DELIVERING STRATEGY EXECUTION THROUGH HUMAN CAPITAL ARCHITECTURE Edward

DELIVERING STRATEGY EXECUTION THROUGH HUMAN CAPITAL ARCHITECTURE Edward B. Yost, Ph. D. , SPHR November 2013 Leading Change in Turbulent Times Executive Education Seminar

Step #1 Determine the Critical Components of Strategy Execution

Strategic Success Hierarchy Industry Firm/Company Business Unit/Function Position Person

Defining the Business Strategy is: The central, integrated, and externally oriented concept of how we will achieve our objectives. (Hambrick & Fredrickson)

Strategic Success Looking for operational, financial customer, workforce success through… ü Betting on the incompetence of competitors ü Acquiring and utilizing the resources & competencies of others ü Using existing resources & competencies differently

Organizational Resources and Competencies • Tangible and intangible resources and capabilities that enable the organization to develop, choose and, implement value enhancing STRATEGIES through resource deployments, systems and processes that cannot be imitated.

Strategy Simplified Resources Cost Advantage Distinctive Competence Capabilities Differentiation Advantage Value Creation

What is Strategic Success? ØDelivering high value results to significant stakeholders Financial Success = Market Value; ROI Operational Success = Costs; Quality Customer Success = Value Added Workforce Success = Q. W. L. ; Performance

What is “Strategic Competitive Advantage? ” Enacted or Utilized Distinctive Competency that: 1. Allows the organization to differentiate itself from competitors 2. Cannot be readily duplicated or imitated 3. Provides a positive economic benefit(s)

Action Item #1 Building the Strategy 1. What Resources does your organization have? 2. What are your organization’s Key Capabilities and Competency? 3. How are the resources, capabilities and competencies used to create value (the strategy)?

Strategic Success Chain The Ultimate Goal is Survival Sustainability Goes beyond the traditional financial measures of firm performance and shareholder value - focused on achieving high levels of success in the short term without compromising the future

Strategic Success Chain Strategy Execution Competitive Advantage Sustainability

Strategy Execution • Enacted responses (behaviors) to internal requirements and external constraints by individuals and teams based on the existing capabilities in the workforce moderated by the underlying culture of the organization that drives organizational performance We will see this again later!

Human Capital Components Strategy Execution Competitive Advantage Sustainability Human Capital Capabilities Human Capital Behaviors Workforce Culture (Performance Drivers) Pivotal Positions Pivotal Talent Pools

Constructing Human Capital Architecture Strategic Direction Pivotal Talent Pool(s) Strategy Execution Pivotal Position Pivotal Role Challenges Implement & Adjust HCA Congruence and Consistency of HCA Components Capabilities Behaviors Culture

Step #2 Effectively Managing, Talent Pools, Human Capital and Pivotal Positions

The Secret Revealed! What is the SECRET of obtaining a Strategic Competitive Advantage? Not just having a strategy but executing the strategy All depends on the Human Capital Architecture to enhance the exploitation of these resources and capabilities.

Human Capital & Strategy Execution A. Resources + Capabilities = Human Capital B. Systems + Processes + Practices = Human Capital Architecture C. Human Capital X Human Capital Architecture = Strategy Execution

Talent Segmentation • Talent segmentation involves identifying pivotal talent pools where human capital makes the biggest difference to strategy execution • Where would a significant improvement in quality or availability make the BIGGEST difference to strategy execution?

Pivotal Talent Pools • Talent segmentation is as vital as customer segmentation • Pivotal Talent Pools are embedded in the Primary and Support activities of the Value Chain

The Value Chain

Research & Development Group Critical Outcomes for Strategy Execution at Big Pharma 1. New Product Applications 2. Reduce Time to Market

Focus on a Strategic Business Unit at Big Pharma Enables the Value Proposition for Stakeholders Strategy Execution Operations Marketing Research & Development Human Resources

Pivotal Talent Pools • Identify two pivotal talent pools in your organization using the “Value Chain Model”

Constructing Human Capital Architecture Strategic Direction Pivotal Talent Pool(s) Strategy Execution Pivotal Position Pivotal Role Challenges Implement & Adjust HCA Congruence and Consistency of HCA Components Capabilities Behaviors Culture

Action Item #2 Pivotal Talent Pools and Critical Outcomes (from item #1) Pivotal Talent Pool Critical Outcome A? Critical Outcome B?

The Importance of Human Capital Pivotal Talent Pools Pivotal Positions Determine the Pivotal Positions to Deliver Strategy Execution

What is Human Capital? üTalents and abilities üKnowledge and skills üSocial networks (capital) üDesire and visions

Human Capital Defined The collective sum of the attributes, life experience, knowledge, inventiveness, energy, and enthusiasm that people choose to invest in their work. Weatherly 2003

Human Capital Has Value “People are our most valuable asset INVESTORS!” PROVE IT! Must be demonstrated by management practices and actions that compose the Human Capital Architecture

Human Capital and The Bottom Line • To create value through Human Capital requires a fundamental change in how it is recognized and managed in most organizations. • The firm’s human assets have a value that corresponds to the present value of future net cash flows and are derived from the skills, motivation and adaptability of the firm’s workforce.

Constructing Human Capital Architecture Strategic Direction Pivotal Talent Pool(s) Strategy Execution Pivotal Position Pivotal Role Challenges Implement & Adjust HCA Congruence and Consistency of HCA Components Capabilities Behaviors Culture

What is a Pivotal Position? • Not necessarily the highest paid/ranked position • Not necessarily most critical • Not necessarily the most common/number • Not necessarily the most visible • Not necessarily the most obvious • Not ever a person

Talent Segmentation • Talent segmentation is as vital to strategic success as customer segmentation. • Talent segmentation involves identifying pivotal positions where human capital makes the biggest difference to strategy execution

Pivotal Positions • Positions in the organization where quality or availability of human capital makes the biggest difference to strategy execution • Positions that leverage the strategy execution

Pivotal Positions • Those talent pools that with a 20% improvement in quality or availability (quantity) would make the biggest difference in strategy execution and organizational success

Drill Down More • What are the Pivotal Positions for executing strategy? • Provides the most significant (relative to others) improvement in strategy execution – Leveraged by the HCA • Research Scientist

Talent – Performance Yield Curve - understanding where differences in quality or quantity of talent and organization have the greatest impact on strategy execution (steepness, elasticity, D, slope) Find the Pivotal Position

Yield Curve Big Pharma Worst Sales Rep Best Sales Rep tative Strategic Value sen Sales Repre t tis n e i e Res Worst RS Sc h arc 20% Performance Best RS

Finding Pivotal Positions Clearly understanding where differences in quality or quantity of the talent pool will have the greatest strategic impact (steepness, elasticity, D, slope)

Action Item # 3 - Finding YOUR Pivotal Positions Identify a Pivotal Position from within the Pivotal Talent Pool. Provide a rationale for this selection based on the critical outcome for strategy execution from Action Item #1

Step #3 Pivotal Role Challenges: The Performance Drivers of Strategy Execution

Constructing Human Capital Architecture Strategic Direction Pivotal Talent Pool(s) Strategy Execution Pivotal Position Pivotal Role Challenges Implement & Adjust HCA Congruence and Consistency of HCA Components Capabilities Behaviors Culture

Talentship • Talentship requires a redefinition of the traditional service role of HR managers in organizations. • This involves a process of "talent segmentation" and the need to focus managerial attention on "pivotal positions".

Research & Development Group Critical Outcomes for Strategy Execution at Big Pharma 1. New Product Applications 2. Reduce Time to Market

Pivotal Role Challenges – Research Scientist • New Product Applications – Discovery of unique and patentable uses of existing products – Identify new markets for existing applications – Seek and process information from diverse sources

Performance Drivers Behavior Capability Culture Pivotal Role Challenges

Finding Performance Drivers • Starting with the critical talent pools focus down to pivotal positions • Within that position look for the pivotal role challenges • Identify the specific capabilities, behaviors and culture necessary to succeed at the pivotal role challenge.

Enables the Value Proposition for Stakeholders Culture Capability Behavior Identify the required Culture & Mix of Capabilities & Behaviors Strategy Execution Determine the most critical Capabilities, Behaviors, and Culture to support Strategy Execution for the Pivotal Position

Constructing the Factors of Strategy Execution • Capability = knowledge, skill, ability or competency inherent in a unit of human capital • Behavior = Actions, reactions, interactions exhibited by a unit of human capital • Culture = a system of shared values, understandings and affect that distinguishes the unit that contains human capital

Finding Performance Drivers • Capabilities – Nouns; • Capabilities are either resident in the human capital or can be acquired through knowledge management interventions • Capabilities can be bought or they can be made.

Finding Performance Drivers • Behaviors – Verbs; • Behaviors are conscious and sub conscious actions of human capital units • Behaviors originate at the individual level and have intensity, direction and persistence

Finding Performance Drivers • Culture Prototypes – Innovation, Risk Taking – Attention to Detail – Outcome Orientation – People Oriented – Team Oriented – Aggressive – Stability

Enables the Value Proposition for Stakeholders Culture Capability Behavior Creates a Culture & Mix of Capabilities & Behaviors Strategy Execution Determine the most critical Capabilities, Behaviors, and Culture to support Strategy Execution for the Pivotal Position

Example: New Product Applications • Capabilities: 1. Deep knowledge of specific products, 2. Creativity and Innovation Skills, • Behaviors: 1. Scans multiple sources for potential applications beyond present uses, 2. Share tacit knowledge with the team • Culture: 1. Innovation and risk taking, 2. Team orientation

Action Item #4 Critical Challenges & Performance Drivers • Role Challenge to deliver the critical outcome for pivotal position • Performance Drivers – Capability – Behavior – Culture

Step #4 Understanding the Human Capital Architecture and Strategic Alignment

Human Capital Architecture The unique combination of practices, policies, and procedures that the organization uses to procure talent, develop talent, manage performance and reward performance of the human capital employed to deliver strategy execution.

Constructing Human Capital Architecture Strategic Direction Pivotal Talent Pool(s) Strategy Execution Implement & Adjust HCA Pivotal Position Pivotal Role Challenges Congruence and Consistency of HCA Components Capabilities Behaviors Culture

Human Capital Architecture Procurement & Retention

Procurement & Retention • Buying Human Capital • A procurement function • An inventory management and valuation function • Matches human capital resources to needs • Provides for retention and divesting of human capital

Human Capital Architecture Procurement & Retention Knowledge Management

Knowledge Management • Creating Human Capital • Matching competencies and skills to strategic needs • Capturing, maintaining, allocating and protecting knowledge • Preparing for the future

Human Capital Architecture Procurement & Retention Knowledge Management Performance Management

Performance Management • Measuring the critical behaviors that support strategic success • Evaluates the effectiveness of staffing • Identifies training & development needs • Evaluates the effectiveness of training & development • Provides a basis for allocation of rewards

Human Capital Architecture Procurement & Retention Performance Management Knowledge Management Compensation & Rewards

Compensation & Rewards • Provides a culture and mind-set to support strategic execution • Encourages critical behaviors • Attracts critical and capable human capital • Retains effective and removes ineffective human capital

Why is Human Capital Architecture Critical? • Provide a basis for a sustained competitive advantage • Things like financial structure operational processes and technology can be easily copied or purchased

The Key Question is… What is the appropriate Human Capital Architecture required to support pivotal positions to successfully execute strategy?

Enables the Value Proposition for Stakeholders Culture Comp. & Reward Perform. Mgmt Capability Behavior Knowledge Mgmt. Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions Procure & Retain Creates a Culture & Mix of Capabilities & Behaviors Strategy Execution Enables Strategy Execution by Creating and Supporting Performance Drivers

Action Item # 5 HCA Components • Identify 3 or 4 Components of Human Capital Architecture for each of the pivotal positions in your organization Procurement & Retention Performance Management Knowledge Management Compensation & Rewards

Step #5 Designing the New Human Capital Architecture – Vertical Alignment & Congruence

Align HC Architecture with HR Deliverables • Congruence is the causal linkages between the HR systems and the realization of the strategic competitive advantage • Consistency is the extent to which the HR policies and practices interact and support the other HR policies and practices

Constructing Human Capital Architecture Strategic Direction Pivotal Talent Pool(s) Strategy Execution Implement & Adjust HCA Pivotal Position Pivotal Role Challenges Congruence and Consistency of HCA Components Capabilities Behaviors Culture

Congruent & Differentiated Vertical Alignment: Human Capital Architecture Performance Drivers Strategy Execution Differentially Constructed for the Pivotal Position

Culture Comp. & Reward Perform. Mgmt Capability Behavior Knowledge Mgmt. Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions Procure & Retain Creates a Culture & Mix of Capabilities & Behaviors Strategy Execution Vertical; Congruence with Strategy Execution Enables the Value Proposition for Stakeholders

Vertical Alignment - Congruence 1. Retain practices that have the most significant impact on strategy execution. 2. Remove or modify practices that have a negative impact on strategy execution 3. Ignore or modify practices that have no impact on strategy execution

Culture Comp. & Reward Perform. Mgmt Capability Behavior Knowledge Mgmt. Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions Procure & Retain Creates a Culture & Mix of Capabilities & Behaviors Strategy Execution Vertical; Congruence with Strategy Execution Enables the Value Proposition for Stakeholders Horizontal; Consistency across HCA Components

Designing an Effective Human Capital Architecture Remember the prize ! Develop an integrated mix of human capital architecture components that is differentiated to deliver the performance drivers for the pivotal positions to execute strategy Vertical Alignment; Congruence Horizontal Alignment; Consistency