Strategy Implementation Session 5 - People

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Strategy ImplementationSession 5 - People
Human Resources image here
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Agenda

• Intro People
• Discuss Lehman
• Break
• Lehman Update
• People
• Strategic Issues Missteps

the boy is back!
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Where are we?
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Session 5 People Strategy

• People are our greatest asset
• Problems with capturing value from star players
• What does your strategy demand of people?
• Capabilities, Cognition, Connections Attitude
• Develop through Career Paths
• Develop through processes
• How should you address a mismatch between people
  and your strategy?
• Acquire Retain
• Develop Processes Career Imprints
• Simplify Strategy Structure
• How can people carry your strategy to the next
  level?
• When to put people first top management team,
  moral obligation, culture commitment

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From Mobilizing Minds By Lowell L. Bryan
and Claudia I. Joyce, p.6
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Money image here
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CW People are our most important asset

• The conventional wisdom counts people as the
  fundamental strategic asset.
• Yet very few firms have effective processes for
  hiring, promoting and developing the right
  people.
• Collins Good to Great firms First who then
  what
• People preceded good-great strategies get the
  leadership team in place then decide the
  direction.

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But people are not an asset

• They can walk out the door with a couple weeks
  notice.
• In particular, star performers tend to capture
  much of the value they create.
• eg Jeffries Group, a mid-sized Wall Street
  brokerage, had a good 2007 trading year avoiding
  the (early) subprime disaster.
• But the company reported its first quarterly loss
  in 20 years because bonuses captured all the
  profits.
• "We did well, and I'm sorry, but that is why we
  need to pay out people," said Richard Handler,
  Jefferies chairman and chief executive,
  acknowledging he "wasn't proud" of the loss.
  Analysts estimate that Jefferies will pay out at
  least 60 of its net 2007 revenue as
  compensation, up from 54 in 2006. (WSJ 1/8/08)

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And firms struggle to capture value from hiring
star performers.

• Legacy of the War for Talent (Mckinsey, 1997)
• Enron was the ultimate star machine, The
  Narcissistic Corporation (Gladwell, New Yorker
  7/22/02)
• Being the best defied all need for performance
  star managers rose from one failure to the next.
• When financial firms hire analyst stars
  (Groysberg et al., HBR 04 06)
• The stars performance declines (Institutional
  Investor ratings).
• The groups performance declines.
• Companys market value falls.
• Stars tenures are short.
• Women are the exception
• Built success on external networks, not internal
  teams
• Assessed match of new environments more carefully

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People and Lehmans Equity Research

• Questions
• How does Rivkin define his goals for equity
  research at Lehman?
• Does Rivkin target or avoid hiring outside stars
  for the group?
• What were some of the key moves that catapulted
  Lehmans research group up the rankings?

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Misfits between people strategy at Lehman
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Lehman My Take
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Break
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People are an essential building block of
strategy

• But the best people are not sufficient for
  success.
• Complementary processes put the right people in
  the right positions and support them with the
  right practices.
• Relational contracts can create extraordinary
  commitment to strategic outcomes.
• eg leaders from GE generate value when they fit
  the new companys strategy, and the new company
  builds the processes to match their capabilities.

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Goal extraordinary results from ordinary people.
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Relational contracts basics
Value
Cooperate Act in ways that cannot be specified
contractually.
Punish
Time
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Nordstroms Relational Contract
Welcome to Nordstrom Were glad to have you with
our company. Our number one goal is to provide
outstanding customer service. Set both your
personal and your professional goals high. We
have great confidence in your ability to achieve
them. Nordstrom Rules Rule1 Use good
judgment in all situations. There will be no
additional rules. Please feel free to ask your
department manager, store manager, or division
manager any question at any time.
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Relational contracts at Nordstrom
Value
Use good judgment in all situations.
Well, Ill never do that again.
Time
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Relational Contracts

• Take time and costly commitments to develop and
  support.
• Eg Kelleher at Southwest, Nordstrom, Rivkin
  analyst independence
• Are the economic basis of trust
• Account for a good portion of managers difficult
  work.
• Create value when linked to simple, measurable
  strategic outcomes.

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People and strategies must fit to succeed

• Top Management Team Are they committed to the
  companys direction?
• Valuable individuals do positions capitalize on
  and extend their skills?
• Pivotal jobs is the talent available to fill the
  pivotal roles in the company?
• eg one Zaras top constraints on growth is store
  leadership.
• Four characteristics of people that need to match
  your strategy
• Capabilities knowledge, experience skills.
• Connections network inside and outside the firm.
• Cognition ways of thinking and acting.
• Confidence attitude and investment in the group
  and the strategy.

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How have you struggled with fit between your
people and your strategy?

• Cutout image here

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International mismatches between strategy and
people are high profile.

• Mismatch example
• New Lenovo tripod China, Singapore RTP
• Putting huge demands on executives at all hours.
  High burnout, esp. among former Dell execs.
• Global HR Strategies
• International competition is putting intense
  demands on international positions.
• Firms need to draw talent from their operations
  around the world.
• Internal job markets.

Glopats
Globals
Regionals
Mobile Local Nationals
Rooted Local Nationals
The Mobility Pyramid (Quelch Bloom SB 99)
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Three options for addressing the people demands
of a strategy.

• Acquire
• And RETAIN requires a very high investment in
  recruiting and processes to monitor and develop
  prospects.
• eg Bossidy at Allied Signal spent 30-40 of his
  day on recruiting for first 2 years, down to
  interviewing MBA candidates.
• Develop
• Processes that build capabilities, connections
  and leadership help support a deep bench and make
  the company less vulnerable to departures.
• Eg Cisco, IBMs diverse talent initiatives
• Simplify
• If a strategy or structure demands more than
  people can give, it may need to be reconsidered.

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Some processes to develop people.

• Recruiting
• A large and constant investment, starting at the
  top, at hiring the very best people.
• Look for specific qualities matched to demands of
  the strategy and position.
• Interview for specific evidence of those
  qualities
• Develop support processes to help people generate
  the best product.
• eg Lehman Brothers institutionalized processes
  to evaluate research and deliver reports quickly.
• Coaching and mentoring
• Annual review joint commitment of leader to
  support outcomes
• Internal networks
• Encourage relationships across functions.
• Training
• Benefits learners and recognizes experts.
• Teams
• Smart partners make each of us better.
• Savvy Retention
• Not just financial! Achievement, recognition

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Executive paths develop people.
Simultaneous Representation
Transfer or Promotion
Exec moves Corp to BU
Exec moves BU to Corp
Exec sits at BU Corp
Exec sits at 2 x BU
Exec moves BU to BU
Time t
Time t1
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Promotion paths of senior teams can contribute to
innovation or the opposite.
Inertia - Less strategic change
Variation - More product launches
Retention - More reliable operations
Exec moves between units bring fresh perspective
Exec moves to from the corporate
office increase inertia
Careers built within functions units
enhance reliability performance
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Developing entrepreneurial leaders at Baxter.
Baxter Execs were associated with 25 of
Biotech IPOs between 1979 1996
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Baxters Career Imprint accounts for its
outsized role.
Paths A series of experiences that develops
capabilities, connections, confidence cognition

• People
• developmental
• readiness
• developmental fit

• Place
• Social Reinforcement
• Stretch Opportunities
• Demonstrated Success

Capabilities
Connections
Confidence
Cognition
Monica Higgins, 2005
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IBM Diversity as a Strategic Issue

• Transforming diversity into a strategic issue.
• Strategic issues link internal organization with
  external performance.
• This is a great example of drawing unique value
  out of the people in your firm.
• Some firms miss out eg, Chrysler and the 300.
• Diversity programs tend to be symbolic or
  punitive.
• This makes it real and valued by linking it to
  the bottom line.

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People Strategic Issues

• Be careful with the new conventional wisdom
  people first, then strategy
• People decisions inevitably determine some
  aspects of strategy.
• This is one approach to insure a fit between
  people and strategy one of several.
• When should people precede strategy?
• Culture commitment, moral obligation, strategic
  change, top management team
• Your people are absolutely essential to
  successful strategies
• ? Necessary but not sufficient
• Stars tend to capture the value they create
• Relational contracts complementary processes
  are the invisible ingredients to build
  competitive advantage from people
• Feedback, rewards, culture commitment
• Rotation systems can build valuable linkages
  across the company, but movement through
  corporate offices tends to constrain new
  initiatives.

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Common missteps with people

• Failing to support relational contracts with
  costly commitments.
• Focusing on buy instead of make
• Targeting established stars
• Firms often dont capture much of their value
• Thinking of people as assets
• They can leave at any moment
• Embed the value in the culture and processes so
  that the sum is greater than the parts
• Symbolic HR initiatives rarely have a strategic
  outcome
• IBM has avoided this by launching diversity
  initiatives focused on customer segments
• Building incentives purely around outcomes rather
  than key intermediate steps
• Strong incentives for noisy outcomes create
  scared workers
• Eg stock-picking for research analysts
• Lehman focused on a raft of intermediate measures
• Become an industry expert and well teach you how
  to monetize the value of that.
• Rankings, calls, publishing, relationships with
  team sales
• Sometimes people failures are actually failures
  of structure strategy
• Simplify if your strategy demands too much of
  your people

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Next Up Partnerships

• Harvard mba image here

• Starbucks Questions
• What relationships has Starbucks identified as
  essential to its business?
• How has it generated value from those
  relationships?
• To what extent is this partnership model
  appropriate for other companies?