A Best Employer HR Strategy

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A Best Employer HR Strategy
What It Can Mean For Business And Business Schools
Michael Hartmann June 18, 2008
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A Perspective From Across the Pond
A Need for Diversity of Thought
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A Canadian Business School Perspective on B-E
Approach

• The War for Talent
• The Lonely HR Executive
• The Bank Boston Example

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The War For Talent
Demand for talented managers
War for talent
Demographic constraints on supply
Demand for knowledge workers
Talent is more mobile
Source War For Talent
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of corporate officers who strongly agree.
Improving the talent pool is one of our top 3
priorities

• High
• performing companies

• Average performing companies

Source War For Talent
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Most firms poor at talent mgmt.
of senior managers who strongly agree
Knows who are high and low performers
Brings in highly talented people
Retains high performers
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Develops people effectively
Removes low performers
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Source War For Talent
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Bank Boston Brazil example

• Wanted to make it to the Best Employer list in
  Brazil because of the Signaling Effect.
• Not sure what the true business benefits are but
  Best Employer sounds good!
• Engaged the Rotman School of Management in
  customized EMBA training because this would gain
  points in the B-E ranking system.

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www.CanadasTop100.com
Source Ondrack Top 100 in Canada
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Canadas Top 100 rating factors

• Leaders and Performance management
• Training and Development
• Physical workplace/surroundings
• Work and social atmosphere/flexibility
• Compensation fairness, rewards, flexible
• Benefits health, pension, family, vacations
• Employee communications/involvement
• Community Involvement

Source Ondrack Top 100 in Canada
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Types of rationale for being a B-E

• Opportunism we need to be on the list!
• Philosophy top management belief that B-E is
  right thing to do ? assume top performance
• HR Potential B-E should attract best HR talent,
  best talent should deliver better results overall
• HR Costs B-Es should have generally lower HR
  costs than competition in same market
• Overall performance B-E long term actual
  performance should be better than industry
  averages due to talent advantage in B-E firms.

Source Ondrack Top 100 in Canada
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Benchmark test for B-E firms
WINNERS, MODELS
MOST B-E FIRMS
SOME LONG-TERM ABOVE AVERAGE
L-TERM AVERAGE INDUSTRY PERFORMANCE
SOME LONG-TERM BELOW AVERAGE
FEW OR NO B-E FIRMS
STRUGGLE, FAILURES
Source Ondrack Top 100 in Canada
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Using HR levers for B-E strategy

• Human capital B-E recruits, trains, keeps better
  quality people than others ? talent
• Social capital B-E develops teams, informal
  social networks-systems better than others ?
  motivated, responsive, faster actions

Source Ondrack Top 100 in Canada
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Using HR levers for B-E strategy

• Performance mgt better HR alignment of goals,
  standards, leadership, reward systems to the
  business strategy ? deliver performance
• Organization culture collective values, goals,
  priorities of B-E ? high performance system
• Change mgt B-E achieve necessary changes more
  effectively than others ? get results

Source Ondrack Top 100 in Canada
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Example attracting talent for high potential
human capital

• Research many top MBA grads are attracted by the
  opportunity to work with high talent others, even
  if salaries are only average ? cost saving
• Most B-E firms attract/keep better talent ? this
  attracts better MBA talent to apply/accept jobs ?
  potential for better overall performance
• Unless poor management devalues the talent
• Plus, exceptional leadership or management
  systems can enhance average talent

Source Ondrack Top 100 in Canada
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High talent MBAs at B-E firms
WAGE LEVEL
NECESSARY FOR WEAKER EMPLOYERS TO HIRE TALENT
EXCESSIVE LEVEL OF WAGES
SUCCESSFUL HIRING OF TOP TALENT BY BEST-EMPLOYERS
MARKET PAY LEVEL
ZONE OF ACCEPTABLE LEVEL OF WAGES
MINIMUM ACCEPTABLE WAGES
CAN ONLY HIRE WEAK TALENT
MBA JOB APPLICANTS
Source Ondrack Top 100 in Canada
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Testing B-E performance

• For any given industry/market/strategy there is
  an average level/zone of performance among
  firms in the industry
• Most firms are in the average zone
• Some firms consistently above average
• Some are consistently lower than average
• If B-E makes a difference, then B-E firms should
  be consistently above average for their
  particular industry

Source Ondrack Top 100 in Canada
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Case 1 HR cost reduction

• B-E firms have lower than average turnover
• Average recruit cost of 12.5K learning curve
  cost of 12.5K 25K replace cost PP
• Two firms in same industry, each has 1000
  employees industry average turnover 8 but
  turnover at the B-E firm is 4
• Turnover cost at Average firm 80 x 25K 2mil
  per year to maintain 1000 people
• B-E firm 40 x 25K 1mil per year

Source Conference Board of Canada
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1. B-E average turnover costs
Turnover costs for 1000 employees
2 million per year
Average firms turnover 8, 25K each
1 million per year
B-E firms turnover 4, 25K each
Long term costs
Source Ondrack Top 100 in Canada
Conference Board of Canada
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Case 2 Top100 in Canada

• Top100 firms 2 studies compared ROE of Top100s
  over 5 yrs compared to average ROE in four
  industry groups in Canada
• B-E in High tech/info tech industry group
• B-E in Service/retail/hospitality group
• B-E in Mass mfg/consumer products group
• B-E in Natural resources/petrochemicals
• Overall result 60 of all Top100/B-E firms do
  better than their industry average ROE

Source Ondrack Top 100 in Canada
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2. Top100 results by industry groups
ROE
Top 100 INDUSTRY GROUPS
80 of T100 TECH firms
70 of T100 SERVICE
60 ALL T100
50 MFG T100 50 NAT RES Top 100
INDUSTRY AVERAGE ROE
5 YEAR AVERAGE
Source Ondrack Top 100 in Canada
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Canadian results were consistent with

• 100 US Best Companies to Work For consistently
  outperform the stock market.

• 100 Best Workplaces in Europe increased their
  average revenue by 26 per annum with a growth of
  employees of only 16. Part of this can be
  attributed to lower rates of absenteeism 2.8
  on average.

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But - Canadian Business culture survey 2006

• 99 of managers surveyed believed the
  organization culture had a high impact on
  business performance
• However, only 38 say senior executives or the
  CEO provide a good role model for the corporate
  culture
• Only 8 of firms reported using bonus plans or
  reward systems or training to align performance
  to the desired organization culture.

Source Ondrack Top 100 in Canada
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Why Is It So Hard to Do?

• Tone at The Top

• Culture Clash

• HR seen as a resource function not part of core
  business strategy

• Avoiding The Difficult Conversation

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Good Human Capital but

• Major law firm very strong name/reputation,
  attracts top graduates from top universities,
  paid good salaries ? good supply of talent
• Offered excellent training/learning over 2 years
  ? invested 125,000 per person
• But had tyrant leaders, highly negative culture
  that clashes with culture of new hires ? 50
  turnover after 2 years
• Result high replacement and training costs to
  maintain high quality supply of talent

Source Ondrack Top 100 in Canada
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Good human capital but

• Firm ends up supplying highly trained, good
  quality talent to the competition
• Declining reputation as an employer forces them
  to pay even higher salaries to attract or keep
  talent ? only new tyrants remain
• Higher operating costs supplying top quality
  talent to competition ? decline in competitive
  position in the market

Source Ondrack Top 100 in Canada
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Good human capital but
INCREASED STAFFING COSTS
PAY TOP SALARIES
NEGATIVE REPUTATION
BUT
POOR SOCIAL CAPITAL
HIRE BEST From TOP SCHOOLS
PROVIDE TOP TRAINING
CULTURE CLASH
POOR LEADERS
HIGH TURNOVER SUPPLY TALENT TO COMPETITION
DENY SUPPLY TO OTHERS
LOSE INVESTMENT LOSE ADVANTAGE
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GE Leadership Talent
2. MANAGERS WITH LESSER RESULTS, BUT ARE GOOD
LEADERS TO MOTIVATE/KEEP TALENT ? DEVELOP
-TRAIN, COACH TO MOVE TO 1, OR EVENTUALLY HAVE
TO DROP
1. MANAGERS WITH GOOD RESULTS AND ARE GOOD
LEADERS TO MOTIVATE/KEEP TALENT ? WINNERS, PROMOTE

• 3. MANAGERS WITH GOOD
• RESULTS, BUT ACT AS
• TYRANTS CREATES POOR
• MOTIVATION, TURNOVER
• COACH TO MOVE TO 1,
• OR GET RID OF FAST

4. MANAGERS WITH LESSER RESULTS AND ACT
AS TYRANTS - CREATES POOR MOTIVATION, TURNOVER
? GET RID OF FAST
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How Can Business Schools Help?

• We Educate Tomorrows Business Leaders

• We Can help Organizations Develop their Human and
  Social Capital thru

• Research Dialogue
• Executive Education

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Executive Education
Results
Structure
Strategy
Social Human Capital
Training Development

• Better Alignment
• Faster Transfer of New Ideas

Assess
Challenge
Support
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Summary

• Whether as a matter of philosophy or objective
  financial research, B-E-strong culture firms on
  average, outperform the competition in a given
  industry.
• Results show up both in lower HR costs and better
  overall, long-term overall performance
• However, the B-E/talent potential can be negated
  by poor management de-motivates and loses HR
  talent ? destroys value

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Summary

• As always best performance is a matter of good
  talent good leadership (direction, alignment
  and motivation).
• Business Schools have a key role in supporting
  the B-E approach by graduating the right students
  and by providing the right training and
  development suppport.

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Dilbert HR Strategy