Category Archives: Strategic HR

Stack Ranking Employees Works

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Now more than ever, organizations need to optimize their workforce in today’s economic climate of falling revenues and shrinking profits. Companies have long used stack-ranking to manage their people and identify employees to manage out or up, GE for example categorizes their workers as being top, middle and low performers with 20% high, 70% middle, and 10% low performer distribution. They regularly manage out the bottom 10%. Stack ranking is a powerful tool, but does it work? 

Professor of management at Drake University in Iowa, Steve Scullen, found that forced ranking, including the firing of the bottom 5% or 10%, results in an impressive 16% productivity improvement.

Companies that are able to quickly compare the performance of their people to find high and low performers have an advantage over those who cannot. Low performers actually cost the company money, so when a business manages them out, they see an immediate benefit. The opportunity cost is even higher. If high performers contribute about 5 times as much as low performers, as our friend and thought leader Dr. Peter Cappelli has found in his research, the opportunity costs is huge. Imagine how much more value the company could generate if they could replace low performers with high performers.

Stack Ranker

These kinds of optimizations are on everyone’s mind in todays slowing economic environment. SuccessFactors decided to tailor a solution for optimizing the workforce by building a tool that allows managers to stack rank their employees.

Of course stack ranking isn’t just about managing out low performers, but it is also about ensuring that you are able to find and cultivate your best talent. Those top performers who contribute 5 times as much as the low performers should be rewarded, leaders should be identified and trained. Competencies should be compared and managed across teams to ensure that the right capabilities are in place. Stack ranking is a great tool not only for optimizing your workforce, but also for building it. 

Already rich with performance management data, the SuccessFactors Stank Ranker helps managers to:

  • Visually Rank Talent – Instantly identify your top-ranked players so that you can optimize your team by motivating and cultivating your best people. Give limited rewards to top employees that deserve extra recognition, or quickly identify low performers to let go when faced with tough layoff decisions.
  • Go Beyond Performance Reviews –Stack Ranker expands the formal review process by letting you capture new characteristics for a more holistic assessment. For example, you can incorporate factors like criticality of the role into ranking or other criteria to serve as tie breakers.
  • Assess Everyone at Once – Quickly assess your entire team across critical competencies and criteria in real time — all in one place. Side-by-side rating promotes more accurate relative assessments.

Stack Ranker was designed to help companies act now. Organizations simply cannot afford to carry the dead weight of low performers in these uncertain times. Furthermore, they need to move quickly or they will be outflanked by their competitors. Tools like Stack Ranker are critical to succeeding in today’s environment.

Lessons from the Holiday Season: Optimize, don’t Just Cut

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Everyone puts on a little weight during good times – vacations and holidays are notorious times for over eating, relaxed behavior and good feelings. Well for businesses, the vacation has come to an abrupt end. After years of easy credit and a booming housing market, the bottom has fallen out from under companies more quickly than anyone had expected, and the economic uncertainty looks as if it will continue for some time.

What will businesses do with all of the excess weight they put on during the good times, when they were content and growing with the rest of the economy? Well for those of us who have had to lose holiday pounds before, we know there are a lot of ways to get back in shape. The obvious solution is calorie restriction, cutting back on the excess – but this technique alone will leave you weaker than before you put on the weight. When the economy recovers, companies who depend on cutting calories alone will emerge weak and unable to take full advantage of the changing and improving business environment. Cutting calories alone leads to smaller muscles and a weaker body.

The best approach to losing weight is an approach that optimizes your body. Sure calories will have to be cut, but if you plan and execute carefully, you can ensure that you don’t lose any muscle. You might even emerge leaner and stronger than before. This should be the goal of every company planning layoffs and workforce adjustments for the economic downturn. To optimize the workforce in a downturn you should:

  • Lay off people based on data from the performance management system, so your strongest “muscles” aren’t lost
  • Find the positions within the company that are critical to your success, and ensure that successors are named for those positions
  • Identify the key competencies that drive your success, and ensure that they are cultivated during the downturn, so you can emerge with strength

Companies often focus too much on cutting, or building one part of their organization. Strong arms won’t help you win a footrace. Optimizing the whole body is the best way to lose holiday weight – for companies it is the difference between remaining competitive and falling behind. Use the data in your talent and performance management system to optimize your workforce. Now more than ever companies need to be smart about managing their resources, including their talent.

Managing Tomorrow Today

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I’m happy to present this guest blog from our Thought Leader partner and my friend Dr. Jac Fitz-enz.

Predicting the future is a big business. Economists, financiers, demographers, pollsters and pundits are paid big money for their insights into what might happen next in their respective areas of expertise. If we can catch glimpses of the future of something as complex as the economy, why can’t we look into the future to predict our human capital needs? I started researching human capital metrics in the 1970s, when almost no businesses were really crunching the numbers on their people. Today, I am working hard to push the frontier of predictive analytics. Last year I kicked off a predictive analytics initiative, and partnered with SuccessFactors Research to find out what works.

In business, gathering and analyzing data is only a beginning. Managers want metrics that are actionable, metrics that support business decisions. They want a glimpse of their future. To answer that call, we have developed HCM: 21, a better way to collect, integrate, process, analyze and predict business results. It links external forces and internal factors, plans with it, processes it, analyzes it and predicts it within a single, integrated system much like FedEx does with small packages. The value add is compelling business intelligence about our most mission critical resource: human capital.

HCM21

Most great advances in the information era have not revolved around new products. They have been about the distribution of something. Consider Avon in cosmetics, FedEx in package delivery, Amazon in books and USA Today in newspapers. In every case upon introduction adoption of the better method was condemned by naysayers. Innovation today is about efficient movement of data and products.

Just as other breakthroughs have been built on integration, HCM: 21 incorporates human capital information from many sources. But it is not about information technology in the sense of computers any more than Gutenberg was about paper and ink. Movable type launched the efficient distribution of information, which made possible widespread education and facilitated trade. HCM: 21 is the first successful method for combining mission critical, human capital data to manage risk and predict return on investments all within a single, comprehensive system.

You can find a preview of the HCM: 21 system in the whitepaper I wrote with Erik from SuccessFactors Research, Managing Tomorrow, Today. It is not a crystal ball for the future, but rather a blueprint for putting your data to work, not just to solve the problems you are facing right now, but to ready yourself for tomorrow. How integrated, actionable and relevant is your human data? Don’t get stuck looking backward and reacting, make sure your data is good enough to look forward to tomorrow.

Attack at the top of the hill

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Go on the offense in the war for talent when your competition is hurt. Yes you hurt too but winning in business or in bike racing is a relative game – very relative. Of course you are stronger and feel more confident in your ability to sprint and attack when you are warmed up and ready, but the problem there is that so is your competition. In tougher times when every company is hurt from a slowing economy there is no better time to go on the offense and focus on strategic talent management issues. You can recruit the best from your competition and develop your key talent – if you get some slack you should use it wisely.

Of course when the economy is putting the knife on your throat it is easier said than done, but most organizations get very inactive in a slow economy. They simply resist taking any action, hoping things will correct themselves. Well the economic climate will eventually recover – it always fluctuates – but your company will come out weaker than your competition if you don’t act. But can you marry cost cutting with going on the offense? Yes, but laying off people can’t be done by simply applying stupid rules such as last in first out (very common in Europe, sometimes forced by laws) or broad 10% cuts in everything. Doing it like that is just lame.

Make sure you surgically get rid of the people that do not perform, nor have the potential to grow into the future needs of the organization. Think not only in terms of cost savings, but also in terms of talent optimization, although this is probably something that most organizations should do all the time in any economic climate. You just don’t see nor face this problem in booming times. So attack on top of the hill when your competition is hurt and you have a great chance of coming out winning. Pain is temporary, victory is forever.

HCM is good for the Green

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Recently Saugatuck Technologies released a study showing that SaaS (Software-as-a-Service) Human Capital Management software contributes at least 2-3% to top line growth – definitely good news for companies seeking more green. An article in this week’s San Francisco Chronicle made me start to think about another kind of green – the environment. Human capital management is key to driving a number of environmental initiatives. Paperless reviews save paper. Working from home reduces gas-guzzling commutes and slows the need to build new office space, and as the San Francisco Chronicle points out, employees love working from home. As an important part of the individual value proposition to the employee, working from home helps keep your employees engaged.

But, successfully promoting a paperless office and shifting people from the office to the home, requires systems that support these activities. Goal alignment, ensuring that people are working on the right things for the right reasons, is very important. People need to feel like part of the team, even if they aren’t physically present. Traction, not action is the mantra for successful execution. Goal alignment ensures that people are moving in the right direction downfield to score, and not just gaining yardage. In fact, if your players are moving in the wrong direction, they are moving farther away from the goal. Goal alignment helps ensure that this doesn’t happen. It is not a substitute for supervision from a manager, but keeps the team working toward the overall company strategy.

Human Capital Management is a critical to earning green, and going green, enabling people to work from home, in global teams, anywhere, anytime. How green is your organization?

Does People Performance Really Matter?

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Imagine you are on the football field – What if 15% of your performance is dependent on the play you select, and 85% of your performance is dependent on your ability to make the play? Where would you invest most of your time, training your team to pass, catch, run, and block, or picking out the right play?

By and large, studies have found execution is the clear driver of company value and financial performance. How much? Well, about 15% of company’s performance is attributable to strategy – the remaining 85% is attributable to execution, as found by Becker and Huselid’s “ High performance Work Systems and Firm Performance.” Joyce, Nohria, Roberson found a similar ratio in “What really works.”

That’s right – Execution of the strategy is 6 times more important than the strategy itself!

How do you execute on a strategy? In a word: People. At the end of the day, it is the employee who makes things happen, who gets results – not machines, strategies, vendor relationships or what have you. People are your real differentiator and now typically make up 70% of a company’s cost (and growing). This is doubly true in today’s knowledge-focused economy. We see today that about 80% of a company’s valuation cannot be explained by the balance sheet, which shows the growing importance of intangibles and people performance to future cash flow. The value of a company is no longer in its factories, IT systems, or physical assets – it is created by the company’s people.

Your company is in fact already on the field, fighting for customers, revenues, and a competitive position. Instead of “picking out the best play”, focus on what will most help you move downfield toward your goals: people performance, 85% of your success depends on it. Goal alignment, individual accountability, and engagement equal strong execution. Build up these strengths and capabilities of your company to help ensure you can make the big plays. So yes, people performance does matter, because their ability to execute is the key factor in creating value and driving results for your company.

Making HR strategic isn’t hullabaloo, just ask your bottom line

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Max’s Note: We’ve been following an interesting discussion over at Vendorprisey (and Jim Holincheck’s response) on the delta between survey data that shows CEOs consider people issues strategic and the lack of any substantive action in involving HR in strategic matters. Our own Erik Berggren responds below:

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If HR is supposed to help executives make better informed decisions, HR needs to start with relevant data to support them. What is relevant? Well, anything that affects the company’s ability to execute its strategy.

At the most basic, we need to know how many people we have with the requisite skills today. What about retirement? If we do nothing, how many of these people with what skills will we be short? Are we playing scenarios of various turnover rates in various roles? How will those affect our need and our ability to attract the relevant talent to fill this need? Do we look at our talent base both in terms of size and composition today and a few years out?

The idea of “a few years out” – how we will compete in the future –  that is the where strategic decisions are born. It’s why HR needs to be strategic in two ways – defining the strategy AND supporting its execution.

Here is a practical example of how fast this becomes the most strategic issue at hand. A few years ago I was working as a consultant helping a CEO and his COB with a complete turnaround of the business. A new, sustained top line and an above industry standard bottom line margin was the goal. The company was loosing bids and business looked rather bad. But the turnaround took hold, and the company, an engineering firm, started to do better and begun to win significant contracts.

But the lack of integration with strategic HR planning might have cost us dearly. Delivering on these new contracts completely drained critical skills in various engineering areas. Further, a shortsighted reduction in force nearly put the company in a situation where the same people let go would return as more expensive contractors. We became aware of this just in time to correct course and successfully averted the distaster.

Nevertheless, looking at this scenario early on and integrating more tightly with the internal talent pool as well as the external talent market could have led to a more optimistic approach with pricing and left the company with a better margin. And you can be sure that a strategic, HR-driven approach to planning that looks both internally and externally is now the standard way of doing business.

We (SF Research) are currently working on this need for HR to be more forward looking, strategic and predictable. We’re looking at what HCM metrics are predictors of future success. On this topic, we’re currently working with Dr. Jac Fitz-enz on a white paper and are preparing to discuss this topic and early findings in a webinar on July 24.

I invite you to join us to hear our conclusions and our take on how HR can get strategic by thinking forward.

Think you can do better than your boss?

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Max’s Note: As part of our quest to post more and more often, I’m proud to present this guest post by Sammi Nuttall.

According to a new survey completed by Korn/Ferry International, nearly 73% of executive level employees believed that they could outperform their manager. Surprisingly, 42% of those surveyed also believed that their boss was doing an “excellent” or “above average” job.

That’s an interesting contradiction.

One interpretation is that employees, even at the top levels, are not leveraging all they have to offer their employers – and as a result are feeling somewhat less than challenged. This puts the onus on managers and strategic HR groups to understand who their high potentials are and to discover and cultivate their strengths. It’s only by developing employees that their full potential can be released, and if you can do that – the sky’s the limit.

The Next Great Idea; Who Needs It?

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Max’s note: We’re proud to present this guest post by Dr. Jac Fitz-enz. Known as the father of Human Capital Management, Dr. Jac is the CEO of The Workforce Intelligence Institute.

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Every so often the next great idea comes along and the herd goes after it like piranhas after a side of beef. Look at this list from the past 50 years:

  • 2000: Intellectual Capital – Knowledge Management – dot.com
    Balanced Scorecards – 7 Habits – Delayering – Rightsizing
  • 1990: TQM – Reengineering – Customer Service – Benchmarking – EVA – Downsizing – Empowerment – Continuous Improvement – Kaizen
  • 1980: Corporate Culture – Change Management – Work Simplification
    MBWA – Relationship Marketing – Intrapreneuring – Diversification
  • 1970: One Minute Managing – Decision Tree – Quality Circles – Excellence
    Hierarchy of Needs – Value Chain – Myers-Briggs – Kepner-Tregoe
  • 1960: Managerial Grid – Hygienes and Motivators – Organization Renewal
    Theory Z – Plan/Organize/Direct/Control – Human Relations – Matrix
  • 1950: Management by Objectives – Management Science – Decision Tree –Theory X & Y

What’s the lesson? Fundamentals still apply. Dot.com blew up over that. The world is changing but companies are still filled with human beings; smart ones, crazy ones and everyone in between. Bottom Line is they still need a few basics to be successful:
1. A sound plan (with a vision behind it)
2. Good decision making data (set in a flexible structure)
3. Goals and metrics to measure progress (a reward accomplishment)
4. A view of the future (what’s over the horizon?)

We have 1 through 3, but we don’t have good predictors. Accounting tells us the past. But change never comes from within the establishment. Personal computers didn’t originate with IBM or DEC. Mini steel mills didn’t come from US or Bethlehem Steel. The leaders see the future better than the followers. We need predictive tools to help us drive the future.

Prediction is the name of today’s game. We have to manage tomorrow today. Am I crazy or not?

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Dr. Jac , as he is known worldwide, is acknowledged as the father of human capital strategic analysis and measurement. During the 1970s he carried out original research which led to the first human resources metrics in 1978 and to benchmarks in 1985. As founder of the Saratoga Institute in 1980, he developed the first international HR benchmarking service, eventually covering 2,000 companies in a dozen countries. Recently, he was cited as one of the fifty persons who have “significantly changed what HR does and how it does it” in the past fifty years. For more information about Dr. Jac and the Workforce Intelligence Institute please visit humancapitalsource.com.

The age old virtues of meritocracy

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The Atlantic Monthly has been running excerpts from old issues as part of their 150th anniversary celebration. Reading over an issue this weekend, I came across an article written by a Colonel R. Williams about a decade after the civil war ended – in 1878. His issue? That the military’s practice of promoting those with the longest tenure was “fostering apathy” rather than bravery or a commitment to excellence.”

Amazing that the same battles we fight today for meritocracies were equally well articulated 150 years ago.

Here’s an excerpt:

Our army presents the only known example of a business or profession, either public or private, in which incompetency and want of zeal bring the same substantial rewards as energy, capacity, and active attention to duty. Such a system of promotion is in violation of all the rules of common sense by which men are governed, as well as of those by which they are incited to strive for superior excellence, and the condition of our army at the outbreak of the rebellion affords an excellent example of its inevitable result. At that time the superior grades of the army were filled by old men, who, having outlived all above them, had been regularly promoted, in accordance with this system, to the positions which they occupied, regardless of the well-known fact that in the majority of instances they were unfitted, both by age and infirmity, to perform any military duty whatever. The spectacle was so pitiable, and the lesson it taught so apparent, that it might be supposed the government would have profited by such crushing experience, and been led by it to the adoption of wiser measures. Such, however, was not the case. Our system of army promotion is the same to-day as before the rebellion, and we are slowly, but surely, approaching the same result, from which the same experience, disastrous as it was to the country, must necessarily follow. At the close of the rebellion, and with the sad experience it had taught still before us, some effort at a change was made. The army was reorganized, and many young officers who had acquired experience, both of the regular and volunteer force, and who had especially distinguished themselves, were deservedly placed in high positions; but this spasmodic effort at reform was deemed sufficient, and we have again fallen back into the system of promotion by seniority, which, unless some dire necessity forces a change, must render the condition of our army equally as deplorable as when the rebellion commenced, by filling its superior grades by worn-out and superannuated old men. It seems needless to describe the effect which this system must produce upon the subordinate and junior officers of the army. In most instances it is deadening to all effort at improvement or professional skill, and suggests the natural conclusion: that, as superior rank is obtained only by longevity, each should strive to avoid all exposure, hardships, or dangers by which health may be impaired or life risked.