Executive Education Human Capital Architecture The Key Question is… What is the appropriate Human Capital Architecture required to provide the capabilities, behaviors and culture to support successful strategy execution? Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education Best Practices from GE • • • • Vitality Curve Management Development Stretch Goals “A” performers compensation 2 to 3 times more than “B” performers Ohio University College of Business Executive Education 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 execution Vertical Alignment; Congruence Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Enables the Value Proposition for Stakeholders Strategy Execution Ohio University College of Business Executive Education Culture Capability Strategy Execution Behavior Enables the Value Proposition for Stakeholders Creates a Culture & Mix of Capabilities & Behaviors Ohio University College of Business Executive Education Culture Comp. & Reward Perform. Mgmt Capability Behavior Knowledge Mgmt. Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions Strategy Execution Procure & Retain Enables the Value Proposition for Stakeholders Creates a Culture & Mix of Capabilities & Behaviors Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Ohio University College of Business Executive Education Vertical; Congruence with Strategy Execution Culture Comp. & Reward Perform. Mgmt Capability Behavior Knowledge Mgmt. Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions Strategy Execution Procure & Retain Enables the Value Proposition for Stakeholders Creates a Culture & Mix of Capabilities & Behaviors 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 Culture Comp. & Reward Perform. Mgmt Capability Behavior Knowledge Mgmt. Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions Strategy Execution Procure & Retain Enables the Value Proposition for Stakeholders Creates a Culture & Mix of Capabilities & Behaviors Horizontal; Consistency across HCA Components Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education Vertical; Congruence with Strategy Execution Culture Comp. & Reward Perform. Mgmt Capability Behavior Knowledge Mgmt. Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions Strategy Execution Procure & Retain Enables the Value Proposition for Stakeholders Creates a Culture & Mix of Capabilities & Behaviors Horizontal; Consistency across HCA Components Ohio University College of Business Executive Education Um descanso curto 10:15 – 10:25 Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education Strategic Success Hierarchy Pharmaceuticals Farmaceutica Research & Development Research Scientist Person Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education Levels of Employee Engagement • Engaged Employees – work with passion and exuberance, feel a profound connection to the organization can’t wait to contribute more Ohio University College of Business Executive Education Levels of Employee Engagement • 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 Ohio University College of Business Executive Education Levels of Employee Engagement • 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 Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education Richard and Mary Practicing Management and Employee Engagement Ohio University College of Business Executive Education How Richard sees Mary How Mary sees Richard Ohio University College of Business Executive Education Engagement Survey 1. 2. 3. 4. 5. Do you know what is expected of you at work? At work do you have the opportunity to do what you do best every day? In the past month have you received recognition or praise for doing good work? Does your supervisor or someone in authority seem to care about you as a person? At work do your opinions seem to count? 1. 2. 3. 4. 5. Voce sabe o que é esperado de voce no trabalho? No trabalho lhe é dada a oportunidade de f Nos últimos sete dias, alguém reconheceu o seu esforço ou elogiou o seu trabalho?azer aquilo que faz de melhor, todo o dia? O seu supervisor, ou alguém a quem se reporta, parece se importar com voce como pessoa? No trabalho alguém se importa com o que pensa ou suas opiniões não importam? Ohio University College of Business Executive Education 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." Ohio University College of Business Executive Education 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. Ohio University College of Business Executive Education A Model of Employee Engagement Organization Culture/Purpose Relationships Work Activities Quality of Work Life Say Employee Engagement Career Opportunity Organization Leadership Stay Serve Total Compensation Model used consistently over time to assess and track engagement Isn’t it COMMON SENSE? Managers know that they should create functional Human Capital Architectures but They have elaborate excuses why they can’t Ohio University College of Business Executive Education Performance Drivers Behavior Capability Culture Strategy Execution Ohio University College of Business Executive Education 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 Ohio University College of Business Executive Education Its Only Common Sense! Half will engage minimal change Half will never see the connection between People and Profits Half will engage comprehensive change Ohio University College of Business Executive Education Its Only Common Sense! Half will engage minimal change Half will never see the connection between People and Profits Half won’t stay the course Half will succeed J Ohio University College of Business Executive Education It is Difficult to Imitate Only 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” Ohio University College of Business Executive Education Just Do It? Managers to succeed in the new normal must rely on a human capital architecture that defies traditional practices and conventional wisdom Ohio University College of Business Executive Education Obrigado para sua atenção amável Ohio University College of Business Executive Education
