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1996 Global Outlook Optimas Award Profile Eli Lilly and Co.

September 1, 1996
Earlier this year, executives at Eli Lilly and Company headquarters hosted a recognition ceremony for a handful of high-performing employees. These employees had been selected from around the world, so Steve Fry, manager of HR strategy and development, took his Sunday off to meet three of them at the Indianapolis airport. As 200-plus passengers spilled out of the jumbo jet, Fry scanned them over. "I immediately could tell the ones who were Lilly employees," he remembers. "There was something there, and I could just tell."

Pedro Granadillo, vice president of human resources, agrees: "One of the things I find amazing is that if you go into any of our places around the world, other than the language [being] different, the feeling is very much the same as it is in corporate headquarters." Hard to imagine for a pharmaceutical goliath of more than 27,700 employees — 12,700 overseas — 68 affiliate companies and employees in approximately 90 countries.

Even harder to believe when you consider the challenges Lilly lined up for itself the past few years. About three years ago, the company introduced a new goal: To remain competitive, Lilly would have to aggressively promote its global presence — to expand established markets and to establish emerging markets, such as Russia, Chile and China. In just the past three years, Lilly has added more than 2,200 positions overseas. This goal, obviously, requires some serious HR support.

Luckily, HR at Eli Lilly and Company has been up to the challenge — or, challenges. Headed by Granadillo, a Cuba expatriate himself, the HR function has been reengineering itself to think more globally, and has been assisting the company in its thrust toward worldwide dominance. The company takes its HR seriously — head over to the corporate cafeteria and you often see Granadillo lunching with Chairman and CEO Randall L. Tobias and other top executives, chewing over new strategies.

And it's a good thing the function is taken seriously, because HR has a huge say in what happens at Lilly. In just the past three years, it has introduced a global stock-option program, a global employee survey, a global management conference and global job leveling. For the next few years, it's rolling out global staffing development, global succession planning and a juggernaut of new affiliates globally. Do you catch the key word here?

From U.S.-centric to a worldwide mindset.
Once, Lilly was a company firmly rooted in the United States. Sure, it dabbled outside its friendly shores — Lilly's first expat sales rep sailed off back in 1924 — but the company still identified itself as a U.S. firm. As Tobias himself has said, "We used to be a U.S. company that happened to have business outside the U.S. Now we're a global company that happens to be headquartered in Indianapolis."

You see, a few years ago, top executives realized the company simply couldn't support a U.S.-centric attitude anymore. For instance, although the United States makes up only one-third of the pharmaceutical industry's market worldwide, Lilly had approximately 70% of its sales coming from the United States. Lilly needed to set up new affiliates, push open new markets, develop new geographical stomping grounds.

To say that the HR implications are massive is an understatement. First there's the actual start-up operations to worry over. But HR also must ensure the workforces at established overseas affiliates remain tied to the company. Each affiliate's needs are different, yet each affiliate needs to retain the Lilly mindset. It can be like trying to hold a pile of marbles.

Fortunately, Lilly's HR philosophy for start-ups is relatively simple. Says Fred Winters, director of HR for Japan, Latin America, Pacific Rim and global staffs — with responsibility for most of Lilly's emerging-market areas: "We basically define our business the same in Indonesia as we would in France or the U.K. or the U.S., in terms of what's important to us, what elements of the pharmaceutical market and health-care business we want to be in. So there's little doubt about who we want to be and what we want to be." With this clear mission, HR professionals like Winters can begin with a strong base. The company believes in sending expatriates to get things rolling — but working overseas for a short term only, while HR rounds up the best local recruits it can find. Communications, training and administrative development follow.

While the strategy remains the same, how the company gets there may vary wildly from country to country. Take, for instance, Japan. When the company started recruiting there, it hit a wall quickly: Very few top-notch Japanese execs wanted to work for Lilly. Young Japanese had spent decades in furious educational preparation to work for a Sony or a Mitsubishi. Signing on with a U.S. affiliate would be considered a disgrace. This required a clever recruiting twist, targeting primarily women. In Japan's paternal corporate culture, women are often first-round hiring rejects. Japan's loss, Lilly's gain: The company gathered a woman-dominated workforce of some of the brightest minds in the country.

Or consider Communist China, which the industry predicts will generate an $18 billion pharmaceutical market in the next two years. Lilly has no option but to hire through a third-party state organization. That means a body of workers who, though fascinated by the possibilities of capitalism, have always been dependent on the state. What do you mean, eight-hour days? In addition, as U.S. companies flood China, the best employees, particularly those who speak English or have Western experience, are flooded with offers. Because they basically never have to leave their employer — the state — the slightest unhappiness or increase in compensation (through perks and expense allowances — actual salary is mandated by the state) can have them running back to their agency to request a switch.

The investment in training and developing these employees is too big to see them skipping over to a competitor 12 months down the road. Lilly isn't immune to this kind of turnover, but it is fighting back. To promote Lilly as a viable long-term employer, HR plays on employees' interest in capitalism. It spells out the development employees will receive over the years, thus making them more desirable than shallowly trained job hoppers. HR also sells its American management style, which most Chinese find preferable. The effort keeps Lilly's turnover in China hovering around 15%, while other multinationals have seen theirs soar in excess of 40%.

Lilly respects local culture, yet stays true to corporate culture.
The tough part about these employment gymnastics is that Lilly must switch its HR angles to adapt to a country's culture while maintaining the company's corporate culture. So far, Lilly has handled it well. "From an HR point of view, we used to be reluctant and maybe even avoided entry into emerging markets, because we liked to do business in a Western way," says Winters. "As part of our globalization, we're trying to be much more sensitive to local differences, much more creative about finding ways to do business in these countries, while adhering to our basic values as a corporation."

Business ethics always comes into play. Some countries do things differently than Americans, and HR must draw the line between adjusting practices to fit a country and violating Lilly standards. This can be hard in some countries, such as Korea, where "payoffs" start on a child's first day of school, when parents toss the teacher a little extra to give Junior a good seat. This attitude, in turn, extends to Korean business and the pharmaceutical industry, in which it's common for drug companies to pay doctors a fee every time physicians prescribe their product. Lilly refuses. "You have to decide what you stand for and how you're willing to run your business and be firm about it," says Winters. "And then find a sensitive way to deal with it." In the short term, some of Lilly's ethical decisions confuse employees in developing countries. Many have to be let go because they can't — or won't — adopt a certain business standard. Often it becomes difficult to hire people, to buy land or to build factories. Always, HR is there, reminding employees of the codes of behavior Lilly demands. Lilly executives believe the effort will pay off, as these emerging countries evolve toward values more consistent with Western beliefs.

Today, approximately 45% of Lilly's sales come from overseas, up 15% from just a few years ago. Winters believes the key to continued growth is to keep on pushing. It's not enough to just set up shop in Chile or China. These fledgling affiliates must be nurtured into full-blown, self-sufficient businesses. "In these emerging markets, [it's tempting] to measure success just by surviving," he says. "You get off the airplane, there's no office, no staff, no nothing. We have no business there at all. I'll visit [later] and I'm impressed with the little bit of business we have and the few people we've hired. But we have to make the transition early on, to get away from start-up mode to market penetration. It's a tough change."

Winters would like to see this change take place in 18 months rather than two or three years, as it generally is. The key: Keeping an eye on employees, an ear out for what they want, a taste for what they need and a feel for the company globally. It's a job that keeps Granadillo fat in frequent flyer miles: In 1996, he'll visit about a dozen countries to offer HR support and guidance.

Employees worldwide have a voice, an equality and a piece of the pie.
Sometimes when Granadillo heads overseas, he drops in on regional HR meetings in which all the key HR players in Europe, for instance, get together and exchange ideas — the theory being that a truly global company must build relationships among each of its country affiliates. In these meetings, participants often tell Granadillo which of headquarter's ideas are working for them and which aren't.

This type of exchange would never have been possible a few years back. But HR has worked hard to offer a road map detailing where affiliates needed to be heading, to offer a set of principles that must be honored and a group of tools that may be used — and to let each individual country decide its plan from there. "We have some countries we've been in 50 or 60 years, and a lot of countries we've been in 12 to 18 months," says Granadillo. "Their needs are different. You can take an issue like performance management and go to the U.K. and find a sophisticated rollout. You may go to [an emerging country] and they have simple back-of-the-envelope performance management — but it still has the same principles, and they're going through the same desired behavior."

This acceptance of individual country processes may have been partially produced by a global initiative called "Voice of the Employee" (VOE). VOE is a survey designed to elicit feedback from Lilly employees worldwide. It asks such questions as:

  • Do you understand the corporate strategy? Has it been communicated well?
  • How do you feel about career development at Lilly? Do you feel you own your career?
  • How do you feel about your compensation? Do you understand the company's pay philosophy and what it does and doesn't reward?
  • Do you understand Lilly's values? Do you feel the company behaves in accordance with these values?

Employees worldwide completed the survey in early 1995. Each affiliate saw its own results and developed areas of intervention — action plans to improve employee feedback.

Lilly as a whole also could see its results globally. Its three biggest deficiencies in employees' minds? Career development, diversity and communication. These issues likely were spawned by Lilly's once U.S.-centric viewpoint: The most important jobs were in the United States, usually held by Americans and the communication was centered in the United States. Employees at corporate headquarters were more likely to be developed for high-level jobs. Lilly has been working hard to be more inclusive ever since. At the end of 1996, the North American affiliate will move out of Lilly's headquarters building, just to underscore the fact that North America shouldn't be favored. HR believes the next VOE — scheduled for third quarter 1997 — will unveil improved ratings.

As part of its promotion of equity, Lilly has undertaken a global job-leveling process: evening out all management jobs around the world. "I think most people felt there was a bias toward jobs here in the United States," says Sharon Sullivan, director of compensation. "This exercise was saying, we are a global company, a global team, and we've got some very important jobs outside of here." HR recently completed the criteria for each level of job: complexity, how difficult or complicated the job is; responsibility and decision making, how much the job can affect Lilly; strategic content, how much long-term strategy is involved in the job; and customer focus, how much the job affects its customers — internal or external. Once the jobs were leveled, Lilly could see who the real players were and who just had the impressive titles — and compensate accordingly.

Finally, to dismiss any remaining feelings of U.S. bias, Lilly rolled out a worldwide stock-option program in 1993 called GlobalShares, designed to reinforce employees making decisions as owners. The program allows all nonmanagement employees — management has their own program — to purchase 100 shares of Lilly stock when the grant does. (Basically, employees received a voucher allowing them to buy stock at the April 1993 price, $47.06, in 1996, when stock value was more than $100.00.) Shares are offered to all employees — the only exceptions are employees in countries where it's illegal or the tax ramifications would nullify the profit. Ultimately — after communications through brochures and videos, a lot of patient explanations from HR around the world and countless translations — the company launched GlobalShares in more than 55 countries, with more than 22,000 employees taking up options.

The feedback has been tremendous. Employees around the world — from factory workers in Mexico to line employees in Malaysia — understand that what they do affects the company, and in turn, their shares. Affiliates around the world post homemade charts of the stock value through GlobalShares. Fry remembers on a summer site visit to Ireland that the joke was the affiliate now had 305 stock analysts working there. Sullivan notices the new attentiveness too. "When our stock prices go down, our stockholders wonder, but boy, our employees sure start questioning," she laughs. Sullivan says that when the stock shifted noticeably earlier this year, an employee sent in a question to Lilly's worldwide newsletter asking investor relations to explain why: "I think that would've been unheard of a year ago."

HR fixes future staffing gaps.
With the structures in place, HR now has two major thrusts for the next five years. The first is global training and development (see, "Spreading Best Practices Worldwide," page 54). The second is leadership development. To begin with, says Granadillo, HR must improve its staffing practices. "Do we have the individuals with the skills and capabilities to fight the next war, not the previous war?" he asks. In some cases, the answer has been no, and Lilly — with a violent aversion to stray from its promotion-from-within commitment — has had to hire outside to get the needed competencies. Lilly's CFO, for instance, recently hired on from General Motors.

Still, the preferred method is promotion from within, which means some serious internal pipelines. Which brings us to Bob Parks, director of succession planning. His job was created in March 1995, when HR decided it needed to look globally at Lilly's employee base to assure the company didn't have talent gaps, that it was developing key people. "Succession planning talks about lists of people to replace people," says Parks. "Succession management in our view is pools of talent that can be developed for future managerial responsibilities."

Lilly's process works like this: The operations committee — which includes Granadillo, the CFO and COO among others — reviews talent corporately from both a regional and functional view. Say a sales-and-marketing person in the Brazilian affiliate is targeted by her manager as a possible future vice president. The manager then passes this person's name onto the Latin America management group, which, if it approves, will submit the employee to the operations group. That's the regional approach. Functionally, say a financial employee in Singapore looks like a high-potential. His name would be flagged to the Asia financial function, which would then submit individuals to the CFO.

Once employees are approved by the operations group, they are set along a developmental path. Maybe a scientist has all the technical skills the company could ask for, but lacks managerial capabilities. A managerial stint would be in the works. "We begin to plan experiences for people," says Parks. "A person can learn and grow through exposures to different parts of the business. Exposures can mean [placement] outside their home country. They can mean different functions. They can mean associating with different parts of the business."

Working outside one's country has become a priority at Lilly — 55% of the top 40 to 50 executives have been expats at one time or another — so if an employee is targeted for development, an experience outside his or her home is definitely in the picture. The development assignments generally range from 12 to 18 months, and they don't come cheap. Lilly has spent approximately $70 million per year on getting people the experience they need. Fry says that occasionally for the highest talent, HR may create a series of nontraditional positions — individuals can move through five or six jobs rapid-fire to get the specific experiences they need. Lilly ensures supervisory responsiveness by including succession management on each supervisor's performance review.

What does all this mean? The right people in the right positions at the right times. "You're going to see better development because people know why they're moving into the position they're moving into," says Parks. You're going to see less cost because you're not moving people indiscriminately. You're going to see more retention because people are going to know where [they're] going in the company."

A conference links global leaders — present and future.
In 1994, Lilly offered its first Global Management Conference. The eventual audience is the 2,200 members of management worldwide, but to keep the week-long conference meaningful, attendance is restricted to 120 at a time. Eleven were held last year, all at headquarters, though this will likely change in the future. The idea is to have every management professional attend the conference every other year.

The conference has four objectives — for participants to:

  1. Fully understand the Lilly business strategy
  2. Understand what it takes to implement the strategy
  3. Get people from all different parts of the company to interact; break down natural barriers between functions, levels and geographies
  4. Provide feedback to members of senior management about the strategy — how well it's being perceived, implemented and embraced.

Although each conference is a bit different due to nips and tucks made from suggestions by previous attendees, the structure generally remains the same. And it's a packed week. As Lisa Cheraskin, executive development advisor, says: "This is not a fancy, posh kind of conference. Things get done. It's a working conference." Attendees learn about external forces that drive strategy from a market perspective, such as the political changes affecting health-care reform. They hear lectures on scientific forces affecting Lilly. They examine Lilly values and its mission. Top leaders within the company offer presentations on Lilly's three main business thrusts: critical capabilities, global presence and targeted disease categories.

Each day begins with a recap of the previous day's topic. Tuesday, Wednesday and Thursday feature discussion groups on each of the three business thrusts, requiring attendees to have pored over background reading material just to keep up. These study materials and the discussion groups keep attendees on their toes. "You really want them to analyze and interpret what they've heard," says Cheraskin. "We don't want them to sit there and be passive listeners. We also want them to give feedback to presenters on their strategies." It's so important for the senior executives that attend to "get it" that either the CEO or COO spends more than an hour on Thursday just answering questions and eliciting reactions.

[pulquote]"Employee comments also help senior management. Some feedback has actually caused changes in strategy."

Friday, the final day of the conference, is a day for wrap-up and reflection. Attendees are allotted two hours to review the personal applications of what they learned during the week. The belief is that if people leave truly understanding the strategy in-depth, it will automatically influence every decision they make. As an exercise, conference leaders suggest attendees consider a challenge they were facing pre-conference and rethink how to approach it in the context of what they've learned that week.

Last comes evaluations and feedback. At the beginning of every conference, attendees answer 10 questions centering around Lilly strategy and how their jobs support it. On Friday, participants complete the same evaluation so conference leaders can gauge the learning accomplished. In most cases, the shift is significant.

Employee comments also help senior management understand how well their strategies are understood and accepted. Some feedback has actually caused changes in strategy over the past few years.

Employee comments also help senior management. Some feedback has actually caused changes in strategy.

The information in the conference is so fresh, and the interaction so valuable, that participants have grieved over their biennial attendance restriction. A conference Web site on the company's intranet may change that. It offers excerpts of the CEO and COO discussions, information updates, readings linked to conference topics, evaluations and plans for the next conference. "They can see the presentation that they didn't see," says Cheraskin. "They can send a message to representatives — that's another way people working on strategy can get feed-back. Or [employees] can join dialogue about the strategy. It doesn't replace the kind of dialogue that can actually take place in a one-week conference. But it helps address people's concern about staying current."

Lilly's definition of staying current apparently means staying ahead — way ahead. Few other companies can claim this breadth of worldwide HR, this intense push toward excellence: supporting emerging markets, implementing and following up on worldwide surveys, creating global stock-option programs, developing a future cadre of leaders — and keeping them aligned with the company. As other companies are just beginning to grasp global strategies, this global company that just happens to be located in Indianapolis is holding the world in its hands, thanks to HR.

Personnel Journal, September 1996, Vol. 75, No. 9, pp. 46-56.