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JWI 522 Strategic Partnering with the C-Suite

Week Five Lecture Notes

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BUILDING TOMORROW’S WORKFORCE

What it Means Strategic HR leadership requires deep insight into trends that will impact the business over the long term. Companies have to develop workforces that are able to keep up with changes in the market, and that can grow and adapt. Senior HR leaders must focus on the landscape 5 or 10 years down the road and be preparing for this now. This not only requires a well-developed plan, but it must include structures and processes that support agility if things don't go as planned. Why it Matters

• Market conditions are constantly changing, and yesterday’s workforce will not allow you to beat tomorrow’s competitors.

• Building a strong workforce requires deep knowledge of the labor market and a plan that enables your organization to pay appropriately to get the talent you need.

• Without the right people on board, the strategic plan will not succeed.

“Build the company now that you want to be then.”

Patty McCord

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THE IMPORTANCE OF A LONG-TERM GROWTH PLAN

As the saying goes, “the future ain’t what it used to be.” And nowhere are those sage words truer than in attracting, retaining, and developing the talent your organization needs to ensure its long-term success. To prepare for that future, McCord advises, “You’ve got to hire now the team you wish to have in the future.” (Powerful, P. 72) That makes sense, of course, but it’s easier said than done. The talent profiles of the workers who have gotten the organization to where it is today are unlikely to be the same as those needed to sustain that competitive advantage in the future. For most businesses, new technologies will make old ways of doing things obsolete. Those changes may be tied to the development and delivery of your products, or to how your customers purchase and use your products. Either way, most organizations will find themselves facing a series of inflection points where new skills and capabilities become critical to winning. If HR leaders and business leaders are not out ahead of that, they’ll find their competitors have beaten them to the talent market, and all the best and brightest are working for the other guys. While it may sound trite to haul out old clichés like “The only constant is change,” the reality is that these sayings have proven themselves to be true. The challenge, of course, is not in recognizing that things change, but in peering into the crystal ball and correctly assessing:

• In what ways and how quickly will things change? • What threats and opportunities will these changes present to the business? • How do we manage our staffing and workforce development to prepare for the changes and

strengthen our competitive advantage?

As McCord advises:

“One of the most important questions business leaders must regularly ask is, ‘Are we limited by the team we have not being the team we should have?’” “Build the ideal team by starting with the vision down the road. Identify the problem you want to solve, the time frame in which you want to solve it, the kinds of people who will be successful at that, and what they need to know how to do, then ask yourself, what do we need to do to be ready and able, and whom do we need to bring in?”

Powerful, P. 78

STRATEGIC PLANNING AND WORKFORCE DEVELOPMENT In Week 2, we discussed the importance of building a strong alignment between HR and the strategic initiatives of the organization. We’re going to revisit that again this week. It is critical that the CHRO evaluates business strategy and market conditions against goals and current capabilities, and then develops a staffing and talent management plan to meet the objectives. There are a number of frameworks used in developing strategic plans for businesses. These tools are helpful for HR leaders as well in conducting a “SWOT” analysis of the Strengths, Weaknesses, Opportunities, and Threats that impact your organization and your workforce. A detailed examination of these is beyond the scope of this course, but you are encouraged to do additional research to familiarize yourself with the most common tools used by strategists. Two of the most useful of these are outlined below.

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PESTEL Analysis is focused on identifying macro-environmental factors that can impact your business, i.e., the big-picture things going on that are external to your marketing environment. In exploring these factors, you need to assess what the leading indicators (or triggers) are, how likely these will actually occur, and whether the impact on the business would be positive or negative. The components of PESTEL are:

• Political – analysis of the impact from government in areas of taxation, elections, changes in leadership, policies, etc.

• Economic – analysis of general macro conditions, including whether we are in a recession or economic expansion, and potential changes in interest rates, currency fluctuations, tariffs, etc.

• Social – trends in demographics (such as the average age of the population and growth/decline of the available workforce), as well as general sentiments around important issues such as health, education, and immigration. These factors can have a significant impact on the makeup of the potential workforce you can recruit from.

• Technological – what are the changes in the technology that impact product function and development? How will these changes guide the type of skills you will need to develop in your workforce in order to keep up?

• Environmental – forces that impact environmental regulations as well as sentiments on issues like climate change and pollution which can impact the business.

• Legal – factors in industry regulations, employment law, or compliance that could require changes to how things get done or get reported.

Another popular tool in strategy development is Michael Porter’s Five Forces, which explores the competitive forces within the market or industry. Strategists using Porter’s Five Forces are asking questions about power. Who has it, and how can it be exploited and/or defended against? The objective is to develop a strategy that will improve your position and make you the biggest, the best, or the most distinctive in your market. These forces are:

• Force 1: Rivals These are the companies directly competing with you for the hearts and minds of your target customers. A few well-chosen questions can help identify challenges and opportunities: how large are your competitors? Are there many of them or few? How mature are they in the space? In what ways are you better or different from them? Rivals are central to your industry analysis. They compete with you, both for raw materials from suppliers (Force 2) and for customers (Force 3). At the same time, you and your rivals may share a common enemy, in the form of a substitute product (Force 4) or a new market entrant (Force 5).

• Force 2: Suppliers You’ll want to look at the supply chain in your industry, first by analyzing suppliers. Are the suppliers large and too few in number? Or do many small players predominate? Which critical types of goods are most scarce?

• Force 3: Customers Then, you need to look to the other end of the supply chain, toward your customers. Are they fragmented into multiple types? Or is there a dominant buying group? What are the switching costs they would incur to move to, or away from, your products?

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• Force 4: Substitutes Unlike direct rivals, these represent indirect competition for your product or service. What other goods and services are close substitutes for yours? To whom might suppliers sell, or from whom might customers buy, instead of you? For example, watching movies at home and going to live plays are both substitutes for seeing movies at a public theater. Competitors to theaters would want to understand the price difference or delivery mechanism that might prompt customers to choose one form of entertainment over another.

• Force 5: New Entrants You need to be on the lookout for new direct competitors. Which players, or types of companies, might enter your market and compete against you? Do they represent an opportunity as well as a threat? Say you were a delicatessen selling sandwiches and salads in 1988. At the time, large supermarkets were beginning to experiment with prepared foods. They might have been seen as a new entrant threatening to steal many of your customers. Conversely, they might have represented customers for your prepared foods, thereby expanding your business.

While it’s not the responsibility of the HR department to be the sole driver of the strategy of the business, you are encouraged to review these tools and integrate them into your long-term workforce planning. HR leaders seeking a seat at the table as a member of the C-Suite recognize that they have a critical role to play as partners in developing and executing a long-term strategic plan. This plan must include a reality check of what it will cost to hire and retain the people you need. The more detailed and specific your analyses are, the better you will be able to create accurate models for hiring and development costs. Patty McCord warns us, however, that:

“Compensation departments end up spending gobs of time comparing descriptions and making the best calculations they can to adjust for all factors. But of course, that process still only gives you a baseline understanding of the true market landscape.” “Market demand is still not adequate as a guide to compensation you should offer, because it is of the current moment, while hiring should be about the future.”

Powerful, P.112

If we take the principle of “people before strategy” seriously, then HR’s role as a driver of competitive advantage has to include a long-term view down the road to assess and plan for the needs of the future. We cannot allow ourselves to let others own the entire strategic planning process without our input. If we do, our role in workforce development will be relegated to waiting for new-hire requisitions to come in, and then managing the search process to fill today’s empty roles.

SUCCESSION PLANNING

With all of this focus on change, it would be easy to think that building the workforce of the future is only about hiring new talent. The people you need, however, may already be part of the team. Succession planning may well be one of the most underappreciated practices in HR and in leadership and management in general. It gets talked about a lot, but it doesn’t always get handled well. It’s one of those topics that far too many organizations don’t worry about until it’s too late – the business is running at full steam, you have strong teams in place with strong leaders at the helm, and all is well. But Conaty and Charan understand that matters can change quickly. The late-night phone call, the surprise email,

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the unexpected meeting when the employee walks into the boss’s office and says, “Hey, do you have a few minutes? I need to talk to you about something important,” all remind us:

… talent is the key to the future. Strategies come and go, market share and profits wax and wane, but an organization that can build a self-renewing team of first-rate leaders is prepared to handle anything that tomorrow brings.

The Talent Masters, P. 254 As you’ve seen in our readings, GE under Jack’s leadership was built on having a rigorous evaluation system. This system not only allowed managers to provide candid feedback to everyone on their teams about what they were doing well and where they needed to improve, it also did something else. It created a system in which promotion potential was front and center. Throughout the organization, for every senior management role, there was a list of potential successors who were being observed, tested, and coached. The goal was that, if a senior leader suddenly had to be replaced, the new leader could be in place within 48 hours and the business wouldn’t miss a beat.

Many companies don’t feel a sense of urgency about their leadership talent until their businesses fall apart or they need to engineer a strategic shift … talent masters understand that there’s a difference between trying to patch things up and rebuilding the organization’s talent for the long term.

The Talent Masters, P. 197

There are two considerations required for successful succession planning:

1. First, you have to understand the nature of the business and culture. Is it growing? Do people stick around and move through the ranks? Do we have (or need) talent development programs that groom the next generation of leaders?

2. How important is continuity in our organization? Does it matter if the next wave of leadership comes from within or not? This is actually a pretty important question. The answer depends a lot on the makeup of the workforce, the rate of turnover, and whether the CEO sees it as a priority.

Admittedly, building a culture where succession planning is part of the fabric of performance evaluation and people development may be a long journey. It requires support from the CEO, and it requires a system that has reinforcements. Because let's be honest, many managers will view building a strong future for the business as something different from growing the next generation of leaders. It’s the job of HR to make sure this disconnect doesn’t happen.

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GETTING THE MOST OUT OF THIS WEEK’S CLASS As you read the materials and participate in class activities, stay focused on the key learning outcomes for the week:

• Understand the importance of having a long-term growth plan How far ahead are you and your team looking when it comes to talent acquisition, development, and retention? Are you planning for tomorrow’s workforce, or taking orders to fill today’s vacancies? Leadership, especially C-suite leadership, must play the long game. What can you do to connect the 5-year strategy of the organization to an assessment of the talent you now have and what you’ll need? Which positions will be more in demand, and what new talents will be needed that aren’t well- defined now? Which positions will become redundant, and how can you plan for these reductions to have the least disruption to the company and to impacted staff?

• Apply strategic planning tools to workforce development Are you keeping up with what’s going on with your competitors and the broader economic environment? Build your knowledge about the tools and frameworks used by economists and strategists, and leverage these to build staffing models to create your workforce of the future. Subscribe to industry journals and economic and financial publications like the Economist and the Wall Street Journal.

• Evaluate succession planning needs against talent development practices How much time do you and your business leaders spend evaluating and developing the potential of current team members? Having a deep bench can help your organization improve agility and prepare for unexpected events. Think about what can be done now to develop high-potential employees in ways that allow you to test them with new challenges and stretch assignments, while providing an appropriate safety net of coaching and support.