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CHAPTER 12
PORTER NOVELLI
GREG WALDRON
Applying the Drotter “results-based” Leadership Pipeline approach to create a performance management system in a professional service firm.
• Introduction
• Business Diagnosis and Assessment
• Feedback
• Program Design Considerations
• Program Implementation
• Design Considerations
• Chosen Approach, Format Development, and Introduction
• Performance Management System Development
• Tailored Leadership Pipeline Development
• Evaluation
• Business Results
• Employee Climate Survey Results
• Turnover Results
• Anecdotal Evidence
INTRODUCTION
The Drotter results-based approach is tailored to a professional services firm structure and applied in the development of a performance management system aligned with the business’s strategy. Drotter’s Leadership Pipeline approach is implemented, with the full performance definitions for each leadership level in the tailored pipeline becoming the basis for a new organization-wide performance management application. The Drotter full performance definitions subsequently become the “source code” for selection, talent management, and training planning applications. The focus of this paper is the first application, performance management.
Business Diagnosis and Assessment
In 2004, Porter Novelli, a leading global marketing communications firm, undertook a fundamental strategic assessment and visioning process to guide it through the next five years. The firm’s CEO, president, and chief strategy officer led this process. The vision focused on a new approach to client account planning, a more client-centric structure, and a greater emphasis on operating interdependence between the globally dispersed offices in the service of multinational clients. It was felt that these three initiatives would dramatically increase the firm’s capacity to win and grow large, complex, and geographically dispersed client accounts—the firm’s strategic market target.
The senior management group identified the need to upgrade and align human resources management processes to successfully communicate and implement the new business strategy. The firm proceeded to hire a chief talent officer (CTO) to assist in the strategy implementation effort by designing and installing a more systematic, business-focused human resources management process.
In the CTO’s opinion, the vision implementation challenge centered on creating the highest possible level of employee engagement with the vision in the short term—by providing people throughout the firm with a clear, specific understanding of what the business strategy meant for them.
His metaphor for engagement was specifying the “four entitlements of all employees.” The CTO’s experience with corporate change efforts had led him to the conclusion that specific answers to four fundamental questions were a reasonable baseline expectation for every employee, regardless of level or function:
1. What specifically do you expect of me?
2. How will you define success (and measure me)?
3. What’s in it for me if I deliver the results you expect?
4. Will you provide me the resources I need/eliminate the barriers I face to achieve these results?
Individual role clarity and clear performance expectations are absolute requirements for these questions to be addressed. It was clear that the firm’s current approaches, although based on current practice and invested with significant effort, were not meeting these requirements.
The CTO had previously become familiar with Stephen Drotter’s Leadership Pipeline work, both as a client and as a consultant working with Drotter Human Resources. Drotter’s primary focus has been executive succession and the related processes: executive assessment; organization and job design; succession planning; and tailored individual development plans. However, his core concepts add significant value in broader application, particularly for performance management, selection, and development planning at all levels. The emphasis on specific results required, as well as the positioning of management and leadership results as measurable business outcomes, aligned well with the needs of the firm.
Performance management practice was spotty at best, as the firm’s current system—based on generic competencies—was complex and process-heavy. A leadership competency model upon which to base the system was missing. Professional development was considered important, and a full curriculum of professional training was offered. In the absence of a common “source code,” the various HR processes did not align well, and therefore opportunities for mutual reinforcement were being missed.
Clearly, there were opportunities for human resources to make a business impact through better practice application.
Management Interviews Discussions with the CEO, president, chief strategy officer, and other senior managers both before and after the CTO commenced employment confirmed the need for a set of management processes that strongly reinforced individual accountability as well as the increasingly interconnected nature of the company’s operations. Senior managers in all offices around the world would be asked to place global priorities over individual office considerations as multi-office and multi-region client accounts became the strategic imperative for growth.
The “Vision” Process “Vision 2004” was a combined business planning and senior management team-building exercise that involved detailed reviews of internal and competitive analysis, discussion of strategic alternatives, and development of the new client account planning approach for the company. A small internal team facilitated the process, which involved a global management meeting outside New York City, as well as a number of regional follow-up sessions. It provided the starting point for the strategy implementation effort. There were several significant outputs:
• Agreement on a new core client account planning perspective—that is, a new method for assessing a client’s business situation and challenges and for developing solutions for the client;
• Management training in this new methodology;
• Confirmation of an emphasis on acquiring and growing large, complex client relationships;
• Commitment to a closely coordinated “interdependent” operating approach across the global network; and
• A project management structure to move these initiatives forward.
This set the stage for the communication and implementation effort. The chief talent officer joined the organization shortly after the first implementation projects had begun and moved quickly to review and recast the talent management portion of the overall plan.
Business Results A key assumption underlying the visioning logic was robust business growth over the strategic plan period. The company was solidly profitable, and the business was growing. The senior management group was confident that the enhanced focus on larger, more complex client relationships would take revenue and margin growth to new, sustainable levels. The bar was set higher.
Climate Measurement The company administers a biannual staff climate survey that measures operating culture along thirteen dimensions: teamwork; organizational culture; strategic planning; leadership; long-term focus; stake in the outcome; quality; client satisfaction; learning orientation; empowerment; communication; morale and loyalty; and survey results implementation. Scores in 2004 were on track with parent organization averages, but management wished to improve these scores on both a trend and relative basis. This would be an important metric for the effectiveness of the leadership and human resource management interventions being developed.
Feedback
As a member of the senior leadership team, the chief talent officer had abundant access to the other members of the group—the CEO, president, and the chief financial officer—to discuss his ongoing findings and developing recommendations. After the first ninety days, he had effectively presented his findings and made overall recommendations regarding priority areas to address and an agenda for the HR and knowledge development and learning functions.
The group’s frequent and informal open discussion format facilitated processing of the feedback and gaining consensus on how to move forward. The feedback and recommendations were
• The business strategy was timely and sound, but it required better aligned human resources processes to successfully implement.
• Important requirements of the business strategy—higher levels of sustained collaboration between senior managers across offices and geographies; a greater emphasis on leadership and management work; more explicit definition of role expectations and required performance at all levels; and stronger link between individual performance and reward outcomes—would be best achieved through revised role and performance definitions.
• The revised role and performance definitions could be best defined and delivered through an application of the Leadership Pipeline approach to work definition and performance standards development.
• Pipeline-based definitions of senior roles would more explicitly define management and leadership accountabilities for reinforcement with coaching, performance management, and revised incentive compensation plans. This would be effectively the first application of the Pipeline approach.
• The second application of the Pipeline approach would be a complete revision of the firm’s performance management system. This was required to buttress reinforcement of individual accountability as well as support the updated performance-based pay and reward programs to be installed.
• The third Pipeline application would be selection practice, as an opportunity would be created with the new work definitions to introduce a more structured and consistent interviewing process.
• Another opportunity for Pipeline application would be to better organize and align the substantial existing training offerings with the company’s career structure, as well as guide the prioritization of investments in new and revised offerings.
The general findings and recommendations were also communicated and discussed with the senior manager group over a number of regularly scheduled conference calls. There was broad acceptance of the conclusions and proposed direction, so program work was commenced.
Program Design Considerations
The appeal of the Pipeline model as the foundation for the new human resources systems was based on several opinions shaped by the chief talent officer’s experience:
• Drotter’s thinking takes us first to work, role, and organization analysis before classic human resource applications such as assessment/performance management, selection, development planning, and training are considered—moving from the “supply side” to the “demand side” for talent. People are ultimately treated better and more engaged if these role definition and organization design issues are addressed first. The approach constituted an ideal basis for specifying and communicating the new personal accountabilities required by the new strategy.
• The Pipeline model does not rely on competencies, but rather required work results by level for its core “source code.” These required work results are actually the first element of a classic competency model development; the key notion is that focus is maintained on actual work results rather than abstracting one level to the associated knowledge, skills, and personal values/attributes. The CTO felt this was fundamentally sounder for specific role and full performance definition purposes. Performance management and selection applications would be built on foundation of work results definitions.
• The model focuses on the vertical distribution of work in the organization. Vertical organization and process considerations have frequently been overlooked as organizations have “flattened.” The process of de-layering actually places a greater requirement on thoughtful vertical task distribution, communication, and coordination across the enterprise. While recent organization design thinking has been around selecting the optimal horizontal structure (organizing by product, customer set, geography, process, function, or matrix), vertical considerations have been overlooked.
• Drotter requires the same explicit definitions of management and leadership results by level as financial and customer results, making these accountabilities far more specific, measurable, and therefore understandable to employees. The down-to-earth, application-based approach demystifies leadership in particular and facilitates the introduction of simple models to describe and explain both activities.
• The core Leadership Pipeline concept of a job is well suited to the fluid, fast-changing business environment of a professional services firm. A job is considered a collection of results to be delivered, many of which are shared with other employees and therefore requiring cooperation and collaboration to achieve. Required results change as business conditions change, giving the model great dynamism and flexibility. It is a particularly relevant approach for reinforcing an internal collaboration-based strategy.
• Core Leadership Pipeline level, performance dimension, and full performance definitions can be used as the core work architecture—the “source code”—upon which all talent management and development applications are based. As a result of this common basis, the various programs would better align and mutually reinforce each other.
These last two points are contrary to the belief held by some that the Leadership Pipeline model is inflexible and geared primarily to large industrial company applications. The thinking has universal applicability, and the model is actually quite flexible. Frustration has resulted in some cases in which practitioners have attempted to literally apply the generic large company examples in The Leadership Pipeline (Charan, Drotter, & Noel, 2001). Drotter has actually been quite explicit in requiring that tailored pipeline level, performance dimension, and full performance definitions be developed for every company application. This development involves structured work content interviewing, analysis, and comparison with a large database of work results definitions across scores of companies.
Therefore, the chief talent officer committed to building a tailored leadership pipeline and installing it by creating results-based role definitions, performance management process, selection and training structure based on its “source code.”
PROGRAM IMPLEMENTATION
Tailored leadership pipelines are based on the specific work requirements of the company. Typically, an implementation project plan includes the creation of a trained team of human resource professionals and line managers who conduct structured work content interviews with a sample of full performing employees at different levels across all functions in the organization.
Tailored Leadership Pipeline Development
The generic work content interview format must be reviewed and customized as needed to fit the individual company’s operating culture and language—the goal being to make the questions as understandable and familiar as possible to employees unaccustomed to this type of information-gathering method. The customized work interview format was tested with several staff members before being used for project team training and actual information gathering. Several small language adjustments were recommended by the test subjects and subsequently implemented.
A core project team of two senior human resource managers and a senior line operating manager was trained in conducting structured work interviews and recording and analyzing the input data. This training took the form of a session explaining the interview format, question by question, and covering important interviewing techniques. The workshop was followed by two two-on-one interviews per team member with the CTO to practice interviewing and data recording skills and to receive coaching.
As the firm’s history was the combination of acquired offices and companies, it was felt important to get a work interview sampling that ensured geography and legacy firm representation as well as level and work function coverage. This resulted in the completion of seventy-five interviews in ten of the firm’s twenty-three offices across North America and Europe, with staff members ranging from entry-level professionals and administrative support people to senior partners. Every major legacy company location was covered.
An interesting and quite positive side-effect of the work interview process was the new insight gained by a number of staff members concerning the purpose of their work. When facilitated to first describe the actual results they were responsible for delivering, rather than work activities, tasks, or required competencies, interviewees gained a clearer understanding of their roles’ key business purpose. For a number of managers, this produced not only a better understanding of their own work requirements, but also a clearer basis for determining account team capacity requirements by level.
Upon the completion of the interviews, the resulting data was analyzed and integrated by the project in a series of meetings facilitated by the CTO. The CTO then developed a draft work architecture for the firm, specifying both leadership levels and company-specific contribution dimensions that aligned with the business strategy and operating process. Full performance standards were created for each contribution dimension at each leadership level. The first determination was that the tailored leadership pipeline structure for the firm was constituted of five leadership levels, shown in Figure 12.1 .
This structure appears to be typical of professional services firms, with the manager of managers level populated by the critically important client account directors who manage the firm’s revenue-producing activities on an ongoing basis. The business manager level incorporates functional managers as well as classic P&L owners, and there are no true group managers in what is essentially a one-business model.
This structure works well in capturing both the client service and the support functions of professional services businesses. The client-facing function is supported by the specialty and support functions (research; planning; marketing; finance; human resources; information technology), and this simple two-function structure is represented by this architecture.
The work content analysis involved in the development of the essential pipeline “skeleton” provides the analyst with many rich opportunities for organizational diagnosis and enhancement. The first such opportunity occurred for the CTO when populating the new leadership levels with job titles. An operating complication for the various offices when attempting to create cross-office, cross-geography client teams was understanding and integrating the various title structures that existed in each country and in different legacy firm offices in the United States. The mapping of titles onto the enterprise-wide leadership layer architecture created a title rationalization grid that was distributed to all offices providing a global organization translation for team managers, as shown in Table 12.1 .
FIGURE 12.1. Leadership Pipeline for a Professional Services Firm
TABLE 12.1. Job Title Rationalization Using the Leadership Pipeline Levels
|
Leadership Level |
Job Titles |
|
Enterprise Manager |
CEO; president; CFO; CTO; other C-level executive committee members |
|
Business Manager |
Subsidiary president/CEO; regional director; office managing director; global account director; director |
|
Manager of Managers |
EVP; SVP; account director; director; functional/specialty director |
|
Manager of Others |
VP; account manager; associate/deputy director; senior consultant; project manager; account supervisor; function/ specialty manager |
|
Manages Self |
Senior account executive; account executive; assistant account executive; consultant; junior consultant; coordinator; functional/ specialty professional |
The contribution dimensions identified for the firm were based on a literal analysis of the work content interviews, but also vetted against and aligned with the new client-centric strategy. The contribution dimensions are of critical importance, as they outline the “source code” to be used in developing performance appraisal, assessment, selection, and career development applications. Close alignment with the business strategy facilitates full line of sight for every staff member and powerful process reinforcement of the key strategic and operating cultural elements. The contribution dimensions were:
• Client Results
• Leadership Results
• Management Results
• Relationship Results
• Innovation/Creativity Results
• Business/Financial Results
The order in which the contribution dimensions are displayed and communicated was of primary importance in conveying the firm’s full strategic message to its staff at all levels.
• Clearly, a “client-centric” strategy must place the client as the first strategic priority, so this factor was listed first.
• Leadership and management had been the great “wild cards” in strategy and performance discussions; everyone realized they were critically important, but everyone struggled to operationalize this importance as neither term was particularly well defined, and therefore not well articulated or measured. Now these dimensions took their appropriate places.
• Relationships with clients had always been recognized as critical; the new strategy mandated a closer, more selfless “interdependence” between partners and senior managers than ever before, and this dimension captured the new emphasis.
• Creative thinking and its business-focused application in the development of client strategies had a similarly traditional importance; the new dimension of innovation was added as new approaches to both client business solutions and growing the firm aggressively were viewed as critical for success.
• Financial results were intentionally placed last. They had previously been so heavily emphasized that they had become the primary strategic goal, to the detriment of factors such as client satisfaction and professional work quality. This perception was confirmed in staff climate surveys that asked respondents to prioritize the importance of a number of key operating factors. Financial results had come in first. The CTO found this a particularly disturbing finding in the case of junior professionals at the firm—people who had no direct impact on the overall financial performance of the enterprise. So financial results were characterized as literally the “bottom line”—the result of excellence in delivering the first five dimensions. The message was that above expectation growth and financial returns would occur if clients, people, and the work were the primary leadership focus.
Finally, the work interview data and strategy input were analyzed against a database of other companies’ standards to draft full performance definitions for each leadership level, for both client-facing and specialty/support functions. As the firm had been struggling with the fundamentals of good performance management practice—again, a rather typical professional services situation—it was decided that the first iteration of the performance model would follow the work architecture’s simplicity. Therefore, only the full performance benchmarks would be detailed, with consideration of adding exceptional performance definitions left for later versions.
The draft performance standard definitions were presented and discussed with several focus groups of managers and professionals in the New York and London offices, as it was felt these large, central operations would most efficiently capture the full range of client and functional populations. Also, the U.K. groups were a critical test of the portability of the language, and in fact it was necessary to make significant modifications in the text to better reflect proper British English in this major operating location.
The architectural foundation was now established, and application development could commence. The CTO felt that the approach was sufficiently different that managers would first need an introduction and orientation to the core pipeline concepts. A three-hour overview of key concepts, as well as an introduction to the new model of management and leadership the CTO wished to apply, was developed. The title was “Achieving Excellence Through Your People” to reinforce both the business focus as well as the leadership emphasis of the new approach. A four- to five-hour version of the content with some added introductory skill building in goal setting and coaching was also developed for manager and staff member groups across the offices.
The concept orientation for management covered the following topics in an interactive discussion format:
• A New Talent Management Focus: Starting from the demand (work and organization design) side rather than from the supply (people acquisition and development) side to build the core architecture for talent management.
• Understanding Performance as Results Achieved: As opposed to activities or competencies alone, the key business requirements are every job being necessary and adding appropriate value, and every staff member being a full performer.
• Understanding Development and Potential: Potential is no longer defined as “high,” “moderate,” or “low,” but rather is expressed as the assessed ability and readiness to do different work within the planning period.
• Understanding the Work of Leaders: A simple definition of leadership and management and how they interact and together create full capability.
• Understanding the Pipeline Model: People had to know its origins, its core definition as an application model based on differentiation of required output, and how each business’s pipeline was unique (that is, the book cannot literally be applied). The firm’s tailored pipeline model was introduced, along with the performance dimensions, and coverage included the definition of each layer as well as the transition points and associated changes in required skills, time applications, and work values.
• The New Definition of a Job: Understanding the new dynamic and interdependent definition of roles at the firm and their placement within the pipeline architecture. Jobs were seen as collections of results to be delivered, many of which required close collaboration with other staff members for achievement.
• Three Key Skill Sets for Leaders of Other Professionals: Assessment for selection, performance planning, and assessment for developmental appraisal; coaching for current improvement and future development.
Sessions were held in the major offices, and the reception the concepts received was uniformly positive. While human resources people in particular found the emphasis on results rather than competencies a bit unsettling, line managers and professionals found the approach far more in tune with the reality of their work situations and refreshingly free of process complication and jargon. In particular, people found the concepts and language easy to embrace. Initial signs were hopeful.
PERFORMANCE MANAGEMENT SYSTEM DEVELOPMENT
The core element of the new talent management implementation was to be a completely revised performance management system, and this application is therefore our focus. The CTO felt the key business drivers of revised, specific, and reinforced role definition, significantly strengthened operating concepts of personal accountability, and a clear definition of the management and leadership roles were best covered by this first step. In addition, new cash compensation designs being anticipated were more heavily dependent on a robust performance management process. The other executive committee members agreed.
Design Considerations
The existing, competency-based system was not widely used. There were several reasons for this. Generic competencies were applied, creating the challenge of relating each behavioral definition to each staff member’s level and role. The process itself was quite complicated, and the formats were long and daunting for busy managers and their staffs to use. Training and reinforcement had not been adequate to overcome these shortcomings.
As a result, the challenge was to re-introduce performance management as a core management discipline with the new approach. Reaction to the announcement that the old system was being discontinued was universally positive. As the new system needed to be as user friendly as possible, the process design needed to simultaneously:
• Align with Leadership Pipeline principles;
• Provide both specificity and flexibility in defining job requirements and personal accountabilities; and
• Be as easy to understand and use as possible, for people new to both goal-setting-based performance management as well as the results-oriented approach. This last requirement proved to be the most difficult to achieve.
Chosen Approach, Format Development, and Introduction
The new system was titled “Results Based Performance Planning and Appraisal.” The business context for this approach was made clear: clients paid the firm for results, not for competencies, capabilities, activity, or effort. Therefore, the new “true north” on management’s compass would be the results that individuals, teams, and the firm delivered to clients, staff members, and investors. This message had great resonance with people at all levels in the firm.
Instrument development took the CTO in a different direction than previous pipeline-based performance management applications he was familiar with. The results profile for a client-facing manager ( Figure 12.1 ) provides the rich detail a pipeline definition provides for role clarity, but can introduce a significant amount of process burden when literally applied to performance planning and management. Rather than compromise the comprehensiveness and detail of the results profile, the approach the CTO eventually chose used the results profile as a reference document with a separate instrument driving individual performance planning and review discussions. Both formats are for use by client handlers at the manager-of-managers level.
The CTO elected a simple goal-setting approach to provide individual role specificity to the general performance standards by level. A total of fourteen formats, conforming to the pipeline leadership levels for both client-facing and specialty/ support functions, were created using the full performance standards as source content. There were multiple formats for several leadership levels, conforming to differentiated job categories within the lower leadership levels:
• The Manages Self or individual contributor level included forms for administrative support positions, junior individual professional, and senior individual professional positions.
• The Manager of Others level included forms for supervisors/project managers as well as managers. The supervisor/project manager position was a particularly important threshold management role and required some differentiation from the full manager position.
While this number of formats could be difficult to navigate the first time around, the introduction was supported with two-hour orientation and training workshops for managers and staff as well as an easy-to-use, step-by-step tutorial posted on the company’s intranet. The overriding advantage of multiple, job-type-specific formats was the ability to use general full performance definitions as individual employee guidance, with specific goals being required in only a few results areas. This ease of use factor was considered very important in gaining early adoption.
The objective of the introductory orientation sessions and online support materials was to familiarize people with two fundamentally new concepts for them: first, the focus on results in defining jobs and performance within them, as opposed to competencies or activities, and second, the use of goal setting to further reinforce personal accountability. It was anticipated that two to three years would be required to achieve full adoption with associated skill mastery for the new system. The formats and process would be refined after the first and second performance management cycles were complete and feedback from managers, staff members, and human resources managers was analyzed.
The rating scale used, which followed the Pipeline approach, was also new for the firm. The three-point scale was created for developmental purposes and was comprised of “exceptional performance,” “full performance,” and “less than full performance.” The preponderance of ratings—75 percent—would be in the “full performance” range, consistent with the philosophy that virtually all staff should be delivering full performance if properly managed and engaged. “Exceptional performance” was defined as not only significantly superior to full performance on an ongoing basis, but unique and different. Exceptional performance was the qualifier for promotion to significantly greater accountability.
This simple rating system avoided much of the “fluffing” of ratings prevalent in most traditional systems that was caused by managers wishing to avoid demotivating good employees by assessing them as merely “average” or “meeting expectations.” Lake Woebegone, that place where everyone is above average, was therefore avoided.
The CTO added an additional performance point, establishing two levels in the full performance category, for base salary planning and administration purposes. This was subsequently implemented and worked well in reinforcing the pay-for-performance approach.
The new formats were tested in several large offices, and these pilots provided valuable feedback regarding changes to process instructions and on-line support content. The formats were introduced in early fourth quarter of 2005 for 2006 performance planning. Managers and employees were given the option of using the new formats for 2005 reviews if they had not had any performance discussions for the year. A number took the CTO up on the offer. Experience and Action Learning
For performance year 2006, formats were posted as downloadable Word documents in a new suite on the company’s human resources intranet site. Support tutorials were also posted. Take-up varied from office to office; however, reported participation and completion rates were significantly higher than with the old system.
An early problem that developed was difficulty in understanding and applying goal setting for many managers and staff members. The CTO, having come from environments with long-established performance management practice, had fallen into the trap of assuming too much familiarity with basic performance management concepts. Follow-up remedial workshops addressed the issue, and for performance year 2007 a performance management workshop focused on skills in creating SMART goals and cascading goals from manager to subordinates in a work team was offered ahead of the performance planning period.
The workshop also provided guidance on completing the performance appraisal step by covering the gathering of performance evidence to properly justify and document assessments. It was offered throughout the course of the year as well as at the commencement of the 2007 appraisal preparation season.
2006 was a year of significant change in other areas of human resources and talent management. The CTO had gained management approval to move to a common base salary review date as well as a common appraisal schedule that supported a pay-for-performance approach. The introduction of the new results-based approach was advanced and reinforced with a more disciplined pay-for-performance process; however, more simultaneous change was heaped on managers already under pressure to maximize personal billability. The CTO had hoped to lessen this impact with an employee-initiated planning and review process; however, both planning and appraisal periods were lengthened and made more flexible to accommodate overloaded managers.
Strong positive feedback was received regarding the effectiveness of the process in clarifying and prioritizing job expectations, as well as structuring development discussions on more specific, quantifiable work requirements for different job levels. The previous competency-based approach had been roundly criticized for its ineffective-ness in specifying differences in performance expectations and standards from job level to job level in career hierarchies.
For 2008, the president had led an effort to update and focus the company’s strategy. The strategy coalesced into three results areas (the results concept had been thoroughly embraced and was a prominent part of the operating vocabulary): serving and growing clients; developing people; and cultivating new client prospects. The CTO and his staff updated the core results by level definitions and performance standards for client staff, grouping them into these three strategic buckets to map the strategy goals to every staff member’s job. For functional and support staff, the three buckets became professional work product; developing people; and integrating the functional work into the business strategy.
In addition, the 2008 performance management process went to a fully online format for enhanced accessibility and ease of use. Training was further evolved to address reported concerns as well as to orient new managers and staff members in the process. The company entered 2008 having attained an over 95 percent appraisal completion rate and a virtually 100 percent on-time salary adjustment administration performance for 2007—unprecedented in the firm’s history.
EVALUATION
Business Results
It is frequently difficult to connect talent management practice directly with business results. Intermediate measures such as unwanted turnover, survey trends, and the like provide more credible evidence of efficacy. Overall, the company produced the best two financial performances in its history in 2006 and 2007, no doubt aided by the strong economic environment that existed in the United States and Western Europe through mid-year 2007. The focus on results, as opposed to activity or effort, and the strong emphasis on personal accountability can certainly be cited as contributing factors.
Employee Climate Survey Results
Survey results are considered proprietary and cannot be cited in detail. However, it is notable that a pulse survey administered in late 2006 showed significant positive trends in all thirteen measured organization climate dimensions. Particularly significant improvements were shown in Morale and Loyalty (the key engagement measure); Quality (that includes performance communication and management practice); and Leadership.
Turnover Results
Overall turnover decreased 24 percent from 2005 to 2006, before rising 14 percent in 2007, amidst a particularly competitive labor market. Turnover of identified high-potential managers stood at virtually 0 percent for 2006 and 2007.
Anecdotal Evidence
The professional services audience easily and enthusiastically embraced the Pipeline concepts. While performance management is still no doubt seen as a difficult and time-consuming process, this is in comparison with very little prior subscription to any performance management activity. Leadership feedback is consistent with other feedback that Drotter has received from other companies: that there is a strong connection with business context and a refreshing absence of professional “jargon.” It is viewed as conceptually elegant and easy to embrace. The language of results and accountability, as reported earlier, has become a core part of the leadership language.
Beyond the scope of this paper are the additional applications of the Pipeline concepts for selection, talent inventory, and training planning that were put in place, as well as new management variable compensation plans dependent on the results-based performance management system.
REFERENCE
Charan, R., Drotter, S., & Noel, J. (2001) The leadership pipeline: How to build the leadership-powered company. San Francisco: Jossey-Bass.
Greg Waldron is a principal and executive consultant with Drotter Human Resources, a consulting firm focusing on executive succession and the critical related processes. His prior industry experience spans marketing communications, travel and hospitality, financial services, investment banking, and logistics/supply chain management. As a corporate human resources executive, Waldron has been an advisor to the CEO and board, an author of corporate organization studies, and a global leader of the HR function. He has created and implemented talent identification and succession planning processes, executive selection and performance management approaches, and total compensation programs. He has significant experience in helping leadership groups address major business change, including acquisitions, divestitures, management transitions, and initial public offerings.
CHAPTER 13
SOUTHERN COMPANY
JIM GREENE
A robust leadership development and succession planning process that uses leadership performance standards and competencies to identify successors and high-potential individuals, and target development.
• Introduction
• Background
• Initial Improvements
• The Leadership Action Council
• Competency Model
• Leadership Assessment
• Succession Planning
• Identification of Potential Successors and High-Potential Individuals
• Assessment of the Talent
• Review of Individuals
• Leadership Database
• Development Activities
• Senior Leader Development Program
• Emerging Leader Program
• Evaluation and Lessons Learned
• Evaluation
• Lessons Learned
INTRODUCTION
Having a steady supply of leaders with the right skills in the right jobs is critical to the success of an organization. Facing the possibility that a number of long-tenured leaders across all levels would soon retire, Southern Company enhanced its succession planning and leadership development processes to ensure a full leadership pipeline to sustain business success. This chapter details these processes.
BACKGROUND
Southern Company is an electric utility serving 4.4 million customers in the southeastern United States. A leading U.S. producer of electricity, Southern Company owns electric utilities in four states and a growing competitive generation company, as well as fiber optics and wireless communications. Southern Company brands are known for excellent customer service, high reliability, and retail electric prices that are significantly below the national average. Southern Company has been listed as the top ranking U.S. electric service provider in customer satisfaction for nine consecutive years by the American Customer Satisfaction Index (ACSI). Southern Company employs approximately 26,000 people.
In 2003, America’s aging workforce began to receive a lot of attention and was viewed as a potential business challenge for Southern Company. A “grow your own” company, Southern Company historically hired at the entry level and relied on internal promotions rather than external hiring to fill leadership positions. In the late 1970s and 1980s, the company hired a large number of people. A low turnover rate resulted in the leadership group being very stable and growing progressively older. In 2003, the average age of executives was fifty-two. The average ages of middle managers and first-line managers were forty-nine and forty-seven, respectively. This age bubble posed a potential succession risk. Southern Company has developed a cadre of leaders who possessed deep business knowledge and fit the organization and culture. Projections showed that, as executives began to retire in greater numbers, their successors would leave soon after. The need to develop a new generation of leaders became the driver for re-looking at the succession and leadership development efforts to ensure a sustainable supply of quality leaders to meet business needs.
In early 2004, Southern Company’s CEO initiated an in-depth review of succession planning and leadership development. The goal of the study was to review current practices and determine the steps necessary to advance leadership development to the next level and ensure an adequate supply of leadership talent over the next ten years. The study began by interviewing a cross-section of executives and managers to gain an internal perspective of the strengths and gaps of the succession planning and leadership development systems. An external consultant was engaged to provide an objective third-party view and to provide best practice research.
The review noted several strengths. Senior leaders were engaged and devoted a significant amount of time to leadership development. During the interviews they talked about conducting mentoring groups and spending time getting to know key high-potential individuals in their company or business unit. Southern Company also had basic processes in place to identify and develop leaders. Succession planning was conducted annually, with its primary focus being on replacement planning. Assignments and development moves were used to provide individuals a wide range of experience. A number of decentralized leadership development activities were in place. These programs utilized a variety of activities, including mentoring, group mentoring, business acumen discussions, and education classes. A corporate action learning program for high-potential first-line leaders was conducted annually.
Several gaps were identified. During the interviews, leaders talked about knowing the high-potential talent in their organization very well. However, they did not know talent across Southern Company. Cross-system calibration of talent was difficult for several reasons. A standard set of information was not available for comparing individuals. Southern Company lacked a comprehensive model that identified the key leadership practices necessary to achieve business success. Across Southern Company there were a number of different definitions of leadership, and emphasis was placed on developing different skills and abilities. A person viewed as high-potential at one location may not have been viewed in a similar light at other locations. Managers also tended to promote individuals they knew and had working relationships with. The study also revealed that the assessment process lacked sufficient rigor to support critical talent decisions. Southern Company has had the luxury of multiple people viewing a person’s performance over a long period of time in different jobs and situations. This provided a good indication of people’s capabilities. However, because people were viewing leaders through different lenses, there were different opinions of people’s capabilities and potential to assume expanded roles. More objective measures to help predict potential were needed.
The succession planning process placed too much emphasis on replacement planning and not enough on developing critical talent pools. There was insufficient focus on high-potential talent five to ten years from the executive level. Leaders reported having difficulty targeting development to the most critical areas. A final gap noted information on succession plans and high-potential individuals was kept in a series of separate files located across Southern Company, making consolidated information difficult to obtain and use.
INITIAL IMPROVEMENTS
Following the review, Southern Company took steps to improve leadership development. The initial effort focused on building a common leadership framework across Southern Company, including a common definition and understanding of leadership. Southern Company adopted the leadership framework articulated by Ram Charan, Stephen Drotter, and James Noel in their book The Leadership Pipeline: How to Build the Leadership-Powered Company. Central to this framework is understanding that leadership begins with the work leaders perform. Managers go through key transitions in their careers when they move up the organizational ladder. The scope and complexity of work increases at each level, requiring new skills, time applications, and work values. Southern Company began building its leadership framework by identifying the major leadership transitions within the company and their associated requirements. Stephen Drotter was employed to help customize the framework for Southern Company. Selected executives and managers were interviewed, asking them to identify the major results they needed to produce in their jobs to be successful. This information was analyzed and resulted in six levels of leadership being identified within Southern Company:
• Individual contributor—leads self.
• First-line manager—leads a team of individual contributors. May have first-line supervisors reporting to him or her.
• Manager of managers—Leads a large department or organizational entity. Has first-line managers as direct reports.
• Functional manager—Leads a single function or organizational entity. Usually an officer.
• Multi-functional manager—Leads multiple functional areas.
• CEO/business unit manager/enterprise functional manager—Leads a company, major business unit, or a major function at the enterprise level.
For each level, the associated requirements (performance standards) were identified. Performance standards list the complete set of results expected of leaders at that level. For each level of leadership, the identified results were grouped under the following performance dimensions:
• Business (Operational, Technical, Financial)
• Management
• Leadership
• Relationships
• Community/External Involvement
• Customer
A sample set of performance standards for manager of managers is shown in Figure 13.1 .
FIGURE 13.1. Manager of Manager Performance Standards
The identification of specific performance standards helped leaders understand the expectations for a particular level. They also helped build a common definition of leadership across Southern Company. Performance standards enabled more objective discussions of people and facilitated better development plans. Managers reported that their discussions of people became more objective because they were focused on a common set of expectations.
Performance standards were woven into succession and leadership development processes in several ways. A small group of human resource professionals were trained to conduct behavioral interviews to determine an individual’s performance relative to the performance standards. The results of these assessments were used in talent review sessions. Managers were trained to use the performance standards in their development discussions with leaders reporting to them. The performance standards were also used during succession planning to help identify high-potential individuals.
The use of performance standards in the succession planning process took hold in pockets of the organization. Overall, the implementation of performance standards was viewed as a human resource initiative rather than coming from line management. Some organizations used the standards in succession planning, while others used them as part of their development planning for leaders. They were not consistently applied in all parts of the organization. The accuracy of the behavioral interviews conducted by HR professionals was questioned by management. To fix these issues, Southern Company took several steps.
THE LEADERSHIP ACTION COUNCIL
In 2005, Southern Company’s CEO chartered a group of executives to serve as the steering committee for leadership development. This council was given the responsibility to develop guidelines and facilitate integration of leadership development programs and processes across Southern Company. The council is made up of senior line executives representing each operating company and business unit and the senior VP of HR. The formation of this council moved leadership development from being a human resource initiative to being line-driven. Human resources served in a partnership role with the council. Southern Company is a highly matrixed organization. Having a council that represented all of the parties was essential to gaining traction.
Building on the work done previously, the Leadership Action Council established project teams to research issues and make recommendations. These teams reviewed the areas of succession planning, leadership assessment, leadership development, and leadership education. Each project team was led by Leadership Action Council members, had line management participation, and utilized HR support. These teams reviewed best practices, gathered management input, determined gaps, and made recommendations. The Leadership Action Council made the following recommendations in 2006.
• Create a competency model aligned closely to the performance standards to assess leadership candidate strengths and weaknesses;
• Implement an external, objective assessment process for executives and high-potential individuals;
• Expand the succession process to focus on creating targeted development plans for successors to executive positions;
• Design and implement a leadership database to capture and track talent information and provide key analytics to assess talent gaps;
• Create a multi-event educational experience for high-potential managers of managers who are ready to move into functional manager (officer) roles; and
• Align operating company/business unit leadership development programs to have a common focus.
The creation of the Leadership Action Council helped Southern Company make major progress in advancing leadership development to the next level. The ongoing involvement of senior executives was critical in revising, gaining approval of, and implementing succession planning and leadership development programs and processes. Described below are the initiatives that Southern Company adopted as an outgrowth of the Leadership Action Council recommendations.
COMPETENCY MODEL
The Leadership Action Council noted that leaders were having difficulty identifying the right development actions. There was also a misalignment between feedback individuals were receiving from an external assessment process and the feedback they were receiving internally. To rectify these problems, a core set of leadership competencies was developed.
Performance standards describe the set of results individual contributors and leaders are expected to produce. These standards were used as the basis for identifying critical leadership competencies. Working with an external organizational consulting firm, Blankenship & Seay Consulting Group, leadership competencies were selected that best aligned with and supported the performance standards. The Leadership Action Council validated these competencies to ensure they were critical to achieving business success. The competency work resulted in the adoption of the nine leadership competencies shown below.
Southern Company Leadership Competencies
• Adapting and responding to change
• Critical thinking
• Deciding and initiating action
• Entrepreneurial and commercial thinking
• Formulating strategies and concepts
• Leading and supervising
• Persuading and influencing
• Planning and organizing
• Relating and networking
Two competencies typically found in leadership competency models, ethical behavior and driving results, were not included because they are emphasized in Southern Company’s values statement, Southern Style.
The performance standards and associated leadership competencies now serve as the foundation for all succession planning and leadership development work. LEADERSHIP ASSESSMENT
A gap in the leadership development model described earlier was lack of a rigorous assessment process. Subjective views of people were used to make developmental and succession decisions. Southern Company supplemented internal views with data from assessments done by an external industrial psychology firm. In partnership with this firm, changes were made to increase rigor and alignment. The new process, used for executives and high-potential leaders, measures an individual against the nine core leadership competencies listed above. The process takes half a day and consists of a battery of psychological-related tests, a simulation exercise, and a structured interview. Participants receive ratings on the nine leadership competencies and a report containing their results and development suggestions. Figure 13.2 shows sample results from the competency assessment. Participants also receive direct feedback from the psychologist. This new process increases the rigor and consistency of executive assessments and provides objective data as input into the succession planning, talent review, and development planning processes.
Southern Company has also revised the 360-degree assessment and upward assessment processes to align with the nine core leadership competencies. Leaders receive feedback from subordinates, peers, and their managers on each of the nine competencies and Southern Style (values statement).
FIGURE 13.2. Sample Leadership Competency Assessment Results
SUCCESSION PLANNING
Another recommendation made by the Leadership Action council was to expand the succession planning process to focus on identifying and planning the development of people who can take on expanded leadership roles in the future. Succession planning is done annually and consists of three major steps shown in Figure 13.3 .
Identification of Potential Successors and High-Potential Individuals
In this step management identifies candidates who are ready now to fill a critical leadership position should it become vacant and candidates who, with additional development, could fill the position. Plans for all executive and director-level positions are developed. Potential successors are classified as:
• Ready Now: An individual who could be placed in the position today, without hesitation. There should be a close match between the requirements of the job and the individual’s skills, knowledge, and experience
• 1-2: An individual who needs additional development in a current position or one additional move to become ready
• Long Term: An individual in the pipeline for the targeted position and needs two to three additional moves to become ready
Management judgment, along with the assessment information described earlier, is used to identify potential successors. The identification process is generally bottom-up. A leader in a key role suggests potential successors for his or her position. This list is validated or modified as it is discussed by senior management.
A new tool, called a success profile, was developed to help managers identify the right successors. The success profile specifies the key competencies and experiences required to perform a specific leadership role. Success profiles are created by either interviewing the job incumbents and the direct manager or by sending them an Internet-based survey. The results from the interview or survey are combined and validated by executive management. Requirements are based on future business needs, not just today’s world. Specifically, a success profile identifies:
• The leadership competencies most critical for the position;
• Additional business/technical knowledge, skills, and abilities needed for the job; and
• Key experiences that best prepare someone for the position.
FIGURE 13.3. Succession Planning Process
See Figure 13.4 for a sample success profile. Success profiles provide specific criteria for managers to use in selecting successors and identifying readiness. Several examples have been noted whereby the list of successors for a particular job changed as a result of using the success profile. To date, success profiles have been completed for some executive positions, and plans are to complete them for all executive and director-level jobs.
FIGURE 13.4. Sample Success Profile
In addition to successors, management identifies high-potential individuals during the succession process. This is also done using a bottom-up approach. Managers identify individuals within their organization whom they judge to have the potential to take on expanded roles. This list is validated or modified as it is reviewed by managers up the chain.
“Potential” addresses the aptitude to perform work at the next leadership level. Managers rate the promotability of all leaders at the manager-of-manager level and above using the following categories:
• Promotable: able to make the turn to the next leadership level within two or three years. These individuals are high-potential.
• Growth: able to do additional work, run other functions, or manage a broader organization at the same leadership level.
• Well placed: having neither turn nor growth promotability.
The performance standards are the basis for making the judgment on promotability.
Below the manager-of-manager level, leaders list their high-potential individuals, rather than rating the promotability of everyone in their organizations. This is done due to large numbers. The following definition is used to assist managers in identifying high-potential individuals:
• Sustained high performance. High-potential individuals have demonstrated sustained high performance over time.
• Foundation skills. High-potential individuals possess a set of skills that allows them to grow quickly and adapt to different situations. These include drive/ ambition, strong interpersonal skills, presence, ability to learn and apply new skills quickly, strong political/organizational skills, ability to adapt to change, and resilience.
• Ability to perform future leadership roles. High-potential individuals demonstrate the aptitude to perform the performance standards at the next level of leadership.
Assessment of the Talent
In this step, successors and high-potential individuals are assessed by the external industrial psychology firm using the process previously discussed. All successors and high-potential individuals are not assessed in a single year. Rather, assessment data is built over time, refreshing the assessment information as needed. Everyone who is being reviewed by one of the executive talent review teams (described below) is assessed. Others are assessed on an as-needed basis.
Review of Individuals
In this step, successors and high-potentials are reviewed by executive management for the purpose of getting to know them and targeting development actions. Generally:
• Successors for senior officer positions are reviewed by the Southern Company CEO and his direct reports.
• Successors for officer positions are reviewed by operating company or business unit CEOs and their direct reports.
• Other high-potentials are reviewed by department management.
Talent reviews are done slightly differently in each operating company, but usually consist of:
• Review of the person’s background, education, and major accomplishments;
• Information from the external leadership competency assessment;
• Identification of possible career path(s);
• Identification of major development needs; and
• Identification of development actions needed to accelerate development, such as potential moves or assignments, development actions in current job, coaching/ mentoring, education, or participation in a specific leadership development program or activity.
Each management council reviews twelve to sixteen individuals per year. Usually, the candidate being reviewed meets with each council member prior to the review meeting so that each executive can get to know him or her. Following the discussion, the individual is provided feedback by council members, and the development plan is modified as needed. These individuals are tracked over time to make sure they are receiving the development they need to prepare for new roles.
A new tool called a candidate profile was developed to help identify the right development actions. The candidate profile compares an individual’s assessment results to the specific job criteria listed on the success profile discussed earlier. The competency assessment is from the external assessment. Critical knowledge, skills, and abilities are rated by people within the organization knowledgeable of the person’s performance. Candidate profiles are used after a success profile has been completed and the assessment information is available. See Figure 13.5 for a sample candidate profile.
Succession planning begins during the first quarter in the operating companies and business units. They complete plans for all executive and director-level positions and identify their high-potential individuals. Plans are created for other key roles as needed.
Succession plans for the top sixty-five positions across Southern Company are consolidated and reviewed by the Southern Company CEO and his direct reports. This fosters cross-calibration of talent and a better understanding of the executive bench strength across Southern Company. The Management Council also reviews executive turnover and movement, potential executive retirements, and leadership demographics. Action plans are created to address emerging issues. The Southern Company CEO reviews the succession plans of key executives with the board of directors.
FIGURE 13.5. Sample Candidate Profile
LEADERSHIP DATABASE
All of the information related to succession plans and high-potentials is housed in Oracle’s PeopleSoft application. The succession planning and career development modules within PeopleSoft are used. Some modifications to the panels and standard reports were made. This functionality enables us to:
• Create and report succession lists for individual jobs;
• Combine succession lists across companies to create and report system-wide succession slates;
• Track high-potential people identified during the succession process;
• Track and report on individuals nominated for and completing leadership development programs; and
• Create employee profile reports.
Security limits access to the information to specific human resource professionals across Southern Company.
DEVELOPMENT ACTIVITIES
Southern Company uses a variety of methods to develop successors and high-potential individuals. Job assignments, development moves, and special assignments are the primary methods of development. Developmental assignments flow from succession planning and management reviews. Development assignments are monitored at the corporate/operating company/business unit level. As a practice, all open positions below the executive level are posted on an internal job board. Development moves are an exception to this practice and generally require executive approval.
Senior Leader Development Program
A gap in development efforts was that high-potential middle managers were not prepared to move into officer positions. An educational experience to address this need was developed in 2008 jointly by Southern Company human resources and Duke Corporate Education. This program, titled the Senior Leader Development Program, was delivered in 2008 and 2009. The program is grounded by two sessions, four days each. The program content focuses on:
• Understanding how global, environmental, regulatory, and human capital challenges are impacting the future of the energy industry;
• Examining methods to make objective, disciplined decisions in an increasingly uncertain business climate;
• Building strong networks of relationships to drive organizational change;
• Developing capabilities to manage diversity, complexity, and ambiguity;
• Creating a vision of the future for self and the company; and
• Articulating personal commitment to action.
A variety of learning components are incorporated in the program.
• Presentations and discussions with Southern Company executives, university professors, and external thought leaders;
• Case studies;
• Activities designed to help participants apply learning to current business issues; and
• Networking opportunities with fellow class participants and Southern Company executives.
Participant feedback about the program was strong. Among the noted highlights were
• Interaction with and insights gained from Southern Company executives;
• Networking and building relationships with peers from around the company;
• Modules on finance, leadership presence, and difficult discussions; and
• Opportunity for personal reflection.
Later in 2009 each participant will be interviewed to gather feedback about the impact of the program, specifically, how the learning is being applied to real business and leadership issues. Emerging Leader Programs
Below the corporate level, operating companies and business units have the responsibility for providing development activities and programs for high-potential emerging leaders. These programs increase business acumen and leadership skills, leverage networking opportunities, and increase exposure to senior leaders. These programs typically last twelve to twenty-four months.
These leadership development activities and programs develop the following leadership competencies.
• Critical thinking;
• Persuading and influencing;
• Planning and organizing; and
• Relating and networking.
Emphasis is also placed on the remaining five leadership competencies, as well as career development and business knowledge. The specific activities in these programs vary based on specific business need. Following is a menu of activities that are used.
• Group mentoring sessions. Program participants are divided into small groups, and each group is paired with a senior executive. Mentoring groups generally set their own agendas and focus on gaining business knowledge, career development, and leadership knowledge and lessons.
• Common education. Participants attend a defined set of educational activities focused at building core competencies.
• Action learning. Participants take part in projects aimed at gaining business knowledge and leadership skills. Participants are divided into small groups, and each group researches and makes recommendations on a specific business problem or issue.
• Forums. These are large-scale events focused on specific business and leadership topics.
• Group discussions. Participants are divided into small groups wherein they discuss common topics. For example, the group may read and discuss a leadership book.
EVALUATION AND LESSONS LEARNED
Evaluation
Metrics to measure the effectiveness of leadership development at Southern Company are evolving. The strength of the leadership bench is evaluated using the following measures that come out of the succession planning process.
• Percent of key roles with at least two ready now successors;
• Average number of successors per key role;
• Demographics of successor pool;
• Percent of key jobs filled from succession list;
• Number of cross-company and cross-functional executive moves; and
• Projections of leader attrition.
Recently, Southern Company began entering information on high-potential individuals into PeopleSoft. At the completion of the current round of succession planning, the following additional metrics will be analyzed:
• The size and demographics of the high-potential pool;
• The number and type of high-potential job moves; and
• Turnover of the high-potential pool compared to the overall pool.
As additional data are collected from external assessments on executives, successors, and high-potential individuals, overall competency strengths and gaps will be identified to better target development programs.
Lessons Learned
Critical to success was the ownership by the Leadership Action Council of leadership development and the improvement of the process. Too often HR had tried to design and implement systems without executive support and buy-in. Once the CEO established the Leadership Action Council, the council members became the drivers of the initiatives. They were able to get input and support from their “home” organizations as well as look at what was best for Southern Company as a whole.
A second lesson learned was the necessity to simplify and integrate the various parts of succession planning and leadership development. Simple things like tying development and succession planning together enabled people to see the big picture. Early in the process leaders said they were creating succession lists in one place, high-potential lists in another, and planning development in a third. They did not see how these activities connected until they were integrated. The language must be consistent and the various tools and processes linked. The output of the external assessment process, the success profile, and the candidate profile all have a similar look and use the same set of competencies.
REFERENCE
Charan, R., Drotter, S., & Noel, J. (2001). The leadership pipeline: How to build the leadership-powered company . San Francisco: Jossey-Bass.