Competitive Advantage: The Innovators
NEW YORK (
) -- In summing up the importance of competitive advantage, former
General Electric
(GE) - Get Report
CEO Jack Welch said, "If you don't have a competitive advantage, don't compete." Yet, in this new global information age, achieving a competitive advantage has become increasingly difficult. Cost advantages go to emerging markets; product advantages are quickly matched.
Competitive advantage is a tall order, but there are plenty of examples. In many cases, it comes from people.
(GOOG) - Get Report
has the best people in information technology.
Goldman Sachs
(GS) - Get Report
and
JPMorgan Chase
(JPM) - Get Report
have the best in banking.
Walt Disney
(DIS) - Get Report
has the best in children's entertainment. All have dominated their industries for years and many carry substantial price/earnings premiums such as Goldman's 36 and JPMorgan's 47 vs. the industry P/E of 14.
What about your company? If your people become better than your competitors' people, would customers migrate to you? Would the market reward you with a higher P/E? Probably, but this requires different thinking, from thinking of people as a cost to people as a carefully managed source of competitive advantage.
Few companies, surprisingly, have a disciplined plan for making their people a competitive weapon. The reason is that few know how. General managers delegate employee issues to human resources, but don't know precisely what to expect or request. Unfortunately, their HR leaders don't either.
HR professionals take pride in offering world-class programs. But these programs are rarely aligned to a comprehensive human capital strategy or even to immediate business needs. A McKinsey survey about strategy execution challenges found that when strategists were asked to consider strategic planning's integration with several major corporate functions, respondents ranked HR as second-to-last in terms of degree of integration.
It's not just strategic planners who are critical. A study by the University of Southern California's Center for Effective Organizations found that only 9% of HR leaders report they are effective or very effective in connecting HR practices to business performance. That's not good.
State-of-the-Art HR Strategies
"That may be true for the average organization," you might say, "but that's not the case in blue-chip organizations." A research team from Cornell University's Center for Advanced Human Resources Studies, or CAHRS, tested that assertion. CAHRS is a research partnership with 50 to 55 large global corporations; the average employee base is 76,000. This select group may be considered the world's most respected collection of HR organizations.
CAHRS asked its members if they felt they were best-in-class in HR strategy to participate in a study. Twenty-two companies agreed. When it comes to HR strategy, these companies are the very best-of-the-best. How well do their HR strategies align with their business strategies? Not well. In summarizing its findings, the Cornell team wrote, "Little attention was paid to business outcomes as interviewees responded to (HR strategy) questions." Even for the very best, success is not about beating competitors; it's about world-class programs. Specifically, the research team found that:
- 1. Bottom-up plans are used. Seventy-five percent started with HR programs and attempted to connect them with business strategies, "... standing where they are and reaching out to the business."
- 2. Strategies not owned by line managers. Seventy-five percent didn't formally involve a general manager in the strategy setting process. In 50% of the cases, GMs were not asked to approve the strategy.
- 3. Strategic components are aligned to HR professions. "Strategic components" were typically aligned to HR departments' programs, such as staffing and compensation, not business strategies.
Roots of Misalignment
There are two main reasons for misalignment. The first is that many general managers delegate "people issues" to HR and hope for the best. Few have clarified in their own mind a vision of human capital excellence. This is quite different from the way they manage other units.
For example, most delegate day-to-day financial tasks to the finance department. However, they stay close to the numbers from quarter-start to quarter-end. Compare that with the time the same general managers spend measuring, managing and inspecting human capital growth.
The second reason for misalignment is that it requires HR to focus on external customers and results. Today's HR departments are organized and managed to satisfy internal customers, reduce administrative costs and improve employee satisfaction. Expecting results to impact external stakeholders simply isn't the model.
Creating a Competitive Advantage through People
First and foremost, the general manager's team must work together to define a clear end-state vision. You can't blame HR for not delivering "it" until you have defined "it." What does human capital excellence look like when it's done? When will it be done? And what is the road map for getting there?
Perhaps you want the best sales force in your industry. Or, maybe you'll focus on first-level managers, corporate culture or, if you have an acquisition strategy, on integrating teams. Publicize the end-state vision, road map and milestone dates to all employees. Then announce progress at each committed interval.
Next, design a governance process for completely executing the strategy. Assign an executive from the general manager's team to be accountable for fully executing the strategy. Create a detailed road map, schedule monthly reviews for the next 12 months and establish a new set of performance measures.
Finally, redesign your HR organization, measurement systems and culture to support the new vision. If sales excellence is your objective, make someone accountable for building a fully integrated system for improving sales performance, that is selection, training, access to information, performance management, career pathing and compensation.
Don't just talk about the importance of people; build a strategy that produces a competitive advantage through people. Execute that strategy with the same discipline as you would with any other strategy. When your people are better than the other guys' people, you win.
-- Written by Brad Hall in New York
.
Hall is managing director of Human Capital Systems (www.humancapitalsystems.com), a firm that designs systems for improving workforce performance. He is also an instructor in Duke Corporate Education's teaching network and author of The New Human Capital Strategy. Hall was formerly a senior vice president at ABN AMRO Bank in Amsterdam and IBM Asia-Pacific's executive in charge of executive leadership and organization effectiveness. During his tenure, IBM was twice ranked No. 1 in the world in Hewitt/Chief Executive magazine's "Top Company for Leaders." Hall completed his Ph.D in industrial-organizational psychology at Tulane University, with a dissertation on people management practices of Japanese corporations.
