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Human Resources' Goals Work Best When They're Tied to Company Success

People talk about aligning corporate, departmental and employee goals, but not many actually do it. There are companies, however, that have concrete methods to manage and measure the performance that makes lofty goals a reality.

November 26, 2003
Related Topics: HR Services and Administration, The HR Profession, Strategic Planning, Latest News

Robert Coon had just been hired to head up human resources at Daisy Systems Corp., a maker of software for computer-assisted engineering, and was preparing for his first meeting with the CEO. The top executive, who was also new at the company, had pledged that Daisy would jump from its current number-two place in the industry to the top spot. Like the other department heads, Coon stepped into the CEO’s office and handed him a list of his department’s objectives for the upcoming year. The CEO scanned the objectives, which were numbered 1 through 10, with approval. But he was confused about a column with a seemingly unrelated series of numbers.

    "What’s this?" he asked.

    "The numbers in the left column show the corporate goal that my individual goal is supporting," Coon replied. That focus, he explained, would help him and his staff to make sure that their work contributed to Daisy’s objective to become the industry leader. The CEO stared blankly at the paper for a moment. He’d never seen such a thing. Half an hour later, he sent a message to all of the company vice presidents directing them to prepare a similar set of matching goals for their departments.

    The concept sounds logical and deceptively simple. "Who could be against the idea of tying the functional set of goals to the corporate goals?" Coon asks. But in reality, this rarely happens. Consider a recent survey conducted by the Society for Human Resource Management and the Balanced Scorecard Collaborative. In the poll, 73 percent of organizations said they had a clearly articulated strategic direction, but only 44 percent of those firms said their strategic direction was communicated well to the employees who must implement it. In many cases, companies are like a body whose brain is unable to tell it what to do.

    Jac Fitz-enz, founder of the Saratoga Institute, who now heads a management-consulting firm in Santa Clara, California, says that too many people talk about matching corporate goals with departmental and individual-employee goals in philosophical terms. But they don’t establish methodologies to manage and measure the performance necessary to rev up employees and help them to even understand what the corporate goals are. In many cases, the corporate goals are considered applicable only to senior managers, not workers on the front lines.

    "Often people in staff groups get assignments that maintain the bureaucracy, and they don’t see how what they do on a daily basis affects the longer-range corporate goals," says Coon, now vice president of human resources at Menlo Worldwide Logistics, a $4.9 billion supply-chain services firm in Redwood City, California. "By definition, the vision that the CEO has on top is never carried forward because people don’t see that it affects their daily life."

    Management consultants have a pet phrase for what results when employees do see that their individual roles dovetail with the corporate mission: human capital branding. While most companies define their brand by the products and services they offer, consultant Fitz-enz says that firms are truly defined by the productivity, quality and service of their human capital, namely their employees. Consistent performance by those employees, he says, is what truly drives brand differentiation and profits.

    However, experts say that companies rarely take the crucial steps to link the "brand" they project to the public to the actions of the employees who deal with customers directly. "Many companies still think if they change their ad campaign, they’ve changed their brand," says Mark Wong, area partner of Harger, Powell & Wong, an advertising firm in San Mateo, California, who has taught university classes on employee branding since 1998. "The true persona of the company has to begin internally. If the employees are not on board with the message you’re trying to project, that message won’t resonate with customers."

    Tony Rucci, executive vice president and chief administrative officer for Cardinal Health, Inc., a $51 billion health-care products and services firm in Dublin, Ohio, uses a straightforward formula for measuring and improving the value of a firm’s human capital. If a company treats its employees the right way, it will treat customers better and will enjoy higher profits and a better return for shareholders.

"By definition, the vision that the CEO has on top is never carried forward because people don't see that it affects their daily life."

    "It’s not rocket science," Rucci says. But empirical data he collected at both Cardinal Health and his previous company, Sears, shows that employee-satisfaction and customer-satisfaction metrics are leading indicators of profit and shareholder return. It’s more than just a strong correlation; company profits start with employee satisfaction.

    The key is to establish what constitutes treating employees "the right way." Rucci says that executives who hear this immediately assume that employee satisfaction is determined largely by compensation. But while pay and benefits must be competitive, he finds that more important metrics derive largely from whether employees understand corporate objectives and specifically see how their work helps achieve goals. Rucci measures employee satisfaction with a series of 12 to 13 questions, which include:

  • Do I understand the company’s strategic objectives?

  • Do I see a connection between my work and those strategic objectives?

  • Does my supervisor listen to and act on my suggestions?

    A study published in Harvard Business Review in 1998 found that a 3.5 percent improvement in Sears employees’ attitude on 12 questions led to a 1.3 percent increase in customer satisfaction. That in turn yielded a 0.5 percent increase in revenue growth. Projected over Sears’ thousands of stores, aligning the actions of individual employees with corporate goals resulted in significant profits. Bruce N. Pfau and Ira T. Kay, management consultants and authors of The Human Capital Edge, have identified six key ingredients that contribute to the success of such employee surveys:

  • Link surveys to business objectives, focusing on things that line managers believe are important.

  • Keep senior management involved and accountable rather than make it a purely human resources initiative.

  • Provide personalized data to all key managers.

  • Streamline the process. "An elaborate survey can die of its own weight," Pfau says.

  • Survey regularly, integrating the process into business planning.

  • Effectively communicate results and actions taken. This step is often overlooked, Pfau says, making employees think their answers are irrelevant.

Clear, elevating goals
    Experts agree that the best corporate messages and goals are clear and simple. "A company needs clear, elevating goals that people at all levels of the organization can understand and relate to," Rucci says. "Whether a person is a CEO or a forklift operator in Detroit, they need to understand how what they do for their eight hours at work relates to that clear, elevating vision."

    Cardinal Health’s simple message revolves around four main goals: growth, operational excellence, leadership development and customer focus. When employees put together their management-by-objectives goals at the beginning of the year, they are each asked to identify at least one performance objective that supports each of those four main corporate goals. More important, managers are evaluated, rated and given feedback on how they performed against those four strategic goals.

    In addition, the managers are measured through a 360-degree survey, in which employees answer questions designed to rate their individual manager’s performance in relation to the company’s four core values as well as to a set of 10 core leadership competencies. The manager’s scores on the 360-degree surveys are matched with the employee-satisfaction scores from the 13-question surveys. By combining the information from these surveys, Cardinal can show how management practices aimed at achieving the company’s strategic goals lead to employee satisfaction and profits.

    Experts agree that the goals must become more specific as they filter down from uppermost management to lower levels of the company. Employees at the functional levels need measurable feedback on a regular basis, even if it’s a simple bar chart on what the department did that month. "The board of directors wouldn’t accept the president’s telling them, ‘I think we’re making progress, but I’ll give you some details in a couple of months.’ The board wants to see the numbers," Coon says. "However, it’s just as important that the people at the functional levels see the numbers."

    When Coon was corporate director of human resources for Conway Transportation, a $2 billion freight company in Ann Arbor, Michigan, this kind of information was provided to every driver. The entire company was on a bonus plan based on profitability. The drivers were shown how their individual work--in terms of accidents, productivity, cost per shipment, time to delivery, damaged goods and absenteeism--affected the company’s goals and profits. "When a driver continued to be late with deliveries, his brethren asked what the problem was because it was affecting their bonuses," Coon says. In part because of this process of driving down vision, Conway Transportation became the most profitable company of its kind in America, and the largest non-union trucking company.

"When you believe you have communicated the vision and goals sufficiently, you need to triple your efforts."

Building a methodology
    Wayne Keegan, chief human resources officer for Ingram Book Group Inc. in Nashville, sees aligning corporate and functional goals as a three-step process: Develop a methodology to understand what internal customers want, build a structure to provide it and establish metrics to measure effectiveness. That’s what Keegan did three years ago when he joined Ingram, the world’s largest wholesale distributor of books, audiobooks and periodicals. The human resources department, like Ingram as a whole, was not structured for the faster pace of today’s book industry, which has been transformed by the emergence of online booksellers, superstores and specialty retailers.

    First, using the HR Effectiveness Assessment instrument developed by the Saratoga Institute, Keegan surveyed 400 Ingram executives, from front-line supervisors to the CEO. He asked them to rate the importance of human resources products and behaviors and about their satisfaction with workforce management. Another survey of all Ingram employees helped pinpoint where the department was failing to meet objectives. Focus groups, using questions developed from the surveys, provided greater clarity about what the business units and employees needed from human resources to help them meet their own goals.

    For one thing, the business units complained that human resources was not responsive. That was a key concern given the new faster pace of the book industry. Keegan immediately restructured the department to provide a single point of contact for each unit and established centers of excellence in such areas as staffing, compensation, and learning and development. Human resources staffers sat in on meetings of the units they supported to better understand their business models and needs.

    None of these individual steps were cutting edge, Keegan admits, but that’s not the point. The human resources department specifically eschews "new progressive approaches" that can’t be tied in directly to supporting business plans and initiatives. Recently, for example, the Operations Group requested that its managers and employees receive more training in process improvement. In the past, human resources would have responded to the request with standard classroom instruction on the subject. Because of its new focus on aligning all actions with specific corporate goals, human resources instead looked more closely at the group’s real needs and tied the "learning initiative" on process improvement to specific projects that meshed with a business unit’s goals. As a result, one distribution center increased productivity by 31 percent, saving the company $1 million a year.

    "You want to create an environment where people don’t simply salute when given directions that seem to contradict business objectives," but instead challenge them, Fitz-enz says. "You want people to say, ‘Everything I’ve heard about the vision is directed at cost containment; is there some reason we are changing to a new emphasis?’ "

    Ingram’s methodological approach provides numerous benefits, Fitz-enz says. The structure keeps employees on track and stops corporate goals from being overlooked in the sweep of day-to-day business. In addition, a strong methodology prevents employees from misinterpreting the goals of the business units above them that they are trying to serve.

"If HR wants to sit at the big table, we have to think like the other business units in terms of profits.
The language of the executive suite is numbers."

    With the new structure, data from surveys and performance metrics, the human resources department can be more proactive. Keegan has pushed for such things as a new reward system tied to meeting corporate objectives and a streamlined corporate structure that could react better to the quicker pace of the book industry. The company’s officer ranks were cut by 25 percent and middle management by 17 percent, resulting in a net annualized payroll savings of $5.1 million. "If HR wants to sit at the big table, we have to think like the other business units in terms of profits," Keegan says. "The language of the executive suite is numbers."

Staying the course
    Instilling the corporate vision takes a lot of work and even some proselytizing. Cardinal Health conducted a series of small "town hall meetings" with all of its 55,000 employees throughout the world to address the competitive environment in health care, the company’s specific goals, and its financial and profit model. "Everything about how we communicate with people is designed to show how we create shareholder value, customer value and employee value," Rucci says. At these meetings, employees were allowed to talk about what they thought were the core values of the company. This ensured that the employees truly believe in the corporate values, rather than think the company was artificially trying to promote a corporate culture that really didn’t exist.

    Menlo Logistics maintains a Web site where employees and customers are invited to send in stories about how the workers uphold the company’s core values. Often these stories are related to employees’ innovative solutions to customer problems. The Web site is fun to read, and everyone throughout the organization can see how workers are contributing to the company’s goals.

    "When you believe you have communicated the vision and goals sufficiently, you need to triple your efforts," Coon says. "You need to triple what your intuition tells you is enough, and only then do you get close to sending out the message."

    And sometimes, managers simply have to get tough. Cardinal Health’s Rucci says that every company will generally have three groups of employees: those who enthusiastically support the corporate goals, those who comply and those who actively resist. "I spent the first 28 years of my 32-year management career trying to convert the bottom third," he says. "I wasted 28 years because rarely, if ever, do those people become committed. In retrospect, I should have spent 99 percent of my time with the people who get it, because they are the ones who drive change and innovation." He’d hold the bottom group more accountable sooner. "I’d tell them, ‘Here’s where we’re going; you have six months to achieve this set of objectives. Either get on the bus or get off.’ "

    That sends the message that the company is serious, and ultimately inspires workers, Rucci says. "You need to have a simple message and have people committed to the goals that support that message."

Workforce Management, December 2003, pp. 43-46 -- Subscribe Now!

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