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© 2003 Alsey International 1 What is the Role of the HR System in the Battle for Company Profitability? Professor Zwika Segal & Dr. Yagil Weinberg
© 2003 Alsey International 2 Origins Koç Holdings (KH) – the largest private sector entity in Turkey 77 year-old group of 100 firms & 54,000 employees Turnover €13.8b, subsidiaries in 21 countries Mid ‘90s: Ali Koç returned from HBS, amid global IT boom Led an unrelated group of Koç companies in ICT, grew it to 13 Included MSP, SI, CATV, B2B/B2C e-commerce, training Though incoherent, ICT became a strategic priority for KH HBS’ Porter referred Koç to Weinberg, with whom he had established the ‘Competitive Advantage of Turkey’
© 2003 Alsey International 3 € Million 200120022003 13,066 8,201 9,790 33 % 19 % 0 Business Results & 2003 Targets (IAS) Combined Sales
© 2003 Alsey International 4 2001 2002 € Million -181 280 Business Results & 2003 Targets (IAS) Combined Profit Before Tax
© 2003 Alsey International 5 2001 20022003 53,613 43,403 50,543 3,070 7,140 Business Results & 2003 Targets Number of Employees
© 2003 Alsey International 6 Alsey’s model: Process of Organizational Fit to Business Strategy I/O gap reduction Value creation Market access Competitor differentiation Competitive org. core competencies Strategic requirements 6. Test 2. Organizational Architecture Audit 1. Individual Competencies Audit Technical skills Generic competencies Knowledge Experience Core values 3. Analysis I/I fit analysis I/O gap analysis 4. Restructuring 5. Output Audit Benchmark Gap Reduction
© 2003 Alsey International 7 Step 1 - Strategic Audit Interviews with senior & middle management of all ICT companies: IT an integral part of KH plans, incorporating a variety of initiatives Strategy focused on GSM license, no reassessment when bid lost A number of operational challenges: Ongoing conflicts between ICT companies Investment opportunities victim to lack of decision mechanisms Low cross-company awareness of projects & direction Lack of coordination between Information Systems ‘New Business Development’ group a source of conflict
© 2003 Alsey International 8 Step 2: Development of Key Strategic Principles 1. Business Development in Line with Synergies Select portfolio according to synergies leveraged & created 2. Business First, Residential Later Given strong differences in business & consumer demand for ICT, focus initially on high-demand high-profit business sector 3. One-Stop-Shop Package Offer full integrated basket of ICT & financial services 4. Digitalise KH Lead & implement IT-enabled productivity improvements at KH 5. Catalyse Turkey’s IT Development Make KH the catalyst for advancing IT across Turkey
© 2003 Alsey International 9 Mapping of Existing Synergy Realisation Between KH Firms SI Consumer portal Satellite Cable Elearning B2B Super market ETickets Software ISP Hardware Travel agency Access Usage/hosting Usage/ hosting Usage/ hosting Sales Delivery White goods Sales Sales, Hosting Bank, insurance Usage/hosting Applications Hosting, call center Uni Cars Training EBookings Electronics Sales Usage/hosting Promotions Sales Synergy Realisation Mainly Basic Sales Promotions
© 2003 Alsey International 10 Mapping Potential Synergies ASP Distribution E-learning Hosting, applications E-learning Access Usage/hosting Applications Usage/ hosting Usage/ hosting Sales Logistics Sales Sales, Hosting Usage/hosting Applications, credit Hosting, call center Credit IVR Distribution E-learning B2B knowhow B2B knowhow, database B2B knowhow Network Pilot e-learning project Content Portal, technology, content E-learning technologies, content and courses Content Network Access Potential Synergies A Deeper Richer, Varied Network SI Satellite Cable Elearning B2B Super market ETickets Software ISP Hardware Travel agency Delivery White goods Uni Cars Training Electronics Consumer portal Bank, insurance EBookings
© 2003 Alsey International 11 Koç will become a leading ICT player in Turkey by transforming itself from a collection of separate and weak-linked activities into an integrated ICT service provider incorporating LEC functionalities and services Development of ITG Vision
© 2003 Alsey International 12 Step 3: Organizational Audit Identifies Fit with Strategy Cross-disciplinary mapping of the companies, across 4 pillars: 5 months, 12 experts: 160 interviews of management, 600 survey questionnaires, 85 ITG research documents, dozens of market reports, quantitative performance assessment Processes & Procedures Organizational Structure Work systems Communication management Knowledge & info management Management styles Decision-making process Organizational structure Span of control Hierarchical levels Power structure Control system Formal/informal Cooperation/competition Organizational Culture Core values Ethical code Symbols Rituals Heroes Stories Routine Ceremonies Social responsibility Individual Competency Enhancement (HR) Planning Recruitment & selection Training HR Development Career management Compensation Performance management HR structure
© 2003 Alsey International 13 EXPECTEDEXPECTED CURRENT Bryce Example: Organizational Survey Results Communication Management: Manager Encouragement
© 2003 Alsey International 14 Organizational audit Main Results Processes & Procedures Organizational Structure Slow decision- making Highly centralised Stick-to-procedures Risk-avoidance Information-keeping Loyalty to hierarchy Slow response to change Vertical Hierarchical Management- oriented Lack of clear communication Inflexible Resource- centralized Organizational Culture Tradition To be OK Individualism Present-preservation Unknown culture Dependence Satisfying superiors Peaceful human relations Client-orientation Individual Competency Enhancement (HR) Recruitment based on past achievement No career planning No horizontal mobility Standardised training
© 2003 Alsey International 15 Stage 4: Building Fit - Individual Competency Enhancement (HR) HR expertise centre established at new ITG HQ Use HR as a key strategic tool (Fit analysis) Building HR system according to mission, goals & values New career planning process within and between companies New performance criteria (according to business plan) Targeted employee and managerial development process English lessons created a bi-lingual corporation Common training programme for all ITG companies Introduction of HR metrics HR Now Used As Key Strategic Tool
© 2003 Alsey International 16 ITG profil e CandidateProficiencyJob RatioSubcategoryCategory BAAdvanced15% Training, development & career planning HR Development alDtCAAdvanced5% Motivation, surveys, core values organizationa l Culture AAAdvanced20% Compensation, bonus, benefits Compensatio n BBAdvanced10% Business requirments Strategic HR AAAdvanced10% HR planning, job analysis, recruitment & selection Recruitment AAAdvanced10% Performance and business appraisal Performance AAAdvanced10% ROI and HR metrics HR Budgeting ABAdvanced15% All HR functions and transactions HR policies CDLow5%Intranet, ERP HR computerized application AAAdvancedrequiredEnglishLanguage Example: Selection by fit analysis Appointment of VPs using proprietary strategic fit analysis
© 2003 Alsey International 17 Building Fit: Organizational Matrix New HQ management structure with VPs at heads of four new Expertise Centres (ECs) Strategic focus on HR and corporate culture Separate line & HQ functions Human Resource Executive VP ITG President Finance & Administration MarketingStrategic Planning ITG Companies HQ SBU Expertise Centres (ECs) ITG Companies ITG Companies ITG Companies ITG Companies ITG Companies ITG Companies ITG Companies ITG Companies ITG Companies ITG Companies Support Team Company focus on sales & operations Strategic support at HQ level
© 2003 Alsey International 18 Building Fit: Organizational Processes Alsey formulated 120 detailed micro-level guidelines on distribution of responsibilities, information and reporting: Stages of major decisions Distribution of responsibilities, information and reporting Relationships between companies, HQ, ITG boards & fora Work procedures, ITG meeting schedule & report templates Shorter meetings & more concise written reports Increased awareness of time budget management Relative involvement of actors in decision-making Together These Form a Comprehensive Fully Detailed Management Guide
© 2003 Alsey International 19 1 Sales 2 New products & services 3 Second-level recruitment 4 Organizational culture 5 Marketing plan 6 Marcom 7 Compound bidding 8 Training program 9 Cross-companies ’ HR mobil 10 Companies ’ structure 11 Strategy formulation 12 New technology 13 Mergers & acquisitions 14 Compensation policy 15 CEO recruitment 16 ITG staffing 17 Annual investments 18 Non-budgeted investments Max involvement of companies Max involvement of HQ Max involvement of Koç Holdings Organizational Processes Example: Overview of Guidelines on Relative Involvement in Decisions
© 2003 Alsey International 20 Organizational Processes Receive information fromInformReport toResponsibilityDecision/Task EC, External SourcesHQ, GMsKoc HoldingITG PresidentShaping the philosophy, strategy and culture of the ITG - - -HQKoc HoldingITG PresidentCoordination with other President VPs, External SourcesVPs, GMsKoc HoldingITG PresidentDetermine and present ITG’s goals VPs, External SourcesVPs, GMsKoc HoldingITG PresidentDetermine the annual goals and quantitative objectives of the VPs VPsHQKoc HoldingITG PresidentMeet important customers under the request of VPs or GMs or directly EC, External SourcesVP marketingKoc HoldingITG PresidentDetermine the ITG PR policy and activities EC, External SourcesVP marketingKoc HoldingITG PresidentRepresent Koc ITG to the media and on public affairs EC, External Sources, GMsECKoc HoldingITG PresidentPrepare ITG’s investment plans EC, External Sources, GMsECKoc HoldingITG PresidentInitiate mergers and acquisitions and lead the negotiation team Examples of 120 Guidelines on Distribution Of Responsibilities, Information and Reporting
© 2003 Alsey International 21 Building Fit: Organizational Culture Employee empowerment, commitment, involvement & pride Improved work atmosphere, self-image and open climate Increased market awareness New welfare activities, social events, library becomes pub at 18.00 Ethical code, social responsibility initiatives 95% signed the ‘psychological contract’, committing themselves to an active part in the change process Regular employee use of change process electronic forum
© 2003 Alsey International 22 Step 5: Building Fit - Innovative Mechanisms for Involvement Wide participation and involvement in: CT and TFTs that managed and implemented the change process New vision statement: ‘We will pioneer the e-transformation of our Customers, the Koç Group, Turkey, and become one of the leading Information and Communication Technology players of our region!’ Logo, jingle Others: Mission, values, President’s speech, change process ceremonies, screen-saver jigsaw puzzle, news bulletins, dedicated intranet fora, internet radio, suggestion boxes The Change Process Enabled Participation In Building The Corner-Stones of the Business
© 2003 Alsey International 23 Building Fit: Innovative Mechanisms for Involvement Greater awareness and communication through intranet portal
© 2003 Alsey International 24 Step 6: Monitoring Change: Organizational Culture (example) Employee Survey Showed Strong Belief In Change Process, Identification With ITG & Employing Company
© 2003 Alsey International 25 Monitoring Change: Performance Criteria, BSC Company performance criteria based on financial, HR, customer and internal process factors Financial Hardware Software Services Total Sales Cost of Goods Sold Gross Profit Sales & Marketing Expenses General & Admin Expenses EBITDA Depreciation Operating Profit/loss Finance Expenses Taxes Net Income Economic Profit Sales growth year on year Receivables days Human Resources Recruitment Jobs filled from within the company Training Training new employees hours Training experienced employees hours Culture Number of complaints Number of suggestions Improvement on the Survey results Efficiency Sales per employee EBITDA per employee Customers Customer Satisfaction Service call response time Vendor/partner satisfaction Market Share Internal Processes Employee independence Inventory turnover
© 2003 Alsey International 26 Step 7: Impact- Best Practice Profitability Measures $378,803 $75,302 Median Cross Industry Global Benchmark (MCIGB) Koc ITG (before) Revenue per Head Income per Head Koc (1 year after)
© 2003 Alsey International 27 Impact: Best Practice Profitability Drivers Employee turnover 34.0920.87 Stability Top 10% HR index Bottom 10% HR index Koc (before) MCIGB Koc (1 year after) 61.50 34.90 Internal recruitment
© 2003 Alsey International 28 Impact: Best Practice Profitability Drivers Competency generation and training 116.8735.02 Number of training hours for new employees (less than 1 year) 72.0013.40 Number of training hours for experienced employees Top 10% HR index Bottom 10% HR index Koc (before) MCIGB Koc (1 year after)
© 2003 Alsey International 29 Impact: Best Practice HR Structure HR expense per head HR Headcount Ratio $1,447 253:1 Top 10% HR index Bottom 10% HR index Koc (before)Koc (after) 140:189:1 MCIGB
© 2003 Alsey International 30 Key Lessons 1.Critical Role of HR Alignment of HR system with company strategy HR is key to flexibility, innovation, and speed to market 2.Strategic-Organizational-HR Fit Career Development, Recruitment, Selection, Compensation, Training, Performance Appraisal Business Strategy HR Strategy HR Systems Corporate Strategy Performance Management Vertical Fit Horizontal Fit
© 2003 Alsey International 31 Key Lessons 3.Constant monitoring and testing of fit Shows progress, allows adjustment 4.Four pillars method of diagnosis, fit, operation & measurement Provides holistic evidence about organization 5.Cross-hierarchical participation in change process Creates buy-in and stake in process 6.Innovative communications tools Encourage and broaden participation 7.Continuous paradigm shift throughout the process and its implementation
© 2003 Alsey International 32 …And now Koc ITG is a reality
© 2003 Alsey International 33
HR Strategies & its impact on Business Strategy. Submitted By
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