Competitive Advantage thro’ Peopleby

Srinivas Thummalapalli

Topics

Sources of Competitive Advantage

Construct of Successful People Friendly Firms

Financial Impact of Human Capital

A framework of Talent Management

Questions

Sustainable Competitive Advantage

Distinguishable from competitors

Provide positive economic benefits

Not readily duplicated

The Changing Basis of Competitive

Success

Traditional Sources

Product and Process Technology (Sun, GM)

Regulated Markets

Access to Financial Markets

Economies of Scale

Current Sources

Leveraging Organization Culture

Firms Capabilities

People Management Practices

Importance of the Work Force and How It Is

Managed: Southwest Airlines

Fewer Employees per Aircraft (79 vs. 131)

Flies more passengers per employee (2318 vs. 848)

More available seat miles per employee (1,891,082 vs.

1,339,995)

80% of flights turns in </= 15 Min (vs. 45min)

Exceptional Service: Triple Crown 9 times (vs. no

competitor has ever won)

The “Externalization” of Employment: A

Counter Intuitive Observation

Most motivated & loyal employees are those whose

companies help them become star performers by

providing a comprehensive set of personal and career

development opportunities across the whole

enterprise, without functional or divisional restrictions

Companies need to make their employees more

attractive to the external market so that they satisfy the

employees’ real desires for growth & development

Many professionals who switch jobs often do so

because they don’t feel that they have any tangible

impact on their company

What Effective Firms Do with People

Learn what employees really want most by

communicating with them, including receiving continual

feedback

Provide a wide range of growth & development

opportunities for all levels of employees

Adopt measurement & reward systems that clearly

articulate what is expected from employees, and

reward them accordingly

Sixteen Practices for Managing People Employment Security

Selectivity in Recruiting

High Wages

Incentive Pay

Employee Ownership

Information Sharing

Participant and Empowerment

Teams and Job Redesign

Training and Skill Development

Cross-Utilization and Cross-Training

Symbolic Egalitarianism

Wage Compression

Promotion from Within

Long-Team Perspective

Measurement of the Practices

Overarching Philosophy

Example: The Lincoln Electric Company

Had a policy on employment security stating that no employee with 3 years or more of service would be laid off for lack of work.

New United Motor Manufacturing Guaranteed workers’ job as part of formal labor contract in return for a

reduction in the number of job classifications and an agreement not to strike over work standards.

1. Employment Security

Signals long-standing commitment by the organization

to its work force

Enhances employee involvement as employees are

more willing to contribute to the work process

Contributes to training as both employer and employee

have greater incentives to invest in training

2. Selectivity in Recruiting

Choosing the right people, in the right way

Rigorous selection process instills a feeling in the

person that he/she is joining an elite organization; high

expectations for performance are created; and the

message sent is that people matter

Example: Southwest Airlines

Some of its best customers are involved in the Flight Attendant hiring process as the customers are the ones who deal with front-line employees.

Japanese Auto Manufacturing Plants in the US Extensive screening to find people who could work best in new environment,

could learn & develop with minimal supervision, weed out people who were likely to be pro-union.

3. High Wages

Attracts more applicants, permitting the organization to

be more selective in its hiring

Makes employee turnover less likely

Sends a message that the organization values its

people

Example: Wendy’s a popular fast-food chain company

When facing declining company profitability, the company decided the best way to become the customers’ restaurant of choice was to become the employer of choice.

Improved benefits and base compensation & created employee stock option plan, which resulted in a stable and able work force, thus leading to rise in sales.

4. Incentive Pay

People are motivated by other than money, such as

recognition, security, fair treatment, etc.

Example: The Lincoln Electric Company

Factory workforce is paid on a piecework basis and incentive bonus plan. Workforce is paid for good pieces only, hence workers correct quality

problems on their own time. Quality is emphasized as well as productivity. Bonuses are based on company’s profitability, encouraging the workforce to

identify with the whole firm.

5. Employee Ownership

Aligns interests of employees with those of

shareholders by making employees shareholders too

Puts stock in the hands of employees, who are more

inclined to take a long-term view of the organization, its

strategy and investment policies

Example: The Lincoln Electric Company

80% of the workforce have stake in the ownership of the firm. 40% of the revenues are distributed in the form of incentives/bonuses. Healthy balance between the shareholders of the firm and employees in the

ownership. Facilitated greater participation of employees in the overall success of the

firm.

6. Information Sharing

Disclosure is an integral part of profit sharing

Employee identification with Employee enterprise is

heightened

Informed basis for employees to appreciate the

interests of Organization and Self

Example: Levi Strauss

Installed a quality enhancement program accompanied by gain sharing at its manufacturing plant.

Six-month evaluation of the program revealed employees understood the concept and the measures, and thought that they were fair and could affect them.

7. Participation and Empowerment

Broader employee participation

Empowerment in controlling one’s environment

Decentralization of decision making process

Autonomy is integral part of job design

Example: Eaton, a unionized manufacturer

Workers tired of fixing equipment that broke down, suggested and built new automated machines themselves.

Did it for a fraction of what outside vendors would have charged and doubled the output of the department.

Nordstrom Rules Use your good judgment in all situations. There will be no additional rules.

8. Teams and Job Redesign

Fosters group norms, conformance pressures

Better perspective on interdependency and

complimentary competencies

Example: Monsanto, a large chemical company

Implemented work organization based on self-managed teams at one of its manufacturing plants.

Teams of workers were responsible for hiring, purchasing, job assignments and production.

Management was reduced from 7 levels to 4 and the plant experienced increases in both profitability and safety.

9. Training and Skill Development

Continuous competency and capability improvement is

encouraged across workforce relevant to its roles

Example: Advanced Micro Devices’ Submicron Development Facility

Training demonstrated the firm’s commitment to its employees and staffed their facilities with qualified people

10. Cross-Utilization & Cross-Training

Variety in role is most influencing motivator for

workforce

Change in people, situations, experiences prepare for

adaptability and effective utilization of resources

Example: People Express

Processes are simple and straightforward for multitasking and enhancing productivity.

Mazda Factory Workers to Product Sellers.

Lechmere: a Retail Chain Pay for skill: number of jobs learned and used.

NUMMI Cross functional teams is a way of life.

11. Symbolic Egalitarianism

Reduction in social categories

Powerful signal to both insiders and outsiders on

egalitarianism

Example: New United Motor Manufacturing

No executive dining room; common dress code; common parking lots.

12. Wage Compression

Pay compression across categories of job families

Pay dispersion mainly due to rewards and monetary

recognition

Intrinsic enjoyment of job is paramount importance

than external tangible pay

Focus on economic rewards of having accomplished

than being a potential entity

Example: Herman Miller

CEO’s salary is only 20 times that of the average worker’s salary and bonus.

Ben and Jerry CEO’s salary is only 7 times that of the average worker.

13. Promotion from Within

It exemplifies the recognition of an individual with

overall knowledge of business, technology and

processes

Promoting the culture

Example: Nordstrom

Every new recruit, even those with advanced degrees, start on the sales floor.

Promotion is strictly from within.

14. Long-Term Perspective

Diffusion of people practices take longer lead times

But provide with enduring results

Firms must be aware and acknowledge this long term

benefit

Example: Wal-Mart

Decisions on the people management are not based on pleasing the stock market results but on the long term view of the firm as a whole.

15. Measurement of the Practices

Provides a feedback on the impact of people

processes

What gets measured is what gets noticed and thereby

prospect for improvement

Example: Levi Strauss

Gain sharing, role, responsibility, quality and productivity.

16. Overarching Philosophy

Coherent whole of disparate practices

Example: Lincoln Electric

Do unto others as you would haven them do unto you.

Nordstrom Organizational culture.

AMD Seamless organizational boundaries, technical excellence, empowerment

Fortune “100 Best” vs. Stock Market 1998-

2005: Shareholders’ Perspective

Reset Annually portfolio invests

equal dollar amounts in the

stock of each of the 100 Best

Firms-Publicly traded

100 Best Buy and Hold invests

onetime in the beginning of ’98

and hold these stocks for all

years covered in the charts

Source: Russell Investment

Group Inc.

Enhancing the Workplace brings in

Results: Firm’s Perspective

Benefit from Higher productivity & profitability

Greater Innovation, creativity & risk taking

Higher levels of customer satisfaction and loyalty

Receive more qualified job applications

Higher rate of retention

Took about 3 years to demonstrate the impact of

people practices on financial performance

A Diagnostic Framework: Internal &

External Consistency

Models like People Capability Maturity Model

Management Tools like HR Score Card

Why PCMM or any other model on People

Practices?

Integrated approach to people process improvement

Metricate the HR processes

Aligning with business strategy

Levels Developing

Competency

Building

workgroups &

culture

Motivating &

managing

performance

Shaping the

workforce

5

Optimizing

Continuous Capability Improvement Organizational

Performance

Alignment

Continuous

workforce

Innovation

4

Predictable

Competency

based assets

Mentoring

Competency

Integration

Empowered

Workgroups

Quantitative

Performance

Management

Organizational

Capability

Management

3

Defined

Competency

Development

Competency

Analysis

Workgroup

Development

Participatory

Culture

Competency

based practices

Career

Development

Workforce

Planning

2

Managed

Training and

Development

Communication &

Coordination

Compensation

Performance

Management

Work environment

Staffing

Threads in the People CMM

References/Acknowledgements:

Competitive Advantage Through People – by Jeffrey

Pfeffer

Human Performance: Stemming the tide – by Tony

Clancy and Arnaud Andre

Great Place to Work® Institute Inc.

Contact

Srinivas Thummalapalli

srini.sumantrana@gmail.com

@srinivast