During the past 10 to 15 years, CEOs and boards have increasingly looked to their
human resources leaders to adopt a more strategic, results-oriented approach to the
function. And, indeed, an increasing number of HR leaders have acquired the business
knowledge and developed the skill-sets to position themselves as true business
partners.
Spencer Stuart’s Technology, Communications & Media Practice set out to learn more
about the strategic role human resources is playing in technology companies, especially
in the dynamic and uncertain environment in which we currently find ourselves.
Consultants conducted interviews with nearly 20 human resources leaders of technology
companies, primarily in software and services, with revenues ranging from several
hundred million dollars to more than $6 billion.
In practice, the influence human resources leaders wield on strategic issues varies
widely, depending on the maturity of the organization, the capabilities and business
knowledge of the human resources leader and the specific issues facing the company.
Increasingly, however, the most effective human resources leaders are serving as key
advisers to the CEO, consulting on critical business issues such as mergers and
acquisitions and organizational readiness for major business transitions and, of course,
preparing the organization for the future through succession planning and leadership
development initiatives.
As Becky Ranninger, executive vice president of human resources for Symantec
Corporation, describes, “HR today is an amalgam of two wildly different roles: The
first, which has really come to the forefront over the last decade, is strategic; the
second is the personnel functional role, which is the day-to-day business of human
resources that you have to ‘get right.’” Those day-to-day responsibilities also can be
highly strategic, argue HR leaders. “A lot of people are quick to dismiss the
strategic importance of some of the more mundane elements of HR, including recruiting.
But when I look at some of the people we have brought on board and their role in
changing the culture of the organization, it can make a huge strategic difference,” one
HR executive said.
In addition, HR often takes a leading role in
cultural transformation and change management,
working with senior business leaders to assess
the organization’s ability to execute the business
strategy and new initiatives. “The lead HR person,
at least in my experience, plays a role not in
setting the strategy, per se, but in orchestrating
the strategy and ensuring that the process, the
inputs and the issues that are discussed are the
right ones to assess organizational capability and
readiness,” said John P. Brennan, senior vice
president of human resources for Advent Software.
“HR is in a unique position to help the
leadership of the organization balance all those
factors that are going to affect the strategy.”
The HR leader also helps the management team
examine the implications of critical decisions,
said Debra Canner, chief human resources officer
for Akamai Technologies. “For example, if the
business wants to add three new investment
projects, what are the implications in terms of
how people spend their time? What systems
or processes are needed to support the investments?
If we are investing in a new project, a
new technology or new direction, are we able to
scale the organization appropriately to support
it?” As the human resources function becomes
analytics- and metrics-driven, HR leaders will be
able to provide more information to frame key
business decisions.
It has become standard practice at many
companies for human resources to be involved
in mergers and acquisitions, not just post-merger
integration planning but to asses the human
capital elements of the deal. “We made the
biggest acquisition that we’ve made in 10 years
last year and I led the due diligence for HR personally
because we really needed to get this one
right to assure the board that we could acquire companies and successfully integrate
them,” said Clark D. Handy, senior vice president of human
resources for Convergys Corporation. “My role
from a strategy standpoint is identifying whether
an acquisition target represents a good cultural
fit. An HR leader has to be willing to step up and
say, ‘This is not going to be a good move on the
basis of cultural fit,’ which is very challenging
when there is a lot of momentum behind a deal.”
Human resources leaders today have significantly
more interaction with the board of directors than
in the past, particularly in the areas of the succession
planning and compensation, but also on a
range of business and organizational issues. “It
never seems to be an agenda item, but inevitably
during board meetings the conversation leads to
a discussion of how management is going to execute
a certain strategic initiative, which evolves
into a discussion about people, talent levels and
accountability. I find myself contributing at board
meetings in those more spur-of-the-moment conversations,”
said Peter E. Hilliard, vice president
of human resources for Harmonic.
What’s on the strategic agenda today for the
top human resources leaders of technology
companies?
Preparing for growth
The past couple of years have been challenging
ones for many technology companies, some of
which responded to the slowdown in economic
activity through cost-cutting measures such as
reductions in force, salary freezes or reductions,
and changes in benefit plans. As the economy
improves, HR leaders are watching trends in
compensation and benefits to understand the
competitive landscape for top talent and the
implications for employee retention and morale.
“The work that we do now to make sure that we’re attracting and retaining
the right talent becomes even more critical as we look to the future, and I think
companies that are not taking that into account now will pay for it later.”
Jane Altobelli, executive vice president of human
resources for Information Resources, summed up
the challenge this way: “We know at some point
that the economy will turn around, and when it
does people will start looking. How do we retain
our key talent when the market starts opening up
again? How we’ve managed our people during
the downturn will be very important. They’re
going to look back and think about how they were
treated and, hopefully, they’ll feel that they were
treated well, despite the tough decisions we had
to make early last year. To that end, we will be
rolling out a new toolkit for leaders called RentioNow,
focused on retaining our top talent. The
toolkit includes information on underlying drivers
of why people leave organizations, strategies and
ideas for individual retention plans.”
Another priority for senior HR leaders is ensuring
the business has the talent it needs for growth.
While the downturn enabled the strategic
turnover of individuals who had topped out in
the organization or whose skill-set was no longer
essential, it is also providing businesses with
the opportunity to recruit very talented leaders
who may have been unaffordable in a better
economic environment.
“The work that we do now to make sure that
we’re attracting and retaining the right talent
becomes even more critical as we look to the
future, and I think companies that are not taking
that into account now will pay for it later,” said
Sid Ferrales, senior vice president of human
resources for RealNetworks. Holly Kortright, senior vice president of human resources of
Deltek, agreed, saying: “The top priorities coming
out of this economic downturn are how do we,
from a human capital standpoint, support
growth? Companies have been forced to focus
on the short term, looking at the future in three or
six-month increments. But there is a role for
HR executives to get the organization to begin
thinking about future talent needs.”
In an environment in which resources still are
constrained, another important consideration
for HR leaders is establishing the methodologies
to identify the top players in the organization and
differentiating the financial incentives as well as
the training and development opportunities
offered to these top people. For example, as
organizations consider how to allocate limited
budgets for salary increases and bonuses,
increasingly HR leaders are making the case for
allocating these rewards where they will have the
most impact, rather than simply awarding small
increases across the board. “We can’t afford to
spend the same amount of money on everyone.
We can’t afford to take all of our compensation
dollars or development dollars and spread it like
peanut butter. We have to decide where we’re
going to prioritize putting those dollars. What
we’ve done is prioritized our talent strategy by
looking at mission-critical roles: given our business
strategy, the jobs that are going to have the
most impact on driving our future revenue
growth or reducing cost. Other areas of differentiation
are performance and potential,” said Bridie
A. Fanning, formerly executive vice president of human resources for Fiserv and now a
principal at AlignOrg Solutions.
Succession planning and talent management
Succession planning today has more visibility
with board directors, as, increasingly, investors
are looking for assurances that companies have
a comprehensive, objective and ongoing succession
planning process for the CEO, CFO and
other critical senior executive roles.
Despite widespread agreement about the
importance of succession planning, it is an
area in which many boards struggle. Human
resources executives help the board navigate
potential obstacles to CEO succession planning
by helping to define the succession
process and keeping succession planning
discussions high on the board’s agenda. The
most sophisticated organizations have well-established
succession planning and talent
development processes encompassing all
high-level executives and focusing on
preparing leaders at all levels for bigger
and more complex leadership roles.
Particularly in the early days of the business,
many technology companies take an ad hoc
approach to succession planning. As they
grow and mature, these companies institute
more formal processes for identifying talent
and giving talented executives developmental
assignments. “During my first year at SRA,
we implemented a basic succession planning
process where we identified the top talent,
set up an org chart and looked at potential
successors for key roles. Because of our
geographic growth and acquisitions, we’ve
reached a scale where we need to step up
to the next level of succession planning and,
more importantly, succession readiness.
Now, we’re starting a new planning process
incorporating leadership competencies, measuring
people against those competencies and
implementing leadership development plans.
What’s important to the success of this effort
is making sure the plans are used as key openings
occur. We have had great success to date
and the momentum has been positive,” said
SRA Senior Vice President of Human Resources
Mary E. Good.
“We ought to be in a hurry to do succession
planning, not just for business continuity, but
because an organization that is continually
developing successors drives tremendous
organizational productivity and performance.”
Roberto Llamas, chief human resources officer
for Nielsen, believes there is another benefit
to a robust succession planning process: it
improves the performance of the organization.
“We ought to be in a hurry to do succession planning,
not just for business continuity, but because
an organization that is continually developing
successors drives tremendous organizational
productivity and performance,” he said.
Human resources also has a critical role in helping
the organization define and plan for future
workforce requirements. As the business expands
geographically or into new strategic areas, the
HR leader is in a unique position to help frame
the strategy from a human capital standpoint,
including whether the strategy is achievable and
how to attract, train and motivate employees to
execute the strategy.
“The best thing we can do in terms of compensation is to make sure the
organization is successful, and the investors recognize that.”
“I am spending a lot more time with our senior
leaders discussing the skill-sets we are going
to need going forward based on our evolving
business priorities and challenges. Where will
we need talent in terms of geography? When are
we going to need them? What competencies will
they need to have?” said Paul Rostron, executive
vice president of human resources for Sabre
Holdings Corporation.
Optimizing the global workforce
More and more, the management team is
looking to HR leaders to bring powerful value
propositions to the business, and that includes
helping the company optimize the workforce internationally.
For Ranninger, this means managing
the workforce as a corporate asset, much as
the CFO manages the corporate financial assets,
with short- and long-term forecasts and a detailed
understanding of the financial and human implications
of different decisions. “The HR function
must provide specialized, focused and really granular
management of the worldwide workforce. For
example, you can have three people in Culver City
do a specific task, whereas you could have it done
for less by 15 people in India. How you ultimately
decide to do it depends on a whole range of factors,
including cost, timing, local laws and many
others. We are no longer tied to geographic location
or the way we do a piece of work. We need to
look at what is the way of doing that work that is
ultimately most beneficial to shareholders.”
To make the right decisions, HR leaders have to
help the organization sort through the range of
important considerations, including what roles
and activities can be off-shored, what should remain in-house, and the trade-offs
between having an international organization inside the
company. “Optimizing a workforce internationally
is just not simply looking for the low-cost labor
and shifting routine operations around the world.
HR leaders need to understand that and be able
to manage that,” said one global HR leader.
Globalization will continue to place new demands
on the HR function, requiring leaders to build
processes and systems able to support growth
and leverage the workforce effectively. HR leaders
also say they are addressing issues such as how
to structure international assignments, how to
implement performance-based compensation
models in geographies where there is traditionally
resistance, and how to groom managers outside
the U.S. to lead international teams.
New compensation models
Few governance issues have received as much
attention in the press as executive compensation.
As a result, boards are more sensitive to possible
shareholder reaction when they develop compensation
programs. Human resources executives
have a key strategic role in managing compensation
at all levels of the organization. Not only is
compensation — in the form of payroll, benefits,
incentive programs and pensions — one of the
largest expenses for most companies, it also
is one of the most effective levers in linking
employee behaviors to business strategy and
objectives. In the current environment, especially,
more boards and CEOs are looking to their HR
executives to reexamine and, in many cases, overhaul
compensation practices to achieve a better
balance between the organization’s short-term top-line goals and its broader and longer-term business objectives.
In practice, the HR leaders we spoke with said
their organizations have eliminated many of the
perquisites previously paid to top executives and
focused on developing pay-for-performance
models at all levels of the organization. At the
same time, companies have had to review
and, in some cases, overhaul compensation
models that relied heavily on stock options,
which are under water at many companies.
One of the challenges for HR in establishing
compensation programs, said Brennan, is
developing a compensation structure that
clearly communicates the desired behaviors.
“The best thing we can do in terms of compensation
is to make sure the organization is successful,
and the investors recognize that,” he said.
“We keep our comp structures pretty basic. It’s
important that people understand them. It’s important
that people know on a quarterly basis exactly
what the connection is between corporate
performance, individual performance, and what
they’re going to get in their pocketbook.”
DEFINING THE HR SKILL-SET
In order to fulfill their role as strategic partner to
the CEO, board and senior business leaders, HR
leaders have to have a strong understanding of
the fundamentals of the business. They need to
be able to participate in discussions on business
strategy from both an HR perspective and a
shareholder perspective, translating the human
capital ramifications of business changes. Increasingly,
companies want their HR leaders to be
champions of business performance who take a
holistic approach to motivating and developing talent and know how to use all the
available levers to achieve business objectives. These leaders will
have a well-rounded business background, a solid
understanding of the financials, a commercial
mindset and the influencing skills to partner
effectively with business leaders.
“The HR leader is going to have to be very skilled
at introducing powerful value propositions for
the company, whether it’s leadership in India or
an organizational structure that breaks out
a particular innovation program.”
“Human resources leaders have to know the
business inside and out,” said Alan M. Ross,
senior vice president of human capital management
for TriZetto Group. “The successful HR
executive develops programs around short-term
and long-term business needs versus things that
are popular or the fad of the moment.” Nancy
Litzler, founder of Litzler & Associates and
formerly the senior vice president of human
resources for i2 Technologies, recommends that
HR professionals continually develop their business
skills by getting an M.B.A. or other business
degree so they are in a better position to work
as partners with the business leaders.
Especially in the current environment where
resources continue to be constrained, HR leaders
need to be strong advocates for developing talent
and other long-term talent investments. “Everybody
is pushing for more and more efficiency and
productivity. The HR leader is going to have to
be very skilled at introducing powerful value propositions for the company, whether it’s
leadership in India or an organizational structure that
breaks out a particular innovation program,” said
Llamas. “HR not only has to be sensitive about
aligning the HR function to strategy, but also
be willing to step forward and be compelling
about those human capital investments that
best drive performance.”
“CEOs and other senior leaders really value HR leaders who are able
to leverage analysis, metrics and analytical capabilities to focus on the
bottom-line impact of decisions.”
At many organizations, the senior HR executive
will have to be a leader in managing organizational
change. “The change management and organizational
development components of the top
HR job are going to become more important. If
you think about all the complexities of business
today as a result of consolidation, M&A and
global strategies, that’s going to require people
who are adept at changing and adept at helping
their organizations manage through change,”
said Good.
Increasingly, HR leaders also will have to become
masters of analytics to improve the effectiveness
and efficiency of the human resources function
and help executives across the organization make
better decisions. “CEOs and other senior leaders
really value HR leaders who are able to leverage
analysis, metrics and analytical capabilities to
focus on the bottom-line impact of decisions.
I can tell you right now that I must focus as much
attention on the medical budget for my organization
as my overall human capital budget. Where
I’m going to have an impact from a cost standpoint
is how well I drive wellness initiatives and
get our medical costs down,” said Kortright.
Finally, HR leaders need to be able to build great
teams. As they spend more time coaching other
senior leaders and focusing on higher-level
strategic issues, HR leaders must be able to rely
on a strong team to oversee and execute core
programs. If companies are to have the HR leaders
they need for the future, they must commit
to training HR professionals about the business.
This will require that companies be disciplined
about exposing HR professionals to the business
very early in their careers, for example, by inviting
them to strategic planning meetings, and applying
the same talent development and succession
approaches to the HR function that are used to
identify and develop high-potential professionals
in the business. HR professionals aspiring to
become true business partners must be committed
to learning about the business and its issues
— pushing to be invited into business and strategy
meetings, learning to read the company’s
financial reports and pursuing a business education.
If they do not build an understanding of
how the business is planned, developed and
executed, HR professionals cannot be effective
business partners.
For information about copying, distributing and displaying this work, contact permissions@spencerstuart.com.