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Does Your Business Need A People Strategy?

Does Your Business Need A People Strategy?*
By Jim Kochanski and Peter LeBlanc who can be contacted at www.sibson.com

1. Introduction

The next new idea is here to stay—developing and executing a People Strategy, as an adjunct to overall business strategy. Business strategies define market, product and financial priorities. People strategies focus on the right combination and type of people and the level of performance required to succeed.

Just as successful business strategies must be distinctive, people strategies too must focus on competitive people advantage relative to competitors. No best formula exists, but some rules of the road can be discerned from companies that use a People Strategy to advantage.

2. What is a People Strategy?

A People Strategy is a set of specific, prioritized choices about where and how to invest in human capital. Choices may include:

>> Employee groups to grow or shrink

>> Skill sets to invest in

>> Performance levels required

>> Number of employees needed to achieve required productivity and service levels

>> Types of work to in-source and outsource

>> Total reward strategy that defines the employee value proposition

>> Cost base associated with different segments of employees

A People Strategy is owned by business leaders, and it is viewed as critical to executing business strategy successfully. It differs significantly from headcount and salary budgeting run by Finance as well as people program and policy direction instituted by Human Resources. While a People Strategy may be driven by an HR executive, it is not just a strategy for the HR function; it is a critical strategy execution tool.

Companies as diverse as Avon, Becton Dickinson (BD), Duke Health System and Nationwide use People Strategies to articulate key choices about how to invest in human capital in order to achieve their business goals.

A People Strategy helps to direct the investment in talent and the programs to manage them. Companies without an articulated strategy run the risk of developing programs that don’t meet organizational needs or further the business. For example, a large consumer products company launched a people management "best practices" study and instituted most of the practices, unconnected to the business strategy or particular business issues. The adoption of best practices became the focus and drove most of the people priorities. Unfortunately, many of the "best practices" didn’t work as well for this company as they did for others. As a consequence, company performance lagged competitors by more than half.

In contrast, a People Strategy can unify and focus an organization, improve the return on human capital, and raise the organization to higher performance. When a health care company instituted a People Strategy, it was able to unify its business units and departments. In the past, the groups had resisted synergy. Through the People Strategy development and deployment, they discovered shared talent resources and learned the value and necessity of working together to get the right skill sets and to build a shared and compelling employee value proposition.


3. Do You Need a People Strategy?

Indicators that suggest the need for a People Strategy include the following:

A. SIGNIFICANT SHIFT IN BUSINESS STRATEGY: If significant changes are planned for products, customers, and geographic markets, it is likely that the current people portfolio will not be adequate. A People Strategy can help manage the transition to the people portfolio required to execute the new strategy.

B. MAJOR MERGER OR ACQUISITION: A major acquisition or a merger typically requires fundamental decisions about people and people management approaches that require an articulated strategy linked to business needs.

C. SIGNIFICANT PEOPLE PROBLEMS: Sometimes there is no particular change in the business, but issues such as significant turnover, inability to hire critical skills, or very low productivity put business success at risk.

D. AN OPPORTUNITY TO DOMINATE IN THE MARKET: When strategy is focused on dominating the market for top talent, being the low cost producer, or otherwise beating the competition through people, a People Strategy becomes an imperative

People Strategy is not appropriate in the following situations:

A. FAD FOLLOWING: People Strategy by definition is not emulating the practices of other companies. A People Strategy must be linked to business needs and goals

B. OTHER HIGHER-LEVEL PRIORITIES: Some organizations may find themselves facing competing priorities. If top executives are not able to support it effectively, a People Strategy will not succeed. For example, one major corporation tried to develop a People Strategy while implementing a major reorganization. Senior management was not able to focus on both efforts. In addition, staff required for implementing the reorganization were diverted to the People Strategy effort. Eventually the People Strategy was halted to focus on the reorganization.

C. PERFORMANCE ISSUES WITH THE OPERATION OF HR: A People Strategy for the business is not the solution for a dysfunctional HR function. If the HR department is too large, slow, or disconnected from the business a departmental strategy is needed, not a People Stategy.

5. How To Develop A People Strategy

A well-constructed People Strategy has four cornerstones, as illustrated in Figure 1


# CORNERSTONE ONE—LINKING THE BUSINESS AND PEOPLE STRATEGIES: This first step involves examining each of the major planks or choices in the business strategy to determine the people implications or requirements. Some implications may be obvious, e.g., a decision to move operations to a new country will require the means to relocate, hire, pay, and manage people in that country. Other implications may be more subtle: a decision to expand organically with product extensions may or may not have significant people implications.

Nationwide, a Fortune 500 insurance and financial services organization, redefined its strategic planning process for the business several years ago. A "human capital strategy" is now developed in conjunction with the business strategy process. The strategy process provides natural milestones for considering the people priorities and the business strategy provides the information required to connect people priorities directly to business plans.

# CORNERSTONE TWO—PEOPLE PORTFOLIO MANAGEMENT: This step involves comparing the likely future portfolio of talent in the organization to the portfolio required by the strategy. Rather than reacting to (or ignoring) headlines about general labor shortages or surpluses, this cornerstone uses scenario planning to project the number and type of people that will be required to execute the organization’s own business strategy. This step also examines actual trends in the workforce such as turnover, rate of hiring, and retirement eligibility to determine if any significant adjustments are needed in the patterns of recruiting, training, downsizing, or redeployment to ensure the right talent portfolio in the future. This is different from typical succession planning, which is focused on individual positions and successors. Portfolio analysis examines the key segments of the workforce that the business strategy suggests will be critical for the future. Then, as with personal financial portfolio analysis, people portfolio analysis suggests which talent investments should shrink, grow or be maintained to meet future goals.

Avon embarked on a new business plan led by their new CEO. In conjunction with the business plan the company developed a "template" for tying a people plan to the business plan. The people plan template focused heavily on the people portfolio, particularly leadership talent. The initial hypothesis was that the new business plan would create gaps in the current and future leadership portfolio. A process was put into place to systematically examine business plans region by region, determine the people requirements of the plans, identify significant people gaps, and define ways to fill the gaps. The process was based on an approach that had proven successful in Avon’s European business unit. In addition to the process for determining and closing gaps in the people portfolio, Avon also adopted a set of Key Performance Indicators to tell if the people plan was working. This allowed Avon to objectively determine where and how to recruit or develop the people it needed to succeed. In addition, Avon clarified its employee value proposition as the "company for women". It has been named as one of the best companies for women to work for, the only beauty company to be so named.

# CORNERSTONE THREE—EMPLOYEE VALUE PROPOSITION: Organizations that put together a People Strategy almost always need to ask themselves how they will distinguish themselves versus other employers in order to attract, retain and motivate the number and type of people that they will need. Crafting a distinctive employee value proposition (EVP) is significantly different than typical benchmarking of benefits and compensation in order to stay competitive. Benchmarking is a way to ensure that employee costs align with the market to safeguard against high costs to the company or turnover due to low pay or benefits. A People Strategy helps set the desired positioning relative to other employers. It also asks how the people portfolio should differ from other companies and segments.

# CORNERSTONE THREE—EMPLOYEE VALUE PROPOSITION: Organizations that put together a People Strategy almost always need to ask themselves how they will distinguish themselves versus other employers in order to attract, retain and motivate the number and type of people that they will need. Crafting a distinctive employee value proposition (EVP) is significantly different than typical benchmarking of benefits and compensation in order to stay competitive. Benchmarking is a way to ensure that employee costs align with the market to safeguard against high costs to the company or turnover due to low pay or benefits. A People Strategy helps set the desired positioning relative to other employers. It also asks how the people portfolio should differ from other companies and segments.

An EVP makes choices about each of the element of the model shown in Figure 2 and their relative positioning to each other.

A distinctive EVP can make a company an "employer of choice." Many of the companies that top the "best places to work" lists have distinctive EVPs that make sense for their business and their workforce.

Duke University Health System defined its own distinctive EVP following the unification of its three hospitals, multiple clinics and physician groups. Defining the EVP was an early joint effort of the new leadership team. The CEO and VP of HR wanted a baseline measurement of the alignment among the various health system entities, the state of employee engagement, and the nature of the work culture. Rather than use standard measures of engagement, the leaders crafted an EVP that described a desired future state that would be distinctive relative to other employers. The EVP leverages their size, organizational diversity, and connection to a top university by emphasizing learning and development, and affiliation with one of the top five hospitals in the US. Measuring the gap between the desired state and the current state through a custom employee survey led to several other health system-wide initiatives including development of a reward strategy.

# CORNERSTONE FOUR—PRIORITIZING PEOPLE INVESTMENTS: Prioritizing people investments is where the implications of the business strategy, the portfolio analysis, and the EVP come together. In this step, choices are made about where and how to invest in human capital. For example, one company decided to reduce its investment in training since the skill level of the workforce was where it needed to be. They then increased the investment in benefits and recognition in order to strengthen retention. Another company began shrinking a segment of the workforce that possessed skills less critical in the future and invested in hiring employees with the specific skills required for business growth.

Prioritization of people investments is different from annual budgeting, which often is a zero sum game. In typical annual budgeting, an increase in one area requires an offsetting decrease elsewhere. In contrast, people investments can become a priority if they can show a positive return and if the organization has the capacity to implement the people priority. For example, a company established a good business case for increasing pay well above current levels for one type of technician. Breaking through the zero sum barrier, it put the money into a retention bonus that would cut recruiting and retraining costs by several multiples of the cost of the new bonus.

Often multiple investments may yield impressive returns but a company may lack the money or capacity to implement them all. In one company, the final priorities were determined by the severity of the problem. Investments that addressed current talent gaps in key roles were given priority over longer-term investments in growing internal talent for future needs. Though the company needed to do both, it only had the capacity to focus on the shorter-term need that was crippling the business. So that received the investment.

Becton Dickinson (BD) determined people priorities through a process that began with a new business strategy. Being a global organization, developing a People Strategy that would be aligned with and support its business strategy was a bottom-up effort that began with the input from hundreds of leaders around the world. HR leaders used this input to build on the business strategy and identify the People Strategies that were required to achieve the major planks of the business strategy. They identified three major, global priorities that crossed all the business units. These priorities were confirmed and aligned in a meeting of 200 senior leaders. HR leaders then developed a three-year plan on how to achieve the three people priorities.

6. Getting Started With People Strategy

As with any major change, success with a People Strategy depends on getting a good start and driving to execution. Successful People Strategy efforts use semi-dedicated cross-functional teams with a steering committee of senior executives to oversee the development of the strategy and measure and guide the execution. They also involve HR but make sure the effort is driven by the business leaders, who are heavily involved in development and execution.

The most critical first step in a People Strategy is identifying the need for a strategy and making a conscious determination whether to take it on. Such a readiness assessment can be accomplished with a combination of business leader interviews and analysis of metrics. The aim is to determine:

>> The extent to which the business strategy requires a change in the number, skills or performance of people

>> The extent to which serious people problems are impeding current business performance

>> The interest and capacity of leaders to tackle a People Strategy and prioritize people investments.

If the readiness assessment points towards the need to seriously align people strategy with business strategy and executives are committed to the effort, the organization is a good candidate for developing a distinctive People Strategy.

*Reprinted with permission from The Segal Company. First published in Sibson's Perspectives(tm) magazine, Volume XII, Issue 1.

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Gary Watkins

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