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Building Profit Through Building People

January 30, 2007
It’s all about the people.

    HR professionals hear that time and time again. However, the difficulty in this statement is how to provide a link of HR’s strategic impact to the bottom line. HR professionals must have a proper understanding of how the vital links among employee, customer and shareholder or stakeholder satisfaction interact. By focusing on these critical links, and continually measuring and evaluating progress toward goals, HR can successfully link the people component to profit. Without a committed and engaged workforce to back it up, a company will not be able to truly succeed and sustain any competitive advantage, regardless the strengths of its other operations.

    Continental Airlines and Sysco Corp., two very different companies, started at different places to create a competitive advantage using the value profit chain approach. They demonstrate how focusing on the links from a people-driven perspective pays off in real profits. Continental, a highly centralized, high-fixed-cost business in the midst of financial trouble, chose to focus on people to avoid bankruptcy and make the airline profitable. Sysco, a successful decentralized organization with low fixed costs, chose to focus on people to improve its already profitable business.

At Continental, people were the turnaround key
   Continental was a business in trouble. It ranked at the bottom of every category tracked by the U.S. Department of Transportation, and at the top in customer complaints. Employees were stuck in unfulfilling jobs, and their frustrations were evident to customers, management and co-workers. Employees were not recognized for their crucial roles in satisfying customers and helping the business grow. There was inconsistent leadership and lack of vision. Employees felt undervalued.

    However, in the span of a single year, the company was able to turn things around dramatically by leveraging the value profit chain. The main driver was the implementation of effective management practices based on the philosophy of the value profit chain. These new practices transformed the attitudes and work habits of the entire workforce. As a result, customers could not help but notice—and respond.

    At the base of this turnaround was the "Go Forward" plan. It articulated a consistent strategy with regard to customers, shareholders, operations and employees. It articulated the customer value proposition: We will provide consistent, safe, high-quality service. This delivery on this promise to customers drove the revenues needed to be profitable. The plan also articulated the employee value proposition: We will provide a winning environment. The goal was to create an environment where people could see how individual and team performance could influence others when they work together toward the same goals.

At Sysco, it’s all about the people
   On the other hand, Sysco’s performance has been consistently solid. It has always had a strong customer value proposition focused on delivering the right products at the right time to meet customer needs. The company has demonstrated that focusing on associates and customers can lead to even better performance that consistently outperforms its industry.

    When business analysts dig into why Sysco is so successful, they note things such as sales mix, use of technology, size, healthy cash flow, brand recognition, warehousing efficiencies and wide geographic reach. Though true, a differing view is that it’s all about the people.

    The driver of all the business-strengthening strategies is people. The analysts have recognized this focus on people, noting recruitment and retention of well-trained sales staff, investments in the sales force, entrepreneurial management structure and high-quality customer service.

    Sysco has one of the highest associate retention rates in the industry, and this factor directly affects its standing in the marketplace. The impact of the customer "churn," or lack of customer loyalty, on the revenue growth and cost of the operations is also a factor. Reducing customer churn can result in measurable difference for companies in low-margin industries such as Sysco’s.

    Why is an organization’s workforce critical to the customer retention equation? Customer loyalty and operational excellence are affected by a satisfied, productive and committed workforce. High associate retention cuts the cost of operations. Sysco emphasizes associates because committed associates drive the satisfaction of all other constituents—customers, communities, suppliers and shareholders. Employee satisfaction has been underscored with the implementation of a rigorous set of programs inspired by the value profit chain philosophy. Sysco periodically conducts customer and associate work-climate surveys to assess and correlate associate satisfaction with customer satisfaction.

In other words, it’s all about the people
   Continental and Sysco illustrate the impact that a focus on the value profit chain can have on organizations under very different circumstances. The idea is that satisfied associates drive customer loyalty, which in turn drives profitability and growth. Committed and skilled employees are the key to boosting profitability through the knowledge of the customer. Combine this idea with a strategy that is executed with excellence and innovation and this forms the basis of the modified value profit chain philosophy.

    Satisfied employees enable companies to pursue excellence in execution and develop innovative approaches. The involved employee knows what the customer wants, and is in the position to have an impact on the organization in meeting these wants. But how does a company begin in the process of implementing VPC thinking into the organization? We suggest that the first step is the development of the 5-STAR Management Model.

The 5-STAR management model
   The 5-STAR management model provides the building blocks to organizational excellence. Creating a 5-STAR organization provides a strong link from employees to customer needs and profitable growth. By establishing your company as a 5-STAR employer, you can go beyond being an employer of choice and create an employer brand that attracts dedicated employees that are a fit for your company culture, values and customers. Continental and Sysco both use this model as a method of understanding their business, customers and people. By leveraging knowledge and practices within the company, they manage to create a direct link between their people and profit.

    In other words, the 5-STAR model is all about the people.

    No matter the company structure or business model you have, you can implement the 5-STAR framework. Implementation with Sysco was far different from that of Continental. Sysco comprises many autonomous businesses, and does not use directives to force those businesses to do certain things. It was necessary to create agreement around basic principles, or 5-STAR dimensions that focus on the levers that impact employees. Here they are:

  • Leadership direction and support:
    Involved leaders who can influence a group of people to achieve a common goal generate the greatest success for their organizations.

    At Continental, the CEO and president hold employee meetings in the airline’s major hubs at least twice a year. These events generally attract 5,000 employees, who show up to hear recaps on company accomplishments and reminders of challenges to come. The talks are followed by an hour-long question-and-answer session. Smaller monthly meetings with employees also provide another forum for feedback. Toll-free numbers for employee suggestions and comments were installed, and more than 20,000 suggestions have been provided by employees since the program’s inception.

    Within Sysco, one of the ways the president of an operating company fosters solidarity among his team is by working with the night-shift associates a couple nights a week. Another operating company president personally calls the night warehouse manager twice a day, at 10 p.m. and 5 a.m., feeling that it’s important to invest his time with a critical player in the workforce while that particular company is struggling.

  • Strengthening frontline supervisors:
    The most consistent factor contributing to productivity, employee retention, good service, expense control and safety is the effectiveness of frontline supervisors.

    For Sysco, one of the most critical differentiators of operating companies with contrasting high and low work-climate survey scores is the quality of frontline supervisors in the companies. Operating companies encourage frontline supervisors to rotate their own shifts so they are available to speak with all employees. And companies pick one day a month when the supervisor works alongside employees, perhaps riding with a driver, working the day with a marketing associate or stocking the warehouse.

  • Rewards for performance:
    Identify the best performers and provide them with both monetary and non-monetary rewards.

    At Continental, effective use of rewards was a major part of the turnaround. Despite being near bankruptcy for the third time, Continental leadership gave a flat $65 reward to each employee for each month Continental ranked in the top five of the Department of Transportation on-time performance ratings. In the first full month of the program, the airline finished fourth, moving up six notches. The second month, it was in first place. In that first year, Continental was in the top five ranking nine times.

  • Inclusion through engagement and diversity:
    When employees sense that the company trusts them enough to share information about its performance, they become engaged.

    Early in turnaround efforts, Continental convinced employees that everyone was in the effort together. The HR head and a group of executives and employees hauled a cart full of 800-page "corporate policy and procedure" books out to the parking lot and ceremonially torched them in front of a larger employee audience. This symbolic gesture signaled a new attitude about engagement. Then, a taskforce of employees and executives streamlined the 800-page book to an 80-page user-friendly document that was mailed to all employees.

  • Quality of life:
    Addressing the needs of employees inside and outside work helps to improve and maintain an organization’s ability to attract, motivate and retain the most talented people in the industry.

    Sysco encourages its operating companies to think innovatively about ways to encourage a positive quality of life. For example, in some companies, employees are allowed to combine sick and vacation days into all-purpose leaves so workers can take the time off for personal reasons, such as family events or other responsibilities so they can fulfill their obligations openly and honestly.

    Above all else, it is crucial to measure customer and employee satisfaction and examine the metrics linking them to company performance. Data gathering and analysis is a critical step in driving the success of this model. If you really want to build your company into a 5-STAR one, you need to collect the data that prove that your model works and to demonstrate accountability.

    Sysco completes an analysis by correlating elements of the value profit chain with solid business results. The company looks at the relation of the climate to key human capital, operations, customer and financial performance metrics. Whether the data correlate significantly or not, the important point is that without data, it is impossible to know if what you are doing is right—and if it is not, how to improve. That road leads to failure for organizations and for our HR professionals as leaders.

A strategic summons for HR professionals
   To be a strategic partner, HR professionals must understand these concepts, knowing each link of the value profit chain. HR leaders must be proactive, and look at problems and solutions from a long-term companywide perspective. Leaders must also understand and use the data available to them in order to truly effect change in the business environment.

A key is to have a clear human capital model that is driven by business strategy and an HR structure to fill its traditional and strategic roles in the most effective way possible. By closely considering all these elements, HR can become a critical part of your company’s success.

After all, it’s all about the people. And, HR should be the steward for all aspects of people and culture.