Delivering Strategy Execution Through Human Capital Architecture

Leading Change in Turbulent TimesExecutive Education Seminar

DELIVERING STRATEGY EXECUTION THROUGH HUMAN CAPITAL ARCHITECTURE

Edward B. Yost, Ph. D., SPHR November 2013

Step #1

Determine the Critical

Components of Strategy Execution

Strategic Success Hierarchy

Industry

Firm/Company

Business Unit/Function

Position

Person

Defining the Business Strategy

Strategy is:The central, integrated, and

externally oriented concept of how we will achieve our objectives. (Hambrick & Fredrickson)

Strategic Success

Looking for operational, financial customer, workforce success through…

Betting on the incompetence of competitors Acquiring and utilizing the resources &

competencies of othersUsing existing resources & competencies

differently

Organizational Resources and Competencies

• Tangible and intangible resources and capabilities that enable the organization to develop, choose and, implement value enhancing STRATEGIES through resource deployments, systems and processes that cannot be imitated.

Strategy Simplified

Resources

Capabilities

Distinctive Competence

Cost Advantage

Differentiation Advantage

Value Creation

What is Strategic Success?

Delivering high value results to significant stakeholders

Financial Success = Market Value; ROIOperational Success = Costs; QualityCustomer Success = Value AddedWorkforce Success = Q.W.L.; Performance

What is “Strategic Competitive Advantage?”

Enacted or Utilized Distinctive Competency that: 1. Allows the organization to differentiate itself

from competitors

2. Cannot be readily duplicated or imitated

3. Provides a positive economic benefit(s)

Action Item #1 Building the Strategy

1. What Resources does your organization have?

2. What are your organization’s Key Capabilities and Competency?

3. How are the resources, capabilities and competencies used to create value (the strategy)?

Strategic Success Chain

The Ultimate Goal is SurvivalSustainability

Goes beyond the traditional financial measures of firm performance and

shareholder value - focused on achieving high levels of success in the short term

without compromising the future

Strategy Execution

Competitive Advantage

Sustainability

Strategic Success Chain

Strategy Execution

• Enacted responses (behaviors) to internal requirements and external constraints by individuals and teams based on the existing capabilities in the workforce moderated by the underlying culture of the organization that drives organizational performance

We will see this again later!

Pivotal Talent Pools

Pivotal Positions

Human Capital ComponentsStrategy

Execution

Competitive Advantage

Sustainability

Human Capital Capabilities

Human Capital Behaviors

Workforce Culture

(Performance Drivers)

Strategy Execution

Pivotal Talent Pool(s)

Pivotal Role Challenges

CapabilitiesBehaviors

CultureCongruence and Consistency of HCA

Components

Implement & Adjust HCA

Constructing Human Capital ArchitecturePivotal

PositionStrategic Direction

Step #2

Effectively Managing, Talent Pools, Human Capital and Pivotal Positions

The Secret Revealed!

What is the SECRET of obtaining a Strategic Competitive Advantage?

Not just having a strategy but executing the strategy

All depends on the Human Capital Architecture to enhance the exploitation

of these resources and capabilities.

Human Capital & Strategy Execution

A. Resources + Capabilities = Human Capital

B. Systems + Processes + Practices = Human Capital Architecture

C. Human Capital X Human Capital Architecture = Strategy Execution

Talent Segmentation• Talent segmentation involves identifying

pivotal talent pools where human capital makes the biggest difference to strategy execution

• Where would a significant improvement in quality or availability make the BIGGEST difference to strategy execution?

Pivotal Talent Pools

• Talent segmentation is as vital as customer segmentation

• Pivotal Talent Pools are embedded in the Primary and Support activities of the Value Chain

The Value Chain

Research & Development Group

Critical Outcomes for Strategy Execution at Big Pharma1. New Product Applications 2. Reduce Time to Market

Strategy ExecutionEnables the Value Proposition for Stakeholders

Focus on a Strategic Business Unit at Big Pharma

Operations

Marketing

Research & Development

Human Resources

Pivotal Talent Pools

• Identify two pivotal talent pools in your organization using the “Value Chain Model”

Strategy Execution

Pivotal Talent Pool(s)

Pivotal Role Challenges

CapabilitiesBehaviors

CultureCongruence and Consistency of HCA

Components

Implement & Adjust HCA

Constructing Human Capital ArchitecturePivotal

PositionStrategic Direction

Action Item #2Pivotal Talent Pools and Critical

Outcomes (from item #1)

Pivotal Talent Pool Critical Outcome A?Critical Outcome B?

The Importance of Human Capital

Pivotal Talent Pools

Pivotal PositionsDetermine the Pivotal Positions

to Deliver Strategy Execution

What is Human Capital?

Talents and abilitiesKnowledge and skillsSocial networks (capital)Desire and visions

Human Capital Defined

The collective sum of the attributes, life experience, knowledge, inventiveness, energy, and enthusiasm that people choose to invest in their work. Weatherly 2003

Human Capital Has Value

“People are our most valuable asset INVESTORS!”

PROVE IT! Must be demonstrated by management practices and actions that compose the Human Capital Architecture

Human Capital and The Bottom Line

• To create value through Human Capital requires a fundamental change in how it is recognized and managed in most organizations.

• The firm’s human assets have a value that corresponds to the present value of future net cash flows and are derived from the skills, motivation and adaptability of the firm’s workforce.

Strategy Execution

Pivotal Talent Pool(s)

Pivotal Role Challenges

CapabilitiesBehaviors

CultureCongruence and Consistency of HCA

Components

Implement & Adjust HCA

Constructing Human Capital ArchitecturePivotal

PositionStrategic Direction

What is a Pivotal Position?• Not necessarily the highest paid/ranked

position• Not necessarily most critical• Not necessarily the most common/number• Not necessarily the most visible• Not necessarily the most obvious• Not ever a person

Talent Segmentation

• Talent segmentation is as vital to strategic success as customer segmentation.

• Talent segmentation involves identifying pivotal positions where human capital makes the biggest difference to strategy execution

Pivotal Positions

• Positions in the organization where quality or availability of human capital makes the biggest difference to strategy execution

• Positions that leverage the strategy execution

Pivotal Positions

• Those talent pools that with a 20% improvement in quality or availability (quantity) would make the biggest difference in strategy execution and organizational success

Drill Down More

• What are the Pivotal Positions for executing strategy?

• Provides the most significant (relative to others) improvement in strategy execution– Leveraged by the HCA

• Research Scientist

Talent – Performance Yield

Yield Curve - understanding where differences in quality or quantity of talent and organization have the greatest impact on strategy execution (steepness, elasticity, D, slope)

Find the Pivotal Position

Yield Curve Big Pharma

Best Sales RepWorst Sales Rep

Stra

tegi

c Val

ue

Performance

Best RS

Worst RS

Sales Representative

Research Scientist

20%

Finding Pivotal Positions

Clearly understanding where differences in quality or quantity of the talent pool will have the greatest strategic impact (steepness, elasticity, D, slope)

Action Item # 3 - Finding YOUR Pivotal Positions

Identify a Pivotal Position from within the Pivotal Talent Pool.

Provide a rationale for this selection based on the critical outcome for strategy execution from Action Item #1

Step #3

Pivotal Role Challenges: The Performance Drivers of Strategy Execution

Strategy Execution

Pivotal Talent Pool(s)

Pivotal Role Challenges

CapabilitiesBehaviors

CultureCongruence and Consistency of HCA

Components

Implement & Adjust HCA

Constructing Human Capital ArchitecturePivotal

PositionStrategic Direction

Talentship

• Talentship requires a redefinition of the traditional service role of HR managers in organizations.

• This involves a process of "talent segmentation" and the need to focus managerial attention on "pivotal positions".

Research & Development Group

Critical Outcomes for Strategy Execution at Big Pharma1. New Product Applications 2. Reduce Time to Market

Pivotal Role Challenges – Research Scientist

• New Product Applications– Discovery of unique and patentable uses of

existing products– Identify new markets for existing applications– Seek and process information from diverse

sources

Performance Drivers

Pivotal Role Challenges

Culture

BehaviorCapability

Finding Performance Drivers

• Starting with the critical talent pools focus down to pivotal positions

• Within that position look for the pivotal role challenges

• Identify the specific capabilities, behaviors and culture necessary to succeed at the pivotal role challenge.

Beha

vior

Strategy Execution

Cultu

re

Capa

bilit

y

Identify the required Culture & Mix of Capabilities & Behaviors

Enables the Value Proposition for Stakeholders

Determine the most critical Capabilities, Behaviors, and Culture to support

Strategy Execution for the Pivotal Position

Constructing the Factors of Strategy Execution

• Capability = knowledge, skill, ability or competency inherent in a unit of human capital

• Behavior = Actions, reactions, interactions exhibited by a unit of human capital

• Culture = a system of shared values, understandings and affect that distinguishes the unit that contains human capital

Finding Performance Drivers

• Capabilities – Nouns; • Capabilities are either resident in the

human capital or can be acquired through knowledge management interventions

• Capabilities can be bought or they can be made.

Finding Performance Drivers

• Behaviors – Verbs; • Behaviors are conscious and sub

conscious actions of human capital units • Behaviors originate at the individual

level and have intensity, direction and persistence

Finding Performance Drivers

• Culture Prototypes– Innovation, Risk Taking– Attention to Detail– Outcome Orientation– People Oriented– Team Oriented– Aggressive– Stability

Beha

vior

Strategy Execution

Cultu

re

Capa

bilit

y

Creates a Culture & Mix of Capabilities & Behaviors

Enables the Value Proposition for Stakeholders

Determine the most critical Capabilities, Behaviors, and Culture to support

Strategy Execution for the Pivotal Position

Example: New Product Applications • Capabilities: 1. Deep knowledge of specific

products, 2. Creativity and Innovation Skills, • Behaviors: 1. Scans multiple sources for

potential applications beyond present uses, 2. Share tacit knowledge with the team

• Culture: 1. Innovation and risk taking, 2. Team orientation

Action Item #4 Critical Challenges & Performance Drivers

• Role Challenge to deliver the critical outcome for pivotal position

• Performance Drivers–Capability–Behavior–Culture

Step #4

Understanding the Human

Capital Architecture and Strategic

Alignment

Human Capital Architecture

The unique combination of practices, policies, and procedures that the organization uses to procure talent, develop talent, manage performance and reward performance of the human capital employed to deliver strategy execution.

Strategy Execution

Pivotal Talent Pool(s)

Pivotal Role Challenges

CapabilitiesBehaviors

CultureCongruence

and Consistency of

HCA Components

Implement & Adjust HCA

Constructing Human Capital ArchitecturePivotal

PositionStrategic Direction

Procurement & Retention

Human Capital Architecture

Procurement & Retention

• Buying Human Capital• A procurement function• An inventory management and valuation

function• Matches human capital resources to needs• Provides for retention and divesting of human

capital

Procurement & Retention

Knowledge Management

Human Capital Architecture

Knowledge Management

• Creating Human Capital• Matching competencies and skills to

strategic needs• Capturing, maintaining, allocating and

protecting knowledge• Preparing for the future

Procurement & Retention

Knowledge Management

Performance Management

Human Capital Architecture

Performance Management

• Measuring the critical behaviors that support strategic success

• Evaluates the effectiveness of staffing• Identifies training & development needs• Evaluates the effectiveness of training &

development• Provides a basis for allocation of rewards

Procurement & Retention

Compensation & Rewards

Knowledge Management

Performance Management

Human Capital Architecture

Compensation & Rewards

• Provides a culture and mind-set to support strategic execution

• Encourages critical behaviors• Attracts critical and capable human

capital• Retains effective and removes ineffective

human capital

Why is Human Capital Architecture Critical?

• Provide a basis for a sustained competitive advantage

• Things like financial structure operational processes and technology can be easily copied or purchased

The Key Question is…

What is the appropriate Human Capital Architecture required to

support pivotal positions to successfully execute strategy?

Beha

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Strategy Execution

Cultu

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Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions

Creates a Culture & Mix of Capabilities & Behaviors

Enables the Value Proposition for Stakeholders

Enables Strategy Execution by Creating and Supporting Performance Drivers

Action Item # 5 HCA Components

• Identify 3 or 4 Components of Human Capital Architecture for each of the pivotal positions in your organization

Procurement & Retention

Compensation & Rewards

Knowledge Management

Performance Management

Step #5

Designing the New Human Capital Architecture – Vertical Alignment & Congruence

Align HC Architecture with HR Deliverables

• Congruence is the causal linkages between the HR systems and the realization of the strategic competitive advantage

• Consistency is the extent to which the HR policies and practices interact and support the other HR policies and practices

Strategy Execution

Pivotal Talent Pool(s)

Pivotal Role Challenges

CapabilitiesBehaviors

CultureCongruence

and Consistency of

HCA Components

Implement & Adjust HCA

Constructing Human Capital ArchitecturePivotal

PositionStrategic Direction

Congruent & Differentiated

Vertical Alignment:

Differentially Constructed for the Pivotal Position

Human Capital Architecture

Performance Drivers

Strategy Execution

Beha

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Strategy Execution

Cultu

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Capa

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Proc

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Reta

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Know

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Com

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Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions

Creates a Culture & Mix of Capabilities & Behaviors

Enables the Value Proposition for Stakeholders

Verti

cal;

Cong

ruen

ce w

ith

Stra

tegy

Exe

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Vertical Alignment - Congruence1. Retain practices that have the most

significant impact on strategy execution.

2. Remove or modify practices that have a negative impact on strategy execution

3. Ignore or modify practices that have no impact on strategy execution

Beha

vior

Strategy Execution

Cultu

re

Capa

bilit

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Proc

ure

&

Reta

in

Know

ledg

e M

gmt.

Com

p. &

Re

war

d

Perf

orm

. M

gmt

Human Capital Architecture is the Unique Differentiated Mix for Pivotal Positions

Creates a Culture & Mix of Capabilities & Behaviors

Enables the Value Proposition for Stakeholders

Verti

cal;

Cong

ruen

ce w

ith

Stra

tegy

Exe

cutio

n

Horizontal; Consistency across HCA Components

Designing an Effective Human Capital Architecture

Remember the prize ! Develop an integrated mix of human capital

architecture components that is differentiated to deliver the performance drivers for the pivotal positions to execute strategy

Vertical Alignment; CongruenceHorizontal Alignment; Consistency