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“A Players” or “A Positions”?

The Strategic Logic of Workforce Management

by Mark A. Huselid, Richard W. Beatty, and

Brian E. Becker

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Harvard Business Review

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The Idea in Brief—the core idea The Idea in Practice—putting the idea to work

Article Summary

“A Players” or “A Positions”?: The Strategic Logic of Workforce Management

A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

Further Reading

A single-minded focus on finding and developing A players misses the point. A better approach is first to identify strategically critical jobs, then to invest disproportionately to ensure that the right people—doing the right things—are in those positions.

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“A Players” or “A Positions”?

The Strategic Logic of Workforce Management

page 1

The Idea in Brief The Idea in Practice

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Superior talent gives your company its competitive edge. But your star performers can’t burnish your bottom line unless you deploy them in those few jobs through which you execute your high-level strategy. If you haven’t identified those “A positions,” you may be drastically mismanaging your workforce—rewarding high performers in nonstrategic jobs, or keeping B or even C players in mission-critical roles.

How to take a more disciplined approach to workforce management? Identify your A positions—those most essential to your strategy. Probably less than 20% of your jobs, A positions are likely scattered throughout your organization, at all levels. Then actively develop and generously com- pensate the high performers in those roles. Move C players out of A positions, replacing them with top talent. Help B players in stra- tegic positions to elevate their performance to A level.

No company can afford to have A players in all positions. But by placing your very best people in strategic positions, investing dis- proportionately in them, and managing your B and C players shrewdly, you create a workforce that can carry out your strat- egy—and leave rivals scrambling.

To manage your workforce strategically:

Identify Your “A Positions”

A positions are crucial to your company’s abil- ity to execute some part of its strategy. To identify these positions, clarify the basis on which your company competes: Price? Qual- ity? Mass customization? Then identify the technologies, information, and skills required to create your intended competitive advan- tage. Ask which jobs employ those critical ca- pabilities in the execution of your strategy.

Example:

Nordstrom and Costco both rely on cus- tomer satisfaction to drive growth and shareholder value. But Nordstrom’s strategy hinges on personalized service and advice, while Costco’s relies on low prices and product availability. Nordstrom’s A positions therefore include frontline sales associate jobs, while Costco’s includes purchasing manager roles.

Manage Your A Positions

Manage your A positions using these techniques:

•

Evaluation.

Determine what differentiates high and low performance in each A posi- tion. Measure people against those criteria.

Example:

At IBM, A positions include deal-making roles—where people assemble sets of products, software, and expertise that par- ticular clients need. IBM identified 10 at- tributes (including ability to partner with clients) critical to these positions. It mea- sures each attribute on a four-point scale delineated with behavioral benchmarks. Employees in those roles assess themselves on these attributes and are assessed through 360-degree feedback.

•

Development.

Actively develop people in A positions by providing training and pro- fessional development opportunities.

Example:

More than $450 million of the $750 million IBM spends annually on employee devel- opment goes to people in A positions. IBM requires them to define development pro- grams for themselves. These programs are based on strengths and weaknesses re- vealed in performance evaluations and draw on intranet tools designed to improve performance on each attribute.

•

Compensation.

Generously compensate A players in A positions. At IBM, annual salary increases go to only half the workforce. Top- performing employees get raises roughly three times higher than simply strong per- formers.

•

Succession.

Build bench strength for each A position.

IBM invests heavily in feeder jobs for A posi- tions. It regularly assesses feeder employees’ readiness for promotion into strategically im- portant roles. It also identifies “pass-through” jobs where people can develop needed skills, and fills these jobs with A-position candidates.

Manage Your Workforce Portfolio

Intelligently managing your A positions isn’t enough: manage B and C positions, too. B po- sitions can support A positions (think IBM’s feeder roles). Consider outsourcing or elimi- nating C jobs. At minimum, move C players out of A positions and help B players in those roles become A players.

This document is authorized for use only by Sheila Hadley Strider ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

“A Players” or “A Positions”?

The Strategic Logic of Workforce Management

by Mark A. Huselid, Richard W. Beatty, and

Brian E. Becker

harvard business review • december 2005 page 2

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A great workforce is made up of great people. What could be more intuitively obvious? Is it any wonder, then, that so many companies have devoted so much energy in recent years to iden- tifying, developing, and retaining what have come to be known as “A players”? Firms like GE, IBM, and Microsoft all have well-developed sys- tems for managing and motivating their high- performance and high-potential employees— and for getting rid of their mediocre ones. Man- agement thinkers have widely endorsed this ap- proach: Larry Bossidy, in the best-selling book

Execution,

for example, calls this sort of differen- tiation among employees “the mother’s milk of building a performance culture.”

But focusing exclusively on A players puts, well, the horse before the cart. High perform- ers aren’t going to add much value to an orga- nization if they’re smoothly and rapidly pull- ing carts that aren’t going to market. They’re going to be effective only when they’re har- nessed to the right cart—that is, engaged in work that’s essential to company strategy. This, too, may seem obvious. But it’s surprising how

few companies systematically identify their strategically important A

positions

—and

then

focus on the A players who should fill them. Even fewer companies manage their A posi- tions in such a way that the A players are able to deliver the A performance needed in these crucial roles.

While conventional wisdom might argue that the firms with the most talent win, we be- lieve that, given the financial and managerial resources needed to attract, select, develop, and retain high performers, companies simply can’t afford to have A players in all positions. Rather, we believe that the firms with the

right

talent win. Businesses need to adopt a portfo- lio approach to workforce management, plac- ing the very best employees in strategic posi- tions, good performers in support positions, and eliminating nonperforming employees and jobs that don’t add value.

We offer here a method for doing just that, drawing on the experience of several compa- nies that are successfully adopting this ap- proach to workforce management, some of

“A Players” or “A Positions”?

harvard business review • december 2005 page 3

which we have worked with in our research or as consultants. One thing to keep in mind: Ef- fective management of your A positions re- quires intelligent management of your B and C positions, as well.

Identifying Your A Positions

People traditionally have assessed the relative value of jobs in an organization in one of two ways. Human resource professionals typically focus on the level of skill, effort, and responsi- bility a job entails, together with working con- ditions. From this point of view, the most im- portant positions are those held by the most highly skilled, hardest-working employees, ex- ercising the most responsibility and operating in the most challenging environments.

Economists, by contrast, generally believe that people’s wages reflect the value they cre- ate for the company and the relative scarcity of their skills in the labor market. Thus, the most important jobs are those held by the most highly paid employees. The trouble with both of these approaches is that they merely iden- tify which jobs the company is currently treat- ing as most important, not the ones that actu- ally are. To do that, one must not work backward from organization charts or compen- sation systems but forward from strategy.

That’s why we believe the two defining char- acteristics of an A position are first, as you might expect, its disproportionate importance to a company’s ability to execute some part of its strategy and second—and this is not nearly as obvious—the wide variability in the quality of the work displayed among the employees in the position.

Plainly, then, to determine a position’s stra- tegic significance, you must be clear about your company’s strategy: Do you compete on the basis of price? On quality? Through mass customization? Then you need to identify your strategic capabilities—the technologies, information, and skills required to create the intended competitive advantage. Wal-Mart’s low-cost strategy, for instance, requires state- of-the-art logistics, information systems, and a relentless managerial focus on efficiency and cost reduction. Finally, you must ask: What jobs are critical to employing those capabili- ties in the execution of the strategy?

Such positions are as variable as the strate- gies they promote. Consider the retailers Nord- strom and Costco. Both rely on customer satis-

faction to drive growth and shareholder value, but what different forms that satisfaction takes: At Nordstrom it involves personalized service and advice, whereas at Costco low prices and product availability are key. So the jobs critical to creating strategic advantage at the two companies will be different. Frontline sales associates are vital to Nordstrom but hardly to be found at Costco, where purchas- ing managers are absolutely central to success.

The point is, there are no inherently strate- gic positions. Furthermore, they’re relatively rare—less than 20% of the workforce—and are likely to be scattered around the organization. They could include the biochemist in R&D or the field sales representative in marketing.

So far, our argument is straightforward. But why would variability in the performance of the people currently in a job be so important? Because, as in other portfolios, variation in job performance represents upside potential— raising the average performance of individuals in these critical roles will pay huge dividends in corporate value. Furthermore, if that variance exists across companies, it may also be a source of competitive advantage for a particular firm, making the position strategically important.

Sales positions, fundamental to the success of many a company’s strategy, are a good case in point: A salesperson whose performance is in the 85th percentile of a company’s sales staff frequently generates five to ten times the reve- nue of someone in the 50th percentile. But we’re not just talking about greater or lesser value creation—we’re also talking about the potential for value creation versus value de- struction. The Gallup organization, for in- stance, surveyed 45,000 customers of a com- pany known for customer service to evaluate its 4,600 customer service representatives. The reps’ performance ranged widely: The top quartile of workers had a positive effect on 61% of the customers they talked to, the second quartile had a positive effect on only 40%, the third quartile had a positive effect on just 27%—and the bottom quartile actually had, as a group, a negative effect on customers. These people—at the not insignificant cost to the company of roughly $40 million a year (assum- ing average total compensation of $35,000 per person)—were collectively destroying value by alienating customers and, presumably, driving many of them away.

Although the $40 million in wasted re-

Mark A. Huselid

(huselid@smlr .rutgers.edu) and

Richard W. Beatty

([email protected]) are profes- sors of human resource management in the School of Management and Labor Relations at Rutgers University in New Brunswick, New Jersey.

Brian E. Becker

([email protected]) is a professor of human resources in the School of Management at SUNY Buf- falo in New York. They are the authors of

The Workforce Scorecard: Manag- ing Human Capital to Execute Strat- egy

(Harvard Business School Press, 2005).

mailto:[email protected]

“A Players” or “A Positions”?

harvard business review • december 2005 page 4

sources is jaw-dropping, the real significance of this situation is the huge difference that replac- ing or improving the performance of the sub- par reps would make. If managers focused dis- proportionately on this position, whether through intensive training or more careful screening of the people hired for it, company performance would improve tremendously.

The strategic job that doesn’t display a great deal of variability in performance is relatively rare, even for those considered entry-level. That’s because performance in these jobs in- volves more than proficiency in carrying out a

task. Consider the job of cashier. The generic mechanics aren’t difficult. But if the position is part of a retail strategy emphasizing the cus- tomers’ buying experience, the job will cer- tainly involve more than scanning products and collecting money with a friendly smile. Cashiers might, for example, be required to take a look at what a customer is buying and then suggest other products that the person might want to consider on a return visit. In such cases, there is likely to be a wide range in people’s performance.

Some jobs may exhibit high levels of vari-

Which Jobs Make the Most Difference?

An A position is defined primarily by its im- pact on strategy and by the range in the per- formance level of the people in the position.

From these two characteristics flow a num- ber of other attributes that distinguish A po- sitions from B and C jobs.

DEFINING CHARACTERISTICS

B Position SUPPORT

C Position SURPLUS

Has a direct strategic impact

AND

Exhibits high performance variability among those in the position, representing upside potential

Scope of authority

Primary determinant of compensation

Effect on value creation

Consequences of mistakes

Consequences of hiring wrong person

Has an indirect strategic impact by supporting strategic positions and minimizes downside risk by providing a foundation for strategic efforts.

Has a potential strategic impact, but exhibits little performance variability among those in the position

Autonomous decision making

Performance

Creates value by substantially enhancing revenue or reducing costs

May be very costly, but missed revenue opportunities are a greater loss to the firm

Significant expense in terms of lost training investment and revenue opportunities

Specific processes or procedures typically must be followed

Job level

Supports value-creating positions

May be very costly and can destroy value

Fairly easily remedied through hiring of replacement

Little discretion in work

Market price

Has little positive economic impact

Not necessarily costly

Easily remedied through hiring of replacement

May be required for the firm to function but has little strategic impact

A Position STRATEGIC

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“A Players” or “A Positions”?

harvard business review • december 2005 page 5

ability (the sales staff on the floor at a big-box store like Costco, for example) but have little strategic impact (because, as we have noted, Costco’s strategy does not depend on sales staff to ensure customer satisfaction). Neither dra- matically improving the overall level of perfor- mance in these jobs nor narrowing the vari- ance would present an opportunity for improving competitive advantage.

Alternatively, some jobs may be potentially important strategically but currently repre- sent little opportunity for competitive advan- tage since everyone’s performance is already at a high level. That may either be because of the standardized nature of the job or because a company or industry has, through training or careful hiring, reduced the variability and in- creased the mean performance of workers to a point where further investment isn’t merited. A pilot, for example, is a key contributor to most airlines’ strategic goal of safety, but owing to regular training throughout pilots’ ca- reers and government regulations, most pilots perform well. Although there definitely is a strategic downside if the performance of some pilots were to fall into the unsafe category, im- proving pilot performance in the area of safety is unlikely and, even if marginal gains are pos- sible, unlikely to provide an opportunity for competitive advantage.

So a job must meet the dual criteria of stra- tegic impact and performance variability if it is to qualify as an A position. From these two defining characteristics flow a number of oth- ers—for example, a position’s potential to sub- stantially increase revenue or reduce costs— that mark an A position and distinguish it from B and C positions. B positions are those that are either indirectly strategic through their support of A positions or are potentially strategic but currently exhibit little perfor- mance variability and therefore offer little op- portunity for competitive advantage. Al- though B positions are unlikely to create value, they are often important in maintaining it. C positions are those that play no role in furthering a company’s strategy, have little ef- fect on the creation or maintenance of value— and may, in fact, not be needed at all. (For a comparison of some attributes of these three types of positions, see the exhibit “Which Jobs Make the Most Difference?”)

It’s important to emphasize that A posi- tions have nothing to do with a firm’s hierar-

chy—which is the criterion executive teams so often use to identify their organizations’ critical and opportunity-rich roles. As natural as it may be for you, as a senior executive, to view your own job as among a select group of vital positions in the company, resist this temptation. As we saw in the case of the cash- ier, A positions can be found throughout an organization and may be relatively simple jobs that nonetheless need to be performed creatively and in ways that fit and further a company’s unique strategy.

A big pharmaceutical firm, for instance, try- ing to pinpoint the jobs that have a high im- pact on the company’s success, identifies sev- eral A positions. Because its ability to test the safety and efficacy of its products is a required strategic capability, the head of clinical trials, as well as a number of positions in the regula- tory affairs office, are deemed critical. But some top jobs in the company hierarchy, in- cluding the director of manufacturing and the corporate treasurer, are not. Although people in these jobs are highly compensated, make important decisions, and play key roles in maintaining the company’s value, they don’t

create

value through the firm’s business model. Consequently, the company chooses not to make the substantial investments (in, say, suc- cession planning) in these positions that it does for more strategic jobs.

A positions also aren’t defined by how hard they are to fill, even though many managers mistakenly equate workforce scarcity with workforce value. A tough job to fill may not have that high potential to increase a firm’s value. At a high-tech manufacturing company, for example, a quality assurance manager plays a crucial role in making certain that the prod- ucts meet customers’ expectations. The job re- quires skills that may be difficult to find. But, like the airline pilots, the position’s impact on company success is asymmetrical. The down- side may indeed be substantial: Quality that falls below Six Sigma levels will certainly de- stroy value for the company. But the upside is limited: A manager able to achieve a Nine Sigma defect rate won’t add much value be- cause the difference between Six Sigma and Nine Sigma won’t be great enough to translate into any major value creation opportunity (al- though the difference between Two- and Three-Sigma defect rates may well be). Thus, while such a position could be hard to fill, it

Companies simply can’t afford to have A players in all positions.

“A Players” or “A Positions”?

harvard business review • december 2005 page 6

doesn’t fit the definition of an A position.

Managing Your A Positions

Having identified your A positions, you’ll need to manage them—both individually and as part of a portfolio of A, B, and C positions—so that they and the people in them in fact fur- ther your organization’s strategic objectives.

A first and crucial step is to explain to your workforce clearly and explicitly the reasons that different jobs and people need to be treated differently. Pharmaceutical company GlaxoSmithKline is identifying those positions, at both the corporate and business-unit levels, that are critical to the company’s success in a rapidly changing competitive environment. As part of that initiative, the company developed a statement of its workforce philosophy and management guidelines. One of these explic- itly addresses “workforce differentiation” and reads, in part: “It is essential that we have key talent in critical positions and that the careers of these individuals are managed centrally.”

But communication is just the beginning. A positions also require a disproportionate level of investment. The performance of people in these roles needs to be evaluated in detail, these individuals must be actively developed, and they need to be generously compensated. Also, a pipeline must be created to ensure that their successors are among the best people available. IBM is a company making aggressive investments on each of these four fronts.

In recent years, IBM has worked to develop what it calls an “on-demand workforce,” made up of people who can quickly put together or become part of a package of hardware, soft- ware, and consulting services that will meet the specific needs of an individual customer. As part of this effort, IBM has sought to attract and retain certain individuals with what it terms the “hot skills” customers want in such bundled offerings.

In the past year or so, the company has also focused on identifying its A positions. The ros- ter of such positions clearly will change as IBM’s business does. But some, such as the country general manager, are likely to retain their disproportionate value. Other strategic roles include midlevel manager positions, dubbed “deal makers,” responsible for the cen- tral strategic task of pulling together, from both inside and outside the company, the di- verse set of products, software, and expertise

that a particular client will find attractive.

Evaluation.

Because of their importance, IBM’s key positions are filled with top-notch people: Obviously, putting A players in these A positions helps to ensure A performance. But IBM goes further, taking steps to hold its A players to high standards through an explicit process—determining the factors that differen- tiate high and low performance in each posi- tion and then measuring people against those criteria. The company last year developed a se- ries of ten leadership attributes—such as the abilities to form partnerships with clients and to take strategic risks—each of which is mea- sured on a four-point scale delineated with clear behavioral benchmarks. Individuals as- sess themselves on these attributes and are also assessed by others, using 360-degree feedback.

Development.

Such detailed evaluation isn’t very valuable unless it’s backed up by a robust professional development system. Drawing on the strengths and weaknesses revealed in their evaluations and with the help of tools avail- able on the company’s intranet, people in IBM’s A positions are required to put together a development program for themselves in each of the ten leadership areas.

This is only one of numerous development opportunities offered to people in A positions. In fact, more than $450 million of the $750 mil- lion that IBM spends annually on employee development is targeted at either fostering hot skills (both today’s and those expected to be to- morrow’s) or the development of people in key positions. A senior-level executive devotes all of his time to programs designed to develop the executive capabilities of people in these jobs.

Compensation.

IBM supports this dispro- portionate investment in development with an even more disproportionate compensation system. Traditionally at IBM, even employees with low performance ratings had received regular salary increases and bonuses. Today, annual salary increases go to only about half the workforce, and the best-performing em- ployees get raises roughly three times as high as those received by the simply strong per- formers.

Succession.

Perhaps most important, IBM has worked to formalize succession planning and to build bench strength for each of its key positions, in part by investing heavily in feeder jobs for those roles. People in these feeder po-

There are no inherently strategic positions. What’s more, they’re relatively rare—less than 20% of the workforce.

“A Players” or “A Positions”?

harvard business review • december 2005 page 7

sitions are regularly assessed to determine if they are “ready now,” “one job away,” or “two jobs away” from promotion into the strategi- cally important roles. “Pass-through” jobs, in which people can develop needed skills, are identified and filled with candidates for the key strategic positions. For example, the posi- tion of regional sales manager is an important pass-through job on the way to becoming a country general manager. In this way, IBM en- sures that its A people will in fact be ready to fill its top positions.

Managing Your Portfolio of Positions

Intelligently managing your A positions can’t be done in isolation. You also need strategies for managing your B and C positions and an understanding of how all three strategies work together. We find it ironic that managers who embrace a portfolio approach in other areas of the business can be slow to apply this type of thinking to their workforce. All too frequently, for example, companies invest in their best and worst employees in equal measure. The unhappy result is often the departure of A

players, discouraged by their treatment, and the retention of C players.

To say that you need to disproportionately invest in your A positions and players doesn’t mean that you ignore the rest of your workforce. B positions are important ei- ther as support for A positions (as IBM’s feeder positions are) or because of any po- tentially large downside implications of their roles (as with the airline pilots). Put another way, although you aren’t likely to win with your B positions, you can certainly lose with them.

As for those nonstrategic C positions, you may conclude after careful analysis that, just as you need to weed out C players over time, you may need to weed out your C positions, by out- sourcing or even eliminating the work.

Roche is one firm that is placing more em- phasis on the strategic value of positions them- selves. Over the past few years, the pharmaceu- tical company has been looking at different positions to determine which are necessary for maintaining competitive advantage. Regard- less of how well a person performs in a role, if that position is no longer of strategic value, the job is eliminated. For example, Roche looked at the strategic value provided by data services in a recent project and as a result decided which positions need to be added, which needed to change (or be moved)—and which, such as data center services (DCS) engineer, needed to be eliminated. In a similar manner, another pharmaceutical firm, Wyeth Con- sumer Healthcare, following a strategic deci- sion to focus on large customers, eliminated what had been a strategic position for the com- pany—middle-market account manager—as well as staff that supported the people in this position.

The ultimate aim is to manage your portfo- lio of positions so that the right people are in the right jobs, paying particular attention to your A positions. First, using performance cri- teria developed for determining who your A, B, and C players are, calculate the percentage of each currently in A positions. Then act quickly to get C players out of A positions, re- place them with A players, and work to help B players in A positions become A players. Glaxo- SmithKline currently is engaged in an initia- tive to push both line managers and HR staff to ensure that only top-tier employees (as de- termined by their performance evaluations)

Are We Differentiating Enough?

Managers who know that differentiated strategies are the key to competitive success all too often fail to differentiate in strategies for their most important asset—their workforce. This checklist can help you determine if you are differentiating enough in the treatment of your company’s positions and people. If you check off any of these, you have work to do.

Positions

__ Position descriptions are based on history, not strategic value. __ Most positions are paid at about the market midpoint. __ Recruitment and retention for all positions involve the same effort and budget. __ The same selection process is used for all positions. __ Little developmental rotation occurs. __ Few C positions are eliminated or outsourced.

Players

__ Performance evaluation forms are completed rarely or only at salary review. __ There is little candor in performance reviews. __ Many or most employees are rated the same. __ Forced distribution of ratings is used. __ Those receiving the middle rating are labeled “proficient” or “successful” and

receive regular pay raises despite being viewed as average or marginal. __ Both very tough and very lenient raters operate without consequences. __ Poor performers stay yet don’t improve. __ Top management is not rigorously evaluated.

“A Players” or “A Positions”?

harvard business review • december 2005 page 8

are in the company’s identified key positions.

Making Tough Choices

Despite the obvious importance of developing high-performing employees and supporting the jobs that contribute most to company suc- cess, firms that routinely make difficult deci- sions about R&D, advertising, and manufac- turing strategies rarely show the same discipline when it comes to their most valu- able asset: the workforce. In fact, in our long experience, we’ve found that firms with the most highly differentiated R&D, product, and marketing strategies often have the most ge- neric or undifferentiated workforce strategies. When a manager at one of these companies does make a tough choice in this area, the de- cision often relates to the costs rather than the value of the workforce. (The exhibit “Are We Differentiating Enough?” can help you deter- mine whether you are making the distinctions likely to create workforce value.)

It would be nice to live in a world where we didn’t have to make hard decisions about the workforce, but we don’t. Strategy is about mak- ing choices, and correctly assessing employees and roles are two of the most important. For us, the essence of the issue is the distinction be- tween equality and equity. Over the years, HR practices have evolved in a way that increas-

ingly favors equal treatment of most employ- ees within a given job. But today’s competitive environment requires a shift from treating ev- eryone the same to treating everyone accord- ing to his or her contribution.

We understand that this approach may not be for everyone, that increasing distinctions between employees and among jobs runs counter to some companies’ cultures. There is, however, a psychological as well as a strategic benefit to an approach that initially focuses on A positions: Managers who are uncomfortable with the harsh A and C

player

distinction—es- pecially those in HR, many of whom got into the business because they care about people— may find the idea of first differentiating be- tween A and C

positions

more palatable. But shying away from making the more personal distinctions is also unwise. We all know that ef- fective business strategy requires differentiat- ing a firm’s products and services in ways that create value for customers. Accomplishing this requires a differentiated workforce strategy, as well.

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