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Building an effective human capital strategy in a diversified media businessThe MultiCo Case Example
February 20, 2008
www.mercer.com
pHaig Nalbantian, New York
CONFIDENTIAL
This presentation contains proprietary methodologies and tools which remain the property of Mercer. These methodologies and tools cannot be used or disclosed without written consent by Mercer.
© 2004, Mercer Human Resource Consulting LLC
What is human capital strategy?
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“Human capital” defined
“ the accumulated stock of skills. . . the accumulated stock of skills, experience and knowledge that resides in an organization’s workforce and drives productive labor.”
Source: Play to Your Strengths
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Human capital strategy, therefore, is a form of asset management . . .
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. . . a plan for securing, managing and motivating a workforce to achieve business goals
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Most companies operate several profit models
Prof
it
0
Customer Solutions Profit
Price
/Uni
t
Innovation Led Profit Brand Profit
rice/
Uni
t
Other Forms
Profit Multiplier ModelAdd-on Product/Services Profit
P
Time
Example: Mercer
Cost
$/
Post-Launch
Q2 Q4 Q6 Q8 Q10
Example: HP
MarketPrice
P
BrandPrice
Example: Gucci
Switchboard ProfitBuyers Sellers
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Key Asset
Base Product
Follow-on Products/Services
Example: GE Example: Pfizer Example: eBay
An effective Human Capital Strategy must balance enterprise and business segments goals
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Companies say they prefer a one-company approach to talent…
One-company Segmentation
approach
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p yapproach
…but, in fact, they are segmenting based largely on pain points and external market conditions
Factors driving Factors driving segmentationsegmentation
Factors Factors notnot driving driving segmentationsegmentationsegmentationsegmentation
Ability to attract and Ability to attract and retainretain
GeographyGeography
segmentationsegmentation
Profit modelsProfit models
CultureCulture
MobilityMobility
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Building a Human Capital Strategy in a Global, Diversified Media Company
MultiCo: A Global, Diversified Services Company
Strategic situation – Diversified company looking to accelerate global growth, leveraging
strength of brands, while maintaining financial performanceC l ki li it h it l t t f l b l th– Company lacking explicit human capital strategy for global growth
Critical questions– Are people aligned with MultiCo’s future business requirements...
which workforce practices should be maintained or changed?– How do we maximize business results by adjusting talent
management practices?What practices should be enterprise wide versus specific to
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– What practices should be enterprise-wide versus specific to business units?
– Which combination of practices will best remove barriers to meeting our diversity goals?
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MultiCo’s Human Capital Strategy was designed to ensure that its workforce will meets its current and future business challenges
Accelerate shift from product focus to customer focus developing
Diverse and experienced “homegrown” talent (e g deep knowledge of
WORKFORCE REQUIREMENTSBUSINESS OBJECTIVES
?to customer focus, developing integrated, customized solutions to client needs
Harvest synergies within and across business segments
Better leverage technology, both in product/service delivery and in internal operations
Enhance speed, quality and cost-effectiveness of innovation
talent (e.g., deep knowledge of MultiCo markets, customers, products)
Superior leadership and management skills (e.g., know how to grow business and people)
Leaders at all levels who take initiative (and risk) in support of goals
Ability to leverage technology and innovate
HUMANCAPITAL
STRATEGY
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?effectiveness of innovationBehavior and values consistent with performance culture
Blend of technical specialists and cadre of “leaders” with experience across multiple business lines – “the catalysts”
Illustrative example
Careful examination of MultiCo’s internal labor market dynamics revealed commonalities . . .
10 7 5 / 17123
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MultiCo internal labor market (ILM) map
2,330
1,210
246
7
6
5
4
8
9
373
171
114
105
41
25
244 / 494
113 / 214
63 / 125
61 / 111
36 / 70
14 / 31
828
674
574
9
40
31
20
12
1
234
160
115
78
88
36
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890
3,099
2,326
Average active employees: 12,300
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1
2
Levels
211
662
381
109 / 297
New hires: 2,090
396 / 999
255 / 508
Vol. / Total Exits: 1,296 / 2,866
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28
Promotions
120
252
234
Illustrative example
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. . . and differences across business units
Segment 1 Segment 2 Segment 3
MultiCo ILM maps by segment
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Illustrative example
MultiCo’s dependence on new hires at middle and upper levels is high, undermining the ability to develop homegrown talent
Ratio of hires to promotions, by level and business unit
Level Unit 1 Unit 2 Unit 3 Corp Overall
Values > 1 indicate that entries are dominated by hires
p
11 1.8 0.8 0.8 1.0 1.1 10 0.8 0.9 0.6 1.0 0.7 9 0.3 0.5 0.5 0.1 0.5
8 0.5 0.3 0.5 0.6 0.5 7 0.3 0.6 0.5 0.4 0.4
6 0.3 1.2 0.5 0.9 0.7 5 0.8 1.3 0.7 1.2 0.9
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5 0.8 1.3 0.7 1.2 0.9 4 0.8 1.4 1.2 1.4 1.3 3 0.9 1.2 1.6 1.8 1.4 2 3.2 4.3 5.0 7.6 5.5
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Inter-company moves, which enhance synergies within and across units, are rare
Employees who changed units
Changed TO
Cha
nged
FR
OM
Unit-1 Unit-2 Corporate
Unit-1
Unit-2
Unit-3
Corporate
Changed TO
Unit-3.03% .25% .78%
.08% .19% .59%
1.22% .41% .05%
21% 67% 2 40%
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Corporate .21% .67% 2.40%
In examining otherwise comparable employees, thosewho move within and across units are not rewarded.
There are systemic misalignments between Executive views of the “desired state” and the reality of reward practices
Firm-specific human capitalMinoritiesBroad experience in MultiCo
Business degree / backgroundIndividual performanceHigh-potential
ant
Risk-taking / entrepreneurshipForeign language capabilities
Length of service
FemalesManagerial positions
Being in the “right” divisionEducational attainment / degreeHaving attended top-tier school
Shou
ld b
eVe
ry
impo
rta
ss
rtan
t
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Hired from agenciesPast performance history
Les
impo
r
ActualVery
prevalentLess
prevalent
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There is little performance differentiation and the value of higher performance ratings is minimal for otherwise comparable employees
$3,000Average impact of
5 rating v. 4
Value of rating (5=high,1=low) in terms of next year’s direct compensation
($s)
-$4 000
-$3,000
-$2,000
-$1,000
$0
$1,000
$2,000
pay
rate
gro
wth
+ in
cent
ive
(
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-$6,000
-$5,000
-$4,000
Unit 1 Unit 2 Unit 3 Corp Overall
1/2 v. 4 3 v. 4 5 v. 4
Average impact of 1/2 rating v. 4
Average impact of 3 rating v. 4
Bas
e p
Performance rating
MultiCo’s People Strategy specifies a system of practices to deliver requisite workforce and business outcomes
WORKFORCE OUTCOMES• Selectively acquire diverse and
high performing talent with focus on early career hiring
• Ensure coordinated, efficient
TALENT ACQUISITION AND DEVELOPMENT: Build over buy
• Consistently apply global performance measurement framework, reflecting MultiCo’s performance priorities and values
PERFORMANCE MANAGEMENT:Emphasize growth and performance
Diverse and experienced “homegrown” talent (e.g., deep knowledge of
BUSINESS OBJECTIVES
Accelerate shift from product focus to customer
TALENT ACQUISITION AND DEVELOPMENT
REWARDS
HUMANCAPITAL
STRATEGY
PERFORMANCEMANAGEMENT
sourcing based on measured results
• Establish clear, well-defined career op-portunities and focused development paths
• Enhance technical training and continuous learning and emphasize management / leadership development
values• Encourage results
achievement as well as business and personal growth and development
• Clearly differentiate between exceptional, effective and ineffective performers
• Encourage continuous learning and performance improvement
• Provide employee discretion to act and pursue calculated risks
MultiCo markets, customers, products)
Superior leadership and management skills (e.g., know how to grow business and people)
Leaders at all levels who take initiative (and risk) in support of goals
Ability to leverage technology and innovate
Behavior and values consistent with performance culture
focus, developing integrated, customized solutions to client needs
Harvest synergies within and across business segments
Better leverage technology, both in product/service delivery and in internal operations
Enhance speed, quality and cost-effectiveness of innovation
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• Value MultiCo-specific experience, deliver strong career rewards with clear calibration of advancement and pay opportunities
• Strengthen link between total rewards and individual, team, and organizational performance; enhance total rewards differentiation for high, effective and low performers
• Recognize and reward exceptional contributions to growth; value intra- and cross-segment / geography entrepreneurship
• Offer high potential track for accelerated development / rewards
REWARDS: Value careers • Increase spans of control and accountability
Blend of technical specialists and cadre of “leaders” with experience across multiple business lines – “the catalysts”
Illustrative example
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Key messages
Human capital strategy matters
- Yet for most organizations, HCS is implicit, arrived at by default
- This approach is no longer good enough- This approach is no longer good enough
Human capital strategy is a form of asset management
- It requires the same kind of discipline associated with finance andother forms of asset management and a continuous eye towards ROI
- The tools to support this new discipline are finally emerging
There are three key principles for building an effective human capital
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There are three key principles for building an effective human capital strategy
- Think systems
- Get the right facts
- Focus on value
Key messages (cont’d)
Master your ILM – and secure HR’s place at the table
- HR’s “strategic” role is to help secure, motivate and manage theworkforce required to achieve business goals
- This role is facilitated by measuring and understanding the dynamicprocess that “produces” your organization’s workforce
Capitalize on what no one else can know about your business
- Modern electronic information systems combined with newmeasurement methods permit organizations to continuously reviewthe running record of their own performance to determine what works
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g pand what doesn’t
- In the process, you can increase the return on your substantialinvestments in these systems as well as on your enormousinvestments in human capital
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Applying this new discipline will improve the decision process around human capital
Develop metrics on a par with other functionsPredict and produce cause-and-effect outcomes Reduce squabbling . . . make decisions fasterImplement . . . and change the organization faster Strengthen accountability for human capital performanceEstablish the HR function as a true business partner whose value is continuously demonstrated
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Create a competitive advantage that is 1) long-lasting and 2) impossible to copy
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Profit models describe how profit happens
How Profit HappensHow Profit Happens(Profit Models)(Profit Models)(Profit Models)(Profit Models)
Where do we make profit?Where do we make profit?
What drives profit improvement?What drives profit improvement?
What profit models (and how many) do we operate What profit models (and how many) do we operate today?today?
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What profit models (and how many) will we operate What profit models (and how many) will we operate in the future?in the future?
Talent segmentation means to differentiate talent management practices to meet the requirements of:
Specific profit modelsSpecific profit models
Employee needs
External talent markets…
… to optimize business performance
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Mercer’s approach to creating a new strategy was based on a systematic comparison of MultiCo’s “current” and “desired” states
Qualitative
“CURRENT STATE”
Qualitative
“DESIRED STATE”BLUEPRINT COMPONENTS
Capabilities
Behaviors
Attitudes
existing policies and practices
workforce attitudes (e.g., employee survey)
senior leadership perspectives
senior leadership perspectives
external benchmarking (e.g., high growth and “best to work for” companies)
Quantitative Quantitative
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People Practices
patterns of hiring, development, movement, rewards, exits (i.e., Mercer’s Internal Labor Market Analysis)
levels and sources of firm performance risk (i.e., Mercer’s Performance Sensitivity Analysis)