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monitor group

Human Capital Strategy


PULLING AHEAD OF THE COMPETITION …AND STAYING THERE
MONITOR GROUP
Monitor Group is a family of professional service firms, linked by shared ownership,
management philosophy, and knowledge assets. Each entity in the Group is dedicated
to providing products and services which fundamentally enhance the competitiveness
and capabilities of our clients. We operate globally in a closely-linked network, sharing
our core assets — knowledge, expertise, skill and capital. Those assets are brought to
bear for the benefit of our clients through a blend of channels including;
• consulting interventions;
• management development programs;
• customized software and intelligent tools;
• cutting-edge market research;
• venture capital and advisory services; and private equity.

LATTICE PARTNERS™
Lattice Partners™ helps companies build sustainable competitive advantage through
their organizations, leadership teams, and people. We adopt a highly pragmatic
approach in our interventions:
• Seamlessly combining structural, process, and incentive design with
coaching and counseling capabilities
• Using software technology to make diagnosis and intervention fast
and cost-effective
• Integrating broadly across our experience in general management
consulting and expertise in human capital disciplines

Our range of tools and interventions help clients sense and adapt to changing
competitive and leadership dynamics, improve organizational performance, and build
institutional capability.

ACTIVITIES, PROCESSES AND SYSTEMS (APS)


APS (Activities, Processes and Systems) is Monitor’s center of expertise on Operations
Strategy. APS helps companies make the critical choices about how to configure their
assets and operations in order to drive sustained success in the marketplace. Specific
areas of focus include: overhead management; manufacturing and supply chain strategy;
product, customer and channel profitability. APS works closely with its sister business
units, such as Lattice Partners, to offer clients integrated solutions to their most pressing
operational challenges.

Copyright © 2006 by Monitor Group All Rights Reserved


HUMAN CAPITAL STRATEGY
Changing the Value Equation

In most organizations, business leaders con- functions. Though such efforts have saved
front a stubborn dilemma. On the one hand, real money and started to move HR into more
they know that managing their people well is strategic roles, few companies have fully re-
vital to winning in the market. With wrench- alized their human capital potential. Indeed,
ing changes from restructuring, off-shoring, in many organizations, there remains a per-
and industry consolidation; turnover in top sistent disconnect between business strategy
management; and heightened competition and HR functional strategy. What these orga-
for skilled workers — now, more than ever, nizations lack is a clear and coherent human
companies need a clear and compelling hu- capital strategy to link their business and HR
man capital strategy. On the other hand, the choices (SEE FIGURE 1).
pressure to cut human capital spending is re-
lentless. In short, the business needs human In many organizations, there remains a
capital initiatives that create more strategic persistent disconnect between business
value…yet cost less.
strategy and HR functional strategy.
The Missing Link In developing a human capital strategy,
In response to these pressures, many compa- there are three important principles to keep
nies have focused their attention on the HR in mind. First, a human capital strategy
1
function. Company after company has set should be grounded in the firm’s competi-
about transforming its HR function — setting tive strategy, which can be articulated as a
up new centers of excellence, redefining the cascade of choices:
role of the HR business partner, establishing
• What are our goals and aspirations
shared service centers, and outsourcing basic (e.g., mission, vision, values)?

Human Capital Strategy — The Missing Link FIGURE 1

HUMAN CAPITAL STRATEGY − Changing the Value Equation


Competitive Strategy
What are our goals
and aspirations? Human Capital Strategy
Where will we play?

How will we win in Attraction


chosen markets?
What capabilities must
be in place to win? Performance
Management Leadership Deployment
What management Culture
systems are required? HR Function Strategy

Networks Investment

Values
• Where will we play (e.g., markets, customer talent will all vary depending on how this
segments, geographies)? uncertainty plays out. Robust human capi-
• How will we win (e.g., choice of business tal strategies factor in a range of potential
model, value proposition)? uncertainties (SEE FIGURE 2) and assess their
overall implications.
• What organizational capabilities must be
in place? Finally, in addition to being grounded in the
external competitive reality, effective hu-
• What management systems are needed?
man capital strategies start with a simple
Second, for a human capital strategy to be premise — people are an asset of a company,
truly robust, it must not only consider the not unlike its physical, financial, knowl-
strategy of today but also its potential evo- edge, and social assets. Though human assets
lution in the future. This evolution will be clearly have distinctive qualities relative to
driven by a range of external uncertainties, other assets (e.g., personal choice, individual
such as whether the competition for top tal- variability), they can be deployed using a
ent will occur on a regional or global basis. similar lifecycle management approach. For
The pools from which the company sources each organizational capability required to
talent, the consistency of rewards and recog- support the business strategy, the key dimen-
nition, and the choice of career paths for top sions of human capital choice are:
2

Examples of Human Capital Related Critical Uncertainties FIGURE 2

REGIONAL Competition for Talent GLOBAL

HEAVY Regulatory Constraints in HR Management LIGHT

LOW Adoption of Online HR Services HIGH

GEARED TOWARD Organizational Priorities GEARED TOWARD


COST CUTTING GROWTH

TRADITIONAL AND Dominant Type of Organizational Structure NETWORKED OR


HIERARCHICAL VIRTUAL

Sources Of Leadership
TOP-DOWN Innovation and Change BOTTOM-UP
MONITOR GROUP
Rethinking the HR Function
A well specified human capital strategy can deliver a range
of business benefits — greater organizational alignment,
better execution against the organization’s key capability
requirements, improved yields in recruiting, higher levels
of talent retention, and greater employee engagement and
• Attraction: how will we attract and retain productivity. But perhaps the most immediate impact is
the required talent? in redefining the role of the HR function. Effective human
capital strategies require companies to view HR not as a
• Deployment: what are the pivotal roles in
monolithic function but rather as a portfolio of distinct
the organization and what performance
activities that deliver different kinds of value:
must we have from people in those roles?
1. Strategy enabling — the critical few activities that drive
• Investment: what new skills and compe- advantage in the marketplace by directly supporting
tencies must we develop in our people and the firm’s human capital strategy (e.g.; talent man-
through what means? agement, organizational strategy)

2. Risk mitigating — activities that mitigate downside risk


• Networks: what are the key organizational
(e.g.; continuity planning, labor relations)
interfaces where collaboration matters (e.g.,
marketing — sales) and how can we estab- 3. Efficiency enhancing — discretionary investments that
reduce costs and enhance productivity (e.g.; employee
lish the right person-to-person connections portal/self-service administration)
across these interfaces?
4. Basic services — transactions that keep the business run-
• Performance Management: how will we ning (e.g.; benefits administration, employee records)
measure and reward success?
Dividing HR into these activity classes allows executives
• Culture and Values: what sets of norms, to more effectively manage the investment portfolio. Just
principles, and behaviors should we as financial investors expect different risk and return pro-
espouse and how do we embed them in files from equities and bonds, business leaders should 3
the organization? hold each HR activity class to different standards and ex-
pectations. Benefits administration, for example, should
• Leadership: what kind of leadership system be managed to be as efficient as possible while meeting
do we need and how can we enable a standard (undifferentiated) quality levels. On the other
diverse range of leadership styles? hand, the potential enterprise benefits of a carefully de-
signed and well-executed talent management program
far outweigh the associated HR costs — in this case, the
For a human capital strategy to be discussion should be focused not on how much the pro-

HUMAN CAPITAL STRATEGY − Changing the Value Equation


truly robust, it must not only consider gram costs but how to drive and measure the value that
it creates.
the strategy of today but also its
It is no longer okay to put HR under a single management
potential evolution in the future. structure, apply a single set of performance measures and
rewards, source people from the same hiring pools, and
train them to a common set of competencies. Doing so
has the benefit of allowing for quick and easy compari-
sons with other companies and simple ways to keep score
(headcount and spending benchmarks). But it also erodes
HR’s value just when the company needs it most. Ignoring
the different activity classes drives hundreds of companies
to virtually identical approaches to staffing, objective set-
ting, performance management, talent, and employee en-
gagement. This march toward standardized best practice
really creates undifferentiated average practice, and can
lead companies to inadvertently eliminate the things they
do that are truly distinctive.
CASE STUDY
Undiscovered Savings—and Value glaring quality issues. As part of its turn-
around, the company sought to dramatically
ASSESSMENT
reduce non-clinical support spending while
Companies that articulate their human capi-
reestablishing itself as a leader in the quality
tal strategy and assess the implications for
of patient care.
HR often find significant cost savings — in
our experience, anywhere from 15-25% of HealthCo began by taking a close look at its
addressable costs. Yet the most profound overhead spending, and discovered that while
change is not the reduction in headcount they traditionally only looked at “corporate”
and low value activity or a faster move to overhead spending — that took place in cor-
outsource basic services. Rather, it is the re- porate and regional headquarters — in reality
balancing of the HR investment portfolio, this represented only a fraction of their total
which often results in greater spending on overhead activity, with the majority being
strategy enabling and risk mitigating activi- “embedded” within individual facilities in
ties, as well as a renewed focus on improving their medical network (SEE FIGURE 3).
the ROI for efficiency enhancing activities.
Within the HR function, for example, for ev-
Take, for example, the case of a leading ery dollar spent by corporate, five additional
health care provider. HealthCo risked losing dollars were being spent in the facilities, fre-
4 its market leadership because of regulatory quently with high degrees of duplication and
and competitive pressures — not to mention very little coordination or sharing of best
a public crisis of confidence stemming from practices.

HealthCo Corporate and Embedded Overhead FIGURE 3

Corporate
Embedded

12%

88%
$MM

TOTAL Facility Billing/ HR/ Medical Corp. Regional Facility


MONITOR GROUP

Admin Collection Education Affairs Other Operations Admin


Med Records/ IS Marketing/ Finance Legal Facilities
Transcription Communication/ Management
Business Dev.
User Perceptions of Importance and Performance FIGURE 4
for Corporate HR Services

HIGH

Nurse Communications/
Online Services Nurse Recruitment/Retention
Performance
Leadership Skills Training

International Nurse Recruiting

LOW
LOW Importance HIGH

5
To supplement the cost data, HealthCo also just felt that corporate recruiting services
conducted an internal survey of all of its fa- were disconnected from the realities of their
cilities’ leadership teams, to assess the value markets, highly ineffective and therefore not
that corporate overhead functions were cre- to be counted on. Unfortunately, their efforts
ating for the line. Figure 4 shows the results to do their own recruiting at the local facility
for the HR function: every point on the chart level were not succeeding either, largely be-
represents a specific service that corporate cause individual facilities did not have the scale

HUMAN CAPITAL STRATEGY − Changing the Value Equation


HR was performing to support the facilities, to invest in developing professional recruiting
with each service being evaluated in terms of functions. As a result, the number of nurse
its importance to the line and how well it was
performing. As the chart shows, the majority The most profound change
of corporate services were deemed by users is the rebalancing of the HR
to be of limited value, including a number of investment portfolio.
services meant to support the recruiting and
development of nurses. openings had been steadily increasing across
the HealthCo network, with a corresponding
Notably, when asked about the general im-
increase in expensive contract (temporary) la-
portance of recruiting and retaining nurses,
bor hours and costs (SEE FIGURE 5).
facility leaders declared that this was one of
their most critical strategic challenges. They
HealthCo Corporate and Embedded
Nurse Hires/Openings Overheadof
as a Percentage Totals FIGURE 5

60% RN Hires as a Percent of Total Hires


RN Openings as a Percent of Total Openings

Contract Labor Costs

50%

Cost
40%

30%

20%
Year 1 Year 2 Year 3

6
CASE STUDY

SOLUTION velop and execute a winning human capital


All of this was of particular concern given strategy that is critical to the firm’s success,
that HR-related activities would need to and simultaneously find ways to cut overall
play a critical role in HealthCo’s strategic HR spending. Led by top line and HR execu-
turnaround. Specifically, HealthCo’s overall tives, HealthCo launched a systematic human
objectives were to improve the quality of pa- capital and HR overhaul. Specific elements of
tient care while continuing to drive earnings the human capital strategy included:
growth. To do so, they developed a strategy
• Attraction: Targeting early career nurse
that consisted of focusing on higher margin, practitioners, with an employee value
complex procedures and developing a unique proposition focused on superior learning
in-patient care experience within the com- and development programs to build deep
pany’s regional clusters of medical facilities. clinical expertise and policies to support
Nurse practitioners, with deep clinical exper- flexible engagement; Deployment: Creating
tise and the ability to deliver consistent and regional resource pools that supported
high quality patient care, were central to this flexible engagement, and defining career
strategy. However, as Figure 4 above dem- progression paths that enabled greater
onstrates, the nationwide shortage of nurses, choice of specialty for early career nurses;
MONITOR GROUP

competitive labor markets, and unionized la- • Development: Shifting the mix of learning
bor pools made it extremely challenging to and development programs — scaling back
execute the strategy. As a result, HR leader- generic training programs and reinvestment
ship faced the all too common dilemma: de- of savings in best-in-class specialty training;
HR Investments Before and After Redesign FIGURE 6

Benefits Labor Recruiting Employee Research/ Compensation


Relations Relations Reporting

• Networks: Creating formal mechanisms ticular, hiring skilled recruiters to manage


7
for senior practice specialists across the nurse recruiting and deployment across all
country to share best practices and define of the facilities in a particular labor market
national quality standards and policies; (strategy enabling)

• Performance Management: Changing • Working jointly with organized labor to


measures and rewards to focus on demon- develop and execute key human capital
strated expertise and patient care, rather initiatives (risk mitigating)
than tenure;
• Moving to on-line and outsourced learn-

HUMAN CAPITAL STRATEGY − Changing the Value Equation


• Culture and Values: Defining and embed- ing programs for basic training (efficiency
ding a quality of care culture at every enhancing)
patient touch point; and
• Developing shared services for benefits ad-
• Leadership: Redefining the role of the ministration, employee records and vendor
Chief Nursing Officer to lead development negotiation/management (basic services)
of practice expertise.
The result was a significant rebalancing of
the HR activity portfolio (SEE FIGURE 6).
CASE STUDY

RESULTS
The HR function required a significant trans- Overall, this led to a 15% reduction in HR
formation in order to deliver on this human spend with an equivalent level of savings
capital strategy while at the same time driv- expected in contract labor costs as a result
ing efficiencies in HR spending. Specific of filling nurse vacancies. Most importantly,
elements of the HR program included: it enabled significant reinvestment in patient
care and quality management systems to
• Investing in regional nurse recruitment and
resource management capabilities — in par- drive increased patient satisfaction.
Getting Started
Companies should revisit their human capi- 4. Mode of service provision. Have HR and
tal and HR functional strategies when they the line appropriately divided responsibil-
do not have convincing answers to or clear ity for delivering on the human capital
alignment among line and HR executives on strategy? Has the company considered the
the following questions: full range of options for providing key HR
activities (e.g., shared service centers, cen-
1. Capabilities. Is it clear what organizational ters of expertise, automation, outsourcing)?
capabilities are required to support the
competitive strategy? Human capital strategy gives companies the
tools to answer these questions and to break
2. Human Capital Priorities. Is it clear what
out of the HR dilemma. The result is an HR
initiatives, focused on the specific em-
function that succeeds not only on the usual
ployee segments, are needed to deliver the
benchmarks, but on the only one that really
required organizational capabilities and
engage each segment? Can executive counts: pulling ahead of the competition,
leadership articulate the company’s top 5 and staying there.
human capital priorities?

3. HR Priorities. Are there clear and compel-


8 ling links between the competitive, human
capital and HR functional strategies? Where
is the HR function over- or under-delivering
relative to its strategic priorities? Is there a
system that tracks HR value creation relative
to strategy, needs, and costs over time?
MONITOR GROUP
SAMEER SRIVASTAVA is a Partner in Monitor Group and a co-founder of
Lattice Partners, the firm’s human assets and organizational strategy unit. He
has helped clients drive major organizational change initiatives and align their
organizations with competitive requirements. He holds a degree in Economics
from Harvard College and an MBA from Harvard Business School.

AMBAR CHOWDHURY is a Partner in Monitor Group and a leader of


APS, the firm’s operational strategy unit. Previously, he was an assistant
professor of mathematics at the University of Connecticut. Ambar received his
PhD from the University of Notre Dame and his BA from Oxford University,
both in mathematics.

DOUG MACKENZIE is a Partner in Monitor Group and the leader of


Lattice Partners’ West Coast practice. Before Monitor, he was a Senior Vice
President and head of Worldwide Human Resource Development (HRD) at
American Express Company, where he also served as Corporate Chief Quality
Officer. He earned his Masters of Business Administration from the Harvard
Graduate School of Business, and a Bachelor in Environmental Economics from
Colorado College.
CONTACT

Monitor Group
Two Canal Park
Cambridge, MA, 02141
10 p 617.252.2000
f 617.252.2100

Sameer Srivastava
p 617.252.2475
sameer_srivastava@monitor.com

Ambar Chowdhury
p 617.252.2856
ambar_chowdhury@monitor.com

Doug MacKenzie
p 415.278.5885
doug_mackenzie@monitor.com

www.monitor.com
www.latticepartners.com
www.adaptiveoverhead.com
MONITOR GROUP