The Human Capital Game
November 28, 2016
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Corporate chieftains have long paid lip service to the importance of their employees while human resources leaders chafed on the sidelines—overseeing compensation, training and development but feeling hamstrung from actually managing human capital with the attention it deserved. Now, of course, a relatively new HR function—the chief human resources officer (CHRO)—has emerged, and with it a whole new art of managing staffs.
Today’s global corporations are reliant on knowledge as opposed to brawn, with a talent pool that is younger and more mobile, diverse and highly trained than ever. Enter the CHRO, who is tasked with ever-greater responsibility for eliciting results and putting out fires. All that talk about the importance of people has become real. Human capital must be nurtured, protected and managed in ways that were not part of past conversations.
How this works in a practical setting means different things in different industries. Finding and recruiting the kind of talent to successfully serve customers in a huge financial services company is nothing like overseeing the tens of thousands of employees at a major international airline, or the highly skilled scientific and technical work force of a global pharmaceutical giant. But there are common threads, as we learned in speaking to three CHROs, from Voya Financial Services, Sanofi and Lufthansa Airlines. As Alan Guarino, vice chairman of Korn Ferry’s CEO and board services practice, puts it: CHROs “are the CEO’s lead service provider for the talent agenda.”
When Bettina Volkens became CHRO of Lufthansa Group, the $35 billion German airline, in 2013, the former lawyer encountered the global airline industry in a state it always seems to be in: volatile. Political upheaval, natural disasters and economic turmoil all had a dramatic impact on the major carriers, even top-rated airlines such as Lufthansa.
While focusing on the development of leadership within Lufthansa’s management and finding innovative ways to enhance human capital at the airline, Volkens, 53, has the additional challenge of forging agreements with the airline’s powerful trade unions.
In Germany, trade unions play an important, outsized role in both the nation’s economy and society, and set the framework for working conditions in most industries. Volkens works closely with several specialized trade unions, with whom agreement is paramount in order to establish cost structures that allow the airline to operate in an economically feasible manner.
Having established agreements with the ground and cabin crew unions, the next big union contract will be with the pilots. The implications for Lufthansa and its CEO, Carsten Spohr, are monumental, making Volkens a key strategic player in management.
“We are in the midst of a fundamental transformation process that requires high flexibility from both our staff and management,” Volkens said. “In the last three years, we launched efficiency programs, customer orientation initiatives and organizational restructuring projects—a lot of change undertaken at the same time.”
The shifting dynamics of the global airlines business leaves no choice but to initiate such moves in order to create a more flexible organization. Top managers, many of whom have had long careers at the airline, have to embrace the changes, happily or not.
“What we want to achieve is to finally let go of the traditional ‘silo mentality’ in business areas and our major airlines, and to collaborate more closely with colleagues across all corporate units instead,” she explained.
In a culture built upon rigid adherence to both safety and perfection, slow decision-making processes go hand in hand with risk aversion. For years, Lufthansa did not hire managers externally, which produced even more corporate rigidity. “In times of increasing volatility and competition, fostering the needed flexibility and agility among our staff and leadership team has been and is the most difficult task I deal with,” Volkens said.
To address the development of its leadership teams, Volkens has restructured the internal training entity and renamed it the “LH Group Campus.” Since 70 percent of all worldwide change initiatives fail, she said, mainly because the required change is not supported by employees or management, HR has to focus more intensely on human capital, foster the right talents and change required competencies. Thus, “from my expectation, HR will become more analytical and strategic than ever before,” she said.
IN 2015, when Olivier Brandicourt took over as CEO of Sanofi, the $42 billion pharmaceutical giant, one of his first meetings was with Roberto Pucci, the company’s CHRO. Talking with the person responsible for human capital and organizational dynamics made this a natural starting place for Brandicourt. But soon that relationship was tested as the company initiated a new organizational structure, shifting from a decentralized model to a global business unit model. For a company with over 110,000 people in more than 100 countries, such a dramatic change demanded that Brandicourt and Pucci work closely together for many months.
“Right after we designed the organization we had to staff the organization, and since he was new, Olivier was relying on me and my team to guide him on people choices and organizational structure,” Pucci said. “That has given us an unbelievable opportunity at a very strategic level to make a significant contribution to the company.”
For Pucci, an outspoken 53-year-old HR veteran, the CHRO role is a comfortable fit. Having worked in the high-tech and automotive industries, Pucci arrived at Sanofi seven years ago with significant HR skills but little knowledge of biotech and pharmaceuticals. Conquering the learning curve on the technical side was a challenge and required the humility to realize there was a lot to learn. After seven years, much of his time on the road meeting Sanofi executives and employees, Pucci believes there are some elemental truths.
“We have to operate in different cultures, and I’ve worked in four different industries in four different countries in my career—Italy, France, Switzerland and the U.S.,” he said. “And I’ve learned that people are people. What motivates them and frustrates them is not much different from one country to another.”
Pucci pointed out that the dynamics of the biotech and pharma industries are changing rapidly as this once heavily regulated, monopolistic environment is now highly competitive. These changes are having an impact on the people Sanofi recruits. Rather than just technical expertise, the preferred candidate must have a demonstrated ability to deal with change, to understand how to penetrate markets and identify value chains. Since Sanofi finds itself up against such major global giants as Pfizer and GlaxoSmithKline, the battle for top talent is fierce.
Working with Brandicourt, Pucci is aware that moving quickly to secure valuable talent is key. In an industry once averse to risk due to regulations, safety concerns and the high cost of product development, the new challenge is clear: “Can we strike the right balance and deal with safety and regulation, but also take the opportunity to tackle the market with new dynamics?” he said. People with that mind-set are in high demand.
For Kevin Silva, executive vice president and CHRO at Voya Financial since 2012, there are common elements in his role, regardless of the industry. In a job in which he must manage both financial and human capital, “human capital is equally important,” Silva said. Indeed, the role of the CHRO is to connect human capital to the production of financial results in an organization.
“First, you have to pay attention to culture and the work environment,” said Silva, 63, who has worked in various human resources positions at such companies as MasterCard International, Merrill Lynch and MBIA Insurance. “Every company has a culture. The question is whether you have a culture of default—the last person running the place—or one of design.”
In order to maximize human capital, Silva oversees a variety of talent categories, from customer service to investment managers to software specialists. For Voya, an $11 billion company with 7,000 employees dedicated to retirement planning for its 13 million customers, the focus is on the “what” and the “how,” he pointed out. Teams are graded 50 percent on what they accomplish—the hard financial objectives—and 50 percent on how they achieve those objectives. In particular, Silva pays close attention to how the company’s leaders use talent.
“Some leaders churn talent, grind it down so it must be replenished,” he said. “Others use it; their subordinates are cogs in a wheel. Finally, some leaders grow talent: The people and the organization are better because of that leader.”
Finding leaders capable of growing talent is not a simple task. Voya depends on a system of continuous improvement in which the teams are solving problems at the lowest levels of the organization. In so doing, employees are urged to collectively identify problems, even “celebrate” problems, and then by resolving those at the lowest levels, there is a positive influence on customer relationships.
Today’s human resources organization must continue to focus on traditional areas of compensation, benefits, and training and development. But at the high end, the CHRO “is a coach and counselor to the CEO on both business and human strategic roles,” Silva explained. “The strategic CHRO acts as coach and adviser to the CEO and to the senior team.”
Since Voya spun off as a new brand in 2014 from the former ING, Silva has been involved in creating a new culture and identity for the emerging company. Rather than following a traditional top-down approach, which he said stifles creativity and problem solving, Voya turned the organization upside down and, led by the CEO, looked to use its culture as its distinguishing feature. “Financial services are challenged to distinguish themselves, one employer from the other, and we are competing for top talent and a younger work force,” Silva said. The CHRO must take a visible and proactive role in the endeavor.