1. Ohio University College of Business Executive Education Strategic Management of Human Capital Edward B. Yost Ph.D., SPHR September 1, 2008

2. Ohio University College of Business Executive Education Bom dia Boa vinda a Ohio University

3. 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

4. Ohio University College of Business Executive Education What Companies are Most Successful? Name some companies that are consistently delivering strategic success to the stakeholders.

5. Ohio University College of Business Executive Education What determines strategic success in business? Being in the right (growth) industry Size High Technology Low cost Global Reach Strategic Intent

6. Ohio University College of Business Executive Education The “Right” Industry The best returns are from “Growth” –In terms of returns to shareholders there is no evidence that this is true

7. Ohio University College of Business Executive Education 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

8. Ohio University College of Business Executive Education 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

9. Ohio University College of Business Executive Education 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.

10. Ohio University College of Business Executive Education Global is Good! Being Global doesn’t hurt but isn’t almost everybody? And… to be successful requires significant changes in all management systems

11. 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)

12. Ohio University College of Business Executive Education 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

13. Ohio University College of Business Executive Education Strategy as a Process StrategicIntent EmergentStrategies Strategic Success Success Strategy Execution

14. Ohio University College of Business Executive Education 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)

15. 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.

16. Ohio University College of Business Executive Education 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

17. Ohio University College of Business Executive Education 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.

18. Ohio University College of Business Executive Education 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!

19. Ohio University College of Business Executive Education 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

20. Ohio University College of Business Executive Education Strategy execution requires active management PROCESSES that:  Provides for individual and team contributions with contingent and equitable recognition and rewards

21. Ohio University College of Business Executive Education Strategy execution requires active management PROCESSES that:  Sustains the level of commitment and enthusiasm by providing for new operational definitions of the target as circumstances change.

22. Ohio University College of Business Executive Education Strategy execution requires active management PROCESSES that:  Using the strategic intent consistently to guide and sustain resource allocation decisions

23. Ohio University College of Business Executive Education The Key to Strategy Execution Workforce Capabilities (Select & Develop Skills) X Workforce Mindset and Culture = Leadership & Workforce Behaviors to Strategy Execution

24. Ohio University College of Business Executive Education Human Capital Right HR Practices Right types of HR alignment Strategy Execution Leadership & workforce behaviors Workforce Capabilities Workforce mindset & culture

25. Ohio University College of Business Executive Education What is Human Capital? Talents and abilities Knowledge and skills Social networks (capital) Desire and visions

26. 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

27. Ohio University College of Business Executive Education 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

28. Ohio University College of Business Executive Education 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.

29. Ohio University College of Business Executive Education Why a HUMAN CAPITAL ORIENTED STRATEGY? Because…... The organization can leverage people with capital to achieve a higher return for owners

30. Ohio University College of Business Executive Education The Power Of HR Share Holder Returns Capital Human Resource Systems

31. Ohio University College of Business Executive Education The Power Of HR Share Holder Returns Capital Human Resource Systems

32. Ohio University College of Business Executive Education 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

33. Ohio University College of Business Executive Education 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

34. Ohio University College of Business Executive Education 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…

35. Ohio University College of Business Executive Education 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.

36. Ohio University College of Business Executive Education 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.

37. Ohio University College of Business Executive Education 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

38. Ohio University College of Business Executive Education HPWS & The Employment Relationship  Any intervention, and especially transformational interventions, that alter the Employment Contract  Economic  Psychological  Social

39. Ohio University College of Business Executive Education HPWS --- Pfeffer’s 7 Employment Security Selective Hiring Self Managed Teams High and Contingent Compensation Extensive Training Reduced Status Distinctions Extensive Information Sharing

40. Ohio University College of Business Executive Education 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.

41. Ohio University College of Business Executive Education Human Capital Index In a Watson Wyatt study companies that scored higher on HCI delivered significantly higher Total Return to Shareholders over a five year period.

42. Ohio University College of Business Executive Education Practices That Lead to High Performance Organizations * Impact on Market Value Recruiting & Retention Excellence 7.9% *based on 1 standard deviation improvement

43. Ohio University College of Business Executive Education Practices That Lead to High Performance Organizations Impact on Market Value Total Rewards & Accountability 16.5 % *based on 1 standard deviation improvement

44. Ohio University College of Business Executive Education Practices That Lead to High Performance Organizations Impact on Market Value Collegial, Flexible Workplace 9.0% *based on 1 standard deviation improvement

45. Ohio University College of Business Executive Education Practices That Lead to High Performance Organizations Impact on Market Value Communication Integrity 7.1% *based on 1 standard deviation improvement

46. Ohio University College of Business Executive Education Obtaining Strategic Success Financial Success Operational Success Customer Success All are LAGGING indicators of strategic success

47. Ohio University College of Business Executive Education Obtaining Strategic Success Staffing Training Assessing Performance Rewards All are LEADING indicators of Strategy Execution

48. Ohio University College of Business Executive Education 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

49. Ohio University College of Business Executive Education Training & Development Creating Human Capital Matching competencies and skills to strategic needs Capturing, maintaining, allocating and protecting knowledge Preparing for the future

50. Ohio University College of Business Executive Education 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

51. Ohio University College of Business Executive Education 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

52. Ohio University College of Business Executive Education Interaction of HR Systems Staffing Rewards TrainingAssessment

53. Ohio University College of Business Executive Education The Key Question is… What type of HR management system is required to deliver a workforce capable of successful strategy execution?

54. Ohio University College of Business Executive Education HR System Differentiation Drives Strategy Execution Strategic ImpactStrategic Impact Workforce Differentiation Low Medium High Generic Best HR Practices Core HR System Differentiation Strategic HR System Customization

55. Ohio University College of Business Executive Education 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.

56. Ohio University College of Business Executive Education 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

57. Ohio University College of Business Executive Education 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

58. Ohio University College of Business Executive Education 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

59. Ohio University College of Business Executive Education 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

60. Ohio University College of Business Executive Education 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

61. Ohio University College of Business Executive Education 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

62. Ohio University College of Business Executive Education 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

63. Ohio University College of Business Executive Education 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.

64. Ohio University College of Business Executive Education 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!

65. Ohio University College of Business Executive Education 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????

66. Ohio University College of Business Executive Education 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

67. Ohio University College of Business Executive Education HR Systems Value Creation Strategy Execution The Product of Workforce Capabilities X Mindset and Culture Leading Indicators Lagging Indicators

68. Ohio University College of Business Executive Education 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.

69. Ohio University College of Business Executive Education Um descanso curto

70. Ohio University College of Business Executive Education Richard and Mary Practicing Management

71. Ohio University College of Business Executive Education The Key to Strategy Execution Workforce Capabilities (Select & Develop Skills) X Workforce Mindset and Culture = Leadership & Workforce Behaviors to Strategy Execution

72. Ohio University College of Business Executive Education 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?

73. Ohio University College of Business Executive Education Workforce Mindset and Culture Richard and Mary Individual perception of the situation? Their Role –Performance measures, –Rewards The role of others? –Performance measures, –Rewards

74. Ohio University College of Business Executive Education 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?

75. Ohio University College of Business Executive Education 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?

76. Ohio University College of Business Executive Education Workforce Mindset and Culture Individual perception of the situation? Their Role – Richard/Mary –Performance measures, –Rewards The role of others – Richard/Mary –Performance measures, –Rewards

77. Ohio University College of Business Executive Education Leadership & Workforce Behaviors 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?

78. Ohio University College of Business Executive Education Leadership & Workforce Behaviors 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?

79. Ohio University College of Business Executive Education Mary Does she have capabilities? What is her mindset and culture? Is she maximizing strategy execution?

80. Ohio University College of Business Executive Education Richard Does he have capabilities? What is his mindset and culture? Is he maximizing strategy execution?

81. Ohio University College of Business Executive Education How Richard sees Mary How Mary sees Richard

82. Ohio University College of Business Executive Education 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….

83. Ohio University College of Business Executive Education 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….

84. Ohio University College of Business Executive Education Solving the Problem What can be done? Is it Human Capital? Is it HR Practices? Is it a Lack of Support?

85. Ohio University College of Business Executive Education Human Capital Right HR Practices Right types of HR alignment Strategy Execution Leadership & workforce behaviors Workforce Capabilities Workforce mindset & culture

86. Ohio University College of Business Executive Education Isn’t it COMMON SENSE? Managers know that they should implement high performance factors but They have elaborate excuses why they can’t

87. 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

88. Ohio University College of Business Executive Education Its Only Common Sense! Half will never see the connection between People and Profits Half will engage minimal change Half will engage comprehen- sive change

89. Ohio University College of Business Executive Education Its Only Common Sense! Half will never see the connection between People and Profits Half will engage minimal change Half won’t stay the course Half will succeed

90. Ohio University College of Business Executive Education 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”

91. Ohio University College of Business Executive Education 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!

92. Ohio University College of Business Executive Education Obrigado para sua atenção amável