FORMULATION VS EXECUTION EXECUTIVE STRATEGY
HUMAN RESOURCES DIRECTOR HCAMAG.COM ISSUE 12.5
DATA SCIENTISTS HOT TALENT TREND SQUARE PEGS, ROUND HOLES? WHY ORGANISATIONAL DESIGN MATTERS
MASTER OF CHANGE HR’s role in the transformation of Leighton Holdings
Cover+spine_new.indd 2
15/05/2014 9:50:28 AM
IFC.indd 1
15/05/2014 10:15:25 AM
EDITOR’S LETTER / HUMAN RESOURCES DIRECTOR
FORMULATION VS EXECUTION EXECUTIVE STRATEGY
YOUR TIME IS NOW
HUMAN RESOURCES DIRECTOR HCAMAG.COM ISSUE 12.5
MASTER OF CHANGE
Our cover star for this issue, Dharma Chandran, shares one thing in common with many of his experienced colleagues. At various stages of his career, Chandran has had IT, risk management, property, procurement, strategy, legal and corporate affairs, and corporate communications report to him. The combination of the HR function with legal and corporate affairs in particular seems to be a popular choice in corporate Australia today. Ilana Atlas (formerly Westpac), Michaela Healey (NAB) and Karen Wood (BHP) have all held similar roles. Despite displaying an enviable knack for multitasking, what does this prove? Well, for one thing, it should be the nail in the coffin for anyone who still argues that HR does not have a place at the executive table. Added to this is the fact that, in 2013, the highestpaid Australian HR director was Karen Wood, with over $4m in fixed, STI and LTI. It’s a fair bet she wasn’t paid that figure only to be barred from meetings at the executive level. Her contribution and input would have not only been requested but expected. It’s the persistent ‘pecking order’ myth and lack of self-belief that Chandran bristles at, particularly when he’s asked by young HR practitioners how they should get a position at the exec table. “We’re at the table; stop worrying about that – start figuring out what you’re going to do next,” he says. HR has come of age in Chandran’s 25 years in the profession. “Twenty years ago, could you imagine saying to a general counsel that they would be promoted to the HR role and would get a seat on the executive table in doing so? It wouldn’t have happened. Yet today it occurs frequently.” Chandran says working in HR in 2014 is like marketing might have been in its ‘coming of age’ period in the 1960s and ’70s: a fledgling profession starting to shine – perhaps, though, in HR’s case, without the Mad Men-style glamour. The industry’s leaders and their younger counterparts will need to ensure this momentum continues.
Iain Hopkins, editor, HRD
HCAMAG.COM
01_Editorial.indd 1
DATA SCIENTISTS HOT TALENT TREND SQUARE PEGS, ROUND HOLES? WHY ORGANISATIONAL DESIGN MATTERS
HR’s role in the transformation of Leighton Holdings
Cover+spine_new.indd 2
13/05/2014 6:49:10 PM
COPY & FEATURES EDITOR Iain Hopkins JOURNALIST Janie Smith PRODUCTION EDITOR Roslyn Meredith
ART & PRODUCTION DESIGNER Marla Morelos DESIGN MANAGER Daniel Williams TRAFFIC MANAGER Maria Katsiotis
SALES & MARKETING MARKETING EXECUTIVE Alex Carr COMMUNICATIONS EXECUTIVE Lisa Narroway BUSINESS DEVELOPMENT MANAGERS James Francis, Steven McDonald, Gareth Scott
CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Iain Hopkins tel: +61 2 8437 4793 iain.hopkins@keymedia.com.au Advertising enquiries James Francis tel: +61 2 8437 4766 james.francis@keymedia.com.au Steven McDonald tel: +61 2 8437 4757 steven.mcdonald@keymedia.com.au Gareth Scott tel: +61 2 8437 4784 gareth.scott@keymedia.com.au Subscriptions tel: +61 2 8005 6674 • fax: +61 2 8437 4753 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, regional head office, Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 • fax: +61 2 9439 4599 Offices in Auckland, Toronto, Denver, Manila hcamag.com Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept as HRD can accept no responsibility for loss.
HRD wants to hear from you. Email us: editor@hcamag.com
EXPRESS YOURSELF! Got a burning issue to get off your chest? Check out the readers’ forums at hcamag.com
MAY 2014 | 1
15/05/2014 10:53:23 AM
CONTENTS / HUMAN RESOURCES DIRECTOR
12
Change and change again: The comeback of Leighton Holdings HR professionals know how the ebb and flow of broader economic conditions can impact on business operations. However, in extraordinary circumstances, the timeframe can tighten dramatically. Such is the case with Leighton Holdings, as Iain Hopkins discovers
20
16
Data artistry Data science is the new ‘rock star’ business profession that picks up where big data and analytics leave off. Tim Phillipps argues that, to become more predictive, organisations should recruit those who see the future and others who can visualise it for the rest of us
46
Profile: Lisa Christy, SAP With responsibilities stretching across 900 employees in Australia and New Zealand, Lisa Christy, HR director at tech giant SAP, has plenty on her plate. She reflects on 15 years in the HR profession, tough decisions, the appeal of IT, and balancing work and personal life
2 | MAY 2014
02-03_Contents.indd 2
Blinded by the light HR professionals who believe charisma is a vital trait of leaders are absolutely right – charisma is indispensable in terms of keeping employees engaged. However, it also has some serious drawbacks. Can psychometric assessment help keep the personality balance of executives in check?
38
Organisational design: Keeping your eye on the ball When designing your organisation, your eyes must be kept firmly on the strategy, the whole strategy, and nothing but the strategy, or you could end up with a ‘disorganisation’ full of ‘busy fools’, argue Melvin Jay and Simon Collinson
REGULARS
CHECK OUT THE HRD ARCHIVES ONLINE: hcamag.com
04 | News analysis: Organisational strategy 10 | In brief: CEO insights
HCAMAG.COM
15/05/2014 12:47:02 PM
HUMAN RESOURCES DIRECTOR
HCAMAG.COM
02-03_Contents.indd 3
DECEMBER 2013 | 3
15/05/2014 11:25:20 AM
NEWS ANALYSIS / STRATEGY EXECUTION
BRIDGING THE STRATEGY GAP Grand plans and detailed strategies are great, but if they remain ‘on the drawing board’ and fail to be implemented, what’s the point? Iain Hopkins looks at the widening gap between strategy formulation and execution – and where HR should be involved
The majority of business strategies fail. In fact, many different studies have suggested that up to 90% of them don’t live up to expectations. It’s sobering to think of once-omnipresent giants brought down by poor strategy. Think of General Motors’ failed auto design strategies, Blockbuster’s snail-paced adjustment to the consumer shift to digital media, or any number of retailers failing to embrace online avenues. A company with a poor strategy is doomed to fail, but even companies with well-conceived strategies will struggle to succeed if they do not execute effectively. Sixty-one per cent of respondents to a survey by the Economist Intelligence Unit (EIU)* acknowledged that their firms often struggle to bridge the gap between strategy formulation and its day-to-day implementation. Moreover, in the last three years, an average of just 56% of strategic initiatives have been successful.
A FAILURE TO EXECUTE According to a new report^ from global consulting firm BTS, based on the EIU survey, strategy execution is regularly cited by CEOs as a top
4 | MAY 2014
04-09_News SUBBED.indd 4
M R O F
N O I T ULA
priority and challenge, yet few agree on how to make it happen. The report cited three major drivers of strategy execution: alignment, mindset and capability. All three can be strongly impacted by HR operations within a company. Indeed, Rommin Adl, executive vice president, BTS, says HR is uniquely situated to support the organisation in strategy execution. “The research findings revealed that to deliver the full potential of strategic initiatives and drive aboveaverage revenue growth, the success factors include alignment to the strategy, the right mindset, and the skills and capabilities needed for execution,” he says. Not surprisingly, there are key differences in how market leaders position these drivers within their organisation, compared to market laggards. By applying these research insights to their
HCAMAG.COM
15/05/2014 1:07:04 PM
HUMAN RESOURCES DIRECTOR
ALIGNMENT
“We need to be able to articulate simple and clear messages about what we’re trying to achieve, and then be consistent with it” Cindy Reid
EXECUT
ION
MARKET-LEADING COMPANIES OPTIMISE EXECUTION LEVERS Market laggard (%)
Capability 12 Mindset
Market leader (%)
42 28 56 32 52
HCAMAG.COM
04-09_News SUBBED.indd 5
10%
20%
30%
40%
MINDSET Reflects the level of emotional commitment to the strategy, and encompasses the belief in employees that the strategy is right, that passion can make a difference, and that urgency is required to make it happen.
CAPABILITY Refers to the essential skills required within the organisation to effectively execute strategic initiatives. These skills include business acumen and decision-making, leadership and management, and sales capabilities.
organisation and considering execution through this framework, HR leaders can add significant value by: 1. Systematically analysing and assessing the state of these three execution levers within the company 2. Working with senior leadership to develop initiatives designed to improve alignment, mindset and capability at the various layers of the corporate hierarchy 3. Directly tying these initiatives to the organisation’s strategic priorities and goals It should be noted that the research also suggests that these three levers – alignment, mindset and capability – are not equally important. “Capability was identified as the single most important predictor of success. And HR is uniquely positioned to take the lead and add significant value through high-impact capability development programs,” Adl says.
A FOCUS ON CAPABILITY
Alignment
0%
Includes how well people across an organisation understand the company strategy, realise why it is critical to success, and recognise the actions required to make it a reality.
50%
60%
Why is capability so critical, and in this context what does it refer to? According to the BTS study, when surveyed leaders are ‘‘highly confident’’ in their managers’ ability to lead successful execution, the probability that their company is a performance winner is 71%. Diving more deeply into the capability area, the research exposed that certain leadership behaviours and actions are particularly impactful.
MAY 2014 | 5
15/05/2014 1:07:12 PM
NEWS ANALYSIS / STRATEGY EXECUTION
A ‘hands-on’ approach to implementation, aligning business unit goals to corporate goals, consistently making decisions aligned to the strategy, and crossorganisational collaboration emerged as critical to successful execution. “HR leaders have the unique ability to champion and advocate for the development of their organisation’s leadership capability, define great leadership and then implement initiatives to accelerate the skill development that matters most,” says Adl. The structure of L&D initiatives is also critical to the ultimate impact. Most often, corporate learning programs follow a predictable pattern. It is usually positioned as a training event, unconnected to the corporate strategic agenda and lacking relevance to the strategy. Once the program has ended, employees usually return to their jobs equipped with new knowledge and capabilities, but most often fail to apply the learning experience. To avoid this common pattern, HR leaders can effectively link learning to performance and the bottom line by: 1. Recognising that the development of leaders is not a one-time event but achieved over time through various blended activities to prime, build and sustain capability 2. Closely linking the learning initiative to the company’s strategic priorities and business objectives 3. Engaging the leader’s manager throughout the process to ensure that they communicate the learning initiative to the leader, tie the learning to individual and company objectives, and manage accountability for results 4. Maximising engagement through high-impact learning modalities, including business simulations and other experiential learning approaches 5. Scaling the learning so it is consistently deployed across the global enterprise while allowing for localisation as needed
FORMULATION VS EXECUTION What is more important – strategy formulation, or execution? The survey results provide a mixed view on where executives are focusing (see pie chart). Interestingly, superior performers in revenue growth, market share and profitability are most likely to strike a balance between strategy formulation and implementation. The days of HR sitting on the sidelines as organisational strategy is formulated are long gone,
6 | MAY 2014
04-09_News SUBBED.indd 6
FORMULATE OR EXECUTE? WHERE DO LEADERS FOCUS? preoccupied with development over execution
27%
strike a balance between formulation and implementation
46%
27%
or should be. BTS believes HR should be heavily involved from the very beginning. “Formulating strategy in a black box without a discerning eye on how to mobilise the organisation around its implementation is a big mistake that companies make all too often,” says Adl. It’s a sentiment echoed by Cindy Reid, head of HR at Konica Minolta. Throughout her career, she has been involved in significant change programs, particularly at IBM, where she assisted in transforming the company from a hardware business to an IT solutions company. She’s now involved in Konica Minolta’s own change initiative. The company also needs to shift from its traditional hardware focus towards a software solutions focus. Although she’s only been in the role for three months, Reid has immersed herself in learning about the business. She does not want HR to be seen as an isolated function within the business. Knowing the business must transform to remain competitive, Reid is spending her first 100 days developing, in consultation with other business leaders, an HR strategy that will help deliver change to the business. “We’re not going to do the 15 things on the HR strategy menu,” she says. “We’ll focus on three and do those really well, tick them off and then move forward. I’ll be developing the relationships with my colleagues, the executive and leadership team, and making sure I understand the business strategy and objectives from each of their perspectives. I want to be trusted adviser for that team.” According to the BTS report, high-performing companies embed implementation plans early in the
spend more time on execution over development
FORMULATION
EXECUTION
HCAMAG.COM
15/05/2014 1:07:19 PM
HUMAN RESOURCES DIRECTOR
ION
HCAMAG.COM
04-09_News SUBBED.indd 7
MAY 2014 | 7
15/05/2014 1:07:26 PM
NEWS ANALYSIS / STRATEGY EXECUTION
strategy development process and focus on how to best engage people in execution. “HR has the potential to enable senior executives to think through execution holistically, from a broad talent perspective – do we have the right capabilities and what will it take to motivate and deliver the intended results? By involving HR in the initial stages, organisations can lay the foundation for execution early to ultimately better enable success,” Adl says.
CASCADING GOALS It’s not uncommon for executives to struggle with translating broad organisational goals into something meaningful to individuals – yet this is something that sets top-performing companies apart from laggards. Top performers are able to consistently connect broad organisational goals with business unit, functional and individual goals. However, Adl says non-traditional means of communication and a hands-on approach to bridging this gap are both essential for success.
LEADERS VS LAGGARDS: HIGH-IMPACT LEADERSHIP BEHAVIOURS 40%
40
35%
39 27
20%
17
15% 10% 5% 0%
Business unit goals align with company strategy Market leader (%)
Decisions consistent and based on company goals Market laggard (%)
“Organisations commonly rely on traditional execution approaches involving one-way information flows – offsite events, town hall meetings or PowerPoint presentations – from senior leaders to the employees,” Adl explains. “The senior executives may feel like the strategy is clear and well communicated, but these methods often fail to make the expected impact. Pushing the message out may give the organisation brief moments of inspiration, but it tends to be business as usual.” Reid learnt one key lesson from her IBM experience: keep it simple. “Keeping it simple is
8 | MAY 2014
04-09_News SUBBED.indd 8
Cindy Reid, Konica Minolta
K
SIMEEP IT PLE
Sources: *Why Good Strategies Fail, Economist Intelligence Unit, 2013 ^Cracking the Code: The secret to successful strategy execution & lessons for the C-suite, a study by BTS based on a survey of 200 C-suite executives, senior leaders and managers conducted by the Economist Intelligence Unit
KEY HR TAKEAWAYS Increase C-suite attention to implementation Includes how well people across an organisation understand the company strategy, realise why it’s critical to success and recognise the actions needed to make it a reality.
Focus C-suite activity on the correct areas
30% 25%
always the goal in communication across a large group of people. We need to be able to articulate simple and clear messages about what we’re trying to achieve and then be consistent with it,” she says. To motivate a sense of passion and urgency, executives must provide opportunities to allow employees to engage with the strategy and discover the value first-hand. Through discovery learning tools and business simulations, employees can be immersed in designed experiences, recognise the actions they must take back on the job, and understand the components of great execution. The involvement of executives throughout the process is just as critical to success. “The research supports that hands-on managers, strong in setting goals and holding people accountable for results, are significantly more likely to be a part of top-performing companies,” says Adl.
Corporate-level executives cannot, and should not, conduct every aspect of implementation. The areas in which they have the most impact, according to interviewees, are general oversight, communication and support for strategic initiatives and projects, and providing a concerted focus for the key activities.
Prioritise and allocate resources appropriately Companies cannot do everything simultaneously. Success depends on doing the most important things first. Hence, selecting which initiatives and projects should have a higher priority, and corresponding access to resources, is itself a strategic choice that should be made at the corporate level.
Integrate implementation and strategy formulation Strategy-making informed by the successes and failures of the past is much more likely to be realistic and itself successful. Although having an overlap between those involved in implementation and formulation helps, formal, standardised processes to analyse and record lessons learned is the most effective approach.
Develop the necessary skills throughout the company Because the C-suite cannot do everything, companies need other executives capable of helping to implement strategy. Hiring in and developing appropriate skills, especially the leadership abilities to drive execution, should be a higher priority.
HCAMAG.COM
15/05/2014 1:07:39 PM
HUMAN RESOURCES DIRECTOR
HCAMAG.COM
04-09_News SUBBED.indd 9
MAY 2014 | 9
15/05/2014 1:07:47 PM
IN BRIEF / CEO INSIGHTS
WHAT’S ON YOUR CEO’S MIND?
CEOs are coming out of survival mode, with 44% feeling the global economy will improve over the next 12 months. New challenges and opportunities have emerged – what’s on your CEO’s agenda?
CEO GROWTH PRIORITIES CEOs worry almost as much about a slowdown in the emerging economies as they do about sluggish growth in the advanced economies Q: How concerned are you about the following potential economic and policy/business threats to your organisation’s growth prospects? Continued slow or negative growth in developed countries
47%
Slowdown in high-growth markets
46% Somewhat concerned
24% 19% Extremely concerned
A SHIFT TO ADVANCED ECONOMIES Q: Which three countries, including the country in which you are based, do you consider important for overall growth prospects over the next 12 months? % of CEOs naming country 2014
30%
17%
10%
+7%
+5%
+3%
23%
12%
7%
USA
Germany
UK
33% 7%
7% 5% 7%
+2% +2% 0% 0% 0% China
Japan
Indonesia Mexico Russia
31% 5%
7% 5% 7%
12%
7%
-3% -3% Brazil
India
15%
10%
% of CEOs naming country 2013 Advanced economies
10 | MAY 2014
10-11_Infographic.indd 10
Emerging economies
HCAMAG.COM
15/05/2014 10:54:40 AM
HUMAN RESOURCES DIRECTOR
WHAT’S HAPPENING WITH THE WORKFORCE?
CEOS IDENTIFIED THREE TRANSFORMATIVE GLOBAL TRENDS
81%
60%
technological advances
demographic shifts
59%
50% say
headcount will increase
shift in global economic power
29% say headcount will remain the same
20% say
headcount will decrease
WHAT OPPORTUNITIES ARE THERE FOR BUSINESS GROWTH? new joint ventures and/or strategic alliances
product/service innovation
9%
M&As
THE PACE OF INNOVATION IS ACCELERATING DRAMATICALLY
35%
11%
new geographic markets
14%
30%
increased share in existing markets
Automobile
THE WORKFORCE
Aeroplane
What questions are CEOs pondering about tomorrow’s workforce?
Mass production
How well prepared is your organisation to find, attract and keep tomorrow’s workforce, even as you deal with today’s talent challenges?
Railway
Railway
Electricity
Printing
16th & 17th century
Computer
Lean production
How will you manage employees with different needs, aspirations and experiences from those of your generation?
Iron steamship
Steam engine
Internal BioNanocombustion technology technology engine (process)
19th century
Internet
20th century
63%
of CEOs are concerned about the availability of key skills
What are you doing to make your workforce more diverse? And how will you utilise the benefits of diversity?
Factory system
18th century
DID YOU KNOW?
21st century
How will you address the challenges of dealing with an increasingly autonomous workforce? What will it cost your organisation if you get the talent pipeline wrong?
58%
are worried about rising labour costs in emerging markets
Source: Richard Lipsey, Kenneth I. Carlaw and Clifford T. Bekhar Source: All charts and graphs sourced from PwC’s 17th Annual Global CEO Survey, except where indicated
HCAMAG.COM
10-11_Infographic.indd 11
MAY 2014 | 11
15/05/2014 10:54:48 AM
COVER STORY / HR AT LEIGHTON HOLDINGS
CHANGE AND CHANGE AGAIN HR professionals know how the ebb and flow of broader economic conditions can impact on business operations. However, in extraordinary circumstances, the timeframes can tighten dramatically. Such is the case with Leighton Holdings, as Iain Hopkins discovers
Since the GFC hit hard in 2008, the Leighton Group has treaded turbulent waters and is only now emerging as a sleeker, more agile and energised organisation. On meeting Dharma Chandran, chief HR and corporate services officer, Leighton Holdings (the parent company of the Leighton Group), and a key member of the executive team for the past three years, there’s no hint of fatigue. Quite the opposite: he is passionate, energised and ready to take on “the next summit”, as he calls the ongoing process of transformation. He has a compelling story to tell – one that continues to unfold today.
ROCKY ROAD For 23 years, Wal King held the reins as CEO of Leighton Holdings. At the start of that tenure the company was already listed on the ASX and was a major player in construction, but it was just one of many similar-sized companies battling fiercely for market share. Twentyodd years on, and following a period of market consolidation, there were fewer companies in a market dominated by two major players: Lend Lease and the Leighton Group. Many others had either sold their construction businesses to one of the two or to a foreign player. Yet the success of wholly-owned subsidiaries Thiess, Leighton Contractors and John Holland, as well as Asian and Middle East expansion, saw the Leighton Group consistently posting double-digit revenue and profit growth. The company was a genuine success story. Then the GFC hit and the game changed forever.
12 | MAY 2014
12-15_Leightons.indd 12
HCAMAG.COM
15/05/2014 11:04:13 AM
HUMAN RESOURCES DIRECTOR
“At end of 2010 Wal King retired and at the start of 2011 his successor David Stewart took over. Four months later David announced we had a couple of problem projects, particularly Brisbane’s Airport Link Road and the Victorian Desalination Plant, as well as issues with our joint venture in the Middle East where we had purchased our stake pre-GFC when that region was booming and it had now slowed considerably. So we announced a large write-down – almost $1bn in April 2011.” The old saying ‘when it rains it pours’ seems appropriate here. CEO David Stewart was asked by the board to leave in August 2011, having held the role for only eight months. Shortly afterwards, Leighton’s major shareholder, Hochtief AG, a German listed construction firm, was itself subject to Spanish construction firm ACS taking a majority stake. “In effect, Hochtief became a major influence on us,” says Chandran.
A NEW ERA On short notice the head of the Leighton Group’s Asian business, Hamish Tyrwhitt, was appointed CEO. Recognising that urgent changes were required, he hired a group of executives who were experienced in business transformation. Tyrwhitt reaffirmed Peter Gregg as CFO and hired Chandran as CHRO. “I was the first chief HR officer in Leighton Holdings. They’d had heads of HR in each of the operating companies, but never group head,” says Chandran. The transformation program had three objectives: stabilise, rebase and grow.
STABILISE The $1bn write-down necessitated raising $700m capital to shore up the balance sheet to brace the company for any possible future shocks. The group also moved to sell assets which were either going to be capital-intensive in order to continue growing, or were no longer core to the business. “This was a dramatic departure from the previous strategy where we acquired a lot of businesses – we’d grown through a combination of organic growth and acquisitions. But now we were in selling mode,” says Chandran. The stabilisation phase also required putting in place extensive corporate governance, compliance and risk management policies, processes and procedures to guard against future shocks.
HCAMAG.COM
12-15_Leightons.indd 13
For HR, during this stabilisation phase Chandran and his team concentrated on three priorities.
HR ACTION PLAN 1. Develop leadership capability – not just to win and deliver infrastructure projects, which has always been the core of Leighton’s business, but also how to run a publicly listed company in a commercially viable, sustainable fashion. “We designed and ran a leadership development program which culminated in our first ever leadership summit where the top 100 leaders from across the group were bought together to undergo training. We also exposed them to luminaries such as Bob Hawke, John Eales, Roger Collins, John Borghetti [Virgin Australia Group CEO], and Janet Holmes à Court. We wanted to expose our people to different styles of leadership in different contexts.” 2. Shake up performance management and remuneration systems – particularly for the top 100 executives. A balanced set of measures was introduced. In the past, remuneration was rewarded based on growth, almost at the expense of everything else. Now the focus would be on sustainable, profitable growth, incentivised through a series of short- and long-term incentive plans. In addition, the ‘pay to stay’ arrangements, introduced during the boom years in the 2000s when scarce talent required employers to ‘lock’ people in, were jettisoned. “It was promoting the wrong kind of behaviour,” says Chandran. “We switched to performance-oriented incentives. People voluntarily had to give up their previous arrangements and sign new employment agreements, which took quite a bit of communication and convincing to get across the line.” 3. Beef up compliance – “We had the new Health and Safety Act coming in across the country in 2012, and we did a lot of work to ensure our due diligence processes conformed with the new legislation.” These priorities were no-brainers to Chandran. “It was clear we had a reputation for excessive executive remuneration, and a lot of proxy groups were advising their investors and clients to vote against our remuneration report,” he says. In addition, the group’s succession planning had been called into question, given that King’s successor David Stewart only had eight months in the role before being replaced by Hamish Tyrwhitt,
MAY 2014 | 13
15/05/2014 11:04:19 AM
COVER STORY / HR AT LEIGHTON HOLDINGS
who was only given two days’ notice that he had the job – not ideal prep.
REBASE In order to reposition itself, Leighton’s executive team focused on leveraging the scale of the group. “We had some 60,000 employees, and we had grown quite quickly; just in my first two years we’d grown from 45,000 to 60,000 and we’d moved from $20bn in revenue to $24bn,” says Chandran. “We wanted to ensure we leveraged that scale.” The group had previously run the operating companies – Thiess, Leighton Contractors, John Holland – very independently of each other. There were no shared corporate services as each operating company had their own. “During this period we focused not on the revenue base – at $24bn we figured we were pretty big and didn’t need to build much more – but we did want to drive margins up and improve profitability because in construction margins are very thin,” Chandran says.
TOP TIPS Dharma Chandran’s top transformation tips 1. Have a clear objective in mind. We’ve had that from the start: to turn the company around and bring it to profitability, but a sustainable form of profitability where we can repeat it with relatively low risk year-on-year. That will generally mean we might not grow top line as fast as in the past, but we will improve our margins. 2. Do it to a set of principles that reflect organisational values. There must be some limits, eg autonomy within boundaries. When Hamish Tyrwhitt became CEO, the first thing he did was to establish and reaffirm our group-wide values: discipline, integrity, safety and success. These govern the way in which we’ll achieve our objectives and the way in which we’ll undertake the key tasks to do so. 3. Move with speed. While we selected just three to five objectives each year, once we decided what they were, we moved quickly to execute. Why? If you move fast you run the risk of making mistakes, but you also release anxiety caused by uncertainty. You get to the solution quickly and people become less anxious as a result. If you make a mistake – which you invariably will – you must acknowledge it, apologise for it, rectify it as best as possible, and then move on. 4. Communicate continuously. Often people want answers; sometimes you don’t yet have them. We pledged that if we didn’t have the answer we would provide a timeframe within which we would know the answer. Make a commitment and then deliver on it. 5. Bring people along on the journey. This required a lot of engagement, particularly with leaders, to convince them why it was necessary to change. Many of our leaders had only worked at Leighton. They had learnt some fabulous things about building infrastructure here, but had been less exposed to the commercial aspects of running a listed company. Exposing them to people who had that experience, from companies who weren’t competing with us but had gone through similar transformation journeys, was a critical aspect of bringing them along for the ride.
14 | MAY 2014
12-15_Leightons.indd 14
“We have begun to share some support services such as travel, and have begun considering the sharing and the location of other support functions, which will form the next summit of change.” The group’s scale has also been used to drive better procurement deals for everything from legal advice to raw materials.
GROW As the changes started gaining traction, the executive team looked towards growth opportunities. In Australia, recent work had concentrated on oil and gas projects. The slowdown in this sector, coupled with the delay in the federal government’s promised infrastructure spending, resulted in the company looking offshore for work, but only to markets where the company is comfortable with the risk profile.
PRIORITISATION THE KEY With such mammoth change, Chandran admits that goal prioritisation has been critical. “We’ve been listed for 50 years. We got our first CHRO in 2012. There was a lot of pent-up demand for HR-related services. If I had wanted to I could have tackled 50 things in that first year, but if I had done that I think we would have achieved maybe five in a very mediocre way. So I said we’ll tackle three to five things in the first year and we’ll knock them out of the park. Hence the focus on leadership, executive remuneration and safety in that first year.” As the business strategy evolved, so too did the HR strategy. To strengthen corporate governance, a comprehensive code of business conduct was introduced, replacing a code of ethics that had been in place for a number of years. Chandran introduced the first ever group-wide employee engagement survey to gather comparable data from all of Leighton’s operating companies. A redeployment program was piloted to ensure the company wasn’t incurring both redundancy payouts and hiring costs for the same employee. “Some of these things are pretty basic, but they’ve profoundly transformed Leighton,” Chandran adds.
THE FUTURE The ride is not over yet. At the start of March, Leighton Holdings’ major shareholder launched a proportional takeover bid. In addition, the CEO and the CFO, the two people who hired Chandran, have now also departed. He is now working with a new CEO, Marcelino Fernández Verdes.
HCAMAG.COM
15/05/2014 11:04:26 AM
HUMAN RESOURCES DIRECTOR
“It’s important because this is going to mean more transformation for us,” says Chandran. For Chandran, this proves that change and transformation are now part of normal business. “There’s no ‘do it once and then we can go back to feeling comfortable again’. In this competitive environment, there will be continuous pressure on us to improve and reinvent ourselves. Companies who fail to do that will cease to exist, and many have.” Resilience has become a critical survival skill. “To avoid fatigue you need to find ways to rejuvenate yourself.” Chandran says too many executives don’t realise that they need to take time out to recharge and re-energise. They forsake holidays to show how committed they are to the change. “It’s detrimental to themselves and to their organisation because they burn out.” Chandran practises what he preaches. “I had planned a six-week vacation in what we thought would be a quiet time for the organisation. It was approved by my previous CEO. A week before
HCAMAG.COM
12-15_Leightons.indd 15
“To avoid fatigue you need to find ways to rejuvenate yourself” Dharma Chandran
I was due to leave, the proportional takeover was announced, so the days leading up to that vacation were spent 24/7 in transaction mode while the board considered whether the deal should be recommended to shareholders.” Amidst such turmoil, most executives would be tempted not to take time off. Chandran took the opposite tack. “Given that the offer was increased and the board decided to endorse it, in my mind there wasn’t much more I could do. I checked with the new CEO and he encouraged me to go on the vacation. So I had the break and came back energised and renewed. I’m excited by our future.”
Dharma Chandran will be speaking about his experience in driving large-scale transformation at the Executive Leadership Forum in Sydney on 18-19 June 2014. For more information, visit hcamag.com/executiveleadership-forum
MAY 2014 | 15
15/05/2014 11:04:37 AM
TALENT TREND / DATA SCIENCE
DATA ARTISTRY FINDING BUSINESS VALUE IN DATA
Data science is the new ‘rock star’ business profession that picks up where big data and analytics leave off. Tim Phillipps argues that, to become more predictive, organisations should recruit those who see the future and others who can visualise it for the rest of us 16 | MAY 2014
16-19_BigData.indd 16
HCAMAG.COM
15/05/2014 6:24:21 AM
HUMAN RESOURCES DIRECTOR
Worldwide gaming, resorts and hotel empire Caesars Entertainment analyses data from slot machines to present real-time offers and marketing promotions to its patrons. While organisations are building their in-house ability to use data to peer into the future, Kaggle, a platform that allows organisations to crowdsource data scientists, has attracted the backing of Silicon Valley high-flyers who were behind the online payments platform PayPal. Kaggle allows organisations to farm out complex business problems to data scientists around the world in return for cash prizes. Although data science is the future of decisionmaking, organisations must hurdle two obstacles. First, they must bridge a skills gap and, second, understand and act on the predictive business insights that data scientists produce. The ‘data scientist’ is a new breed of analytics professional who takes an experimental approach to analysing data. Professor Thomas H. Davenport, visiting professor at Harvard Business School, is one of the world’s foremost authorities on data science and a senior adviser to the Deloitte Analytics Institute. He says a data scientist is “part hacker, part quantitative analyst, part trusted adviser and part scientist”. Organisations are interested in data science because it has the potential to transform business models and create new ones. It also replaces gut instinct with data-driven decision-making and is the basis of a new form of competitive advantage that is difficult to replicate. Consider the following examples. LinkedIn owes much of its success to the ‘people you may know’ function – an experiment instituted by its former chief data scientist, DJ Patil, who also coined the term that applies to the new profession. GE realised that the growing amount of data produced by sensors in the firm’s gas turbines, jet engines and other industrial products could be collected and analysed in real time to improve machine performance and operations, turning unscheduled maintenance into scheduled maintenance and identifying potential operational disruptions before they occurred. The insights it has drawn from its devices are already improving the efficiency of its customers’ businesses, saving them anywhere from tens of thousands of dollars to millions for each analytics-based service.
HCAMAG.COM
16-19_BigData.indd 17
A SHORTAGE OF SCIENTISTS A survey carried out last year by EMC revealed that two thirds of data science practitioners expect demand to outpace supply over the next five years. Even first-year business students know what happens when demand exceeds supply: prices go up. We’re already seeing this, with organisations willing to pay top dollar for data scientists. However, this is a risky strategy. It involves considerable expense, and there’s no guarantee an individual will be a good cultural fit.
Organisations are interested in data science because it has the potential to transform business models and create new ones So, where can organisations find the data scientists of tomorrow? Mark Grabb, analytics technology leader at GE’s Global Research Center in New York, suggests that PhD graduates are likely to continue to be a major source of data scientists in coming years. The private sector, universities and industry bodies like INFORM are also developing tailored data science courses. However, there’s a question as to whether these courses are teaching the right skills. Most of the courses that are currently being developed focus on the data cleaning, mining and
MAY 2014 | 17
15/05/2014 6:24:31 AM
TALENT TREND / DATA SCIENCE
THE KAGGLE STORY
Decisionmakers have to be able to absorb the insights from data science to effectively use them to solve problems
analysis skills necessary for data scientists to do their job. However, less attention is being paid to the ability to communicate those insights, says Davenport. “Communication still doesn’t have the importance it should in most programs,” he says.
MARRYING ART WITH SCIENCE Bridging the communication gap is of paramount importance. It’s great to have a team of big brains that can crunch data, but their efforts are useless if they can’t explain what they find to decisionmakers. Communicating the message hidden within data requires a rare capability to combine the rightbrain analysis with the left-brain creativity needed to communicate with non-specialists. This isn’t just about running experiments with data; it’s about being able to paint a picture with the results. In many respects, this skill is more art than science, namely ‘data artistry’. There are two key elements to data artistry. First, the data artist must be able to speak both the language of data and the language of business. Second, data artists need to be able to tell stories with data, understanding the most effective way to communicate results and being able to work with different media to deliver those insights. This typically involves using data visualisation tools. In the past, these might have been static reports, PowerPoint presentations, heat maps and charts. Now, data artists are increasingly turning to new and more creative ways of telling stories with data. They are now using audio-visual presentations, dynamic charts, interactive games, 3D models and apps to convey meaning.
WHAT CAN ORGANISATIONS DO?
Tim Phillipps is the DTTL global leader of Deloitte Analytics and is responsible for Deloitte Analytics Institute Asia. He is an authoritative voice on the application of analytics as a source of managerial insight and competitive advantage.
18 | MAY 2014
16-19_BigData.indd 18
In the short term, organisations will struggle to find a professional who embodies a data scientist and data artist in the one ‘rock star’ package. A better approach is to create rock bands: data science teams with a breadth of expertise. By focusing on forming teams, organisations can blend a mix of top skills without staking everything on a single risky hire. It also enables organisations to fish in a wider ocean of talent, rather than the existing pool of data professionals. You can hire in specialists in particular areas: data scientists to run experiments, industry specialists who can apply analytical insights to their work, or even computer games
Founded in Melbourne, Australia, in 2010, startup Kaggle is an online marketplace that connects organisations with the world’s best data scientists. Now based in San Francisco, the company has two products: 1. Data science competitions for optimising a company’s existing algorithms 2. A matchmaking service called Kaggle Connect, which connects companies to data scientists who can help them solve challenging data science problems (whether new or existing) With competitions, companies can post datasets and problems to Kaggle, and the community of 100,000 data scientists compete to create the best solution. Competitions are effective for well-specified problems, where predictive accuracy is most important. Good examples include retailers that want to forecast demand more accurately (to optimise pricing and prevent out-of-stock situations) and insurance companies that want to more accurately predict risk. For less well-specified problems, Kaggle provides a matchmaking service called Kaggle Connect, which matches companies with a data scientist who has a track record of solving a particular problem (as demonstrated through their competition performances). Kaggle Connect is suitable for problems such as helping retailers and CPG companies optimise their pricing, or telecommunications companies better target their customers or potential customers with personalised marketing offers or customer retention initiatives. The Kaggle Community now contains over 100,000 data scientists, including many of the world’s biggest names (from the IBM Watson team to the Google Prediction API team). Deloitte Australia announced on 28 May 2013 that it had entered into a preferred alliance with Kaggle. This alliance will combine Deloitte Australia’s analytics, business advisory, technology and process consultants with Kaggle’s data scientist network to bring the best analytics solutions to clients.
programmers and animators to devise data visualisations. Finally, tapping into external sources of expertise can bridge skills gaps, benchmark your own approaches against the latest advances in techniques and technology, and source talent in specific analytical areas. The Deloitte Analytics Institute is one such centre of excellence; alternatively, organisations like Kaggle offer affordable access to data scientists around the world on a project-by-project basis.
HCAMAG.COM
15/05/2014 6:24:41 AM
HUMAN RESOURCES DIRECTOR
HCAMAG.COM
16-19_BigData.indd 19
MAY 2014 | 19
15/05/2014 6:24:49 AM
C-SUITE INSIGHT / PSYCHOMETRIC ASSESSMENT
BLINDED BY THE LIGHT Brought to you by
HR professionals who believe charisma is a vital trait of leaders are absolutely right – charisma is indispensable in terms of keeping employees engaged. However, it also has some serious drawbacks. Can psychometric assessment help keep the personality balance of executives in check? 20 | MAY 2014
20-23_Psychometric.indd 20
HCAMAG.COM
15/05/2014 6:29:54 AM
HUMAN RESOURCES DIRECTOR
Speak to any HR professional or hiring manager and if they are being honest they may confess to falling under the spell of a charismatic executive candidate at some point in their career. This candidate says all the right things, is eager to please, has a confident – not arrogant – way of holding themselves, and has the ability to make the person sitting in front of them seem like the only person in the world. Charisma is certainly a powerful trait to have, but it can be a ‘blinding agent’ when it comes to selecting the most suitable candidate for the job. “I think at any level of an organisation, but possibly more so at the senior executive level, it’s very easy to get charmed in an interview,” says Anisa Zulfiqar, talent assessment consultant at Pearson TalentLens. “They might say the right things or have great body language or mirror the things you’re saying, which presents them in a positive way, but it’s important not to be blinded by the charm.” While Zulfiqar believes it’s important to build good rapport with those being interviewed, she says relying solely on first impressions or gut instinct can be dangerous (see boxout below). It’s far more
effective to build some science into the recruitment process, and this is where personality and cognitive assessments can be invaluable.
WHY CHOOSE PSYCHOMETRIC? There is no one-size-fits-all approach to assessment. The timing and placement of psychometric tests – which usually comprise personality and cognitive/ ability assessments – varies from organisation to organisation. Some employers will conduct the abilities test at the start of the recruitment process, and only candidates who are successful will undertake a personality test. Zulfiqar suggests both tests are critical for a successful executive hire. Problem-solving and critical-thinking abilities are two areas being probed with cognitive assessments. “We’re seeing critical thinking being focused on at executive level. It’s the ability to separate fact from opinion, the ability to recognise spin, bias and assumptions,” says Zulfiqar. Personality tests will assess areas like stress tolerance or interpersonal relationships, for example
HOT EXECUTIVE DEVELOPMENT TOPICS IN THE NEXT 2–3 YEARS Critical thinking 34.6% Leadership 28.2% Strategy execution 20.5% Source: 2011/12 Trends in Executive Development by Executive Development Associates and TalentLens
THE SHORT-TERM ALLURE OF CHARISMA According to Dr Tomas Chamorro-Premuzic, professor of business psychology at University College London, the short-term benefits of charisma are often neutralised by its long-term consequences. Here are Dr Chamorro-Premuzic’s top reasons to resist charisma:
1
Charisma dilutes judgment: There are only three ways to influence others: force, reason, or charm. Whereas force and reason are rational (even when we are ‘forced’ to do something, we obey for a good reason), charm is not. Charismatic leaders influence by charm rather than reason, and when they run out of charm they tend to revert to force.
2
Charisma is addictive: Leaders capable of charming their followers become addicted to their love. After the initial honeymoon effect is over, they continue to crave high approval ratings, which distracts them from their actual goals. Followers, on the other hand, become addicted to the leader’s charisma, reinforcing displays of populism and perceiving unpopular decisions as deal-breakers. The result is a reciprocal dependence
HCAMAG.COM
20-23_Psychometric.indd 21
that encourages both parts to distort reality in order to prolong their ‘high’.
3
Charisma disguises psychopaths: Although you don’t have to be a psychopath to be charismatic, many psychopaths are charming, and the main reason for this is that their charm hides their antisocial tendencies, so they manage to get away with it.
4
Charisma fosters collective narcissism: People are charmed by others only when they share their core values and principles. In line with this, charisma facilitates ideological self-enhancement: our adoration of someone who expresses our own beliefs (usually better than we are capable of doing ourselves) is a socially acceptable way to love and flatter not only ourselves but also our ‘tribe’ (eg conservatives, liberals, etc). In other words, we would not find someone charismatic if their vision didn’t align with ours, so the only transformation charismatic leaders can attain is to unite their followers by turning each of them into a more radical version of themselves: the only way of being fully committed to a cause is to be fully opposed to another.
MAY 2014 | 21
15/05/2014 6:30:01 AM
C-SUITE INSIGHT / PSYCHOMETRIC ASSESSMENT
The four sides of a balanced leader Critical thinker
Collaborator
Gathers information and evaluates evidence to make sound decisions Balanced leaders make good judgments after analysing relevant information and alternatives Assess with a cognitive assessment such as Watson-GlaserTM II Critical Thinking Appraisal
Agile learner & problem solver Examines situations and problems carefully to make novel connections Balanced leaders can apply prior learning to perform successfully in new situations Assess with a cognitive assessment such as Raven’s Progressive MatricesTM
Works with others to achieve shared goals Balanced leaders foster communication and cooperation across the team and successfully manage conflict Assess with a personality assessment such as SOSIETM – 2nd Generation
Team player/builder Builds cohesive teams that execute effectively Balanced leaders can organise people, engender team spirit, and motivate collective performance and cohesiveness Assess with a personality assessment such as The Golden Personality Type ProfilerTM
how successful the candidate is at resolving conflict. Emotional intelligence is also an important consideration at senior level – that is, how aware the candidate is of their own and others’ emotions. Resilience has been more than a buzz term for the last few years, and Zulfiqar suggests that resilience, stress resistance and emotional intelligence form three points of a triangle. “There are certain assessments out there that specifically look at resilience, and there are others where it’s built into emotional intelligence and stress resistance,” she says. “At that senior level, other things to look out for would be someone’s ability to take control of agendas or an ability to take the lead in certain situations.” It’s not unusual for employers to use personality assessments to help them structure a behavioural interview. The personality test will be used to draw out scenarios or experiences the senior executive has previously experienced, for example an extremely stressful situation or a conflict they had to deal with. From there, a behavioural interview can drill down on how they handled the situation.
FROM RECRUITMENT TO DEVELOPMENT Psychometric assessment is also becoming an important element in development plans for existing
22 | MAY 2014
20-23_Psychometric.indd 22
executive staff. Someone showing low stress resistance, for example, might need assistance with the way they handle stressful situations. Psychometric assessments are also being used to create successful executive teams. As outlined in HRD 12.4, it can be beneficial for team success and cohesion to understand the ‘micro-roles’ each executive holds, and to know what each individual’s behavioural strengths and weaknesses are. Zulfiqar suggests personality tests can be used to highlight team strengths and blind spots. “Pearson TalentLens’s tests incorporate a number of different scales which can be used individually or in conjunction with each other to assess personality,” says Zulfiqar. “Examples might be cautiousness or sociability. You would then look for hotspots where people are scoring really high or really low on certain traits. Is that going to fit with the make-up of your team? Would that person perhaps benefit from further development?”
FAKE IT TILL YOU MAKE IT? Although it’s tempting to think the charismatic executive might dupe an unsuspecting interviewer, it’s heartening to know that they will not fool the psychometric assessments. While Pearson recommends abilities tests should be supervised, personality assessments can be more challenging to regulate. Fortunately, most personality assessments have a built-in ‘fake detector’, so they can pick up a person who is trying to present an overly positive view of themselves to the employer. Questions will be structured in such a way that a candidate is forced to choose one response from three or four options. For example, one question might be, “How would you best describe yourself? Calm? Considerate? Creative?” There’s no right or wrong answer and there’s no way of knowing if the selection of one option will lead to a favourable outcome. Ultimately, assessments exist to corroborate a hunch the interviewer might have in the interview. “You might think in an interview that the person is right for the job or is not right for the job – the psychometric assessment will provide the evidence to back that up,” Zulfiqar concludes. Pearson TalentLens develops and delivers leading, scientifically valid assessments for employee selection, development, retention and succession planning. With over 80 years of experience in the psychometric testing industry, our Talent Assessments are designed with one goal in mind: To help your people progress. Whether you need to hire or develop individuals with the aptitude to succeed in your jobs, our reports deliver unbiased insight you can count on.
HCAMAG.COM
15/05/2014 6:30:26 AM
HUMAN RESOURCES DIRECTOR
CASE STUDY: COMPASS GROUP HRD asks Phil Turner, general manager talent acquisition, HR, at catering and support services company Compass Group, about his experiences with psychometric testing in the C-suite HRD: Do you believe it would be somewhat foolhardy for a company not to undertake psychometric assessment of a potential senior executive? Phil Turner: It would be a big risk. We know that the cost of a bad hire is widely estimated to be at least one year’s pay, so there are huge incentives for organisations to get hiring right. The more data you have to make a selection decision the better. Shifts in corporate hierarchies over the last several years have also meant that personality and all-round skills are more essential for today’s leaders. This is something that psychometric assessments can help to pinpoint. HRD: How have you used psychometric assessment to test senior leaders in your career? PT: At various companies, I’ve used a range of online tools, from 30-minute to three-hour assessments focusing on personality fit and cognitive skills. At the senior executive level I do think that engaging a psychologist to interpret the results can be a worthwhile investment. The more basic assessments are relatively easy to comprehend, but the high-end assessments can be challenging if you’re not a trained psychologist. The best time to use is prior to a final interview so you can highlight any concerns and probe with further questioning. The value of the results from the psychometric assessment is dependent on how well the job profile was set up that you are comparing against. From experience, taking a sample of current employees to create a benchmark profile provides the best results. It can be more challenging at senior executive level to create a profile, as they are individual roles with less data to compare against. Going one step further and tracking the psychometric results against the performance appraisal system results should evaluate job performance quantitatively – not just qualitatively – and whether the assessments are providing value for money. HRD: What were the underlying reasons why you opted to use psychometric assessment? PT: From experience, psychometric assessments provide measurable, objective data that can give a better all-round view of the candidate’s suitability. Interviews can be quite subjective, and although recruiters/hiring managers will normally assess skills and experience fairly well, much can still be left to gut instinct regarding aligned values. I’d use psych tests to measure candidates against a number of attributes,
HCAMAG.COM
20-23_Psychometric.indd 23
including intelligence, critical reasoning, motivation and how their behavioural traits match the job profile, such as independence, decisiveness, objective judgment, assertiveness, and sociability. Analysing their interests for the role also helps to determine whether the candidate is the right fit for the role, and whether the role is right fit for the candidate. HRD: How do these psych assessments fit in with the other assessment tools you use prior to hiring someone? PT: I’d never use a psychometric test in isolation, but as one component of a wider, integrated evaluation strategy. For a senior executive candidate I’d want to tie in with structured behavioural interviews and meeting various key stakeholders in the company. Another effective tool I’ve used is giving the candidate a case study of a real-life work scenario such as a task or problem that they will face in the job. This form of work sampling can test the senior manager on a range of abilities, from number crunching to applying verbal reasoning, strategic thinking, handling team problems and generating solutions. HRD: Have you used the results of these psych assessments for anything else – eg to develop personal or professional development plans for the person tested? PT: Yes, at companies I’ve worked for we’ve used for onboarding and personal development. I think it’s best to debrief new starters within the first three months of starting so they understand how they fit the profile of the role, the team, and areas they could strengthen. It’s not every day they do a psychometric assessment, so they do really value the personal insights. The test reports also form a good base from which to address areas for personal development and coaching for the hiring manager. HRD: Where do you think psychometric assessments might move to next? PT: I think we’re going to see big advancements in psychometric assessments with the hot trend of gamification. With 1.4 billion smartphones worldwide in 2013 and rapidly rising, employees are already creating online games as an innovative attraction and branding strategy. The next wave will be introducing gaming technology into psychometric assessments to provide an interactive solution. Although I think this will be entry to mid-level roles rather than senior executives. It has the potential to create an engaging experience and an accurate measurement tool.
MAY 2014 | 23
15/05/2014 6:30:35 AM
GLOBAL BEST PRACTICE / RECRUITMENT AT SALESFORCE
Become a
TALENT MAGNET From social recruitment to best employer accreditation, Salesforce is a textbook case study in recruitment best practice. HRD chats with Mike Hulse, Salesforce’s Asia-Pacific recruiting director, about sourcing and hiring the brightest tech stars Those with long memories may recall the dark days of the early 2000s when the dot-com bubble burst. With significant staff cutbacks in many tech companies, and countless organisations going out of business, there was no shortage of talent to pick and choose from for those employers still standing. Fast-forward 10 years and the opposite is true: IT and tech companies are being hampered in their expansion plans by talent shortages. Eight out of 10 CIOs are confident that their companies will achieve growth in 2014, and over a third plan to expand their IT teams; however, 95% say it is challenging to recruit quality IT professionals and there is concern about losing top staff. It’s something Salesforce is only too aware of. For Mike Hulse, Asia-Pacific recruiting director with the cloud software pioneer, the 15-year-old company
24 | MAY 2014
24-27_BestPracticeProfile-Salesforce.indd 24
has shown its mettle by embracing fresh recruitment methods and tools. Here he outlines three recruiting steps to become a best practice employer.
1
SOCIAL TECHNOLOGY IS YOUR FRIEND – EMBRACE IT
Salesforce is a technology company with products and services that provide easier access to information and better communication for its customers. It’s therefore no surprise to hear that the company uses the same technology to foster a workplace culture that is open, democratic, and transparent. “We use cloud computing applications for our communications in a way that removes organisational silos so information can be shared efficiently,” Hulse says. “Salesforce Chatter is our
HCAMAG.COM
15/05/2014 6:32:50 AM
HUMAN RESOURCES DIRECTOR
own proprietary application that helps employees to collaborate dynamically in real time.”
DON’T STOP THE CHATTER Chatter has been described as “Facebook for the enterprise” and is a critical communication tool for all of Salesforce’s internal communication. The open forum allows employees to collaborate more effectively, know what’s happening in the company, exchange information, ask questions, suggest ideas, share documents, and engage with each other as a community.
“Our executive meetings, ‘Town Halls’ and sales kickoffs are open to all employees, and every employee has the chance to directly ask questions to CEO Marc Benioff and the exec team live through Chatter, and for those to be answered in real time,” Hulse says. Chatter is just the tip of the iceberg. The company also embraces social tools such as LinkedIn and Work.com to unite customers, managers, and employees. Hulse feels that, at the most basic level, if you’re in the talent acquisition space and not using LinkedIn Recruiter, you’re missing out – big time.
THE RECRUITMENT GO-TO TOOL LinkedIn has long been the go-to tool for professional networking, and it’s increasingly becoming the go-to tool for recruitment. To ensure it remains a critical tool for recruiters, LinkedIn Recruiter had a makeover in April 2013. In conjunction with the redesign, LinkedIn added a recommendation engine that makes candidate suggestions for recruiters to follow – similar to the matching services on job boards and tracking systems. The ‘People You May Want To Hire’ feature uses your searching habits to come up with suggestions. Results can be filtered to ensure suggestions match search parameters; the more searches undertaken, the more LinkedIn’s algorithms will understand the kind of people you seek.
“LinkedIn Recruiter was the best thing that ever happened to the talent acquisition industry,” he says. “To me, anyone who considers themselves a talent acquisition professional and is not spending at least 50% of their day on social channels like LinkedIn Recruiter isn’t going to be successful in the future.” All Salesforce employees are encouraged to express themselves and build their networks using social media. The company values employee referrals and will pay highly for recommendations. “By any metric you care to choose, referrals are by far the best source of hire. They ramp faster, stay
HCAMAG.COM
24-27_BestPracticeProfile-Salesforce.indd 25
“By any metric you care to choose, referrals are by far the best source of hire. They ramp faster, stay longer, perform better, and are more likely to be a culture fit”
Mike Hulse
longer, perform better, and are more likely to be a culture fit. Half of all hires we make are through referral, and the engagement benefit of rewarding an existing employee for referring is the icing on the cake,” says Hulse. Yet social extends beyond candidate sourcing and nurturing. The company uses Work.com and Chatter to increase employee engagement, reward success and deliver social and relevant performance feedback 24/7.
COLLABORATE AND CREATE Work.com, previously known as Rypple, is a social performance management platform. It is marketed as a solution for sales performance, customer service and marketing, and as a service that can be employed by HR departments for broad use across an organisation. Work.com facilitates collaboration and shared contribution to individual, team, and organisational goals, and facilitates the exchange of feedback anonymously and publicly between peers and managers.
“We’ve replaced the dreaded annual appraisal with three simple questions and continuous feedback via Work.com, and we have decoupled performance summaries from remuneration increase decisions,” Hulse explains. Forbes named 2013 as “The Year of Social HR” and noted that Salesforce had a job posting looking for applicants with a 35+ Klout score. Hulse downplays the importance the company places on Klout scores, but admits that for certain roles it is a factor they look at. “At Salesforce we don’t settle for candidates who are not the best at what they do. Our Exact Target Marketing Cloud business is a really exciting part of the company in the social listening, advertising and e-marketing space, and for certain
MAY 2014 | 25
15/05/2014 6:32:54 AM
GLOBAL BEST PRACTICE / RECRUITMENT AT SALESFORCE
roles we seek people who walk the talk in the social space,” he tells HRD.
WHAT’S YOUR KLOUT? For the uninitiated, Klout is a website and mobile app that uses social media analytics to rank its users according to online social influence. The Klout Score is a numerical value between 1 and 100. In determining the user score, Klout measures the size of a user’s social media network and correlates the content created to measure how other users interact with that content.
2
AIM FOR EXTERNAL RECOGNITION
DOING IT TOUGH: I.T. TALENT THIN ON GROUND yy84% of CIOs in Australia are confident of their companies’ growth prospects for the year ahead – up from 77% in 2013 yy58% of firms plan to recruit, new projects being the key driver for expansion yy95% of CIOs find it challenging to attract quality employees; 85% are concerned about losing top IT talent Source: 2014 Salary Guide, Robert Half
26 | MAY 2014
24-27_BestPracticeProfile-Salesforce.indd 26
In 2013, Salesforce was named a ‘Best Place to Work’ in Australia. It’s one of countless accolades the company has picked up in its 15-year history. “When I started at Salesforce I wanted to build on our brand recognition among potential candidates. I decided on my third day in the role that improving our employment brand externally was key to accelerating our success,” Hulse says. He conducted two surveys – one with internal employees and one using his own LinkedIn network – to ascertain a consensus view of various employer studies on the market. Ninety per cent of Salesforce employees were aware of the Best Place to Work awards, run by Great Place to Work Australia and published annually in BOSS magazine (results were formerly published in Business Review Weekly). Of external respondents, 53% of Hulse’s network recognised the BRW survey as one they had previously read, with Aon Hewitt’s Best Employer award in second place with 33% recognition. Hulse then set about gaining internal approval to enter the survey and managed the application process and submission preparation. “We came in at sixth in our inaugural year, fourth in 2013, and we hope to have even more success when the 2014 results are announced in September.” Hulse notes the annual improvements were a direct result of acting on the previous scores provided by employees at a granular level. “We analysed the feedback we received through the Best Place to Work study per business unit, per location, and on a tenure, age and gender basis, and then we put in place projects that addressed any concerns employees had,” he says.
3
FIND YOUR EVP – AND STICK WITH IT
Not surprisingly, Hulse is well aware of what sets his company apart from the competition. The EVP
is well established and focused on two pillars: philanthropy and innovation. “Our 1/1/1 philanthropic model is a big reason we are a great place to work,” Hulse says. “Google and others have based their giving on the model Salesforce pioneered, and we would love to see other companies follow by donating 1% of their employees’ time, 1% of equity and 1% of product to not-for-profit organisations.” Every employee is given six paid days off to volunteer every year, and in Australia in 2013 this resulted in 5,500 community service hours, 530 organisations receiving Salesforce products and matching employee donations to the charities of their choice. In terms of innovation, Forbes branded Salesforce the World’s Most Innovative Company for three years in a row. One of Hulse’s favourite lines from the many Salesforce videos on YouTube is: “Innovation comes as standard”. “I really believe that’s true,” he says. “When we hire we seek out people with a demonstrated history of innovative thinking; we allow people the freedom to innovate and provide them with the tools to innovate from a process and solution perspective. Globally we look to hire – sometimes through acquisition – leading entrepreneurs and their businesses in order to keep challenging our own thinking.” Again, Salesforce’s own products help encourage innovation in its workforce. The Salesforce1 mobile app, for example, allows employees to collaborate and easily share data, ideas and questions in real time to a specific (or broad) audience as required straight from their mobile devices. “The real-time nature of these interactions is key,” says Hulse. “Often a salesperson or executive will post a question or idea from a customer that comes up during a face-to-face meeting, and employees can and do reply immediately with innovative iterations that the salesperson can run past the customer whilst still at the same meeting. This super-fast pace of ideas and instant feedback on everything we do means that innovation is a standard part of the way we operate.” While Hulse enjoys what he calls his ‘dream job’, he’s aware of challenges lurking ahead. “Our continued rate of growth is my biggest challenge but also an opportunity; my team needs to find and hire the best of the best in ever-increasing numbers in hot markets around the region,” he says.
HCAMAG.COM
15/05/2014 6:33:02 AM
24-27_BestPracticeProfile-Salesforce.indd 27
15/05/2014 6:35:36 AM
TECHNOLOGY / HR SERVICES
UNTYING Brought to you by
THE KNOTS
Australia, like many Western countries, faces an epidemic of disengaged workers. Can more efficient and streamlined HR services delivered via the cloud help? The phrase ‘continuous improvement’ can apply to just about any aspect of business operation – except, it seems, HR services. A recent report* suggested that if the HR service portfolio was a retailer, it would be a dead-end discount strip mall: confusing and understaffed storefronts; and dismayed and disenchanted customers who only went there as a last resort. How has this happened? Most legacy systems were set up by HR shared services and/or outsource service providers with old-world preconceived ideas predominantly based on cost savings – and therefore they delivered those services as cheaply as possible at the expense of the employee relationship. At the same time, many organisations implemented selfservice software applications and wholly eliminated administrative positions for all but the most senior executives. While the desired result was cost reduction, in reality the end result was a diminished employee experience. Current legacy systems are fragmented, not integrated, and reliant on manual time recording. They consist of multiple siloed payrolls, vendors and HR master data sources. In short, they are a mess. Following is an all-too-typical case study of a multinational organisation.
28 | MAY 2014
28-29_Payroll-NGA.indd 28
Current state^ US payroll Time recording
EMEA payroll
NZ payroll
Asia payroll (5)
AU payroll
WHY DOES IT MATTER? According to Gallup, just 24% of Australian workers are actively engaged in their jobs. Studies have shown that engaged workers are 26% more productive than their disengaged peers. An engaged workforce produces 147% higher earnings per share. What’s the connection with HR services? Some might argue that payroll is simply payroll. It’s only when something goes wrong that anyone notices it. Yet smooth, seamless delivery of such services can have a significant impact on the employee experience. Imagine if your staff didn’t get paid, or were paid incorrectly. The impact on productivity could be costly. Many facets make up the engagement equation, but the foundation blocks of an engaged workforce are things usually taken for granted, like being paid on time, with minimal fuss. At present, disjointed HR services distract workers from real work and productivity.
HCAMAG.COM
15/05/2014 10:57:25 AM
HUMAN RESOURCES DIRECTOR
Steve Jobs once said: “Design is not just what it looks like and feels like. Design is how it works.” The same principle applies to HR service delivery: if it works effectively, the end result is good for the employee but also good for the employer. Not only do employees get the tools they need to do their jobs well, but the latest HR technology delivered via the cloud means the streamlined workflows, integrated data sources and user-friendly, self-service interfaces can have a positive impact on the time and resources HR departments need to dedicate to this area. The benefits speak for themselves:
Future state^ EMEA payroll Time recording
US payroll Time recording
HR master data
IT/Finance systems
One payroll provider Asia payroll Time recording
NZ payroll AU payroll Time recording Time recording
A SHIFT IN FOCUS Both the workplace and the workforce have undergone significant changes in the past two decades. These changes require a new way of delivering HR support functions, whether it be to best understand and consume company benefits and rewards or to easily access the tools that will advance employee productivity and performance. Fortunately, the message is getting through. NGA Human Resources has identified HR technology in support of the business as being one of three top challenges facing HR in 2014. When analysed deeper, NGA identified the trend towards cloud HR solutions will continue as companies focus on saving money and having their data available anytime, anywhere. This HR technology is expected to expand, but with a stronger focus on simplification and easy user adaption. “Depending on the industry, the cost of employees typically represents 75% plus of a company’s overall cost base,” says Marjukka Maki-Hokkonen, vice president, Australia and New Zealand, NGA Human Resources. “It’s not just talent that is critical here; mining data from the payroll system can be valuable as well. Understanding things like organisational
HCAMAG.COM
28-29_Payroll-NGA.indd 29
productivity versus costs can assist organisations in making the right strategic choices and investments in their business.” To address these disparate needs, HR service providers are becoming savvier in their approach. Instead of pushing stand-alone products, more service providers are developing and delivering solutions to clients. When it comes to faster, more efficient delivery of HR services, software as a service (SaaS) – sometimes referred to as cloud solutions – is a game changer. It has helped HR outsourcing mature as organisations learn to accept technology as an enabler of value in outsourcing. “The move to cloud solutions is also an enabler for business functions such as HR to take more control over acquiring the solutions and functionality they require,” adds Maki-Hokkonen. “For a successful outcome, close cooperation with IT functions continues to be important, but it’s a positive development that business owners can take more of a driving seat in implementing the solutions that underpin their service delivery.” Cloud solutions can deliver faster ROI; quicker deployment; lower total cost of ownership; increased flexibility in responding to changes in business environment and requirements (both in terms of costs and functionality); and faster access to innovation driven by regular updates. However, regardless of the IT solution deployed, cloud or not, certain key business fundamentals remain unchanged: it is still important to build a strong business case, to select an experienced solutions and service provider as a partner, to be clear on the business objectives and requirements, to manage the change, and to measure the outcomes. Sources: *HfS Blueprint Report: Multi-tower Human Resources Outsourcing (HRO): Rewards, Remuneration and Recognition – The Foundation of Workforce Support Services, February 2014 ^ Ernst & Young, From hire to retire – HR technology showcase, 2014
NGA Human Resources (formerly NorthgateArinso) is a global leader in helping organisations transform their business-critical HR operations to deliver more effective and efficient people-critical services. At NGA we help our clients become better employers through smarter, more streamlined business processes, efficient technology, supporting key HR areas like workforce administration, payroll, benefits, recruitment, learning, and talent management – to save money, manage employee life cycles, and support globally connected, agile organisations. Our 8,000 employees are dedicated to delivering excellence through HR consulting, HR outsourcing and HR technology. When it comes to HR, local and multi-country payroll, we speak your language. 100+ countries, 25 languages, any HR system, any currency.
MAY 2014 | 29
15/05/2014 10:57:32 AM
DRUG AND ALCOHOL TESTING: BUSINESS STRATEGY / MOTIVATION
WHEN THE GOING Ensuring your team stays productive when the pressure’s on can be a challenge for any manager. Leanne Faraday-Brash highlights nine ways to keep your people motivated
In the space of three days, the unthinkable happened. I read that China’s annual economic growth had slowed to 7.7%. Goldman Sachs was quick to point out that the market must shed expectations that continued double-digit growth could be sustained. Then, after digesting that one, I was sent reeling again when Apple reported its first profit decline in a decade. As someone who’s mad for an allegory, it got me thinking about those individuals and teams who sustain extraordinary performance for an extended period, so much so that the unexpected is what we come to expect. What pressure is there on a manager and team members when the extraordinary becomes ordinary? How do you continue to inspire and how do you keep your staff’s hunger burning without burning out yourself in the process? In the course of a typical working week, I found that four separate clients were puzzling over this same issue in very different contexts and which they described in very different ways (see box overleaf ). In all these situations, an almost idyllic past has been replaced by a fraught, stressful state of play that requires balancing the needs of the team with the needs of the organisation, and the needs of the team with the needs of the individual.
HOW TO KEEP A TEAM ON TRACK The most critical balance to strike is between relationships and outcomes. If we’re too soft on relationships, teams can run amok. If we’re too hard on relationships and only serve profits, targets, senior management and our own careers, we will have a target on our backs long after any problems have abated. As a leader of people, you have a responsibility to strike this balance effectively. These nine strategies
30 | MAY 2014
30_33_Motivation.indd 30
HCAMAG.COM
15/05/2014 6:42:38 AM
TING: HUMAN RESOURCES DIRECTOR
GETS TOUGH... will help you manage your people effectively and keep their momentum heading in the right direction. Communication is critical. If you are asking the team to shift gears, make sure you spend more time on the why than the what. The former is more likely to be heard as inspirational, while the latter will be viewed as transactional. You will also need to be more accessible and visible, as your team will resent and disrespect any hint of abandonment.
1
2
Be honest when you’re asking a lot from them. They know it, but need to know you know it so they can feel less exploited.
Be compassionate, but don’t let anyone get away with murder. Don’t let anyone jeopardise good culture because they’re bringing home the bacon. That’s how we create vulture cultures that ravage the organisation.
3
Don’t get sucked into doing other people’s jobs for them. Resist the temptation to do so, and take every opportunity to coach your people. Astute managers have worked out that it is more sustainable and impactful to get everyone to do 5% more than for you to do 60% more on your own. Besides, stepping in or stepping on your people can result in one of two untenable outcomes: either communicating a lack of trust that stifles initiative and innovation, or allowing the lazy to take a leisurely ride on a titanium road bike while you wear yourself out running alongside them.
4
Distinguish between those who want to and can’t right now, and those who can but won’t. The former deserve our compassion; the latter, an enunciation of potential consequences. I am not suggesting we ever become threatening or punitive for its own sake, but individuals who are not living up to the team code need to understand this is not acceptable. Ensure they see the line in the sand that you’ve drawn before
5
HCAMAG.COM
30_33_Motivation.indd 31
MAY 2014 | 31
15/05/2014 6:42:45 AM
BUSINESS STRATEGY / MOTIVATION
you ever penalise them. Set them up to win, but red card them if they refuse to take the field or play dirty.
stressed if you walk in the door and someone says, “Oh, it’s you.”
Don’t be too proud to bring in reinforcements. Unless you have advanced training in mental health first aid (and even if you do), don’t give struggling employees gratuitous advice, or tell them they should be at home when perhaps only work is getting them up in the morning, or pretend you have the answers or know how they feel. Let those who aren’t coping tell you what support they need, and defer to expertise while checking in with your staff tactfully, discreetly and often.
Adopt a stable yet flexible style. Too many of us lurch from a relaxed management style (aka team neglect) to authoritarian when people “take advantage of our good nature”. Sometimes we lash out with exaggerated intensity because we got told off for seemingly letting the lunatics take over the asylum. The professional embarrassment alone may make us want to pay out on team members when, in effect, we were asleep at the wheel and blamed the tree when we crashed.
Put on your oxygen mask first. Don’t be selfish, but don’t assume you must be selfless. Martyrdom isn’t attractive and is often self-serving anyway. This is a time to take care of yourself. Opt for peer support over beer support, get a coach, have a confidant, and don’t ruin your relationships at home or become sick with guilt because you gave your life to the workplace and your kids don’t recognise you anymore. Unless you really want to travel incognito, you’ll only get more
Finally, don’t get too bogged down in the day-to-day. You’ll miss the bigger picture. This might be convenient and less confronting but not helpful to you or your team. If you’re a people manager, the best you can do for all concerned is to embrace the role and truly manage your people. Ensuring roles are clear and meaningful, expecting excellence, and providing compassion when required balances what you want from your team and what your team needs from you.
6
Leanne Faraday-Brash is an organisational psychologist and principal of Brash Consulting. She is the author of Vulture Cultures: How to Stop Them Ravaging your Performance, People, Profit and Public Image. Leanne can be reached at www.brashconsulting.com.au.
7
8
9
WHEN THE STATUS QUO CHANGES Every team is different, and every stressful situation requires a different approach. How would you tackle these situations?
the smooth way in which the new recruit has masterfully made rain in a short space of time, but this one is truly a law unto himself.
MANAGER ONE
MANAGER THREE
Manager One is a full-blown creative and runs a loose confederation of creative cowboys (yes, they are all boys). They have enjoyed lots of trust and freedom for several years. Our manager’s issue is that his team have become so accustomed to a permissive, supportive and encouraging regime of loose leadership that they’ve become entitled and precious. They haven’t adjusted to a more constrained fiscal environment. They pout and tantrum when told “we can’t afford this”, and now bicker with each other over whose project should be supported. The executive have said this team doesn’t want to be handled, and that they forget they are part of a bigger organisation. This manager is upset and disappointed that this mutually supportive team has morphed over time into a kindergarten cohort who now won’t share and are more likely to want to hit others over the heads with their buckets and spades when no one is looking.
Manager Three runs a tax team in a second-tier firm. The firm has always been profitable, but some of their clients are doing it hard. Margins are squeezed, bills are contested, write-offs are up, and two associates who left within weeks of each other have not been replaced. While the team is not traditionally known for oozing excitement out of every pore, the manager can see the beginnings of real disgruntlement and withdrawal. Some staff are quietly telling others they’re feeling vulnerable to layoffs. Others are resentful about workloads increasing but do the work anyway. Others are working to rule, having acquired a profound interest in watching the clock.
MANAGER TWO
Manager Two runs the trading floor. She is used to mavericks and would peg herself as one. However, in the wake of several scandals in other organisations, she has always instilled some notion of the importance of boundaries in the team. While living on the edge of their authorities, they haven’t stepped over the line, until she hired her latest recruit; that is, a tiger that doesn’t want to be tamed. They all see the brilliance, the flair and
32 | MAY 2014
30_33_Motivation.indd 32
MANAGER FOUR
Manager Four had a dream team, albeit a small one; cohesive, friendly, purposeful and focused. Regrettably, one supervisor separated from their life partner some five months ago. This took everyone by surprise as there had not been any hint of problems until it was blurted out at a team morning tea. People didn’t know where to look or what to say. It’s obvious to all, even without clinical qualifications, that the supervisor’s mental health has been in steady decline since then, and the manager freely admits she’s out of her depth. The supervisor is barely functioning and the rest of team are having to make major allowances.
HCAMAG.COM
15/05/2014 6:42:54 AM
30_33_Motivation.indd 33
15/05/2014 6:43:01 AM
BEST PRACTICE / RECRUITMENT
THE COST OF
REJECTION Research suggests that many recruitment processes reject suitable candidates for front-line sales, service and customer service roles before they reach interview stage. Sean Howard, managing director of Talent Q, outlines the potential damage caused by using cost-effective but blunt ‘weapons of mass rejection’
34 | MAY 2014
34-37_HayGroup.indd 34
HCAMAG.COM
15/05/2014 10:56:23 AM
HUMAN RESOURCES DIRECTOR
At a recent conference in Europe the speaker challenged the predominantly recruiter audience about their job titles. He reasoned that, if we reject over 90% of applicants, a more accurate job title would be ‘rejectors’. While it doesn’t sound like a particularly nice job title, he certainly has a point. Thanks to technology it has never been easier to find and apply for jobs, so we can be sure that numbers of applicants will continue to rise, even against the backdrop of the well-documented talent shortages. There are two main reasons why dealing with these massive volumes of applicants is fast becoming one of the biggest challenges to HR.
1. ELIMINATING THE RIGHT TALENT Not only are there talent shortages but in many cases we are demanding additional skills to do jobs. For example, in retail roles, customer service skills have traditionally been required; however, many retailers now demand selling skills as well. The Talent Q database (comprised of over half a million assessments each year) tells us that approximately 40% of the working population are likely to be customer focused and 37% are going to be comfortable with upselling; however, only 12% are likely to be confident about the combination of these skills. It’s vital that employers don’t inadvertently eliminate suitable but ‘hidden’ candidates from their talent pools – and yet we see some surprising trends showing exactly that.
HCAMAG.COM
34-37_HayGroup.indd 35
VICIOUS CIRCLE Inadequate recruitment process
Wrong people are hired
More staff leave
Mismatched expectations of the role
Inadequate recruitment processes have created a ‘vicious circle’ for recruiters, in which the wrong people are being appointed into front-line roles. Thirty-seven per cent of respondents in the Talent Q survey said they knowingly hired unsuitable candidates just to fill a role quickly. Recruiters are not describing their front-line roles with sufficient accuracy. Forty-eight per cent of respondents claim that staff leave front-line positions because the expectations they have of the job are not matched by the reality of the role, creating frighteningly high staff turnover rates. The circle then starts again, as employers seek to hire replacement staff.
MAY 2014 | 35
15/05/2014 10:56:29 AM
BEST PRACTICE / RECRUITMENT
WHAT PROBLEMS ARISE AS A RESULT OF HIGH STAFF TURNOVER? Ongoing recruitment and associated costs
57% Increases the pressure on line managers
47% Damages the morale of remaining staff
44% HR burden
42% Negative impact on business performance
26% Negative impact on customer services
21%
The root cause of this vicious circle is an inadequate recruitment process. Half of all organisations do not conduct any valid assessment of a candidate’s ability or personality when recruiting in volume. Just 51% of organisations use ability tests to help select the right candidates; only 47% conduct structured interviews. In addition, many organisations eliminate people on the basis of academic achievement; unfortunately there is very little evidence of educational achievement predicting career success. So while this hurdle may reduce candidate volume, it may very well also reduce the chances of getting the right people. Poorly designed career pages and long and confusing application processes certainly do eliminate large numbers, but will the best applicants persevere? I doubt it! Have you looked at your website or even tried applying for a job with your company lately?
2. REJECTING CUSTOMERS? The chances are high that many of your applicants are either customers or potential customers. It’s interesting to look at the variances in how different organisations deal with the candidate (customer) experience. Far from failing to even acknowledge an application (we are just too busy!),
36 | MAY 2014
34-37_HayGroup.indd 36
a few smart organisations now give something back to all applicants. This does not stop at mere acknowledgement of an application – it could be feedback and thanks, career advice, or even vouchers to buy products or services and welcome them as new customers. Treating candidates well reinforces both your employer brand and your consumer brand. It’s worth remembering that social media means that this is no longer a one-on-one experience. Word spreads quicker than ever! Recruiting has never been so challenging. Not only do we risk our brand every time we treat a candidate badly, but we are also at risk of never finding the right talent. Getting the right people in jobs in the right way will continue to have a huge impact on the future success of all organisations. Perhaps it’s time to broaden the recruitment funnel in your organisation?
Talent Q recommends the following steps to improve the recruitment process: >> Match up the key requirements of the role with a candidate’s competencies; understand what traits and competencies are key to success in a role. Recruiters can then target candidates who fit that profile.
>> Use realistic job previews and situational judgment tests for front-line roles to ensure that the expectations of new recruits match the reality of the job.
>> Introduce objective and fair selection methods that can be replicated in every location.
>> Ensure that the entire recruitment process is engaging for candidates.
Talent Q was acquired by global management consultancy Hay Group in April 2014. Talent Q designs and delivers innovative online psychometric assessments, training and consulting, to help organisations make better, more informed decisions about their people.
HCAMAG.COM
15/05/2014 10:56:36 AM
HUMAN RESOURCES DIRECTOR
HCAMAG.COM
34-37_HayGroup.indd 37 5 HRA2014_HCFP_ALL.indd
MAY 2014 | 37
2:01:28 PM 15/05/2014 1:59:19
HR ESSENTIALS / ORGANISATIONAL DESIGN
ORGANISATIONAL DESIGN
KEEPING YOUR EYE ON THE BALL When designing your organisation, your eyes must be kept firmly on the strategy, the whole strategy, and nothing but the strategy, or you could end up with a ‘disorganisation’ full of ‘busy fools’, argue Melvin Jay and Simon Collinson
38 | MAY 2014
38-45_OrganisationalDesign.indd 38
HCAMAG.COM
15/05/2014 6:48:21 AM
HUMAN RESOURCES DIRECTOR
Highly effective organisations follow a design. All activities, projects and processes are purposefully designed to deliver their strategy, and thus to create value for stakeholders. Each function, department and individual understands the company’s strategy and how their daily work contributes to its delivery. People are diligent and focused; everything they do adds value to the business. This is because all decisions about the way teams are assembled and activities assigned have been made with the company’s stated goals in mind. Unfortunately, these companies are in the minority. In overly complex organisation designs, the opposite is true. Despite having equally intelligent and hard-working people, a high percentage of their activities will create no value and play no significant part in helping the company achieve its strategic purpose. We call these companies ‘disorganisations’. They are often populated by large numbers of ‘busy fools’: people running fast but in the wrong direction! There is plenty of activity, but very little of it creates value. Lean Six Sigma studies of office workers suggest that in many organisations 97% of activity is wasted because so much of what people do will create no measurable value for the company. Just imagine: staying at home in bed would have almost the same impact on the success of your company as turning up. For the purpose of this discussion, let’s assume that you have a good strategy in place. Companies have become very effective in the creation of strategy, yet we often find the strategy in significant dissonance with their organisation design. This raises the obvious question: why this frequent misalignment between strategy and organisation design? See the ‘Warning signs’ box on page 43 for the symptoms to be aware of. HCAMAG.COM
38-45_OrganisationalDesign.indd 39
WHAT IS ORGANISATIONAL DESIGN? Your organisation design covers the key elements of how you have organised your people to deliver a stated business strategy. These are:
STRUCTURE
The division of activities into logical groupings representing the responsibilities of different teams, lines of reporting and individual roles. (This is usually captured in an organisation chart or a structure chart.)
COLLABORATION MODEL
Who will need to collaborate effectively and how they will do this (both formally and informally).
SKILLS AND CAPABILITIES
The skills and capabilities required by your people.
WAYS OF WORKING
This covers your culture, values and behaviours needed to succeed.
MEASUREMENT AND REWARD
Structures you have chosen to underpin your organisation.
INFORMATION AND RESOURCES
People will need these to perform effectively in their roles. In other words, your organisation design is not just a structure chart but also the conscious and measured combination of all the elements above. A simple organisation design has the fewest number of these elements, joined together in the simplest and most logical way – or, to put it another way, only what is essential for your success.
MAY 2014 | 39
15/05/2014 6:48:21 AM
HR ESSENTIALS / ORGANISATIONAL DESIGN
HOW ABOUT HR? HR, in collaboration with the senior management team, is responsible for the design of structures within most organisations. Therefore, organisational design is a key HR function – but what structures has HR designed for itself? While some might argue the structure that HR teams work within is secondary to other factors, the reality is that the HR structure deployed can make a significant impact on their ability to deliver efficient and timely HR services. Trying to get the ‘right’ structure in place has resulted in frequent restructuring in HR, as shown by the HR Viewpoint 2012 survey conducted by The Next Step. THE % OF HR PROFESSIONALS GLOBALLY WHO... ...work in the Ulrich model
...have hard-line matrix/dual reporting
53.9%
49.3%
51.3%
20.6%
25.7%
40.1%
Australia/ New Zealand
UK/Europe
Asia
Australia/ New Zealand
UK/Europe
Asia
...have been in a restructure in the past 12 months
...think constant restructures hurt HR’s image
55.7%
58.1%
50.5%
70.9%
71.4%
70.1%
Australia/ New Zealand
UK/Europe
Asia
Australia/ New Zealand
UK/Europe
Asia
WHAT’S GOING WRONG? Here are some common reasons for misalignment of organisation design and strategy:
1. YOUR STRATEGY IS NOT UNDERSTOOD One of the most common reasons is also the easiest to correct: communication. In many companies, the majority of people don’t fully understand the strategy. In our workshops, we often ask the more senior participants to write or draw their company’s strategy. At first, we were surprised by how few could clearly articulate it. But it no longer amazes us since this problem has proven to be so common. Similarly, we have seen management teams unable to agree on the best metrics for success, simply because they don’t fully grasp their strategy. Companies happily spend millions of dollars creating a great strategy but fail to communicate it
40 | MAY 2014
38-45_OrganisationalDesign.indd 40
in a simple and inspiring manner. If people don’t entirely comprehend your strategy, then it will be no surprise to see your senior managers designing organisations that fail to deliver it.
2. THE ORGANISATION WAS NOT DESIGNED WITH THE STRATEGY IN MIND The second most common reason is that the work of individual functions or departments has not been purposefully planned to deliver the strategy. This is particularly common in the support functions, which are less close to customer needs. But even in front-line functions like sales we find that a high percentage of work has little or no impact on achievement of the strategy. People are busy collecting information, following processes or pursuing projects, but these activities have not been carefully designed with the strategy in mind, so their efforts are not creating value. HCAMAG.COM
15/05/2014 6:48:31 AM
HUMAN RESOURCES DIRECTOR
In fast-growing companies, people and departments are often added in haste to keep up with the growth, without carefully aligning with the company strategy. When the cycle slows or reverses, the company then finds it has a lot of people or whole departments not adding value.
3. ORGANISATIONAL DRIFT The misalignment of organisation design to strategy can also happen because people lose sight of your strategy over time. The organisation starts off carefully designed to deliver your strategy, but over time things drift.
NEW WAYS OF WORKING In organisations everything evolves. Unfortunately, things rarely become simpler. New projects and activities get created and processes reworked, but because the strategy is not at the forefront of your mind during these changes, the organisation design
HCAMAG.COM
38-45_OrganisationalDesign.indd 41
You should ruthlessly rip out any elements of your organisation design and any activities that don’t have a proven role in delivering your strategy gradually shifts away from its strategic purpose, rather than towards it. This drift can also happen because people are still doing what they have always done, even though the strategy has changed and the organisation has been reconfigured accordingly. Humans can be very resistant to and scared of change. Old habits and ways of working are hard to kill. So we often find that the organisation was, on
MAY 2014 | 41
15/05/2014 6:48:38 AM
HR ESSENTIALS / ORGANISATIONAL DESIGN
ORGANISATIONAL ALIGNMENT TOOL
STRUCTURE
COLLABORATION
STRUCTURE
The logical grouping of activities into functions, lines of reporting and individual
MODEL
How teams collaborate on key activities and make effective decisions
SKILLS & CAPABILITIES
Needed by your people to do their jobs efficiently
Looking at our organisation’s structure chart, does the way we divide up activities and responsibilities into different functions and departments give us the best possible chance of delivering our stated strategy? Do the reporting lines make sense? Does our current structure hinder strategy delivery in any way?
COLLABORATION MODEL Do different teams and functions collaborate effectively to ensure we make good decisions that help deliver our strategy? Which connections work well and support our strategy? Which ones hinder us from delivering our strategy?
YOUR
STRATEGY
SKILLS & CAPABILITIES WAYS OF WORKING
INFORMATION & RESOURCES
Needed by your people to do their jobs well
MEASUREMENT & REWARD
The values, behaviours and culture that must be fostered
Structures that are in place to measure and reward success
paper, carefully redesigned to align with a new strategy, but people have simply drifted back to their original activities and ways of working. Of course, it is easier to carry on doing what we know well, and companies rarely invest enough time and money in embedding new processes or new ways of working.
GAUGING ALIGNMENT There are ways you can test whether your organisation design is in harmony with your chosen strategy. We call it the ‘organisational impact tool’. It offers you a simple yet methodical way to assess if all the elements of your organisation design are fully aligned with your intended strategy. You can do this at a company level, but it works equally well when looking at the organisation of specific divisions, functions, departments or teams. When looking at the organisational alignment tool (see above), ask yourself the following questions:
42 | MAY 2014
38-45_OrganisationalDesign.indd 42
What are the skills, know-how and capabilities that our people need to deliver our strategy? Do we already have these skills? Is our organisation designed to ensure we develop these skills?
WAYS OF WORKING What are the key values and behaviours we need? Does our culture support our strategy or hinder it? Is our organisation designed to ensure that the right values, behaviours and ways of working are encouraged?
MEASUREMENT & REWARD Does the way we measure and reward teams and individual performance help us deliver our strategy well? If not, how can it be improved?
INFORMATION & RESOURCES Do we provide people with the information and resources they need to deliver our strategy and check that we are on track? If not, how can we improve in this regard?
TWO CLEAR OPTIONS As you assess your organisation design against each of these six questions, ask yourself: is this particular aspect of my design helping me deliver my strategy, the whole strategy and nothing but the strategy? Limit yourself strictly to two options: YES: My organisation design does seem to support this element of my overall strategy. (Outline how exactly, then consider if it could be done even better.)
HCAMAG.COM
15/05/2014 6:48:49 AM
HUMAN RESOURCES DIRECTOR
NO: My current organisation design does not support this element of my strategy. (How could you change it to improve the alignment?) You can take this assessment even further with what we call the ‘stop/start/continue’ tool. Apply it as a final checkpoint to help you decide which existing elements should be stopped, which continued, and which new ones you need to kick off to improve things. This is a good way to summarise your learnings. At the end of this exercise you should be able to see clearly which elements of your organisation are well aligned with your strategy and which elements are not.
MAKING IMPROVEMENTS To improve the alignment between strategy and organisational design, follow these steps:
STEP 1: MAKE SURE YOUR STRATEGY IS WELL UNDERSTOOD Regularly test understanding of your strategy among your people by asking them to tell you what the company strategy is in their own words. If this test reveals that the awareness is poor, invest more time, energy and creativity in communicating your strategy. There are three unbreakable rules when it comes to communicating your strategy well: Simple: Anyone in your company should be able to understand your strategy without having it explained to them at great length. As a great copywriter once said, “To explain is to fail!”
WARNING SIGNS
! ! !
Symptoms indicating that your organisation’s design and strategy are not aligned: l People are very busy, but you are not delivering against your goals. l Departmental in-fighting: different functions are at war, pulling in opposite directions to deliver your strategy. l Duplication: similar activities take place in different parts of the organisation. l External vs internal focus: high amounts of work are focused on internal discussions about the company itself; not enough is focused on external matters (like customer needs, competitors, and improving your products and services). l People can’t describe the role their department – or their own job – plays in delivering your strategy. l When you ask people how an activity/project/ process contributes to your strategy, they are unable to give a clear and simple answer. l Lots of information is produced, but little of it helps deliver your strategy.
Inspiring: Your strategy should capture hearts and minds and inspire people to do great things that create value every day. You need to think carefully about imaginative and impactful ways to create a feeling of inspiration.
STEP 2: ENSURE ALL ACTIVITIES AND PROJECTS CONTRIBUTE TO THE STRATEGY
Repetitive: While we all hate duplication, communicating your strategy is the one occasion
Review the role that each function or department plays in delivering your strategy, and agree how that particular team creates value. Also ask each
when it’s virtually impossible to repeat your message too many times.
In many organisations, 97% of activity is wasted because so much of what people do will create no measurable value for the company HCAMAG.COM
38-45_OrganisationalDesign.indd 43
97% MAY 2014 | 43
15/05/2014 6:48:55 AM
HR ESSENTIALS / ORGANISATIONAL DESIGN
Even in front-line functions like sales, we find that a high percentage of work has little or no impact on achievement of the strategy function or department to create an ‘organisational purpose statement’ that clearly explains the overall role they play in helping the company deliver its strategy. Review and sign off these statements at CEO or board level. Using finance as an example, the organisational purpose statement could be the following: “We provide only the essential financial information needed to track progress versus our strategy and to identify how we can improve our overall financial performance”.
44 | MAY 2014
38-45_OrganisationalDesign.indd 44
Now ask each departmental head to review their current organisation design and all key activities against this purpose statement and prove that each element of their organisation is designed to deliver the strategy. They should review each activity (eg a project, process, task, report produced, etc.) and ask themselves these questions: • How does this activity help our department meet its purpose and deliver our strategy? • Do we really need to do this activity at all? What if we stopped it all together? • Is there a smarter, simple way to do this activity? Next, ask them to make sure every job description has a dedicated (yet concise!) section that describes how that person’s specific role contributes to the company strategy. For the head of legal, for example, this could be the following: “I ensure we stay on the right side of the law and regulations, while actively supporting our ability to achieve our strategic goals”.
STEP 3: FIX THE ISSUE OF ORGANISATIONAL DRIFT As part of your annual planning process, each department should review all the activities and projects they will take on in the coming year – this
HCAMAG.COM
15/05/2014 6:49:06 AM
HUMAN RESOURCES DIRECTOR
is to make sure that all planned work will add value and contribute directly to the company strategy. This way the organisation design can only drift or carry on with outmoded structures for a year before being reset again. The ‘keep/improve/kill’ framework is particularly handy for this. Review everything your team is doing, ask how this activity helps deliver the strategy, then decide to carry on or stop doing it. The other useful questions to ask are: • Are we doing the right things? (Then stop all projects/processes/activities that don’t help deliver your strategy.) • Are we doing things in the right way? (Then find simpler ways to deliver the remaining activities/projects.) Encourage people to challenge the value in process changes, new tasks or information requests. They should feel empowered to question the worth of anything that doesn’t appear to help with strategy delivery.
STEP 4: KEEP THE LONE WOLVES IN CHECK Give leaders who are out of line with the overall strategy the opportunity to contribute to the development of the next strategic plan, making sure their ideas and views are carefully considered – they might have a point. Once the strategy is signed off, give them six months to get their house in order. If their department is not 100% aligned with the company strategy by then, you may need to look for a new management team to lead that part of the organisation. In the long run, you will drive more success from a fully aligned management team than a federation of lone wolves!
Professor Simon Collinson is the dean of Birmingham Business School. He is a world-recognised expert in complexity management, has consulted for a wide range of globally renowned companies, and has been widely published in prestigious academic journals.
IN SUMMARY In order to keep your company simple, your organisation design needs to be totally focused on delivering your strategy, the whole strategy and nothing else. You should ruthlessly rip out any elements of your organisation design and any activities that don’t have a proven role in delivering your strategy. If you succeed in this, your business will be simpler, your results will improve, and your people will enjoy their work, since every day they come to work they do so to achieve great things.
HCAMAG.COM
38-45_OrganisationalDesign.indd 45
Melvin Jay is the founder of Simplicity and the author of From Complexity to Simplicity. He has over 25 years of commercial and consulting experience with some of the world’s biggest companies. Visit simplicity-consulting. com.
MAY 2014 | 45
15/05/2014 3:03:24 PM
IN PERSON / LISA CHRISTY
IN PERSON:
LISA CHRISTY, SAP With responsibilities stretching across 900 employees in Australia and New Zealand, Lisa Christy, HR director at tech giant SAP, has plenty on her plate. She reects on 15 years in the HR profession, tough decisions, the appeal of IT, and balancing work and personal life 46 | MAY 2014
46-47_InPerson.indd 46
HCAMAG.COM
15/05/2014 6:52:21 AM
HUMAN RESOURCES DIRECTOR
HR Director: How did your SAP opportunity arise? Lisa Christy: I had a call from a recruitment consultant. He had this idea he would one day find the role I really wanted. I was not unhappy at Microsoft, but he called and asked where, if anywhere, I would consider moving to. I said there was only one software company I would ever move to, a role I had coveted for about five years. When he said he had a role at SAP, I said, “Oh, it would be!” Because that was the one company… I’d had quite a bit to do with SAP HR people over the years, and I had always thought it sounded like a great place to work. I had a lengthy interview process and was eventually interviewed by the acting CEO.
HRD: Were you involved in bringing the new CEO on board? LC: We were without a CEO for around six months. It was a long hiring time; time for me to settle into the role. While we were hiring I had the opportunity to get up to speed myself, and by the time he was hired I knew who all the key stakeholders were, I knew what the business challenges were and could give him some insights into the business. I built out a plan for him, which encompassed connecting with regional peers, right down to the plan on the ground, working with the GMs – it was onboarding, and getting him up to speed fast.
“We are helping to save lives, enabling hospitals, doctors and researchers to do things faster and more effectively, to come up with cures” HRD: Has the HR role changed in your time? LC: Yes. If I look back 15–20 years, we were in the stage of HR evolving, becoming more strategic. It has taken that time to work that through. Much of the work we do in HR can be operational, and it’s about getting that right so we can add more value to our customers, our managers and employees. But there has been a shift to bringing higher value to the business, working on the business and business HCAMAG.COM
46-47_InPerson.indd 47
planning. We’ve grown, and executives now want much more value from HR.
HRD: What do you think has facilitated this shift? LC: Technology. Operational work was always very manual – spreadsheets and disparate systems. Now we’re moving to integrated tools that manage everything in the employee life cycle. That can now be pulled out of a dashboard. Managers have access to all the info at their fingertips. That is helping us to push away from the operational and tactical.
HRD: Looking back, what are the hardest decisions you’ve had to make in your career? LC: Working through restructures and transformations that lead to changes in people’s roles. Any leader would find those the hardest things to work through, but it’s part of business change. I’ve always taken pride in how we handle those situations. Sometimes, depending on the person, it can open their eyes to something new and fresh. Sometimes that change jolts people to make a shift. But they are not the most pleasant situations to work through.
HRD: What do you like about IT? LC: I like the pace. The people are smart and get very passionate about new ideas and innovation. The important thing for me came about when I was assessing and going through my career and asking: What am I doing? What value am I adding? I had two kids with cancer. I lost my son at four, and my daughter came through it. I was spending a lot of time in hospitals, and my observation was that tech had a big role to play in what the hospital was doing – treatments, research areas and so on. And it was all enabled by technology. That is when it drove home the connection. When it comes down to it, we are helping to save lives, enabling hospitals, doctors and researchers to do things faster and more effectively, to come up with cures.
HRD: How did you balance those family traumas with your professional life? LC: Something kicks in and you keep going. My husband and I both had supportive employers. We made a decision a year in that my husband would give up work, to take the pressure off both of us. He would do the hospital appointments. It helped us to say, “You do this job and I’ll do this”. We tried it with both of us working and that was challenging. But people in IT are so supportive. I’m yet to come across an executive who is not supportive.
LISA CHRISTY CAREER TIMELINE Qualifications 1993–1995
Master of Industrial Relations, Human Resources, Organisational Development, Industrial Relations University of Sydney
1987–1989
Bachelor of Arts, English Literature, Fine Arts University of Sydney
Work history 1993–1995
Optical Fibre Technology Centre Executive assistant
1995–1997
Novell HR consultant
March 1997– March 1999
Tech Pacific Australia HR manager
2000–2004
Oracle Corporation Senior manager, HR
2004–2009
Gartner Senior HR director, Asia-Pacific
2010–2012
Microsoft Senior manager, HR
MAY 2014 | 47
15/05/2014 6:52:27 AM
IN PERSON / LISA CHRISTY
48 | MAY 2014
48-49_SGFleet.indd 48
HCAMAG.COM
15/05/2014 10:59:14 AM
HUMAN RESOURCES DIRECTOR
HCAMAG.COM
48-49_SGFleet.indd 49
MAY 2014 | 49
15/05/2014 10:59:21 AM
SALARY PACKAGING / NOVATED LEASES
FULL SPE AHEAD Brought to you by
50 | MAY 2014
50-55_NovatedLeasing.indd 50
HCAMAG.COM
15/05/2014 6:54:53 AM
HUMAN RESOURCES DIRECTOR
EED
Whether it’s for yourself, your team or your wider employee pool, salary packaging of cars remains a popular employee benefit. HRD outlines what’s involved For over three decades, salary packaging has been used widely throughout corporate Australia to help reduce the overall rate of tax paid by higherearning employees. Effectively, a wide range of expenses and other payments can be taken out of pre-tax income, thereby reducing the gross salary and, potentially, moving the salary earner to a lower rate of tax on the remainder. Traditionally, things like school fees, rent for mobile employees, car costs, entertainment and even groceries could be obtained through ‘salary sacrificing’. It was a popular element of remuneration structures and largely regarded as an executive perk.
ROAD TO NOW Since the advent of Fringe Benefits Tax (FBT) in 1986, salary packaging has had to evolve. FBT was the government’s solution to the challenge of capturing non-cash benefits and some salary packaging arrangements under the income tax system. As these remuneration strategies were most often used by higher-income earners, FBT was set at the highest marginal rate, plus the Medicare Levy. Given that FBT is a tax on employers, how has this impacted salary earners? Jon Finlay, head of executive compensation at Towers Watson, previously reported in HRD that over the last 25 years, various proposals have been submitted to the government to ‘improve’ the FBT regime, and these reforms have generally closed down a number of loopholes in the system.
HCAMAG.COM
50-55_NovatedLeasing.indd 51
MAY 2014 | 51
15/05/2014 6:55:05 AM
SALARY PACKAGING / NOVATED LEASES
Despite the changes, salary packaging remains a popular ‘perk’ offered by a wide range of employers.
HOW DOES SALARY PACKAGING WORK? With salary packaging, an employee gives up a future entitlement to salary or wages in return for their employer providing benefits of a similar value. The major benefit is that the employee is subject to income tax calculated on their reduced salary and the portion of salary that is ‘sacrificed’ or packaged becomes tax-free income. That doesn’t mean there isn’t a cost to the employer. While some benefits may actually be tax deductible for an employer, some may be subject to FBT, while others may have an FBT liability but attract a concessional rate. Table 1 provides examples of popular items that can be salary packaged.
LOOKING AT OTHER PERKS Aside from base salary, employees are increasingly weighing up what wider, non-traditional benefits are provided by a company as they consider whether to stay with an organisation, or move to another. These include things such as flexible work arrangements, kitchen facilities and healthy food alternatives, on-site childcare, and community days. Employers have adapted by offering ‘total reward packages’. Yet, despite recent challenges, novated leasing remains firmly entrenched in the executive benefits suite. In July 2013, then-prime minister Rudd announced a significant overhaul to the way in which FBT was assessed on cars. Industry players predicted the end of the salary packaging industry and another heavy blow to local car manufacturing. Fortunately, it never happened. Rudd was ousted before the changes could come into effect. The new
TABLE 1: WHAT CAN BE SALARY PACKAGED? Item Additional superannuation contributions Laptops, including iPads, tablets (classified as ‘electronic devices’)
FBT exempt
FBT payable
(Must be used primarily for business purposes, ie 50% as a rule of thumb)
(If primarily used for private purposes)
Car – novated lease
(Taxable amount reduced by otherwise deductible rule)
Education – work-related professional memberships; subscriptions to trade/professional journals and newspapers, for example AFR; self-education In-house childcare facilities
Car parking
Airline lounge membership
Purchase additional annual leave
52 | MAY 2014
50-55_NovatedLeasing.indd 52
FBT payable (with concessional treatment)
HCAMAG.COM
15/05/2014 6:55:11 AM
HUMAN RESOURCES DIRECTOR
CASE STUDY Charlotte is the talent acquisition manager at a national organisation. She earns $195,000 p.a. before tax. Charlotte requires a large car and will travel 40,000km p.a. She has selected a four-year lease term. In the example below, Charlotte will be over $180 per week better off under a salary packaging arrangement than if she purchases the vehicle outright with post-tax dollars.
Gross salary
federal government has so far not followed through with the proposed changes. The brouhaha with which the proposed overhaul was met shone the light firmly on novated leasing. Where does it sit in the employee benefits mix in 2014 and is it still appealing for employers?
NOVATED LEASING The term ‘novation’ simply means ‘substitution’. Novated leases differ from traditional company car operating leases in that the lease is first entered into by an individual or employee and, at the lease commencement date, their employer is substituted as the lessee. The substitution automatically reverses when the employee separates from their employer. After choosing a car, the employee agrees to cover the lease repayments and running expenses such as petrol, maintenance and insurance, using a combination of their pre- and post-tax income. Leasing companies provide detailed salary package calculations to the employer at commencement of the lease, based on the vehicle lease cost, maintenance, insurance and fuel. The car is ordered and delivered, and a Deed of Novation is signed between the employee, employer and finance company. A salary packaging provider is typically engaged to manage and administer the receipt and disbursement of payments through the client’s payroll department. Employees benefit from virtually unlimited vehicle choice, access to corporate fleet pricing and benefits, and some tax advantages compared with purchasing and operating a vehicle privately. Because the novation ceases when an employee separates, employers also benefit from removing some of the risks associated with company-leased vehicles, for example early termination fees.
HCAMAG.COM
50-55_NovatedLeasing.indd 53
Salary packaging ($)
Outright purchase ($)
195,000
195,000
Less salary sacrifice
16,956
0
Taxable income
178,044
195,000
Tax on taxable income
56,494
64,222
After-tax contribution
9,361
28,013
Net income
112,189
102,765
Weekly net income
2,157.48
1,976.25
The salary sacrifice amount and after-tax contributions are approximate only and are calculated based on the cost of finance as at May 2013. Running costs included in the comparison are maintenance, initial and annual registration, comprehensive insurance, roadside assistance, up to four replacement tyres, and a monthly provision for fuel.
OPTIONS Novated leasing providers offer a range of ways to finance a fleet of motor vehicles. sgfleet, for example, offers two financing options: 1. Operating lease: An operating lease allows businesses to free up their balance sheet. Under an operating lease, the company makes a fixed monthly payment for the duration of the term, which covers the rental costs for the vehicle, as well as running costs such as maintenance, registration renewals, replacement tyres, fuel, insurance, roadside assistance and other services. Financing vehicles under an operating lease also delivers operational benefits and facilitates outsource management and running of the fleet to a specialist fleet management business. 2. Finance lease: A finance lease is an agreement that permits one party to use property owned by another party. It is a form of finance that is designed to be used for a fixed term in return for paying for rental. Under a lease, the customer does not own the vehicle. In recent years, Australian employers have been trying to move away from the fixed costs and scheme risks associated with ownership of cars. Previously, with company cars, when the executive left employment, the employer was stuck with the car.
Myth #1 Novated leases are for people on high salaries, driving expensive cars or travelling long distances. Not true. In fact, the largest savings are typically found in middle price range vehicles for people on salaries in the $60K-$100K range. Up until May 2011, lower FBT bands were in place for vehicles travelling more than 25,000km p.a. However, this distortion was removed and the change was widely supported by the leasing industry.
MAY 2014 | 53
15/05/2014 6:55:19 AM
SALARY PACKAGING / NOVATED LEASES
EMPLOYER BENEFITS Neutral cost There are no fees for the employer if their staff choose a novated lease or salary packaging option, including no early termination penalties incurred by the organisation if an employee leaves. Employee goodwill By allowing employees greater flexibility in their choice of products, and by outlining the savings salary packaging will provide, substantial employee goodwill can be generated. Salary packaging can put more money in employees’ pockets and can be used as a great tool to recruit and retain employees by offering an attractive workplace benefit. Outsourced administration Salary packaging providers will, in most cases, take the administration and paperwork ‘off site’. The provider becomes an interface between the employees and the employer’s nominated officer. Off balance sheet The nature of a salary packaging agreement is such that the ultimate responsibility is held by the employee. This means that from an accounting perspective the usual requirement for ‘on’ balance sheet reporting is not in place. This is because there is no build-up of equity in the products that are salary packaged, nor is there an ongoing liability directly attributable to the employer. Tax deductibility When salary packaging vehicles, the monthly payment obligations for the leased vehicles are transferred to the employer, which in most cases means a direct expense deduction can be made on each lease instalment paid. No unwanted items When an employee leaves the company, decides to no longer salary package an item, or when the lease is at an end, the vehicle or salary packaged product also leaves the employer. There is no need for the reallocation of excess vehicles or laptops as the responsibility for the salary packaged item reverts entirely to the employee.
54 | MAY 2014
50-55_NovatedLeasing.indd 54
“The great thing about salary packaging is if an employee leaves it’s one thing the employer doesn’t have to worry about. They don’t have a car in a car park that still has a year left on a lease and nobody to give it to. With a salary packaging arrangement, if an employee decides to leave, the novation is effectively terminated and the ownership and responsibility for the vehicle transfers to the employee,” says Duncan Ward, general manager, sgfleet. Harking back to the days of company cars, Ward adds that another contentious issue – who pays to remove scratches, dings and general wear and tear – has been removed from the equation. “If the car has been a bit uncared for, that’s between the employee who manages the car and the purchaser of the vehicle. Selling it on the weekend has nothing to do with the employer. That means the administration burden and the need for large fleet departments handling these transactions has been significantly reduced,” he says.
Myth #2 Salary packaging only applies to new cars. Incorrect. Looking back 15-20 years this was certainly the case; today, according to sgfleet, some 20% of salary packaged cars are second-hand. This gives employees a much lower cost to package, but they still get the tax benefits on the fuel, repairs, etc. Novated leasing is also available for a driver’s existing vehicle.
BENEFITS Nonetheless, novated leases can be complex. Wellestablished leasing companies have progressively improved their services, offering advanced online reporting systems, payroll deduction matching and automated driver messaging. In addition, improvements in payroll systems have reduced administrative impacts generally. If managed appropriately, there should be very little administrative impact on employers and, importantly, any additional workload is far outweighed by the value created for employees. Ward says the primary reason for an employer to offer novated leasing hasn’t changed; it’s about remaining competitive with employee benefits. Employers that implement workplace benefits or incentive programs have found these programs
HCAMAG.COM
15/05/2014 6:55:30 AM
HUMAN RESOURCES DIRECTOR
to be a critical factor in business success and profitability.* A workplace benefits program can be used to drive staff attraction, retention and engagement. And, at no cost to the employer, a novated lease can provide an effective increase of between 3% and 8% of take-home pay, depending on an employee’s salary. There are also tax benefits for the employer. “Payroll tax and workers’ compensation premiums are actually reduced when you salary package certain benefits, because it reduces the stated payroll,” says Ward. “Payroll tax is a state government percentage based on salary. When you salary package items like vehicles, the payroll tax is calculated on the taxable value of that figure. Typically, a vehicle will save the employer about $300 per employee each year on payroll tax.” Likewise, WorkCover premiums are based on a formula of cost and risk. The cost is the payroll (which will exclude salary packaged items) and the risk relates to industry type. Benefits also vary according to industry sector and what is allowed to be salary packaged. Nurses, for example, can obtain a $4,000–$5,000 saving from salary packaging. Similar benefits exist for employees in not-for-profit organisations. “What employers have done in these fields is compensated for a lower capacity to pay higher wages by having a tax saving. It creates a more competitive wage,” says Ward. Ward also sees salary packaging as a way for HR to add a new tangible element to their organisation’s EVP. “HR are always looking for something that they can give, that they can create – a value proposition for employees and their overall organisation that is effective and appreciated. This is one way to do that,” he concludes. * Aon Hewitt’s Best Employer Australia and New Zealand Survey 2011. Employers with an engagement score of 65% or more can demonstrate an average profit growth almost four times that of other organisations.
HCAMAG.COM
50-55_NovatedLeasing.indd 55
SERVICE PROVIDER CHECKLIST Considering a novated leasing company to partner with? Here are some questions to ask: Do they have proven experience in educating and engaging employees through direct employee communication and education programs? After all, if staff are not taking part in your workplace benefits program, then arguably no one is benefiting. An experienced provider should have a range of tools and resources available to provide ongoing communication, on-site presentations and one-to-one consultations for your staff. What processes and systems does the provider have in place to administer your program, and are you confident these can align with your own processes and systems? If you manage a national organisation, the provider’s reach is also important – are they able to reach employees Australia-wide? What is their service track record? Service excellence is an important consideration – make sure you are satisfied with the provider’s employee service component, and that it will reflect well on your organisation and its reputation. sgfleet is a significant player in the international fleet management and leasing industry, with operations in Australia, New Zealand and the UK. sgfleet manages in excess of 82,000 assets and is also a leading provider of vehicle salary packaging solutions in the Australian marketplace. sgfleet is the PHH ARVAL Global Alliance member for Australia and New Zealand. sgfleet’s specialist staff apply their skills across all facets of its operations. sgfleet’s business model harnesses the skills of this experienced team to ensure that this international business is at the forefront of innovation and customer service. For additional information, visit sgfleet.com/au.
MAY 2014 | 55
15/05/2014 6:55:38 AM
Christine Fitzherbert Executive Director Human Resources Melbourne Health
Colleen Harris EGM People and Culture Federation Centres
Brett Reid HR Director BUPA
Jeremy Ing Director of Employee Success Salesforce
Kristen Bugeja HR Director Defence Bank
Colin Brown Executive Director People and Culture Royal Children’s Hospital
Amanda Towe HR Director Johnson and Johnson
Anne Heyes Executive HR Director Australian Red Cross
AMANDA TOWE Joydeep Hor e than 20 years’ experience across a range of industries, Amanda Towe is Managing Principal d as a global leader in the field of human resources. Her expertise covers all f HR including compensation and benefits, recruiting, talent management, People and Culture Strategies on development, change management, industrial relations and OH&S.
has worked across Australia, NZ, the Czech Republic and Switzerland. Her cludes strategic posts within Johnson & Johnson Medical and Philip Morris nal. She has held local and global talent and change management roles in and Europe and her experience spans the healthcare and fast moving goods (FMCG) industries.
Walter Bellin Chairman and CEO Corporate Crossroads
was responsible for developing global talent management and talent n for Philip Morris International’s marketing, consumer insights, sales and Next n Products organisations. She is currently Director of Human Resources at & Johnson Medical (JJM) in Australia and is responsible for HR partnering for an business unit across Asia Pacific. Since joining the JJM team, Amanda has key role in managing organization development, acquisitions and divestitures, e change as well as reshaping the Human Resources capability.
Caroline Graham Head of P&D Client Services Allens
Ingrid Ozols Managing Director Mental Health at Work
has a Bachelor of Arts with a major in Psychology from Melbourne University aduate Diploma in Applied Psychology from Monash University. She also d the Advanced Strategic Management program at IMD in Switzerland.
56_HRSummit.indd 57 HRS14_MELB_4pBrochure_OTL.indd 1
15/05/20142:54:27 7:05:17 AM 13/05/2014 PM
HUMAN RESOURCES DIRECTOR HUMAN RESOURCES DIRECTOR MAGAZINE (HRD) IS AUSTRALIA’S ONLY MAGAZINE WRITTEN FOR AND TARGETED PURELY AT THE MOST SENIOR HR PROFESSIONALS (CHRO’S & HR DIRECTORS) AND TOP CORPORATE DECISION MAKERS. With seats secured at the executive table, HR Directors are now looking to retain their positions and justify why they need to be there. To do so, they are required to have a comprehensive understanding of business and business strategy, while also carrying out their more traditional HR requirements. Human Resources Director Magazine concentrates on the real issues and challenges facing the HR professional and the Industry, with in-depth features and analysis of what really matters. HRD also features high level case studies, international and local profiles, interviews with HRDs and industry leaders from around the globe as-well-as leading news makers in the field.
VISIT WWW.HCAMAG.COM TO SUBSCRIBE TODAY CES DIRECTOR HUMAN RESOUR ES DIRECTOR
HUMAN RESOURC
HR SUMMIT EXCLUSIVE COVERAGE HUMAN RESOUR CES DIR HCAMAG.COM ECTOR ISSUE 12.4 TEAM POLITIC HOW BEHAVIOS PROFILING CANURAL HELP
THE W
T S I L HOT 2013
EXCLUSIVE KIMBERLY-CLA RK'S HR REINVEN TION
STRONGER, BIGGER, BET TER HUM AN RES OUR CES
DIR ECT OR:
GET develop the behaviours that FOR CHANGE knowledge and to change, so bringing skills, ty and capacity 93% of CEOs need is serious about organisation’s capabili maintain and enhance its If an organisation its goals, the acknowledge the can and achieving she says. the organisation to change their talent everybody on board change management is not bility into the future,” on relevance and sustaina leader to have strategies - though HR division taking important for the Christina Dean, larly have argues and ty, particu It’s necessi aligned less than a third everybody an option; it’s a management necessary to get r of change acted on their plans rs the skills directo managing directo HR Lock. CEO Survey, e. Additionally, on message, says nt point because 17th Annual Global consultancy, Unifort a really importa for PwC, 2014 risks. “That’s leader the at the failing to should not ignore is going to be looking be modelling. e, the cost of an everybody should has According to Unifort they only ur not es behavio change strategi scene for the as the type of execute proper to be setting the the bottom line That person is going kind of incentives and on morale, but adverse effect riate change the lack of approp values through and the kind of well. They say budgeted at $1m they put in place mean projects measurements change.” management can to support this can result in overall people they hire benefits of $5m with predicted E CHANG OF losses of $15m. E EVOLVING NATUR e an HR director has on influenc PLE The amount of and constantly LEADING BY EXAM expected to lead ment is varied ry HR directors are change manage obtain the necessa More than ever, a workforce to Dean. In order to ip mustPhoto Credit: Deborah Abesser Photography preparation of a evolving, says and manage the m impact, HR leadersh Dean. This is to change, says skills to have maximu the traditional achieve its goal ible for the to extend beyond HR is respons to be willing action natural fit because role. taking people and disciplines boundaries of the learning across management of of goals. this requires is ment What achieve would need facilitate their the HR division “This means that
off successful s are regularly pulling fact, Think HR director Think again. In ment strategies? change manage of all change s a whopping 70% of Leading research indicate fail. The author fail, John management efforts Management efforts Change Why : Change being treated as es this to change must change Kotter, attribut argues Instead, Kotter to simply an event. must be adhered as a process that be approached stages. via carefully ordered
How HR is powering Adobe global expans ’s ion
2
TS WINNING HEAORF HR & MINDHOS’S WHO and minds to win the hearts ut their y need to be able HR directors toda drive large-scale change througho to of change of their followers Hilton looks into the evolution organisations. Johntice management prac
YOUR NEXT CAREER STEP MAKING YOU ? R MARK AS A NON-EXE CUTIVE DIRECTOR
Cover+spine.indd
READY
MANAGE MENT FEATUR E / CHANGE LIST / HRD WHO’S WHO COVER STORY
E THE COST OF FAILUR Lock Consulting, principal of Daniel ing
is someth Daniel Lock, that too often change agrees with Kotter for. “What top ip is underprepared that top leadersh amount of effort underestimate the leaders do is they change,” he adds. g about the required to effect are always thinkin ip leadersh Top , the next year, it’s the next quarter future, whether Lock. Therefore, and so on, says , the next two years change journey further along the and they they are a lot ally, than their people struggles to mentally and emotion team their ed when often get frustrat follow suit.
THE NEW NAM E FOR HC MAG AZI NE
OM HCAMAG.C HCAMAG.COM
| NOVEMBE 2014R 2013 2816| APRIL 17/04/2014
PM 17/04/2014 3:38:18
ession?
in the HR prof g future changes GEMENT effectively CHANGE MANAer and shaker and managin high achievers BEST PRACTICE Who’s a mov ’s HR HR director Austeralia for beingsa proactiv his tipscase ge, shares show mind Knowled ctor Future Dire CEO ofHR Keep the end in David Guazzarotto, ths Prepare to be the past 12 mon from lead
Paramount to change is the management successprogram es.” Take the flexible a d outcom requirent to impleme ability the ntally a has been colleagues to deliver is programthe deliver to HR Change is fundame HR geble. measura Once thepart of the change a challen therefore, it to be and al is both es realistic continu are an essenti icate the always people issue and, set in motion byrs of nt Yet it that ed to commun think there will any and HR directors 2013, membe best position all CEO or equivale d of them. “I like the identify count, simply must beInled team; ip . – usually of the change, agent goals y to what’s expecte e leadersh HR function d and HR head the typically by is strategic d regularl executiv the HR te supporte between workloa contribument and assess they manage ely Charles needs,little betoa tension C-Level trainingare bit like areIt’s up gaps orCEOs executive team a on various details. know this areas of the thethey thatinstinctiv and manage ctoplans in most for The best HR leaders senior executives to change ask strategi the that brought this of of and always identify ment and es impact so much as they . with process the develop get creative to-making in out the program and work closely y of ’ Oliver HR directors s decision s and in the busines the capabilit strategie business through s. Dickens function to to build HR busines the a e tactics involved of ate life ensure their business challeng appropri the g need to Owens can be executed ses in Wesays. commercial all while remainin showca lead role l initiativesthat take the impact on the the organisation, ion to thewe more,” andonals professi transformationa the plate ‘hot’ to HR of up a strong connect who list world change is brought they have closely step industry dynamic working HR In theunderst a’sBy more, ble.they and the s thatThis mation. successfully. Whether factors Further of Australi measura transfor – and shakers business ation; and months, the right element movers last 12ing themaintain in, finding at aof the organis lders inand M&As about through external it is heartbe n as will the operate stakeho culture in invoked attentio key price, ntal our with tional or y– the share organisa instrume come to or those of , HR will pages handled reactivel ourbe rcials, the P&L, will work for your direction HR directors role to fill have it onto comme strategicmade a tough , proactively, y throughaded it’s ng on the workplace. short, tional capabilit whether they’ve organisaleaders strategic initiative dependi the ents. Invary have spearhe to lead divestm building the and centreand elements such as corporate to support ent impress must stand front This can involve and These ive bottomothers. n. ely. training d champio employee engagem s andely immens effectiv achieve internal are , s strategie an as projects ications ivespecific change. down need best program HR director es commun employe tly innovat ly, HR directors “Many of the frequen s to support ed diversity, driven Is very To do this effective hours, travel long program learning buy-in results, embrac the change. navigated early line or the driving work is ivity, ted, Having global what product commit the lchange. as well as key to to understand through in regiona , or is it being is costs while upping have been recognised with lders Owens, get toinvolved al stakeho a David this a strategic decision and of influenti changes. Some ations,” saysprogram s. organisation duement convers g these working difficult imposed upon the not. manage link executin Partners. “Often es; others have Knowing how to this year’s list g director, HR structural change? zones, they accolad of the managin onals profiled in direction g in different time The HR professi change to the strategic people operatin withminimise very capable delivering ‘more’. add value and energy levels, are are unquestionably organisation will tend to have high ce. at mobilising their employee resistan and are very good nicators commu | 17 | 29 2014 R 2013 APRIL NOVEMBE
OM HCAMAG.C HCAMAG.COM
PM 17/04/2014 3:38:18
ment.indd 29
28-31_ChangeManage
2:55:16 PM ment.indd 28
28-31_ChangeManage
SUBSCRIBE FOR 12 MONTHS USING THE CODE HRD1205 BEFORE 25TH JUNE 2014 AND RECEIVE $30 OFF THE SUBSCRIPTION PRICE HRD MAGAZINE WINS GOLD MEDAL Judges’ comments: “Extremely well-executed magazine – Sharp, smart, thorough and engaging. Writing is focused throughout. The Special Reports contain to-do lists and sidebars add relevant and actionable detail”
HRD_SubsAdvert_1205Cover.indd 58 IBC.indd 57
15/05/2014 9:58:22 9:57:06 AM AM 15/05/2014
OBC.indd 1
15/05/2014 10:06:54 AM