Leslie Stevens-Huffman

Wednesday, 25 October 2006 20:00

Tunaround artist

 When John Signorino took over as president and CEO of Chicken of the Sea in January 2005, he faced a classic dilemma: How do you move your products away from being a commodity?

Most consumers don’t think much about the brand of canned tuna that they toss into their shopping carts. When product quality and packaging all seem the same, most shoppers base their buying decisions on price.

There was also a lackluster perception of tuna, and recent press coverage alluding to potential mercury contamination of the fish further complicated the matter.

“Consumers didn’t have a strong sense of differentiation among the brands,” says Signorino. “We were losing money, and the market had changed.”

Chicken of the Sea has been around since the early 1920s and the company generates an estimated $400 million in annual revenue and employs 2,500 workers.

As the industry matured and demand for the product leveled off, the company assumed a commodity-driven marketing posture, and the brand was no longer touted through continuous television advertising. Sales were flat, and margins were low.

Signorino was hired to put the company back on a growth track. Here’s how he did it.

 

A quick return to profit
Signorino started revamping the company by finding money in the existing operations.

“I needed to make quick decisions,” says Signorino. “My focus was to make money. Most of the time, there is money to be had in the operating budget. You just have to find it.”

Signorino found the majority of the funds that he needed to return the company to a positive bottom line in a few areas. For instance, he reduced the sales and marketing budget by $4 million after scrutinizing the advertising frequency.

“We kept on advertising, but by switching from 30-second spots to 15-second spots, we increased the frequency while reducing the cost, and the reach is about the same,” says Signorino.

He also identified excess capacity in the production plant in American Samoa. This change was vital to the swing in the bottom line because by reducing the cost of processing, he also increased the product margins.

“We increased our output and throughput by altering our work weeks in the plant when possible,” he says. “We reduced some of our work weeks from five days down to four days, which also helped reduce our energy costs.”

Productivity measures were put in place that increased the amount of product being produced using the same workforce.

The end result was more cash and a more efficient operation.

 

Creating a new value proposition
Signorino says the only way to a healthy bottom line in the long term is to restore healthy growth to the top line. To increase revenue, he drew on his knowledge and experience from his tenure at consumer products giant Nestle.

He began by examining the lack of customer enthusiasm for tuna, looked at consumer data at the macro level and asked how people’s lives could be improved from the identified trends, what products could be used to address those need, and what vision was needed to carry it all out.

“I started by looking at consumer research data that was available through A.C. Nielsen,” says Signorino. “I wanted to understand what the consumer was thinking. What I found is that health and fitness were important, as were time constraints.”

He also found that consumer tastes had changed. Buyers were looking for more sophisticated products to accompany a more refined palate. The notion of increasing product sophistication fit well with the need for improved margins, and his next move was to speed up the creation and release of new products by realigning the priorities of research and development.

He also brought in a new manager to oversee its project.

“The decision to create a separate position for new product development was made after reviewing the industry, its growth patterns, segment profit potential and consumer trends,” says Signorino. “When looking strategically at this landscape, I quickly saw the need for new and innovative products to drive profitable growth.

“I gave them new goals focused on product development. We want to have new products out on the shelf every time the store resets in order to keep the category fresh and exciting.”

One of the first new products to hit grocery store shelves was a gourmet smoked Pacific salmon fillet. Signorino says that this product appeals to consumers’ desire for more sophisticated, healthful seafood without the mercury contamination concerns.

Since the introduction of the line in 2005, the product has grown to 8 percent of the firm’s total sales, and Chicken of the Sea is now one of the nation’s largest purchasers of salmon.

“The vision was to create restaurant quality and convenience for the consumer,” says Signorino.

The new salmon offering has been joined by a line of flavored ahi tuna steaks, and the next new release will be a line of tuna and salmon cups.

The data showed that an increasing number of employees eat lunch at their desks and want healthy foods that can be eaten under tight time constraints. Chicken of the Sea responded with the tuna and salmon cups to fill that need.

 

Uniting sales and marketing
Signorino says he found that the sales force had a great deal of knowledge about what consumers were looking for as a result of their experience on the front lines. The problem was that the information and ideas weren’t going anywhere.

He needed to find a way to break down the internal silos.

“Sales and marketing didn’t overlap a lot,” says Signorino. “I wanted sales to bring ideas to marketing. They have great ideas, and I wanted those to flow both ways. In a company the size of Chicken of the Sea, driving profitable growth through the base business and new products requires seamless sales and marketing execution.

“When these functions are split, it is more difficult to achieve such execution. Since the margins in this business are tight, you need your marketing to stay close to your customer to make sure everyone is effectively building that relationship and gaining insights at the consumer and customer level.”

He hired a new vice president for sales and marketing and combined the departments. In addition, he realigned the priorities of the marketing function to allow people to spend more time on promoting new product releases.

In the food business, packaging and product presentation on the shelf are major contributors to successful sales and market share. Signorino also saw it as an area where the company could gain an advantage over the competition.

“I think that the shelves in the seafood isles look cluttered,” says Signorino. “We are redesigning our packaging and graphics so that the products work synergistically with each other. In some cases, our products are separated into different areas of the store, in other cases, they are clustered together. We are using common color trays so that we stick out more, whether the products are displayed in a singular fashion or collectively.”

Successfully managing shelf space is a major responsibility of the sales force, and Signorino went back to the fundamentals to ensure that the team would be competent at transferring the concept from the training room to the store shelves.

“We went back to the basics and retrained our sales team on blocking and tackling,” says Signorino. “We created a new manual that covers the basics on where we want to be on the store shelf in order to achieve market share.”

For many years, Chicken of the Sea relied on television ads featuring the mermaid logo to help drive brand loyalty. After a hiatus of almost 14 years, Signorino developed a new television ad that uses humor to create brand familiarity with a younger base of consumers while driving home a message that equates tuna with healthfulness.

“There is equity in our brand, but we need to bring it back,” he says. “There’s a whole new generation that didn’t grow up with the mermaid jingle and doesn’t know the brand.”

 

The people equation
Advertising, systems and processes weren’t the only things that changed. The people in the company had to start thinking in new ways.

“There were lots of good people on board, but the people were very comfortable in the situation, and the market had changed,” says Signorino.

To revitalize the employees and reposition them to relate to a more modern set of consumer sentiments, Signorino brought in new ideas and an outside vision, and changed the variable compensation plan for managers.

“I added more upside driven by meeting performance hurdles, with the idea being that the plan is designed to drive performance,” he says.

Being able to assess the team is a critical skill for any CEO.

“Once a team demonstrates they can work together, a CEO or president needs to assess the players,” says Signorino. “In doing that, I look for intelligence, integrity and imagination to see the business not only as it is today but as it could be, and they need to have the initiative and drive to make it happen.

“I look for team members that take their work, but not themselves, seriously. To be a true team member, people must not have overly large egos, and they should have a sense of humor, so they are fun to be around. We work long hours, and people like that make the job interesting and rewarding.”

Signorino’s goal is to take the firm from its annual revenue run rate of approximately $400 million to double digit growth within three years on the top and bottom lines, with the bottom line outpacing the top line. In addition to a more financially sound organization; Signorino wants to leave behind a new culture as his legacy.

“What I’d like to build is a culture, because cultures perpetuate beyond any one person,” says Signorino. “It’s how we act, go to market and how we behave. You outline it like a blueprint, and then you deliver on your commitments, seek change, focus on people and on quality.”

HOW TO REACH: Chicken of the Sea, www.chickenofthesea.com

Wednesday, 20 September 2006 20:00

Critical care

 It was 1999, and Chris Van Gorder was in the midst of his first day on the job as COO of Scripps Health when the real challenge of his new position suddenly became apparent.

“I realized we were in trouble,” says Van Gorder. “In retrospect, I probably did not do enough homework before coming into the role.”

There had been a major blow-up between the administrators and the physician groups that day, and Van Gorder says that he soon discovered that patient numbers were declining, as were the contributions from philanthropists. As it turned out, those were not unusual occurrences, and neither was the mounting red ink.

Today, Scripps Health is a $1.6 billion, nonprofit health care system with more than 10,000 employees that treats close to 500,000 patients annually. Composed of five hospital campuses, a network of clinics, physicians’ offices, outpatient centers and home health care services throughout San Diego County, Scripps has been a leading health care organization since its founding by philanthropist Ellen Browning Scripps in 1924.

But in 1999, things were coming to a head just as Van Gorder joined the staff. Within 90 days of his hiring, the CEO left Scripps following a no-confidence vote from the doctors. Thirty days later, Van Gorder found himself in the CEO’s chair of a large health care organization that appeared in need of life support.

Van Gorder, who also is the company’s president, describes himself as generally being a very lucky man, and perhaps he is. However, it would take much more than luck to turn this organization around.

Resolving the people problems
Van Gorder says he found several fundamental issues at the core of the problems at Scripps.

“There was a very good strategic plan in place when I got here, but they were trying to implement it in a linear fashion,” says Van Gorder. “The plan might have been a little ahead of its time, but there was no flexibility and no collaboration with the professional staff.”

When the business plan implementation style was combined with a centralized management team that did not reside on any of the health care campuses, the the professional staff, particularly the physicians, felt that the administration was out of touch with their problems. And they wanted to be included in the key decisions that affected them.

After initial assessments, and given the history of the lack of confidence from the staff, Van Gorder met with each Scripps board member one-on-one to make certain that he had their backing to begin instituting the changes that needed to take place. Armed with the go-ahead consensus endorsement from the board, Van Gorder began attacking the personnel issues that he had identified as crucial to improving the business.

“The leadership of the physician groups had been put in place by the previous management,” says Van Gorder. “I dissolved those and let them appoint their own leaders.”

Van Gorder placed a management team on-site at each of the health care locations to improve communications and speed up the problem resolution process. He also created a Physician Leadership Cabinet that represents the doctors on key matters and gave them a unified voice to air their grievances.

This initial move helped to ease tensions by allowing physicians to regain some of the control they were seeking. Strategically, that was a wise decision, because Van Gorder also had to draw some lines.

“They also demanded to be an official board with power, and I had to say no,” says Van Gorder.

One of the keys to taking the next steps in building positive relations with this group was using management transparency and an open and honest style to work with the group to resolve key issues.

“They provided me clinical information, and I gave them business information,” says Van Gorder. “The previous administration was very secretive financially. Together, we solved the problems. I opened up the balance sheet, showed them the numbers, and asked them what they would do.

“A good example was, we were paying $8 million per year for emergency room on-call physicians; they wanted $4 million more. Well, that happened to be the budget for the nurses’ raises. I showed them the numbers, and they formed a task force to solve the problem. They came up with some cost reductions elsewhere and ended up only asking for half of what they originally wanted. I empowered them to think as businesspeople.”

Managing professionals — whether they are engineers, lawyers, IT developers or accountants — can be a challenging task for any CEO. With a continued shift to a greater number of knowledge workers in most organizations, Van Gorder has some advice that he says is a best practice for engaging high-level staff in any industry.

“From a philosophical perspective, administrators must listen very carefully to the clinical professionals when they provide input and counsel on patient care and their area of expertise,” says Van Gorder. “At the same time, administrators — being responsible for the health of the organization — must translate input from various sources and professionals into decisions that benefit the patient, the organization and the community. I believe in involving our various professionals in all aspects of the operations — the cross-education builds trust and, ultimately, the best decisions for all.”

In this case, arming the staff with information and involving them in the business decisions was vital to securing the endorsement of the professional staff for the business plan and to accepting the “capital expenditure diet” that he put in place to begin to get the losses under control.

Van Gorder says that he continues to give the group a financial report each month to keep its members informed.

Making tough decisions
Reversing the loss position was not easy. By 2001, Scripps Health was losing more than $20 million annually. In addition to resolving the personnel problems, Van Gorder made some tough financial decisions to improve the bottom line.

“I prioritized patient safety when deciding where to spend money and where to hold back,” says Van Gorder. “Unless it affected patient safety, I decided to hold back.”

Van Gorder sold two skilled nursing facilities that were losing money so that he could narrow the focus and put the small capital expenditure budget toward the needs of the hospitals and clinics.

“I had to close a hospital that was losing money in east San Diego County, and that was a tough decision because it was the last hospital going east with an emergency room,” says Van Gorder.

While he made progress with the physician groups and the employees, not everyone was on board with his strategy, and Van Gorder says that he had to change out some of the executives who did not agree with his plan to return to a strong balance sheet. This type of tough love is part of his philosophy when it comes to managing the financial performance of the campus managers.

Van Gorder says that the trend in health care is to have a good year followed by a bad year, and that trend contributes to a sense of instability among the staff and exacerbates their anger about budget cuts. He says he had to impress upon his management team that he was serious about the need for performance.

“When it comes to hitting the financial plan, I tell my executives, ‘You may miss it once, but if you miss it again, you won’t be here,’” says Van Gorder. “I need for them to make those numbers.

“I have three core beliefs when it comes to performance management. You have to want responsibility, authority and accountability, and as a leader, you have to give them all three.”

Building internal competencies
As Van Gorder continued to identify the issues and problems that were standing in the way of profitability, he noticed that Scripps had been spending a great deal of money on external consultants without measurable results.

“I created an internal project management team because I felt that we were poor at deploying business plans,” says Van Gorder.

One improvement realized by the project management team was the acquisition of Scripps Clinic, a move that angered independent physicians across the system because it involved the investment of their money. To make matters worse, the clinic was losing more than $2 million per month when it was acquired.

Van Gorder says the internal project management team coached the clinic leadership team to make tough decisions and to use data analysis to develop service metrics and to benchmark their performance against comparable clinics. When held to a stronger set of performance marks, the clinic’s bottom line reversed, and it is now making $1 million per month.

The development of an internal talent pool has been another part of the strategic plan aimed at building internal competencies. Van Gorder accomplished this by creating the Scripps Leadership Academy, which provides training programs for middle managers. The school has graduated more than 150 new leaders since its inception six years ago.

As a testimony to Van Gorder’s work on personnel problems, Scripps has been recognized as a top employer for workers over the age of 50 by AARP, a recognition that Van Gorder says he wasn’t seeking but that has come as a result of the improved work environment.

Future challenges
Van Gorder still has challenges to overcome. In the last year, he and his team have instituted a reinvestment campaign, armed with the rejuvenated financial support of $30 million from their base of philanthropic constituents and the consummation of a $150 million bond transaction that received an “A” rating from Moody’s, Standard & Poor’s and Fitch based on the strength of the financial balance sheet.

There are still labor problems to deal with, and a state-mandated seismic upgrade will require an investment of $280 million to meet the new compliance standards.

Van Gorder is now leading a campaign that includes $1.6 billion in facilities and technologies upgrades over the next decade to be financed through operating revenue, philanthropy and borrowing.

And he still insists that he is a lucky man. Perhaps that mindset will continue to be one of his keys to succeeding in a difficult industry.

“I would never have anticipated being able to get this position,” says Van Gorder. “It’s a combination of hard work, smarts, but also a lot of luck. Any executive who doesn’t say that isn’t being honest.”

How to reach: Scripps Health, www.scrippshealth.org

A crisis of confidence has overtaken employees and employers alike, but that’s where the similarity ends. In one corner, employers are insisting on cost control and maintaining the flexibility to initiate further pay and benefit cuts should a tepid economy take a turn for the worse. While employees want financial and emotional security after surviving a decade of layoffs and declining real value of their total rewards package.

Perhaps its time to seek middle ground as 52 percent of U.S. employers say it’s already difficult to attract employees with critical skills and 25 percent say it’s hard to retain top performers, according to Towers Watson’s “Global Talent Management and Rewards Survey” of 1,176 companies conducted earlier this year. The study highlights substantial gaps between the perceptions of employees and employers regarding the influence of security and flexibility on employee engagement and retention. Unless steps are taken to close the disparities, employers risk losing valuable employees who no longer believe their current employers offer viable opportunities for growth, security and wage gains.

“Realistically, most companies have already cut to the bone, but may be caught flat footed if they don’t come up with a game plan to reward and retain top performers and employees with critical skills,” says Rick Beal, consulting director for the Rewards, Talent and Communications Practice at Towers Watson.

Smart Business spoke with Beal about the secrets of balancing employer flexibility with employee desires for security.

What’s the best way to retain high performers and critical-skill employees?

Salary freezes and reduced increase pools have made it difficult for companies to recognize top performers by awarding them larger shares of the annual merit budget or variable incentives. Pay differentiation is essential to controlling fixed costs and maintaining flexibility while giving vital employees the security and real wage growth they crave.

There is some movement in the right direction as organizations have started awarding top performers larger raises and incentives. Global companies are delivering approximately 1.5 times more in short-term incentives to those exceeding performance expectations and two times more in merit increases.

Leading edge employers aren’t stopping with pay differentiation; they’re also turning to non-cash improvements to retain core employees. Nearly 86 percent of the 22,000 employees surveyed in the 2010 “Towers Watson Global Workforce Study” cited improved work-life balance as a retention factor, so now’s the time to offer flexible schedules, telecommuting and the chance to work in convenient locations.

But more can be done. It doesn’t cost a lot to recognize employees or offer them opportunities to enhance their skills, yet only 33 percent of employers view skill enhancement as a retention factor compared to 62 percent of employees.

What else can employers do to promote security in an unpredictable economy?

Develop a clearly defined employee value proposition (EVP) and harness its retention powers through an internal communications program. Only 25 percent of employers have a formal EVP and many view it strictly as a tool for attracting external candidates. But our data show that among high-performing companies 42 percent have an explicit EVP that conveys the total benefits of employment, and market its value internally and externally. Employment deals should not be left to the interpretation of employees, since ambiguity erodes engagement and makes top performers vulnerable to competitors.

The best news for employers is that value extends beyond monetary rewards in the eyes of employees. Thirty-nine percent of U.S. employees value the opportunity to develop innovative products or services and 55 percent value a wide range of jobs and work experiences. So tout job rotation, formal mentoring programs and the ability to work in global locations or serve on cross-functional teams when authoring a comprehensive EVP. Talk to employees about the unique tangible and intangible benefits of employment with your company.

How can employers satisfy a large group of diverse employees?

Certainly employers want to uncover the general needs and preferences of employees through surveys and focus groups, but savvy employers tailor their offerings and rewards by understanding the unique desires of employees in specific geographic regions and professions. Wide gaps between what employees want and what they believe is attainable can lead to disenchantment and an unwillingness to devote discretionary effort to the job. For example, highly coveted software engineers may favor an innovative environment and the opportunity to work with emerging technologies, while employees in a European subsidiary may favor a generous time-off allowance. Don’t settle for a one-size-fits-all approach. Employers should target vulnerable groups and diverse cultures by creating a series of unique, customized compensation programs and EVPs.

What’s the best-kept secret of high-performing companies?

Savvy employers work hard to turn managers into leaders so they can help the company retain and motivate critical employees during economically challenging times. While managers play an important role in helping the organization run efficiently, it takes leadership to catapult the company into a winning position in this kind of an environment. Leaders are expert communicators who build relationships with employees, understand their needs and effectively convey the company’s EVP. Sparse funding for training and development can be an impediment, but employers should exhaust every low-cost option to grow managers into leaders so they aren’t bemoaning the loss of critical employees and institutional knowledge after they’re gone.

Rick Beal is the consulting director for the Rewards, Talent and Communications Practice in Northern California at Towers Watson. Reach him at (415) 733-4310 or rick.beal@towerswatson.com.

To combat the rising cost of employee health care, companies made bold statements about the importance of proactive health management, investing in employee wellness programs and incentives to reinforce their commitment. But just when employees have embraced the wellness doctrine and experts are touting encouraging returns on initial program investments, a perilous economy has forced executives to make decisions that create organizational stress and seem to contradict their public support for employee well-being.

Work force well-being, which encompasses employees’ physical, social and emotional health, has been linked to reduced absenteeism, improved outcomes and sustained engagement, according to studies by Towers Watson. Unless executives balance their concerns for the bottom line with the need for employee well-being, recent gains in controlling health care costs could be in jeopardy.

“The social and psychological fabric of the organization is just as delicate as its balance sheet,” says Kathleen Drummond, senior consultant for the Change Management and Communications Practice at Towers Watson. “The wrong actions and messages can undermine employee well-being at a critical time.”

Smart Business spoke with Drummond about executive messages and actions that nurture healthy profits and people.

How is employee well-being linked to profitability?

When stress is injected into the environment over a prolonged period of time, our research shows that engagement, productivity and health suffer. Highly engaged employees with a poor sense of well-being are more likely to quit, while employees with lower engagement levels and a positive sense of well-being are more likely to stay, leaving employers with a less-productive work force. And when employees work long hours, they often cancel doctor visits, skip workouts and eat on the run, which can exacerbate chronic illnesses like diabetes. Now that a team of Harvard physicians has documented returns of $3.27 for every dollar spent on wellness programs along with a decrease in absenteeism costs of $2.73, it’s imperative that executives continue their commitment to wellness.

How can executives demonstrate support for employee well-being?

Start by holding a mirror up to the executive team, because employees will draw conclusions from your actions and behaviors. If executives regularly work 18-hour days, e-mail the staff at midnight and seem to disregard their own health, employees will conclude that they must adopt a similar work style and emulate your behavior. Participate in on-site health screenings, weight loss or smoking cessation meetings to prove your commitment. And after a stressful period, set the right example by showing employees that you’ve resumed a normal pace and are recommitting yourself to your health.

How can executives fulfill their commitment to employee health during stressful times?

When you ask employees to do more with less, acknowledge the impact of your actions to show employees that you’ve taken the human factor into account. Convey your consideration for both sides and rally the troops by assuring them that the company is doing all it can to make this is a short-term situation. Keep your finger on the organization’s pulse during stressful times by walking the halls and engaging in face-to-face discussions with employees. One CEO routinely handwrites more than 100 notes to various employees every week, thanking them for specific actions they’ve taken to improve the company’s business results or make the organization a better place to work. Employees will support your decisions if you communicate your awareness of their situation and show concern for their well-being.

How can executives mitigate the impact of stress?

Executives are often isolated from the work environment or receive filtered information, which prevents them from making honest damage assessments. To remedy this situation, many companies have installed a cadre of wellness champions, who serve as a sounding board for executives and even suggest ways to enhance productivity without compromising employee health. They also aid executives by communicating their dilemmas as well as their ongoing support for wellness when employees are asked to work longer hours or assume extra duties. Committee members may even let you know when organizational stress levels have reached a tipping point.

But overall, front-line managers are in the best position to convey the reasons behind executive directives and mitigate the impact on employees’ workloads, personal lives and day-to-day activities. Train managers and supervisors how to support a culture of well-being and give them mitigating power by allowing employees to work flexible schedules or take time off for medical visits.

What other actions should executives take?

In addition to surveying employee attitudes to gauge the effectiveness and sincerity of your messages, it’s critical to align total rewards with performance. When people believe they are treated fairly and are appreciated, they are willing to give more of their time and creative energy. Aligning pay with performance will also help to retain and motivate high performers who make consistent contributions to key goals. In fact, this may be the perfect time to re-evaluate your employee value proposition. In the absence of bonuses and pay increases, employees will respond to recognition along with career development and collaborative opportunities that foster a sense of well-being and reinforce the organization’s commitment to their success.

Kathleen Drummond is a senior consultant for the Change Management and Communications Practice at Towers Watson. Reach her at (858) 523-5663 or kathleen.drummond@towerswatson.com.

One positive side effect of the recession is that human resources is better poised to fulfill the strategic role long desired by executives, since taking care of talent and people issues is, more than ever, a key leadership issue. Human resources’ long-awaited metamorphosis from process-driven overseers to business plan enablers was born of economic necessity, but it’s gaining momentum thanks in part to renewed investments in technology and expanding self-service, according to The Towers Watson 2010 HR Service Delivery Survey, which annually examines the HR service delivery and technology plans and priorities of global companies.

The change couldn’t come at a better time, as savvy companies need holistic talent management and a real-time view of work force analytics to thrive in a rebounding economy.

“Executives can propel the evolutionary process by helping to define HR’s strategic mission and related data requirements,” says Courtnay Sotelo, senior consultant for the HR Service Delivery Practice at Towers Watson. “Once the vision is crafted, an HR task force can align priorities, technology and the service model to meet the company’s broader business objectives.”

Smart Business spoke with Sotelo about the evolution in HR service delivery and how executives can support the transition.

Why has talent management re-emerged as a priority?

HR leaders were sprinting toward holistic talent management before the recession but were forced to refocus in the short term amid layoffs and budget cuts. But the downturn only reinforced the need for better talent management, including real-time data and analytics, as companies struggled to quickly identify top performers and align reward programs and career paths to keep them from disengaging or defecting.

Also, disparate systems for performance management, compensation, training and development, and career management can occasionally impede HR’s ability to analyze bench depth and talent pipelines. Among other factors, the advent of a more integrated approach to talent management technology is contributing to a resurgence in talent management, with 20 percent of the 456 companies in our survey citing it as their No. 1 priority, while another 13 percent list it second. Cumulatively, this makes talent management HR’s top service delivery goal in 2010.

How is technology changing HR’s role?

Technology is no longer a discretionary expenditure; it has become the enabler of HR’s strategic vision because it provides the data to make informed decisions and creates efficiencies that maintain high service levels with less staff. Although many companies continue to rely on enterprise systems, 29 percent are now using software-as-a-service (SaaS) for some HR functions. Another 11 percent plan to use SaaS in the future, citing a desire for quicker implementation, lower costs and improved functionality. In 2010, 54 percent of companies plan to invest in HR technology in order to streamline business processes or deploy additional self-service functionality, which will further reduce processing costs and allow HR to take on a more strategic role.

Are companies turning to shared services?

The U.S. currently enjoys a competitive advantage as it leads the world in the adoption of HR shared services, which drives efficiencies through self-service and outsourcing. Shared services creates a scalable model that allows companies to adapt to changing business conditions while eliminating redundancies and creating standardized processes that have previously stymied HR productivity. Companies continue to build out shared services capabilities in 2010 and expand the roll out of manager self-service, which requires supervisors to initiate online personnel transactions, such as pay changes and performance management evaluations. HR had to persevere through a difficult change process, but once they recognized managers have accountability for their data and were able to convince them to participate, HR relinquished some control. Companies in our survey say they benefitted from a 73 percent decrease in administrative work, thanks to the initiative.

Can Web 2.0 technology benefit HR’s new agenda?

Although social media is here to stay, companies have been slow to embrace its functionality and use it to their advantage. Opportunities still exist to create efficiencies by using Web 2.0 to attract new employees, enhance corporate communications or train workers though online chat, Wikis and virtual classrooms. In contrast to e-mail, social media offers executives real-time communications functionality and opportunities to bolster employee engagement. Executives can reap the benefits and add velocity to the process by championing the cause and demonstrating an affinity for the functionality.

What else can executives do to support HR’s strategic transformation?

Although HR leaders are eager to embrace a strategic role (27 percent cite involvement in business issues as a priority), many need support crafting a complementary vision and structure. Once those elements are in place, they may finally become executives’ long-awaited strategic business partners.

Courtnay Sotelo is a senior consultant for the HR Service Delivery Practice at Towers Watson. Reach her at (415) 836-1011 or courtnay.sotelo@towerswatson.com.

After months of haggling on Capitol Hill, it’s Corporate America’s turn to make some gut-wrenching decisions. The health care reform act carries immediate cost implications for employers that continue through 2018 with the introduction of a 40 percent excise tax on high-cost group health plans. While the costs vary by company, the compendium of mandates is projected to increase the annual tab for employee health care by 3 to 10 percent, according to estimates from Towers Watson.

Later mandates may inspire some employers to take on new roles like offering employees stipends to purchase coverage on their own. One thing is certain: Maintaining the status quo is not an option.

“Employers can’t wait until 2015 to make decisions about health care because it will be too late,” says Ron Mason, CEBS, senior consultant for health and group benefits at Towers Watson. “Cost implications loom large and will not dissipate without decisive action.”

Smart Business spoke with Mason about the need for employer decisions in the wake of health care reform.

Which decisions require immediate attention?

Employers need to forecast increases through 2018 to see if annual costs may possibly exceed the threshold for high-cost group plans. A strategy change or plan restructure might be needed to avoid the excise tax, and a longer wait may necessitate more draconian changes. The elimination of the lifetime benefit cap and the extension of dependent coverage to age 26 could also have an immediate impact on employer costs.

Employers should investigate whether their stop loss carrier will provide unlimited coverage to protect against catastrophic losses. Finally, a new reporting requirement in 2011 and a slew of additional reports in 2014 calls for quick action regarding data collection or possible outsourcing.

What other choices await employers?

Some significant mandates in the bill:

Mandate: Pay or play requires large employers to provide health coverage for employees working 30 or more hours per week or pay an ‘assessment’, which may impact companies with large flexible or seasonal work forces.

Decision: Offer coverage, amend staffing models or pay the assessment. In the past, employers avoided this problem by extending coverage waiting periods. The bill imposes a maximum wait of 90 days by 2014 and requires large employers to automatically enroll employees in health plans.

Mandate: Community Living Assistance Services and Support (CLASS) allows employers to offer coverage for a long-term care option through the government.

Decision: Employers must decide what role they want to play and either enroll in the CLASS program and make necessary payroll deductions, or not administer this option.

Which decisions impact retiree coverage?

After reviewing the promises made to retirees, employers should revisit health plan designs in light of the new mandates. For example, it may not make sense to continue sponsoring a drug plan given the changes to Medicare Part D. These changes have already resulted in new accounting rules, closing the infamous ‘donut hole’ over 10 years, and new mandates that require manufacturers to offer a 50 percent discount on brand-name drugs and biologics in the donut hole. A three-year initiative to lower provider reimbursements through Medicare Advantage plans beginning in 2011 could diminish retiree participation and, possibly, plan availability, ultimately forcing an estimated half of retirees into more costly plans. Would offering Medigap coverage or a stipend be prudent now or in the future? Should employers continue to sponsor retiree coverage? These are just a few of the questions employers must answer.

Can employers mitigate some of the cost increases through strategic decisions?

Employers who proactively invest in wellness incentives will receive an extra boost in 2014 when the HIPAA limit is raised from 20 to 30 percent. The incentives become more powerful when combined with a decision to offer preventive services without co-pays or deductibles, which adds only half a percent to health care costs, but ultimately can yield a 5 to 10 percent increase in the number of people using preventive services, according to the U.S. Preventive Services Task Force. The final piece of the cost savings puzzle is helping employees to be wiser consumers of health services. The key decision is whether employers wish to hold employees accountable for their health management and to what degree. Other cost savings measures touted in the bill are wild cards. Will allowing carriers to sell insurance across state lines lower premiums? Will regulating insurers’ margins inspire employers to move away from self-insured plans? There’s only conjecture to consider when making decisions because the only givens at this point are cost increases.

What’s the biggest decision facing employers?

Certainly the introduction of the pay or play mandate might entice some employers with lower-wage work forces to pay the penalty and offer employees a wage increase to purchase coverage as state-run insurance exchanges come online. Considerations include the reaction from clients, competitors and, of course, current and prospective employees, who generally expressed anxiety about purchasing coverage on the open market in a recent survey by Towers Watson. However, 67 percent said they expected to pay more for health benefits in the future, so altering plan designs or total rewards to mitigate rising costs while continuing to offer group coverage might be a wise decision.

Ron Mason, CEBS, is a senior consultant for health and group benefits at Towers Watson. Reach him at ronald.mason@towerswatson.com or (949) 253-5203. For more information about health care reform, visit www.towerswatson.com/health-care-reform.

Matthew Lucy, Towers Watson

Facing a severe and protracted economic downturn, chief financial officers are worried about controlling costs, sales executives are worried about retaining and motivating sales staff, and everyone is worried about declining revenues, customer defections and eroding market share.

To alleviate the concerns, seasoned sales executives dipped into their stash of proven recessionary tactics to set interim sales goals and revise compensation plans before hunkering down for the duration. Now that the economy is stabilizing, those recession-induced plans may yield unintended consequences such as over-rewarding lower-tier performers while shortchanging their hard-charging counterparts. Employers must take steps to recalibrate sales compensation programs and revise performance expectations to comport with 2010 market conditions.

“Companies don’t want to be stuck with a 2008 sales compensation program in 2010,” says Matthew Lucy, senior consultant with the Sales Effectiveness and Rewards prac- tice at Towers Watson. “Companies are realizing it’s time to reassess their incentive plans in light of the new economy and build for growth.”

Smart Business spoke with Lucy about the hazards of latent sales compensation plans and the best ways to motivate and reward top performers in a recovering economy.

What should employers consider when reassessing sales compensation programs?

Start by reviewing your company’s revised go-to-market strategy and ensure sales rewards and compensation plans are aligned with the company’s current goals (as opposed to the goals of a few years ago). For example, companies may choose to scale back heavy discounting practices in order to bolster margins, after bowing to market pressures for nearly two years. Include profit elements in revised sales com- pensation plans to encourage representatives to raise prices and sell value over cost. And though there’s rarely a shortage of opportunities for competent business developers, expect increased competition for their talents in 2010. It will be critical to compare your company’s compensation plan against competitors to ensure you can stave off turnover or acquire additional sales talent to meet post-recession business objectives.

Which additional design elements drive per- formance?Employers need to ensure that their plan mechanics (for example, thresholds and targets) are set appropriately for the new economy. Companies often lower bonus thresholds during a recession to motivate employees, or they link sales bonuses to company results in order to control costs. But those tactics may simply increase total compensation without increasing revenues and, worse yet, they may benefit poor performers at the expense of top performers. Additionally, payouts for meeting team goals or MBOs can fail to encourage per- sonal performance, which is fundamental to healthy revenue growth. Consider modi- fying quotas or individual performance goals to benefit sales representatives at all performance levels without compromising plan integrity; use contests and spiffs to help fill the gaps if the recovery sputters.

How can sales managers establish realistic measures and quotas in an uneven economy?

Accurate quota setting is the most over- looked way to reduce costs. Simply setting accurate quotas may reduce overall com- pensation costs by 10 percent to 20 percent without altering plan designs. Use these tactics as part of a comprehensive quota development methodology. 

  • Shorten time horizons. Setting quarterly quotas or allowing midterm adjustments on annual goals will enable more accuracy in a shifting economy. 
  • Bottom-up quota development. Indi- vidual sales goals are often apportioned from full company objectives, which can lead to unrealistic targets. Quotas need to be a collaboration of top-down and bottom-up quota development. This process should uncover territories that can shoulder more of the growth burden as well as those that may be tapped out.

What’s the best way to use contests and spiffs?

Competitions are the perfect tool to launch new products and services, bolster eroding margins or ease the sting from a temporary setback in the economy. Contests should last three to six months and offer winners a modest reward, because they should not be used as a substitute for effec- tive sales compensation plans and quota setting practices. In fact, set aside no more than 5 percent of the total incentive budget for contests and spiffs at the beginning of the year and consider limiting awards to representatives achieving most of their sales quotas or exceeding performance thresholds to reinforce the importance of meeting goals. Drive the point home by cen- tralizing contests to keep renegade managers from offering rewards that deviate from the company’s core strategy or diminish fundamental sales achievement.

What other tactics drive sales performance?

This is the perfect time to revisit the pro- ductivity of your sales force. Finding ways to force sales personnel to decrease admin- istrative tasks and increase face-to-face selling time and other revenue-generating activities is a sure method of driving sales. Companies may have eliminated sales support personnel during the downturn or delayed investments in tools like CRM software, mobile devices or lead databases, but it’s easy to assure the return on these investments as long as sales quotas are in- creased proportionally.

MATTHEW LUCY is a senior consultant with the Sales Effectiveness and Rewards practice at Towers Watson. Reach him at (310) 551-5603 or matthew.lucy@towerswatson.com.

Sunday, 26 July 2009 20:00

Recession aftermath

Historically, executives have been able to guide their companies through a negative business cycle by reining in costs and waiting for an economic resurgence. While some aspects of the current recession call for traditional protocols, don’t expect a return to business as usual anytime soon. Unprecedented events in the financial services industry have changed the trajectory of business by ushering in a new era of regulation and an evolution in the way business is transacted.

“Business is built on trust. The collapse of confidence in the financial industry created a tipping point for the entire economy bringing business to a halt,” says Rick Beal, managing consultant with Watson Wyatt Worldwide. “From reinventing the roles and responsibilities of board members to creating a flat organizational structure to foster innovation and nimble decision-making, executives must reposition every aspect of their organizations or risk being left behind.”

Smart Business spoke with Beal about the dramatic changes facing executives and the actions they must initiate to adapt their organizations for future success.

How are changes in the broader economy impacting Northern California?

Two types of companies will emerge from this recession: very large, complex employers that have diversified business portfolios and a global presence and small niche companies focused on a single product or service. We’re already seeing the impact of this evolution in our region, as companies that were once connected to the housing, auto or financial services industries have undergone major restructuring. Thriving businesses will be increasingly reliant on technology, which is good news for Northern California, but they will also require top-flight intellectual capital, so expect to see them engage in a fierce battle for talent.

What other changes are anticipated, and how will they impact human capital?

Given the projected tax and compliance cost increases, companies are looking to lower operating expenses, so they are enhancing strategic partnerships to deliver their products and services to customers. Successful execution of an alliance-based business model will require new technologies and employees who can develop and nurture relationships. In addition, future success will require uninhibited business innovation and the ability to react quickly in a fluid business environment. As a result, we’re seeing large companies addressing organization structures and role leveling systems to foster agile decision-making. Employees who can think independently while mitigating risk will succeed in this environment. Companies with comprehensive talent management programs will be most successful incubating future talent and dissuading defections to competitors.

How will these changes impact the role and composition of corporate boards?

At one time, being a member of a corporate board was a plum assignment, now it’s an exposed position that carries significant personal liability, as boards are being held accountable for the company’s actions in courts of law and in the court of public opinion. Board members must be highly engaged individuals who possess the expertise to assess the company’s risk position without becoming micromanagers. With businesses becoming more reliant on strategic partnerships, board members are expected to bring value by introducing possible alliances. These changes have altered the composition of boards and the profile of candidates, as boards strive to include members who understand best practices in audit and executive compensation.

How can executives manage the increase in government regulation and oversight?

Business lost the trust of the public and now will pay a price. The outcry over evaporating net worth and ill-timed paydays for a few business leaders created a pitchfork moment. The resulting pro-regulatory pendulum swing will likely overshoot its mark. Executives now must:

  • Increase transparency. It’s critical to police your business from the inside. Provide transparency around compensation, risk positions and your company’s relationship to other organizations and industries. While the government’s primary focus will be on preventing the systemic risk that took down the financial services industry and everything else in its wake, easy targets for political intervention will suffer the greatest consequences.
  • Articulate your company’s employee value proposition. In today’s environment, all compensation packages must be proportionate to the return they generate for shareholders, and employees must understand how the payouts contributed to business success. Use communication tools effectively to demonstrate how the company’s compensation and benefit plans flow from and are linked to the achievement of business outcomes.
  • Mitigate risk. Conduct a risk analysis using empirical data and design incentives to mitigate risk into your reward plans. Assess the headline risk but don’t be ruled by it. Resist anecdotal opinions. Make your case to your internal and external constituents based on evidence. Work to improve the bonds of trust with employees, shareholders, business partners and regulators.

Rick Beal is the managing consultant for Watson Wyatt Worldwide in Northern California. Reach him at rick.beal@watsonwyatt.com or (415) 733-4310.

Thursday, 26 March 2009 20:00

Human resources’ impact

During economic downturns, executives often turn to human resources for advice and solutions as companies focus on survival and resort to layoffs and compensation/benefit reductions. Lessons from previous recessions show that staff reductions in particular must be strategic, requiring HR and senior executives to consider the long-term business ramifications before recommending cost-cutting moves. But this recession is ushering in an additional challenge, as HR has also suffered layoffs, necessitating an internal search for increased efficiencies and ways to maintain employee service levels with fewer resources.

“This is an opportune time for HR to get its own house in order, because HR organizations are shrinking,” says Julie Egbert, SPHR, senior consultant for the Technology and Administration Solutions Practice at Watson Wyatt Worldwide. “Nationwide, we are seeing the numbers of employees serviced by each HR professional rise, so HR must find ways to be more productive.”

Smart Business spoke with Egbert about the multidimensional role of HR in helping businesses survive the tough economy.

What is HR’s role in developing and executing strategic staff reductions?

HR should suggest reductions that won’t impact the company’s long-term growth or ability to rebound when the economy shifts. During the last recession, companies eliminated entire segments of middle management, thinking those cuts would result in the largest savings. But when the economy turned, many companies had lost too much institutional knowledge and hands-on expertise to capitalize on the improving conditions.

This time, instead of offering across-the-board early retirement options, packages are being offered strategically and many companies are opting for pay freezes, salary reductions and decreased 401(k) matches to retain vital employees. HR should also develop an employee communications strategy that outlines the reasons for the cuts to bolster morale and engagement, so productivity is maintained.

Finally, HR should work one-on-one with high-potential resources to assure their retention and readiness for future leadership roles.

How is the downturn impacting HR?

HR isn’t exempt from the need to increase efficiencies and reduce costs because, across the board, HR organizations are shrinking as well. Three years ago, the ratio of employees serviced by each HR representative was 100-to-1, now we’re seeing ratios of 150-to-1 or 200-to-1 and some companies are even pushing toward ratios of 800-to-1 with outsourced process models and employee self-service systems. To achieve substantial productivity increases, HR must review every program and process to find efficiencies.

Where should HR look for opportunities to increase efficiency?

 

  • Review all compensation and benefits plans. Make sure bonus and benefits expenditures are delivering their intended impact and ROI. Eliminating underutilized benefit plans can save hard and soft costs.

     

     

  • Review existing contracts. Vendor pricing may have changed because of head count reductions, especially for outsourced payroll processing or retirement plan administration. Vendor consolidation, elimination of under-utilized services or negotiating longer-term, lower annual rates may restore some lost savings.

     

     

  • Review vendor service level agreements. If it’s not possible to reduce prices, HR may be able to negotiate for increased services, which will reduce administrative burdens and internal costs, and increase employee satisfaction.

     

     

  • Review current outsourcing models. HR may have outsourced portions of some functions, resulting in costly process redundancies, or outsourced entire functions that could be handled in-house through existing human resource management systems (HRMS) technology. Only specific cost-benefit analyses will determine whether complete functional outsourcing or another HR service delivery model provides the best value.

 

Can HR technology yield savings?

Many companies have delayed upgrades, so they’re seeking savings through better utilization of better technology or outsourcing.

 

  • Consider hosted solutions. Moving to a hosted HR technology solution could reduce costs while providing increased functionality. Volunteering to be a beta test site is another way to save money and secure free upgrades from the HR vendor, but that move carries some risk.

     

     

  • Move to employee and manager self-service. Develop a self-service portal or out-source services to third-party suppliers with online capabilities to maintain service and employee morale while reducing costs.

     

     

  • Fully utilize existing technology. Eliminate unutilized or underutilized HR technology to gain efficiencies without additional investment. For example, an untapped talent management program can assist with succession planning in light of layoffs and position the company for success once the economy rebounds by developing a bench of future leaders.

 

JULIE EGBERT, SPHR, is a senior consultant for the Technology and Administration Solutions Practice at Watson Wyatt Worldwide. Reach her at (415)733-4224 or julie.egbert@watsonwyatt.com.

Monday, 23 February 2009 19:00

Strategic planning

Business executives are battling time and the economy, necessitating that every company has a strategic plan.

But all too often, executives stop managing once the plan is written; forgetting that what happens next is the most critical part of the process. Achieving buy-in across the enterprise, cascading the goals down through the organization and following the objectives through to completion is the difference between having a strategic business plan and achieving one.

“Don’t confuse strategic planning with managing strategically,” says Wayne Pinnell CPA, managing partner, Haskell & White LLP. “This time, many of the recessionary-induced changes may be permanent, forcing executives to employ strategic management techniques to re-vision their organizations for success in a new economy.”

Smart Business spoke with Pinnell about the strategic management and planning techniques executives should employ in today’s business climate.

What constitutes an effective business plan in today’s environment?

Thirty-page glossy plans are out — one-page working documents are in — because a short plan gives everyone in the organization a clear, concise picture of the priorities and it’s easier to manage the goals and amend them if the economy shifts. The plan should read like the responses to a Joe Friday interrogation — stating just the key facts. Describe each initiative by outlining where the company is now, where you want to go, when you want to get there and how you plan to get there, and also name who is responsible for each assignment. The plan should be created by those who have a vested interest in the outcome, which can vary by organization, but blending operational managers with strategic thinkers on the planning team often results in a plan that is visionary, yet detailed and realistic.

What’s the next step?

Communicate the plan to every employee in the organization, making sure that everyone buys in to the organization’s mission and understands his or her role. It is important for every employee to know how their particular role supports the overall organization’s business and goals. Short slogans or tag lines of three to eight words are an excellent way to remind employees about the company’s vision; create one and use it on e-mails, stationery and brochures. Executives may not have time to survey every employee to gauge acceptance and understanding of the plan. Make a few phone calls and chat with employees in the hallways, asking them for feedback to validate the effectiveness of your communication strategy.

What’s the most effective way to cascade the goals down to each individual?

While you are communicating the vision, amend the employee performance plans, disseminating accountability and responsibility for achieving the company’s objectives to each individual. Aligning employee compensation with the overall strategy of the company, both individually and on a team basis, adds another layer of reinforcement toward achievement of the larger objectives.

How should executives manage the plan?

After a new plan is introduced, review meetings should be held at least every 30 days, because getting off on the right foot and driving a momentum change are critical to ultimately achieving the plan. Short-term review points provide an opportunity to reset the ‘must do’ actions over the next 30-, 60- and 90-day periods. It is important to distinguish the ‘must do’ items from those you should or could do, as ‘must do’ items are those considered to be critical to success. While staff members should report on their progress during the meetings, it may require that you remind them via e-mail about upcoming sessions, so everyone knows what to expect and to let the staff know you are serious about following the plan through to completion. Appoint a scribe to take notes during the meeting, and then send out the minutes and a list of action items after each session.

Adjust a goal if situations have changed making it unachievable or no longer a desirable outcome. Don’t shy away from holding people accountable or let ‘lack of time’ be an acceptable excuse, as we all have the same amount of time available — it’s just how we choose to use it that makes the difference. Look at any macro objectives in a micro way to see if political, social or economic events necessitate a change and review the assumptions you used in creating the goal to see if they are still valid. In this economy, you may need to challenge your own assumptions more frequently than in the past.

What other steps should executives take?

Too often, executives create a business plan, and it sits on the shelf because there’s enough momentum in the economy to carry the company forward. One of the biggest myths about this recession is that ‘spring is just around the corner,’ so we can just ‘hunker down’ and wait and things will ultimately get better. Executives need to create change, and the only way to move an organization toward a new strategic vision is by managing strategically.

WAYNE R. PINNELL, CPA, is the managing partner at Haskell & White LLP. Reach him at (949) 450-6314 or wpinnell@hwcpa.com.