If you don’t get the people process right, you will never fulfill the potential of your business. The people process is more important than either the strategic planning and decision-making or operations management processes. After all, it’s the people in an organization who make judgments about how markets are changing, create strategies based on those judgments and translate strategies into operational realities.
A robust people process does three things. It evaluates individuals accurately and in depth. It provides a framework for identifying and developing the different types of leadership talent the organization will need to execute its strategies down the road. It also fills the leadership pipeline that is the basis of a strong succession plan.
Very few companies accomplish all of those objectives well. One of the biggest shortcomings of the traditional people process is that it’s backward-looking, focused on evaluating the jobs people are doing today. Far more important is whether the individuals can handle the jobs of tomorrow. We have seen many people who led business units well who did not have the capability to take the business to the next level. Companies often wait until the financial results are in before making corrections in key leadership positions. By then, the damage is done. The results are lagging indicators.
These kinds of decisions?putting the wrong people in place to execute a key part of a business’s strategy?are common. Whether they’re expanding abroad or launching a new domestic plan, far too many leaders don’t ask the most basic questions: Who are the people who are going to execute that strategy, and can they do it? The strategy can be all right by itself, but the company may have no hope of executing it.
Identifying the match between the right person and the right job is not always a clear-cut case. Sometimes it means replacing an excellent performer with a person who is better equipped to take the business to the next level. Sometimes the problem is clear, but it should have been avoided with earlier action. A leader who achieves his numbers at the expense of the organization can do a great deal of damage. It’s not hard to identify the person who is wrong for a job because of his behavior, but it’s better to make sure such a person doesn’t rise to a critical job in the first place.
Early feedback on behavior can have a major impact on your competitiveness. In many organizations, to create the discipline of execution, changes in behavior are needed at even the highest levels.
Building Block One: Linking People to Strategy and Operations
The first building block of an effective people process is a linkage to strategic milestones during the near (0-2 years), medium (2-5 years) and long terms, as well as the operating plan targets. The business leaders create this linkage by making sure they have the right kind and number of people to execute the strategy.
Consider XYZ Co., which produces components for airplane manufacturers. Its new strategy calls for providing not just products but solutions, including post-sale services that will help retain customers and create annuity income. It also proposes to win nonairline customers. The dialogue in the people process zeroes in on the shift in skill mix that will be required for the new environment for selling solutions. The company has many people who are very good at what they do, but to execute the new strategy it will need to reevaluate its leadership team and acquire fresh sales talent. Whose skills will become obsolete? How much lead time will it take to train engineers for the new mission of solution designs, and who will be accountable?
Determining that some of an organization’s high performers can’t handle the challenges of a new strategic future is a difficult social process?who wants to tell good people they aren’t capable of moving to the next level? It has to be done, though, and the kind of people process we are describing forces leaders to put these questions on the table. Linking people, strategy and operations also helps distill organizational challenges for the coming year.
Building Block Two: Developing the Leadership Pipeline Through Continuous Improvement, Succession Depth and Reducing Retention Risk
Meeting medium- and long-term milestones depends on having a pipeline of promising and promotable leaders. You need to assess them today and decide what each leader needs to do to become ready to take on larger responsibilities. The dialogue resulting from this assessment will reveal the adequacy of the leadership pipeline in terms of quality and quantity. Nothing is more important to your competitive advantage.
A useful tool in developing a total picture of the pipeline is the Leadership Assessment Summary. The summary compares both performance and behavior for a group of individuals. At XYZ, for example, it shows not only which sales executives win the big contracts (performance), but it shows which ones collaborate with their peers and which are lone wolves (behavior). The Leadership Assessment Summary gives an overview of those in the group who have high potential and those who are promotable. Similarly, it shows who exceed standards in terms of performance but need improvement in behavior, as well as those who are below standard in both areas. The Leadership Assessment Summary is the end result of several key pieces of information and backup, including the Continuous Improvement Summary, the Succession Depth Analysis and the Retention Risk Analysis.
The Continuous Improvement Summary looks much like a traditional performance appraisal. Where it differs is that it not only captures the key performance highlights, but also includes clear, specific and useful information on development needs. The Continuous Improvement Summary helps the individual become a better performer.
Analyzing succession depth and retention risk are the essence of talent planning and building a leadership pipeline of high-potential people. They are the foundation for discussing individual needs as well as lateral and upward job moves. They also focus on what needs to be done to retain critical people and replace those who leave unexpectedly, are promoted or who fail. The retention risk analysis looks at a person’s marketability, potential for mobility and risk to the company if they leave.
Succession depth analysis determines whether the company has enough high-potential people to fill key positions. It also looks at whether there are high-potential people in the wrong jobs and whether key people will be lost if a job is not unblocked for them. The trade-offs between the need for succession depth, retention of future leaders and meeting immediate economic realities can cause a great deal of trouble if a business doesn’t have a strong leadership pipeline based on good information.
Building Block Three: Dealing with Nonperformers
Even the best people process doesn’t always get the right people in the right jobs, and it can’t make everybody into a good performer. Some managers have been promoted beyond their capabilities and need to be put in lesser jobs. Others just have to be moved out. The final test of a people process is how well it distinguishes between these two, and how well leaders handle the painful actions they have to take.
There’s one thing that wakes you up in the deep of night after you make these selections. You’ve all discussed someone carefully, listened to all viewpoints and reached a conclusion you all feel good about. But no matter how successful a person has been so far, every promotion is a new decision. You can’t take it for granted that he’s going to succeed in the next job. Nonperforming people are essentially those who aren’t meeting their established goals. They’re unable on a regular basis to accomplish what they are responsible for. Their failures don’t mean they’re bad people. It just means that they aren’t performing at the level that is essential for the company’s success, and you must deal with them quickly and fairly.
Building Block Four: Linking HR to Business Results
If you’re thinking that human resources is less important in an execution culture, let us correct that impression. It’s more important than ever, but its role has to change radically. HR has to be integrated into the business processes. It has to be linked to strategy and operations. In this new role, HR becomes recruitment-oriented and a more powerful force within the organization than it was in its typical staff function.
There’s no one system for creating and maintaining a robust people process, but certain rules are needed: integrity, honesty, a common approach, common language and frequency. Above all, candid dialogue is critical. It’s what Duke Energy’s senior vice president of human resources, Chris Rolfe, calls the “live ammo” in the people process.
Duke is a $59.5 billion (as of the end of 2001) producer, transporter and manager of diverse energy sources based in Charlotte, N.C. Duke had to head into a new strategic direction after deregulation of the power business in the 1990s made its old utility model obsolete. Duke developed a strategy that includes physical assets like power plants and pipelines, buying and selling natural gas and electricity, and financial operations like risk management.
The main social operating mechanism for Duke Energy is Chairman, President and CEO Rick Priory’s policy committee, which consists of him, the heads of the three major business segments, and the heads of the four major staff functions?legal, finance, administration and risk. The group meets biweekly and talks formally about people and talent three or four times a year. Much of the work gets done in the biweekly meetings.
This is the social software that makes the system at Duke Energy work. Rolfe ticks off the four elements: “One, a culture of accountability for high performance, which makes you demand the best individuals in your organization. Two, a leader who is not only willing but also ready to question an assessment. Three, a collegial culture among the top executives of the enterprise, where they hold each other mutually accountable to be reasonable and fair and will push back on one another, just as the chairman will push back. And four, giving me, as the head of HR, the right to push too because I have a fundamentally different perspective because of the work I do. I’m not a small executive of the company. When I make an observation, everybody listens to me because it’s not about rank. It’s about the credibility and the perspective of the individual.”
The right people are in the right jobs when information about individuals is collected constantly and leaders know the people, how they work together and whether they deliver results?or fail to. It’s the consistency of practice that develops expertise in appraising and choosing the right people. The people process begins with one-on-one assessments, but when developed and practiced as a total process, it becomes effective as an execution tool. If a company has the right people, in all likelihood its strategies will be in sync with the realities of the marketplace, the economy and the competition.
Larry Bossidy is the chairman and CEO of Honeywell International. He has also served as the chairman and CEO of Allied Signal, COO of GE Capital and vice chairman of GE. Ram Charan is an adviser and consultant to corporate executives and the author of What the CEO Wants You to Know and Every Business is a Growth Business.