Editor's Note: This is part two of a two-part article. The first part is People Management, Practices and Profitability in Manufacturing.
Manufacturing companies need not only take stock of their current people management practices, but also to plan for the future importance of those practices. They should identify practices of continued high priority, and those in need of improvement, given future business realities, while recognizing how certain practices are more impactful to their enterprise value.
Apart from the top three differentiators, our research identified several other people management practices to which the most profitable companies assign moderate to very high importance in the future, and for which current performance levels suggest room for improvement:
- Conducting formal orientation of new employees including familiarizing them with corporate values
- Explicitly defining technical competencies and evaluating these while hiring
- Measuring and recognizing strong performance using clear metrics and methods of evaluation
- Willingness to pay top performers significantly more than average employees
Emphasis on core values and corporate culture will remain important in the future. The majority of the most profitable companies already excel in that aspect. In addition, those companies will sustain their efforts with regard to:
- Considering future talent needs in the recruitment process
- Evaluating problem solving skills during the recruitment process
- Explicitly defining non-technical competencies and evaluating these in hiring
- Sharing profits across the workforce
- Using defined contribution approach to employee benefit program
These high priority practices fall broadly into three categories: people strategy and culture, talent acquisition and development and performance management.
People Strategy and Culture
High performing companies align people management practices to the corporate culture ("cultural fit") and to the business strategy and long-term objectives of the organization ("strategic fit"). This tight coupling of internal practices, culture and strategy remains unique for each organization and is difficult for competitors to imitate. While rivals can poach a few employees or can try to mimic some strategic moves, rarely will they be able to penetrate the lattice of internal fit, cultural fit and strategic fit.
Our research suggests that higher percentages of highly profitable companies excel in focusing on core values and corporate culture and on orienting employees to that culture (figure 2).
Companies that inspire employees can expect significant discretionary effort from their workforce, who in turn help win and retain customers.
The Nokia Way defines Nokia's core values. Nokia reviewed and refined these values in 2007 to engage employees and to reflect how the business evolved and changed. It asked employees to explain what was most important to them to help create a new set of values that define Nokia. Over 2,500 employees from around the world took part in 16 regional events to come up with the key themes for new values. Involving employees at every stage of the process helped Nokia embed a strong values culture throughout the business.
The new values, an evolution of the previous Nokia values, are:
- 'Achieving Together', that reflects that the company increasingly works in networks
- 'Very Human', which builds on Nokia's previous value of "respect"
- 'Engaging You' which includes all company stakeholders and not just customers
- 'Passion for Innovation'
Nokia now communicates these values to all its employees, through videos and other information on its intranet as a part of its communications on company strategy. In May 2007, around 13,000 employees registered in the Nokia Way Jam, a 72-hour online discussion to decide on values and debate on future business strategy. The collaborative nature of the Jam was an expression of Nokia's culture and the value it places on 'Achieving together'. Nokia analyzed the results of the Jam and identified several key corporate initiatives to be included in future plans and several initiatives within its business groups. The Jam prompted new activity and changed some of Nokia's business priorities.
Talent Acquisition and Development
Highly profitable companies do a better job in their recruiting process by thoroughly analyzing technical, non-technical and problem solving skills. These companies consider recruitment as a dynamic process that is closely linked to the people and corporate strategies. Thus, they work with the businesses to identify future needs in terms of skill sets and proactively recruit such people ahead of the competition (figure 3).
These companies measure return on investment (ROI) in the recruiting function and use metrics and analysis to optimize the most effective sources, programs and methods.
Uncertain business conditions made workforce planning a tight-rope walk for most organizations. To conduct robust planning in such uncertain conditions, some profitable companies borrowed techniques from supply chain management, where the overall task is similar to workforce planning. These companies have shifted from forecasting to simulations. A leading global chemical company moved to a system that used standardized data from its enterprise resource planning system to produce manpower estimates for each location that could be aggregated for the company as a whole. Then it sought a university partner to develop an even more elaborate model, one that used the standardized data to generate estimates for each business unit. The simulation based models incorporate a wide range of site-specific factors such as estimates of the political and business climate in each of its countries of operation, changes in labor and employment legislation, and business plans for the operating unit, which include targets for operating productivity. Those forecasts were then aggregated into company-wide estimates. This enabled answering 'what-if' scenarios: What happens to forecasted headcount if the economy slides below assumption or if new competitors enter a market? The ability to simulate allows business leaders to see the implications of different strategies for talent, to anticipate how talent constraints could impact those strategies, and in some case, to adjust their business plans if the talent requirements are too extreme.
To ensure that high skilled technical professionals join the Caterpillar dealerships, Caterpillar, Inc., along with its independent dealerships, community and technical colleges work together to provide the education and training which high school graduates need to join as a Caterpillar Dealer Service Technician. The two-year "ThinkBIG" program -- combining classroom work with hands-on learning in labs and in the field - teaches students how to service Caterpillar equipment using diagnostic and maintenance systems, advanced technologies and tools.16 For operations related job profiles, Caterpillar tests the candidates on well defined criteria like numerical abilities, mechanical comprehension and information matching skills. After successful completion of the tests, the candidates appear for interviews that assess their achievements and qualifications.
An effective performance management system helps to develop the capabilities of individuals and teams to deliver sustained organizational performance. By systematically evaluating and effectively rewarding high performance, the most profitable companies succeed in retaining top talent. They are also able to align behaviors and competencies of both the team and individuals with that of the organization to drive strategy execution (figure 4).
The most profitable companies design performance management as an ongoing process, enhancing employee skills, competencies, knowledge and experience over an extended period of time by regularly evaluating performance and capability.
A key challenge that organizations face while designing total rewards programs is managing the trade-off between satisfying employees' rewards preferences and working with limited resources. Given resource constraints, companies can boost total returns by emphasizing total rewards elements that increase commitment among critical workforce segments - employee groups whose retention and motivation drive a disproportionate share of company success. These are the people a company can least afford to lose, whether outright to a competitor or indirectly through lack of commitment, effort and productivity. Because of their disproportionate impact on the value chain, the specific views of these critical workforce segments should be weighed heavily in order to maximize the ROI on reward programs.
Procter and Gamble has used its business and people strategies as the basis for reviewing its long term incentive (LTI) program for employees. The company has applied two fundamental compensation principles in guiding the review: to pay competitively and to support the business strategy. When P&G revisited its LTI program, it carefully examined its people strategy to ensure that the revised LTI plans would reflect the company's build-from-within approach to talent management and the need for mobility of key people across the organization.
P&G looked at the employee value proposition (EVP) around work content, career, direct and indirect financial benefits and affiliation. It analyzed the impact of different LTI designs on diverse aspects of EVP across groups of employees with different salary bands and located in different key growth geographies. It ensured that the LTI designs adhered to a clearly articulated rewards strategy and that the strategic business rationale for the compensation plans, including thorough analysis, was shared with employees. For analyzing the financial impact, P&G looked at impact on cash flow and unwanted turnover. Then the P&G leadership analyzed the sensitivity of the LTI designs under different business performance scenarios. For example, if performance were to exceed expectations, they determined the permissible maximum possible payouts and total payout costs to the organization. Thus, P&G was able to fully appreciate the implications of different LTI designs on the organization and on critical workforce populations. Finally, P&G was able to design a LTI which balanced the financial implications with the non-financial components of EVP.
Create an Integrated Talent Strategy
An effective talent management strategy is rooted in facts, not hunches or blind guesses. The starting point is understanding the organization's critical workforce segments -- jobs that drive a disproportionate share of key business outcomes, have the greatest impact on the value chain, and are in short supply from the respective labor market. These segments of the workforce must be protected and developed. This requires a workforce plan that analyzes and forecasts the talent needed to execute the business strategy, and then defines specific plans to fill the expected gaps.
No two companies -- even those in the same sector -- will have identical formulae for talent. Certain talent management capabilities are table stakes that are required just to keep the company operating smoothly. Others can differentiate a company from its competitors and provide a sustainable competitive advantage. Once a company has identified its critical workforce segments, it must pay special attention to the preferences of people in those segments by investing in tailored programs to develop and retain them and help them achieve a high level of productivity.
Richard Kleinert is a principal in Deloitte Consulting LLP's Human Capital practice Emily Stover DeRocco is president of The Manufacturing Institute. Atanu Chaudhuri is a manager in Deloitte Research, Deloitte Support Services India Pvt. Ltd. Robert Maciejewski is a senior manager in Deloitte Consulting LLP's Human Capital practice.
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