CLC Engaging the Workforce Focusing on Critical Leverage Points to Drive Employee Engagement

© 2004 Corporate Executive Board

Corporate Leadership Council

Engaging the WorkforceFocusing on Critical Leverage Pointsto Drive Employee Engagement

� Prioritizing Engagement-Driven Business Risks

� Engaging Key Contributors

� Targeting Drivers of Disengagement

� Building a High-Engagement Culture, based on:

• Connection• Contribution• Credibility

Note to Members

This project was researched and written to fulfi ll the research requests of several members of the Corporate Executive Board and as a result may not satisfy the information needs of all member companies. The Corporate Executive Board encourages members who have additional questions about this topic to contact the Board staff for further discussion. Descriptions or viewpoints contained herein regarding organizations profi led in this report do not necessarily refl ect the policies or viewpoints of those organizations.

Confi dentiality of Findings

This document has been prepared by the Corporate Executive Board for the exclusive use of its members. It contains valuable proprietary information belonging to the Corporate Executive Board, and each member should make it available only to those employees who require such access in order to learn from the material provided herein and who undertake not to disclose it to third parties. In the event that you are unwilling to assume this confi dentiality obligation, please return this document and all copies in your possession promptly to the Corporate Executive Board.

Legal Caveat

The Corporate Leadership Council has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and the Corporate Leadership Council cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the Corporate Leadership Council is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither the Corporate Executive Board nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by the Corporate Leadership Council or its sources, or b) reliance upon any recommendation made by the Corporate Leadership Council.

Council StaffContributing Consultants

Christoffer Ellehuus • Piers Hudson

Contributing AnalystsThomas Bedington • Damian Smith

Contributing AssociateKate Elsam

Project ManagerBruce Rebhan

Practice ManagerGwendolen Sheridan

Managing DirectorJean Martin-Weinstein

Executive DirectorMichael Klein

General ManagerPeter Freire

Creative Solutions GroupLead Publications Specialist

Christina Lynn

Contributing Graphic Design Specialists Peter Laub • Michelle Hoffmann • Charlene Hubbard

Kelly Suh • Simeon Poulin • James Sangalan

Publications SpecialistJennifer Crist

Managing DesignerKerry Ellis


Corporate Executive Board

2000 Pennsylvania Avenue NW

Washington, DC 20006

Telephone: +1-202-777-5000

Fax : +1-202-777-5100

The Corporate Executive Board Company (UK) Ltd.Victoria HouseFourth Floor37–63 Southampton RowBloomsbury SquareLondon WC1B 4DRUnited KingdomTelephone: +44-(0)20-7632-6000Fax: +44-(0)20-7632-6001

www.corporateleadershipcouncil.com

© 2004 Corporate Executive Board. All Rights Reserved. Catalog No.: CLC12KYSST

iii

Table of Contents

Advisors to Our Work • v

Special Thanks • vi

Letter to the Membership • vii

The Argument in Brief • x

Member Diagnostic • xiv

Council Essay: A Unique Point in Time • 1

Chapter I: Prioritizing Engagement-Driven Business Risks • 17

Practice #1: Strategic Engagement Gap Analysis • 21

Realizing that not all types of engagement are critical to business success, Intuit focuses executive attention on the specifi c, critical engagement profi les needed to execute strategic plans, actively prioritizing engagement activity that directly supports the business.

Chapter II: Engaging Key Contributors • 37

Practice #2: Solid Performer Career Pathing • 41

Harrison Company * identifi es a group of solid performers who create substantial value, but whose potential to rise in the organization is limited. To engage these key contributors, the company creates career paths that better refl ect their contributions and needs.

Chapter III: Targeting Drivers of Disengagement • 57

Practice #3: Cultural Assessment Process • 61

Caterpillar’s Cultural Assessment Process diagnoses all barriers to engagement, including those that are “invisible” to traditional engagement measurement tools such as employee surveys.

Chapter IV: Building a High-Engagement Culture • 77

Creating a Connection Between Employees and the Organization

Practice #4: Leader Storytellers • 81

Continental seeks to strengthen its executives’ ability to connect employees to the company’s overall strategy. Realizing that telling stories to communicate is highly effective at building connections between employees and the organization, Continental rolls out storytelling training to all executives.

*

* Pseudonym.

iv

Table of Contents (Continued)

Creating Opportunities for Personalized Contribution

Practice #5: Targeted Employee Contribution Cascade • 87

Alcoa’s Rigid Packing Division (RPD) recognizes that barriers to employees’ participation differ across levels of the organization. After recasting its culture and restructuring its executive team, the RPD tailors communication style and desired contribution to each level’s ability and readiness to contribute.

Driving Organizational Credibility

Practice #6: Values Realization System • 97

Realizing that misalignment between the company’s stated values and its actions damages its credibility and disengages employees, Novo Nordisk more actively governs the organization’s adherence to its values. A dedicated team of senior executive “values facilitators” ensures leaders align to the behavioral and managerial standards of the organization.

Chapter V: The Evolving Employment Contract • 109

Appendix • 113

v

Advisors to Our Work

The Corporate Leadership Council expresses its appreciation to all of the individuals and organizations who have so generously contributed their time and expertise to our work. Their contributions have been invaluable, and we extend our sincere thanks to all of these advisors. A partial list of participants is included below.

ABB Ltd

Abbott Laboratories

ABN Amro Holding N.V.

Absa Bank Limited

Adobe Systems Incorporated

Advanced Micro Devices, Inc.

AFLAC Incorporated

Agilent Technologies, Inc.

Air Canada

Air New Zealand Limited

Alcoa Inc.

AmeriCredit Corp.

Amgen Inc.

Anglo American plc

Aon Corporation

Arrow Electronics, Inc.

ASB Bank Limited

Aurora Health Care

Aventis Pharmaceuticals Inc.

Avon Products, Inc.

AXA Financial, Inc.

Bank of Ireland Group

Bank of Montreal

Barclays Bank PLC

Bayer AG

Bertelsmann AG

BP p.l.c.

Bremer Financial Corp.

Brown-Forman Corporation

BT Group plc

Bureau of Land Management

Cable and Wireless plc

Cadbury Schweppes plc

Canadian Imperial Bank of Commerce

Cargill, Incorporated

Caterpillar Inc.

Celestica Inc.

CEMEX, S.A. de C.V.

Cigatem

CIGNA Corporation

Cingular Wireless LLC

Colgate-Palmolive Company

Continental Airlines, Inc.

Countrywide Financial Corporation

CVS Corporation

DaimlerChrysler Corporation

Dell Inc.

Department of Defense

Deutsche Bank AG

The Dow Chemical Company

Duke Energy Corporation

E. I. du Pont de Nemours and Company

eBay Inc.

El Paso Corporation

Eli Lilly and Company

EMC Corporation

Ernst & Young LLP

Fairmont Hotels and Resorts Inc.

Fannie Mae

Federal Deposit Insurance Corporation

Fonterra Cooperative Group Ltd.

Ford Motor Company

General Dynamics Corp.

General Growth Management

General Motors Corporation

Genetech Inc.

Genzyme Corporation

The Goldman Sachs Group Inc.

Guidant Corporation

Harrah’s Entertainment, Inc.

Harvard Business School

Heineken N.V.

Hillenbrand Industries

Holcim Ltd.

HSBC Holdings plc

IKEA International A/S

InBev

InterContinental Hotels Group plc

International Business Machines Corp.

International Paper Company

Intuit Inc.

JM Family Enterprises

Johnson & Johnson

Johnson Controls, Inc.

Jones Lang LaSalle Incorporated

Kellogg Company

Koninklijke Philips Electronics N.V.

L.L. Bean, Inc.

Lehman Brothers Holdings Inc.

Level 3 Communications

Levi Strauss & Co.

Limited Brands, Inc.

Lloyds TSB Group plc

Lockheed Martin Corporation

L’Oreal SA

Lowe’s Companies, Inc.

Lucent Technologies Inc.

Marriot International, Inc.

MELCO Inc.

Motorola, Inc.

National Australia Bank Ltd.

NEC Corp.

Nedcor Ltd.

Neptune Orient Lines

NIKE, Inc.

Nokia Corp.

Nortel Networks Corporation

Novo Nordisk A/S

Ontario Lottery and Gaming

Parsons Corporation

Pella Corporation

The Pepsi Bottling Group, Inc.

PepsiCo, Inc.

Pfi zer Inc.

Philip Morris Companies Inc.

Raytheon Company

RBC Financial Group

Reed Elsevier N.V.

Ritz Carlton Hotel Company

Royal Bank of Scotland

RWE AG

SABMiller

SAS Institute, Inc.

SBC Communications Inc.

Schindler Elevator Corp.

Schlumberger Ltd.

S.C. Johnson & Son, Inc.

Shell Oil Co.

Solectron Corp.

Sony Corp.

Southwest Airlines Co.

Sprint Corporation

Starbucks Corp.

Starwood Hotels & Resorts Worldwide, Inc.

Sun Microsystems, Inc.

Sumitomo Chemical Company Ltd.

SWIFT

Taco Bell Corp.

TD Bank Financial Group

The Thomson Corporation

The Home Depot Inc.

Time Warner Inc.

Toyota Motor Manufacturing

TSMC Ltd.

UniCredito Italiano

Unilever N.V. PLC

Unisys Corporation

United Parcel Service, Inc.

United States Coast Guard

US Cellular Corp.

Valero Energy Corp.

Vision Service Plan

Vitro, S.A. de C.V.

Volkswagen AG

Wachovia Corporation

Wal-Mart Stores, Inc.

Westpac Banking Corporation

W.L. Gore & Associates, Inc.

Xcel Energy, Inc.

Xerox Corporation

vi

Robert Lee CrossMcIntire School of CommerceMonroe HallUniversity of VirginiaP.O. Box 400173Charlottesville, VA [email protected]

Ed JensenPartner, Human Performance PracticeAccentureSuite 110075 Fifth Avenue, NWAtlanta, GA [email protected]

Douglas A. KleinPresidentSirota Consulting LLCThe Centre at PurchaseOne Manhattanville RoadPurchase, NY 10577-2128+1-914-696-4700 ext. 211

Tom KraackPartner Accenture333 South 7th StreetMinneapolis, MN [email protected]

Michelle MeissnerDirector, HRDContinental [email protected]

Haig R. NalbantianPrincipal and Worldwide PartnerMercer Human Resource Consulting1166 Avenue of the AmericasNew York, NY [email protected]

Jeffrey PfefferGraduate School of BusinessStanford UniversityStanford, CA [email protected]

Special Thanks

The Corporate Leadership Council would like to express its gratitude to the following individuals who contributed time and insight to the development of this study.

vii

Letter to the MembershipEarly in 2004, the Corporate Leadership Council heard a growing level of concern from members regarding the topic of employee engagement. Members questioned their ability to sustain high levels of workforce productivity, while an improving economic outlook presaged new challenges to members’ abilities to retain employees. The Council’s investigation into the subject comprised an analysis of more than 50,000 employees at over 100 organizations, including more than 250 in-depth interviews of senior HR and line executives.

The Council’s fi ndings bring new clarity as to the business benefi ts of an engaged workforce. Our work shows that engagement:

• Raises discretionary effort levels by nearly 60%

• Improves employee performance by up to 20 percentile points, raising employee performance by one quintile

• Increases employees’ intent to stay with their organizations by fi ve times

In the course of this research, the Council has identifi ed leading organizations that are capitalizing on the economic opportunity of an engaged workforce. The success of these organizations in capturing the business benefi ts of engagement has been driven by their effective focus on four leverage points:

• Engagement-Driven Business Risks: Determining the specifi c levers of engagement with the greatest economic impact and making diffi cult decisions about which employees to engage, and how to engage them, in support of business goals

• Key Value Contributors: Expanding the organization’s defi nitions of value and the employees who make key contributions, realizing that not all “key value creators” will be high performers or high potentials as they have been traditionally defi ned

• Drivers of Disengagement: Before attempting to engage employees, focusing on uncovering and removing the underlying drivers of disengagement in the organization, many of which are invisible to traditional methods of detection

• High-Engagement Culture: Maximizing the effectiveness of organization-wide interventions by focusing on the following “3 Cs” required of a culture that promotes employee engagement:

– Connection: Building a clear connection for employees between their work and the organization’s success

– Contribution: Personalizing the organization for employees and offering them signifi cant and meaningful opportunities for participation

– Credibility: Ensuring ongoing organizational credibility by clarifying expected behaviors for different roles, enforcing alignment of desired behaviors and actions, and strengthening leadership credibility through behavioral support

The practices profi led in this report represent some of the most innovative and effective methods discovered by the Council to date. Members seeking further guidance or alternative approaches to the practices and tools profi led on the following pages are encouraged to contact the Council’s research team for additional research and assistance.

The Corporate Leadership Council sincerely hopes that our fi ndings offer members guidance in their decisions and strategies for driving performance and retention by engaging employees. We look forward to receiving your feedback and extend, as always, our continuing appreciation.

Washington, D.C., and LondonDecember 2004

ix

The Employee Engagement Series

Across 2004, the Corporate Leadership Council’s efforts focused on a central challenge for senior executives: improve performance while maintaining high levels of retention. The Council addresses this challenge in two volumes. Volume I draws on a quantitative analysis of data collected from more than 50,000 employees across more than 50 organizations worldwide to determine the business benefi ts of employee engagement and the drivers of engagement in the workforce. Volume II identifi es best practices in managing critical leverage points to increase and sustain employee engagement.

A Two-Part Investigation

Volume II:

Engaging the WorkforceFocusing on Critical Leverage Points to Drive Employee Engagement

• Prioritizing Engagement-Driven Business Risks

• Engaging Key Contributors

• Targeting Drivers of Disengagement

• Building a High-Engagement Culture

– Connection

– Contribution

– Credibility

Engaging the

Workforce

Focusing on Critical Leverage

Points to Drive Employee

Engagement

Volume I:

Driving Employee Performance and Retention Through EngagementQuantitative Analysis of the Effectiveness of Employee Engagement Strategies

• A New Model of Employee Engagement

• Sizing the Opportunity to Improve Performance and Retention

• Voice of the Workforce: Levers for Driving Engagement

Driving Employee

Performance and

Retention Through

Engagement

A Quantitative Analysis

of Engagement Strategies

How can organizations build scalable, yet focused,

strategies to increase employee engagement?

Central Challenge: Increase engagement to drive performance

and retain employees

What are the business benefi ts of engagement,

and what drives engagement in the workforce?

x

The ArgumentKey Findings

Engagement matters only as far as it drives employee performance and retention—the Council’s new framework studies the impact of engagement on business outcomes.

Engagement is key to performance and retention—highly engaged employees experience performance improvement of up to 20 percentile points, and are up to 87% less likely to leave the organization than employees with low levels of engagement.

More than 1 in 10 employees are fully disengaged—actively opposed to their organizations.

There is no high-engagement or low-engagement “group”; demographic characteristics do not predict engagement.

Dramatic differences between companies suggest that it is not who employees are, but how their company treats them that goes furthest in determining their engagement level.

Emotional engagement is four times as valuable as rational engagement in driving an employee’s willingness to commit to the organization.

Improving employee retention depends equally on rational and emotional engagement, as illustrated by the importance of compensation and benefi ts in driving retention and its smaller impact on effort.

Managers play a crucial role in driving employee commitment, but the manager is most important as the enabler of the most valuable forms of commitment to the job, organization, and team.

Among the top 25 drivers of employee engagement identifi ed by the Council, most important is a clear connection between an employee’s job and organizational strategy.

Organizations that successfully capture the economic benefi ts of an engaged workforce focus on four critical leverage points:

• Leverage Point #1: Prioritizing Engagement-Driven Business Risks

• Leverage Point #2: Engaging Key Contributors

• Leverage Point #3: Targeting Drivers of Disengagement

• Leverage Point #4: Building a High-Engagement Culture

1

10

9

8

7

6

5

4

3

2

Source: Corporate Leadership Council research.

xi


in BriefCritical Leverage Points Strategic Responses

Prioritizing Engagement-Driven Business Risks

Returns on engagement practices require a link between engagement and business outcomes. Organizations should rely on economics and business strategy when determining whom to engage and how to engage them in support of business outcomes.

Engaging Key Contributors

Organizations must target investments to those individuals who contribute the most to the business, while realizing that these people are not all high performers or high potentials as they have been traditionally defi ned.

Targeting Drivers of Disengagement

Before any proactive organization-level engagement strategy will succeed, organizations must fi rst identify and remove the drivers of disengagement, many of which are “invisible” to traditional methods of detection, such as employee engagement surveys.

Building a High-Engagement Culture

The Council has identifi ed three essential components of a high-engagement culture: connection, contribution, and credibility. A high-engagement culture needs reliable mechanisms to ensure employees are consistently experiencing all three of these elements.

*

Practice #1: Strategic Engagement Gap Analysis

Practice #2: Solid Performer Career Pathing

Practice #3: Cultural Assessment Process

Practice #4: Leader Storytellers

Practice #5: Targeted Employee Contribution Cascade

Practice #6: Values Realization System

* Pseudonym.

xii

* Pseudonym.

Focusing on critical leverage

Leverage Point #1


Leverage Point #2

Engaging KeyContributors

Strategic EngagementGap Analysis

Solid PerformerCareer Pathing

*

Engaging

xiii

the Workforce


Leverage Point #3

Targeting Driversof Disengagement

Leverage Point #4


The Three Cs of Culture:� Connection� Contribution� Credibility

Cultural Assessment Process Leader Storytellers

Targeted Employee Contribution Cascade

Values Realization System

points to drive employee engagement

xiv

Member Diagnostic:The Corporate Leadership Council has developed this brief self-test to help organizations evaluate their mastery of the critical leverage points of employee engagement and to identify particular areas for improvement. The diagnostic assesses the degree to which the organization is able to drive performance and retention by engaging employees.

I. Prioritizing Engagement-Driven Business Risks Yes No

1. Does the organization understand the impact of different engagement levers on different aspects of its employees’ engagement? ❑ ❑

2. Does the organization understand which types of engagement, in which parts of the organization, matter most to business success? ❑ ❑

3. Does the organization tailor its engagement initiatives to align with changes in business strategy? ❑ ❑

4. Does the organization have an effective process for closing engagement gaps where they represent a risk to business goals? ❑ ❑

5. Does the organization hold managers accountable for addressing and resolving engagement-related risks? ❑ ❑

II. Engaging Key Contributors

6. Does the organization have a clear understanding of how different employee segments contribute to business outcomes? ❑ ❑

7. Does the organization understand different groups of employees’ defi nitions and expectations of rewards and opportunities? ❑ ❑

8. Does the organization recognize and reward the different kinds of employee contribution that are most important to realizing current strategic priorities? ❑ ❑

9. Does the organization challenge key contributors to build their skills and to improve their contributions over time? ❑ ❑

III. Targeting Drivers of Disengagement

10. Does the organization actively identify and remove structural barriers to the engagement of all key contributors? ❑ ❑

11. Does the organization recognize the limitations of its employee survey in identifying “invisible” drivers of disengagement? ❑ ❑

12. Does HR have additional tools to identify all employees’ perceptions of the working environment and their relative impact on business outcomes? ❑ ❑

13. Does the organization actively involve employees in the process of identifying and removing drivers of disengagement? ❑ ❑

14. Does the organization have a process for encouraging timely and effective manager action to remove both “invisible” and “visible” drivers of disengagement? ❑ ❑

xv

IV. Building a High-Engagement Culture Yes No

Creating a Connection Between Employees and the Organization

15. Do all employees have a clear understanding of the connection between their jobs, their individual contributions, and the organization’s strategy and success? ❑ ❑

16. Does the senior management team recognize the power of communication to drive employee engagement across large groups of employees? ❑ ❑

17. Does the organization emphasize the ability to build emotional commitment through communication in its executive selection criteria? ❑ ❑

18. Does the organization train managers in building compelling messages around the company’s vision from their own experiences? ❑ ❑

Creating Opportunities for Personalized Contribution

19. Does the organization’s leadership team review its structure to ensure it is not inadvertently blocking opportunities for employees to contribute to business goals? ❑ ❑

20. Does the organization understand the different types of involvement required, at different levels, to ensure that all employees can contribute to business goals? ❑ ❑

21. Does the organization know how to build a compelling rationale for employees’ contribution to business goals with different audiences? ❑ ❑

22. Does the organization provide suffi cient information about the business to employees to allow them to contribute to business-wide goals? ❑ ❑

Managing for Organizational Credibility

23. Do executives understand the role of organizational integrity and trust in enabling emotional engagement? ❑ ❑

24. Does the organization have a process for defi ning and communicating the actions and behaviors that support the values and strategic priorities of the organization? ❑ ❑

25. Has HR integrated integrity-related messaging into core HR processes and policies? ❑ ❑

26. Is the organization able to identify cases of misalignment between desired behaviors and employee actions? ❑ ❑

27. Does the organization enforce alignment between actions and values? ❑ ❑

28. Does the organization regularly discuss the relevance and application of values as strategy changes? ❑ ❑

Scoring SystemNumber of

“Yes” ResponsesOverall Effectiveness of

Employee Engagement Management

23 to 28 Excellent; capturing economic benefi tsof engagement

16 to 22 Good; solid performance area

9 to 15 Fair; improvement possible

0 to 8 Low; focused development recommended

Engaging the Workforce

1

Council EssayA Unique Point in Time

Engaging the Workforce2

Rumors of (a Talent) WarThe business press is predicting fi erce competition for talent…

HR practitioners, consultants, and functional experts alike are describing a labor market on the verge of tumult, with predictions of workforce turnover ranging from 45% to more than 80%. A survey of recent headlines in the business press reveals similar sentiments, forecasting a resurgence of the “war for talent” that may outpace that of the 1990s.

September 29, 2003

After the Jobless Recovery, a War for Talent

Financial Times4 February 2004Manpower Chief Warns of Skilled Worker Shortage

BusinessWeek

Percentage of the U.S. Workforce Predicted to ChangeJobs Within 12 Months, Pending Economic Recovery

…as HR practitioners and consultants decry the state of the workforce

The Death of Loyalty“The downsizing of the ’80s, and particularly the ’90s, destroyed company loyalty.”

Sir Martin Sorrell Group Chief Executive and Executive Director WPP Group plc

Waiting for the Dam to Burst“People are ready to leave, with their hearts and minds set on changing employment, but they’re still coming to the same job, warming their chair. The workplace shake-up that the next 7 to 10 years will bring will make the job frenzy of the late 1990s look like a practice session.”

Chief Executive Offi cer HR Consulting Organization

Source: Grant, Jeremy, “Manpower Chief Warns of Skilled Worker Shortage,” Financial Times (4 February 2004); Lavelle, Louis, “After the Jobless Recovery, a War for Talent,” BusinessWeek (29 September 2003); True Careers; Accenture; HotJobs; America Online; Society for Human Resource Management; Career Journal; Corporate Leadership Council research.

0%

50%

100%

0%

50%

100%

42%48% 50%

58%64% 65%

83%

HotJobsJune2004

Career Journal

October2003

AOLMarch2004

SHRMJanuary2004

TrueCareersFebruary

2004

AccentureOctober

2003

i to iDecember

2003

Sample Talent-Related Headlines, 2004

3Council Essay: A Unique Point in Time

Yet, despite widespread predictions of rising attrition, few Council members are reporting much change in voluntary turnover. A survey of member HR executives reveals that organizations expect only a small increase in attrition for 2004.

Smoke, but Little FireDespite urgency in the press regarding retention, Council members are predicting only modest increases in attrition

Average Annual Voluntary Exempt Turnover, 2001–2004(E)Results of a Council Survey

Calm Before the Storm?“I keep hearing that the war for talent has started, but our attrition numbers are stable. I am just waiting for the other shoe to drop.”

Chief Human Resources Offi cer Technology Firm

Source: Corporate Leadership Council 2004 HR Executive Survey; Corporate Leadership Council research.

●●

●

●

8.0% 7.7%8.3%

9.6%

2001 2002 2003 2004(E)0%

8%

16%

ReportedAnnual

Voluntary Exempt

Turnover

n = 86.


Council members report increasing anxiety regarding employee engagement levels in their organizations. Across the past three years, more than 70% of organizations indicate that their concern about workforce engagement has increased. Informed by comments received directly from employees, executives increasingly suspect that many of their employees have succumbed to “spiritual” turnover; while physically present in the workplace, employees may not be deeply engaged in their work or strongly committed to the organization.

A Different Burning Platform

“Spiritual” Turnover“I worry that we are losing our employees’ hearts and minds. We don’t know what they are thinking or feeling. I can’t help but think that, even though they are still here, they have really checked out.”

Chief Executive Offi cer U.S. High-Technology Company

Despite low attrition, HR executives report increasing concern regarding engagement levels…

Change in HR Executives’ Concern About Employee Engagement

…as employees express signs of burnout and executives report a sense of disconnection with employees

Anonymous E-Mail to North American High-Technology Company CEO, Q4 2003


0%

25%

50%

0%

25%

50%

24%

47%

25%

4%0%

Greatly Increased

IncreasedSomewhat

Constant Somewhat Decreased

Greatly Decreased

Percentage of Executives

ReportingLevel ofConcern

n = 86.

Anonymous

Employee Burnout

Dear CEO,

I write today to express some concerns about what it has been like to work here over the last year. I love this company, I love my job—but I’m running out of steam, and I am not alone.

Did you know that people sleep under their desks, while others drive home after 48 hours of no sleep?

Company CEO

24%

47%

25%

4%0%

Council Essay: A Unique Point in Time 5

Labor market and organizational dynamics are conspiring to create an environment in which employees feel uncertain about the security of their jobs, perceive limited career progression and few options in certain career paths, and are required to manage increased complexity and responsibility in their roles. Council members report that their workforces are stretched thin—at the very point when potential economic recovery means that organizations may need to ask still more of their employees—forcing organizations to focus on sustaining performance levels while retaining employees.

Stretched Thinner and ThinnerConvergence of labor market and organizational dynamics…

Shifts in Forces Impacting Employees

…has placed more strain on employees, resulting in a need to manage both retention and performance

Percentage of HR Executives Indicating “Increase” or “Substantial Increase” in Characteristic of Work

Employees Are Asked to “Do More

with Less”

Employees Deal with Greater Complexity

in Their Jobs

A Dual Mandate“We are at a unique time when the promise of growth and recovery is confronting a workforce stretched thin after three years of turbulence. To hit our goals, we can’t just manage retention or performance. We have to do both.”

Head of Human Resources European Telecommunications Firm

n = 86.


88%

92%

Forces Impacting Workforces Employee Realities

Little New Job Creation Alternate employment options fewer than desired

Ongoing Corporate Downsizing Uncertainty regarding job security

Rise of Offshoring Impact on future job opportunities in certain positions

Leaner Organizational Structures “Invisible promotions,” responsibility increases; title and compensation do not

Memory of Recent Restructuring “Survivor syndrome”—employees still suffering impact of workforce reductions


Employee engagement is crucial to performance and retention. The Council defi nes “engagement” as the extent to which employees commit to something or someone in their organization. Engagement can be emotional or rational in nature and can be centered on the employee’s job, team, manager, or organization.

Rational Commitment The extent to which employees believe that managers, teams, or organizations have their self-interest in mind (fi nancial, developmental, or professional).

Emotional Commitment The extent to which employees value, enjoy, and believe in their jobs, managers, teams, or organizations.

Two Commitment“Types”

Four Focal Pointsof Commitment

Day-to-Day Work

Team

Direct Manager

Organization

Solving for PerformanceEngagement is the extent to which employees

organization, how hard they work, and how long


Employees’ commitment levels drive two key outcomes. Discretionary effort leads to greater performance levels, while intent to stay ultimately drives higher retention.


Outputs of Commitment

Note: The Council’s engagement model, as well as its survey methodology, data, and conclusions, are discussed in greater detail in the companion volume to this report, Driving Employee Performance and Retention Through Engagement.

Discretionary EffortAn employee’s willingness to go “above and beyond” the call of duty, such as helping others with heavy workloads, volunteering for additional duties, and looking for ways to perform their jobs more effectively.

Intent to StayAn employee’s desire to stay with the organization, based on whether they intend to look for a new job within a year, whether they frequently think of quitting, whether they are actively looking for a job or have begun to take tangible steps like placing phone calls or sending out résumés.

Organizational Benefi ts of Commitment

Retention

Performance

and Retentioncommit to something or someone in theirthey stay as a result of that commitment


Organizations that improve workforce engagement will see increased discretionary effort from employees, as well as a corresponding change in performance. Specifi cally, employees who move from “strongly disengaged” to “strongly engaged” demonstrate, on average, a 57% improvement in the level of discretionary effort exerted on the job. This improvement in discretionary effort translates into a performance improvement of up to 20 percentile points.

Engagement Drives Effort and PerformanceOrganizations that improve engagement will see signifi cant returns in discretionary effort…

Maximum Impact of Engagement on Discretionary Effort

Strongly Disengaged

Strongly Engaged

Change inDiscretionary

Effort

1.00

1.57

The “10:6:2” Rule• Every 10% improvement in engagement can increase an employee’s effort level by 6%.

• Every 6% improvement in effort can increase an employee’s performance by 2 percentile points.

Source: Corporate Leadership Council 2004 Employee Engagement Survey; Corporate Leadership Council research.

…resulting in higher performance across the workforce

Maximum Impact of Discretionary Effort on Performance Percentile

Numberof Employees

50th Percentile

Performance

70th Percentile

Performance

Moving employees from strong disengagement to strong engagement can result in a 57% increase in discretionary effort.

Moving from low- to high- effort levels can result in a performance improvement of up to 20 percentile points.


Workforce engagement also benefi ts organizations by reducing the probability of employee departure. As employee engagement improves, their intent to leave (as expressed through activities such as thinking about leaving or sending out résumés) also declines, translating to lower expected attrition rates. An employee who moves from the lowest level of engagement to the highest level is 87% less likely to depart the organization.

0%

5%

10%

0%

5%

10%9.2%

1.2%

Engagement Drives RetentionEmployees with high levels of engagement are signifi cantly less likely to leave

Maximum Impact of Engagement on the Probability of Departure

Strongly Disengaged Strongly Engaged

Probabilityof Departurein Next 12

Months

The “10:9” Rule

Every 10% improvement in engagement can decrease an employee’s probability of departure by 9%.

Moving from strong disengagement to strong engagement decreases the probability of departure by 87%.



42.9%

8.7%

22.9%

4.9%

What a Difference Engagement Can MakeThe much higher level of engagement at Organization A relative to Organization B…

…results in 10 timesthe level of discretionary effort…

Discretionary Effort

Organization A

Organization B

Percentage of Workforce in

Highest Category of Discretionary

Effort

Employee Engagement

Organization A

Organization B

Percentage of Workforce

Strongly Engaged

…and 5 times the level of intentto stay across the workforce

Intent to Stay

Percentage of Workforce in

Highest Categoryof Intent to Stay


Comparison of engagement levels, discretionary effort, and intent to stay of two pseudonymed organizations who participated in the Council’s 2004 Employee Engagement Survey shows the benefi t of high engagement. Engagement varies greatly across organizations, but, in general, companies that manage engagement effectively can positively impact employees’ performance and willingness to stay with the organization.

Organization A

Organization B

23.5%

2.5%

Note: Organizations A and B are two real companies, identities disguised, that participated in the Council’s 2004 Employee Engagement Survey.


The Council’s employee engagement survey concluded that only 11% of the workforce is highly engaged, while a majority of employees are neither engaged or disengaged (76%) or highly disengaged (13%). Companies’ treatment of employees has the greatest impact on engagement levels, creating both opportunities and challenges.

Shifting the CurveMost organizations can realize substantial benefi ts by capitalizing on the opportunity

to increase the number of highly engaged employees in their ranks

76%

11%

The “Disaffected” The “True Believers”The “Agnostics”

13%

Highly Disengaged

HighlyEngaged

Engagement Level



While recognizing the importance of engagement to desired performance and retention outcomes, organizations struggle to maximize the impact of engagement interventions, often failing to maintain scale and effectiveness in their approach. A strategy based on high-engagement leverage points enables suffi cient focus and scale. The remainder of this study will explore four critical leverage points.

What’s Hard: The Need for Focus and ScaleOrganizations experience variable returns on engagement interventions

as they struggle to achieve suffi cient focus and scope of impact

Engagement Strategy Focus Versus Scale

Segment-Specifi cEngagement Interventions

High-EngagementLeverage Points

Local Solutions Attempts to Raise Organization-Wide Morale

Degree to Which Strategy

Is Focused

OrganizationalScale of Strategy


High

Low

Low High

A focus on engagement leverage points yields the greatest ROI for the organization.

Some organizations are beginning to roll out broad initiatives—such as public celebrations, communication cascades, and new benefi ts options—designed to boost engagement across the workforce. Despite advantages in scope, these initiatives often fail to target specifi c engagement needs of individuals and may seem superfi cial or generic to employees. Organizations using “fun and games” engagement strategies are not likely to experience meaningful or lasting business impact.

Most organizations report a “fi re fi ghting” approach to engagement, addressing the most obvious pockets of disengagement as they arise. The limited scope of this approach quickly exhausts scarce resources and often fails to demonstrate measurable business benefi ts.


Focusing on critical leverage

Leverage Point #1


Leverage Point #2

Engaging KeyContributors

Strategic EngagementGap Analysis

Solid PerformerCareer Pathing

*

Key Insight


Key Insight


Engaging

* Pseudonym.


Leverage Point #3

Targeting Driversof Disengagement

Leverage Point #4


The Three Cs of Culture:� Connection� Contribution� Credibility

Cultural Assessment Process Leader Storytellers

Targeted Employee Contribution Cascade

Values Realization System

Key Insight


Key Insight


the Workforce

points to drive employee engagement


17

Chapter IPrioritizing Engagement-Driven Business Risks

Key Insight


19Chapter I: Prioritizing Engagement-Driven Business Risks

65% 65% 62%53%

43% 40%36%

The Council’s research fi ndings on the business impact of engagement are clear—high levels of engagement can generate a performance improvement of up to 20 percentage points. The business impact of engagement creates a clear need for engagement strategies to focus on business outcomes. However, organizations’ existing use of engagement data—favoring it as a broad metric rather than a focused strategic tool—may not support this objective. In this chapter, the Council assesses one organization’s practice that connects employee engagement directly to business outcomes.

All About the Business?Despite the powerful impact of an engaged workforce on business performance…

…companies more often use engagement data for broad-brushmeasurement rather than managing business strategy

Use of Engagement DataQ: Does your organization use engagement data to accomplish the following tasks?

Strong Disengagement

Strong Engagement

Change inDiscretionary

Effort

1.0

1.57

Numberof Employees

50th Percentile

70th Percentile

Maximum Impact of Engagementon Discretionary Effort

Maximum Impact of DiscretionaryEffort on Performance

Gauge General

Reaction to HR Initiatives

Provide Managers

with Feedback

Identify Engagement of Employee Segments

Make the Business

Case for HR Initiatives

Assess Retention

Risk

Assess Productivity

Risk

Assess the Impact of Strategy

Percentage of RespondentsAnswering

“Yes”

Source: Corporate Leadership Council 2004 Survey of HR Executives; Corporate Leadership Council research.

Nearly two-thirds of companies do not connect engagement data to business strategy.

n = 86.

Note: Respondents were senior HR executives at Council member companies.

Moving from low- to high- effort levels can result in a performance improvement of up to 20 percentile points.

Moving employees from strong disengagement to strong engagement can result in a 57% increase in discretionary effort.

21


Practice #1: Strategic Engagement Gap Analysis

DescriptionHaving recognized the economic impact of an engaged workforce, Intuit further concludes that business success depends on only a subset of “highest leverage” engagement practices. To guide managers to focus exclusively on the points of highest leverage, the company identifi es the engagement profi les needed to execute against strategic plans and provides managers with the information they need to drive the engagement of employees.

GoalsThe goal of Intuit’s approach to engagement is threefold: fi rst, to ensure that engagement efforts have a direct, positive impact on business operations and strategic goals; second, to enable managers to act on the points of greatest leverage for engagement of their teams; and, third, to ensure that key points of disengagement are remedied through manager action.

Key Differentiating FeaturesIntuit’s approach to employee engagement differs from standard practice in several ways. Intuit integrates the management of engagement into the strategic planning process, focusing attention and resources only where engagement has strategic importance. Knowing the drivers of engagement within their business units, leaders can focus on actions that will have the greatest impact on engagement. Intuit also fi nds that managing engagement at the business unit level maximizes the impact and relevance of engagement interventions.

ResultsIntuit’s leaders cite the company’s approach to managing engagement as a key factor in the company’s profi table growth over the last four years. Business units within Intuit have utilized the strategic engagement analysis to identify key engagement-related issues, determine the drivers of engagement, and take focused action to realize substantial gains in employee engagement and customer satisfaction.

• Headquartered in the Silicon Valley of California, Intuit provides software that helps its customers manage personal fi nances (Quicken), business fi nances (QuickBooks), and tax preparation (TurboTax).

• The company had $1.9 billion in revenue in fi scal year 2004; its employees number approximately 7,200.


Practice Driver

Intuit’s CEO, Steve Bennett, believes that the engagement of the company’s employees results in service quality, high productivity, and other behaviors needed for strong fi nancial performance. To maximize the returns on its efforts, Intuit prioritizes engagement-related interventions as they pertain to business strategy. In mapping engagement levels to business objectives, Intuit avoids a common engagement management pitfall: wasted resources. Without adequate consideration of what matters most to the business, organizations can expend effort and resources with no meaningful impact on business results.

Intuit believes its people are a critical source of competitive advantage…

…that the results employees achieve depend on engagement…

Link Between EmployeeEngagement and Business Results

It’s the People“My view is the recipe that makes great companies is really culture and leadership.”

Steve Bennett, CEOIntuit

Engaged Employees

Top-LineGrowth, Increased

Profi ts

• Provide high-quality customer service

• Increase product quality• Reduce costs• Innovate to address

customer needs• Improve processes• Share knowledge• Generate highest levels

of productivity

...and, therefore, that it is essential to focus on the gaps where engagement is lowest and most important to business success

Prioritization of Effort

High

Low

Employee Engagement

Level

Importance to Business Strategy

Low Priority

No Action Needed

Moderate Priority

Need to Preserve Engagement

Moderate Priority

Assess and Act, Case-by-Case Basis

Highest PriorityMission-

Critical Gaps

Focused Attention

“Many companies administer surveys and simply zero in on the lowest-scoring questions. Failure to focus on how engagement relates to business goals often results in wasted effort.”

Senior Manager HR Research and Quality Intuit

Low High

Source: Patrick Seitz, Investor’s Business Daily (February 2004); Intuit; Corporate Leadership Council research.

Sustaining a Competitive Advantage

Chapter I: Prioritizing Engagement-Driven Business Risks 23

Practice in Summary

Intuit’s engagement management practices differ from standard approaches in three ways. First, the organization uses its strategic planning process to identify the engagement levels required to support future organizational needs. Second, Intuit analyzes engagement drivers for each business unit, mapping drivers against current engagement levels to determine if employees are suffi ciently engaged and, where they are not, to assess the size of engagement gaps. Last, Intuit’s business unit managers focus only on the engagement gaps that are critical to achieving business goals, building action plans to address the most pressing engagement gaps.

Engagement data is incorporated into the strategic planning process and is

used to identify gaps between existing capabilities and future needs

When given a report of results that fails to indicate specifi c action,

managers may be inclined to ignore the data

Guided by strategic and organizational priorities, managers

design and execute action plans to close specifi c gaps

Engagement driver analysis supports managers’ assessments of which gaps

are critical and which are less important

Survey results are presented withoutcontext, obscuring any sense of which

scores are truly relevant

Engagement is managed independentlyof business strategy

Limits to Standard Practice Intuit Practice, Differentiating Features

Survey Question1. I am proud to work at Intuit

2. Overall my satisfaction with Intuit is high

3. I would recommend Intuit as a great place to work

4. If offered a similar position and compensation at another company I would stay at Intuit

5. I have the information I need to do my job

6. Processes allow me to meet customer needs

7. Policies are administered fairly

8. My career goals can be met at Intuit

9. I understand Intuit’s overall goals and direction

1 1

33

22

Survey Question1. I am proud to work at Intuit



4. If offered a similar position and compensation at another company I would stay at Intuit





9. I understand Intuit’s overall goals and direction ?

2004 Action Plan

Owner: Parker PritorType: Organizational Action Plan

Desired Outcome: Better-defi ned career development paths that are more aligned to team members’ career aspirations.

Engagement Drivers:My career goals can be met at Intuit

Main points from the feedback session:Current career development paths, particularly those supporting a technical track, are not well understood. Currently, most career management discussions address immediate skills gaps and are not focused on identifying long-term career goals and paths to attain them.

Action Plan Details

Implementation Team: Parker Pritor, Peter Patel, Sue Bly, Lynn Joi Budget: $0

Action Plan Steps: Owner: Due Date:

1. Collect best practices on career paths from other business units. Bly, Joi 07-01-2004

2. Create development paths to support career growth. Patel 08-15-2004

3. Draft and communicate career management responsibilities. Pritor 10-15-2002

Strategic Gaps

• • • • •

Strategic Plan

Survey Question Score Follow-Up

• __________• __________• __________• __________• __________

—————

?????

Survey Question Score Strategic Gap Follow-Up

• ___________• ___________• ___________• ___________• ___________

—————

• _______• _______• _______• _______• _______

Source: Intuit Inc. ; Corporate Leadership Council research.

Knowing When Engagement MattersIntuit manages employee engagement to be aligned

with the business, highly focused, and forward looking


Business Unit One Strategic Plan

Vision• 20% growth to $300 million revenue

by 2007• Leader in fi nancial management

in the small business markets• Channel revenues are 20% of the

businessStrategy• 3 new products a year• Bring consumer products to small

business• Graduate 10% of customers

to premium products

Step #1: Translate Business Strategy into Needed Organizational Capabilities

Each year, Intuit’s business unit leaders use a “star model” to assess the human capital–related implications of business strategy on dimensions such as structure, process, and talent. Leaders identify the organizational capabilities needed to achieve strategic goals, such as leadership qualities, team dynamics, and skill requirements for employees in the business unit. Based on the needed organizational capabilities, Intuit’s leaders create a unique “engagement profi le” for each business unit, detailing those engagement levers critical to future business success—a crucial input in identifying engagement gaps.

Illustrative Strategic Plan1 The Galbraith Star Model2

…to support their judgment and decisions as they anticipate the organizational capabilities and “engagement profi le” needed to deliver on strategy

Illustrative Organizational Capabilities and Engagement Profi le

1 All information on strategy, plans, engagement data, and action plans is illustrative.2 Intuit uses a modifi ed version of J.R. Galbraith’s Star Model—see appendix for details.


5. TALENTSkills and

Capabilities

2. STRUCTUREEnd-to-End

Accountability

1. BUSINESS STRATEGY

4. REWARDS AND

RECOGNITION

3. PROCESS Operations

and Systems

6. CULTURE

Star Category Needed Organizational Capabilities Needed Engagement Profi le

1. Business Strategy

• Clear line of sight to larger goals and strategy• Known for technical and business leadership

• Team members understand their customers• Team members confi dent in the strategy

2. Structure• Team is easy to work with • End-to-end accountability, decisions made at the right level

• Team understands roles and responsibilities• Strong cooperation with other teams

3. Process• Work is well prioritized• Non-value-added complexity is never allowed

• Team fl uent in all processes and process design and management (i.e., six sigma)

4. Rewards and Recognition

• Organization delivers for customer and shareholders• Team and individual recognition drive desired behavior

• Team believes rewards align with value created• Team understands incentives

5. Talent • Deep technical expertise• Zero vacancies in critical positions

• Team members get needed training• Team members see long-term careers at Intuit

6. Culture • Flexible and collaborative, communicates clearly, and drives change• Embodies good corporate citizenry

• Team members value knowledge sharing• Team views Intuit as a good corporate citizen

Engagement Profi les detail business-critical engagement levers.

Where Strategy Meets PeopleAs part of the strategic planning cycle, Intuit’s leaders analyze their business strategies through an organizational diagnostic...


Finger on the Pulse of the Business UnitHR surveys employees at each business unit on their perceptions of Intuit…

Employee Engagement Survey

Step #2: Measure Employee Engagement and Determine Its Drivers in the Business Unit

Intuit surveys employees annually, measuring engagement levels with the four questions that constitute the “employee engagement index.” Intuit also identifi es the key drivers of engagement by assessing correlation between survey questions and the employee engagement index, fi nding that a small subset of questions drives most variation in engagement levels.

...and analyzes the correlation of survey questions to the engagement index to determine the drivers of engagement

Illustrative Engagement Data Analysis

Note: All data is illustrative.

Intuit Employee


Employee Survey1. I am proud to work at Intuit



4. If offered a similar position and compensation at another company, I would stay at Intuit





9. I understand Intuit’s overall goals and direction

Agree Disagree

0

0.35

0.7

0

0.35

0.7

Survey Questions

Correlation to Engagement

Intuit discerned that seven to ten questions explain70% to 80%of engagement.

Engagement is the average percentage of employees who agree or strongly agree with the four questions deemed “The Employee Engagement Index.”

0.7

0.35

0


Drivers of EngagementBusiness Unit 1

Score (% EmployeesWho Agree)

1. My career goals can be met at Intuit 47%2. I have an opportunity to learn and grow at Intuit 56%3. I receive the ongoing training I need 61%4. Total compensation is competitive 70%5. In my business unit we make good decisions 73%6. My business unit makes changes necessary to compete effectively 80%7. I am proud of the service my business unit provides 85%8. Intuit takes genuine interest in the welfare of communities where we do business 93%

Step #2 (Continued): Measure Employee Engagement and Determine Its Drivers in the Business Unit

Intuit reports the aggregate engagement scores of business units or functions to executives, who also receive scores for each team within the unit. Reports include two critical pieces of information: the specifi c drivers of engagement for each business unit (determined by correlation analysis) and engagement score for each driver. Leaders can easily understand what matters most to their teams’ engagement and how engaged employees currently are—the second critical input to identifying engagement gaps.

Note: All data is illustrative. Source: Intuit Inc. ; Corporate Leadership Council research.

Reporting on the DetailsIntuit executives receive a report of engagement at the business unit and team levels…

Illustrative Engagement Report

…as well as the engagement drivers for their business

Illustrative Engagement Drivers

76% 13% 11%

92% 8%

86% 9% 5%

85% 8% 7%

67% 13% 20%

63% 18% 19%

41% 22% 37%

Business Unit 1 Total

Department A

Department B

Department C

Department D

Department E

Department F

Employee Engagement ReportBusiness Unit 1

Favorable Neutral Unfavorable

Engagement Index ScoresReporting engagement at the department level allows executives to quickly identify best practices as well as problem areas within their organizations.

Understanding engagement drivers within the business unit helps executives avoid putting time or resources toward survey results that do not impact engagement.


Organizational Gap

Star CategoryOrganizational

Capability Identifi ed in Star Model Analysis

Needed Engagement Profi le Relevant Survey Question

Structure Organization is easy to work with

Strong cooperation with other groups

My work group gets the cooperation it needs from other groups to achieve our goals

Process Non-value-added complexity is never allowed

Team fl uent in process design and management(six sigma)

In my work group we continually improve our work processes

Talent Deep technical expertise Team members get needed training

I receive the ongoing training I need

Talent Zero vacancies in critical positions

Team members see long-term careers at Intuit

My career goals can be met at Intuit

Culture Embodies good corporate citizenry

Team views Intuit as a good corporate citizen

Intuit takes genuine interest in the welfare of the communities it serves

Sizing the

Step #3: Assess Business Risks by Mapping Engagement Data to Required Organizational Capabilities

Bringing together the “engagement profi le” and the results of employee engagement surveys, Intuit’s business unit managers construct an “organizational gap analysis.” The gap analysis enables managers to determine which efforts to engage employees will have a positive impact on the business and which will not.

Illustrative Organizational

Business unit leaders review organizational capabilities and engagement profi les identifi ed in step #1…

1

Leaders in each business unit create an organizational gapand debate as they prioritize the strategic gaps that must


Analysis, Business Unit 1

Survey Score

Engagement Driver?

Risk Represented by the Gap Between Existing and Needed

Capabilities

Relative Size of Gap and Appropriate Action Protocol

55% NO Failure to get cooperation from other work groups diminishes results

Medium gap due to low score on a non-driver: Action at manager discretion

89% NO Lack of process improvement results in ineffi cient workfl ow

Small gap due to high score on a non-driver: No immediate action needed

61% YES Misalignment of training to organizational needs creates shortage of key technical expertise

Large gap due to low score on a driver: Create action plans to close the gap

47% YES With staff departing for better career prospects, key positions become—and remain—vacant

Large gap due to low score on a driver: Create action plans to close the gap

93% YES Without suffi cient service to communities, Intuit fails to operate by its values

Medium gap due to high score on a driver: Monitor engagement, no immediate action needed


Intuit’s leaders identify any disparities between needed and existing levels of engagement and assess the level and type of risk associated with the gaps. The analysis applies one fi nal screen to the risk assessment: potential impact on the business. Managers focus most on low-scoring survey questions that are both engagement drivers and business-critical.

Issues

Gap Analysis

…as well as the size of the gap and the appropriate level of follow-up.

…and incorporate their experience and judgment to assess the nature of the strategic gap…

3 4…match them to specifi c survey questions, considering the question’s score and whether it is a driver of engagement…

2

analysis, which summarizes their perspectives,be addressed before they become problems


Agenda:Business Unit 1 Feedback Session

• Review engagement results and compare to prior year’s scores

• Discuss team scores on the drivers of engagement

• Recognize areas of strength

• Discuss causes of low-scoring drivers and solutions

• Ground rules: Candid and forthright discussion is encouraged

Step #4: Build Action Plans to Address Strategic Engagement Gaps

With a clear understanding of the engagement gaps that matter to the business, managers conduct employee feedback sessions to assess the root cause of the gaps. Teams review survey results, discuss the root causes of low-scoring items, and brainstorm on potential solutions to low engagement. While managers encourage team members to be creative when resolving team challenges, they recommend focusing on action items that the team can control itself and that can be accomplished in a fairly short time frame.

Manager

Illustrative Root-Cause Analysis

Note: All examples are illustrative. Source: Intuit Inc. ; Corporate Leadership Council research.

Team Members

Employee Feedback Session

Assessing the Root of the ProblemWith key risks and engagement drivers prioritized, managers probe

the reasons why employees gave low scores to key drivers

Engagement Driver

Root Cause of Low Scores

Potential Solutions(Team Brainstorm)

I receive the ongoing training I need

Internal training is diffi cult to access and is not always suffi cient

Identify relevant external classes

My career goals can be met at Intuit

Team members lack clarity around long-term career path

Defi ne and communicate career paths


Following feedback sessions, managers create action plans designed to bridge strategic engagement gaps. To assist with action planning, managers can access Intuit’s comprehensive online archive of action plans, which includes best practices for addressing particular engagement drivers.

Illustrative Action Plan

Intuit Manager

Illustrative Action Plan Archive

Note: All examples are illustrative; sample action plan included in the Appendix.


Engagement Driver: My Career Goals Can Be Met at Intuit

Desired Outcome of Action Plan

Best Practice Plan

Created By

Ext.

Improve clarity of career paths [View] Bo Pracht 3478

Create development plans for team members [View] Gus Zyman 3887

Create a skill assessment process [View] Shelly Selt 2198

Enhance leadership development curriculum [View] Jake Dean 2303

Implement a peer mentoring program [View] Carrie White 9099

2004 Action Plan

Owner: Parker PritorType: Organizational Action Plan

Desired Outcome: Better-defi ned career development paths that are more aligned to team members’ career aspirations.

Engagement DriversMy career goals can be met at Intuit

Main points from the feedback session:Current career development paths, particularly those supporting a technical track, are not well understood. Currently, most career management discussions address immediate skills gaps and are not focused on identifying long-term career goals and paths to attain them.

Action Plan Details

Implementation Team: Parker Pritor, Peter Patel, Sue Bly, Lynn Joi Budget: $0

Action Plan Steps: Owner: Due Date:

1. Collect best practices on career paths from other business units. Bly, Joi 07-01-2004

2. Create development paths to support career growth. Patel 08-15-2004

3. Draft and communicate career management responsibilities. Pritor 10-15-2002

Team input and the incorporation of best practices give action plans high relevance and pinpoint accuracy.

A Focused Plan of ActionArchived best practices help guide managers as they lead

their teams in creating and executing actions plans to bridge gaps


Step #5: Create Accountability to the CEO and Employees to Ensure Execution of Action Plans

Intuit holds business unit leaders accountable for managing the engagement levels of their teams via a number of channels. In an annual Organization and Talent Review, leaders discuss strategic plans, engagement gap analyses, and action plans with the CEO and his executive team. Intuit’s CEO also conducts frequent “engagement check-ins” with executives to receive updates on progress against action plans and assist in the identifi cation and resolution of any engagement-related challenges. Every action plan is posted to Intuit’s intranet; all employees can review progress against engagement efforts. Intuit fi nds that transparency of information regarding engagement action plans provides managers with additional incentive to execute action plans.

Browse Action Plans for [Parker Pritor]’s entire organization

2004 Existing Action Plans:

1. Developmental—Q.31 My career goals can be met at Intuit. Defi ne career development paths for team members. Survey Item Q.31— In Progress

[view]

2. Organizational (Shared Plan)—Variable compensation, key metrics, policies, and processes will align with driving excellence in customer experience and right balance for employee and shareholder. Survey item(s) Q.28, Q.56— In Progress

[view]

2003 Action Plans:

1. Developmental—Increased employee satisfaction with equipment, tools, systems and resources necessary to do their jobs effectively. Survey item(s) Q.10— In Progress

[view only]

2. Developmental (Shared Plan)—Reps feel that they are adequately trained and have the development they need to be effective in their jobs. Survey item(s) Q.7— Completed

[view only]

…and action plan visibility makes managers more accountable to fulfi ll the goals of their plans

...while “engagement check-ins” allow senior executives to update

the CEO on progress…

“Engagement Check-In” with the CEO

In the Organization and Talent Review, senior executives discuss strategy, engagement, and action plans…

Annual Organization and Talent Review

CEO

In the Public Eye“Giving employees the ability to view action plans provides managers with a real incentive to stay on top of completing them.”

Senior ManagerHR Research and QualityIntuit

CEO and Selected

Senior Staff

Senior Executive


Key Questions

• How did you assess your engagement-related gaps?• How will your action plans close the gaps?

Key Questions

• What progress have you made against key drivers of engagement?

• Have you encountered any diffi culties in executing your action plans?

Illustrative Online View of a Manager’s Action Plans

Employees can view all managers’ action plans.

Senior Executive

Summaries highlight plan objectives and key engagement drivers addressed.

Making Execution a Priority


Results

Intuit credits its strategic engagement management efforts with making substantial contributions to four years of profi table growth. The engagement gap analysis proactively identifi es challenges in business units well before engagement levels have a deleterious effect on business results. For example, Intuit used the gap analysis process in a business unit to identify employees’ inability to connect their jobs to overall business as a key driver of engagement, a requirement for future success—and a problem area. Unit leaders successfully addressed the challenge, ultimately boosting engagement scores from 77% to 87% in a year, and enjoying a concurrent 21% increase in customer satisfaction.

Case in PointSituation: Surprised by low engagement scores in 2002, one of Intuit’s business units used the strategic engagement approach to identify the proper actions to address the problem.

74%90%

70%82%

80%86%

77%87%

100121

I Have a Good Understanding of Intuit’s Overall Goals and Direction

My Business Unit Responds Effectively to Changes in the Business Environment

My Manager Shares the Business Unit’s Strategy and Goals

Total Engagement

Customer Satisfaction*

…as evidenced by one business unit’s success with the process


Action Steps Results: 2003 Versus 2002

2002 2003

* Customer Advocacy Metric; 2003 score indexed to 2002.

• Conducted focus groups across all 200 employees

• Identifi ed employees’ inability to connect their jobs to the company’s strategy and goalsas primary root causeof low engagement

• Designed and executed action plans to improve employee line of sight

Net Income

Revenue

Net Income($ Millions)

Revenue($ Millions)

●●

●●

2001 2002 2003 2004($250) ($250)

$0

$250

$500

$0

$1,000

$2,000

Reaping the Benefi tsIntuit’s strategic engagement gap analysis has allowed the company

to proactively identify and resolve issues, which has helped contributeto increased customer satisfaction and profi table growth...

Intuit Revenue and Profi t, 2001–2004


Council Assessment: Strategic Engagement Gap Analysis

Caveat

Organizations seeking to replicate Intuit’s results should be sure to keep the process, data and analytics in proper context. Intuit’s leaders are careful to avoid overreliance on the engagement gap analysis process, making sure to complement the data and tools with their own judgment as they make their decisions.

Implementation Tips

Leverage Senior Leadership—The architect of Intuit’s approach to engagement—and a prominent driver of its ongoing execution—is the company’s CEO. Organizations seeking to emulate Intuit’s approach will need to secure sponsorship at the highest levels, and will be well served to make the business case of this approach to senior leadership.

Measure the Business Units—Intuit measures engagement and its drivers at the business unit level, rather than the corporate level. The company has found that the drivers of engagement for one business unit may not be relevant for another.

Establish Support as a Business Process, Not an HR Initiative—Intuit recommends that HR not serve as a gap analysis process enforcer. Instead, the company relies upon a balance of downward management (starting with the CEO), upward pressure (creating accountability by giving employees visibility to their managers’ commitments and progress), and technology (for example, managers who miss key deadlines are sent e-mails—known as “e-nags” within the company—reminding them of their commitments) to ensure widespread adoption.

37

Chapter IIEngaging Key Contributors

Key Insight


39Chapter II: Engaging Key Contributors

Across the membership, organizations report concern about the productivity and predicted retention of core performers —often termed solid performers or “B players”—particularly relative to their high-performing peers. Organizations face three key challenges in ensuring that the contributions of employees receive proper recognition: fi rst, that defi nitions of “contribution” are too narrow; second, that opportunities for development are scarce; and last, that differentiating based on performance can create unproductive tension and disengagement among those who feel excluded. In this chapter, the Council examines an approach to managing these challenges.

Some Feeling the Pinch More Than OthersOrganizations express concern over core performers’

productivity levels and attrition rates…

…as organizations struggle with three key challenges to delivering opportunity to all high-value contributors

Key Challenges in Managing Core Performers

Source: Corporate Leadership Council 2004 Employee Engagement Survey; Corporate Leadership Council 2004 HR Executive Survey; Corporate Leadership Council research.

Concern for Productivity, Core Performers Versus High Performers

Perc

enta

ge

of R

espo

nses

0%

40%

80%

0%

40%

80%

64%

46%

Respondents “Concerned”

or “Very Concerned” About the

Productivity of Core Performers

Respondents “Concerned”

or “Very Concerned” About the

Productivity of High Performers

n = 86.

Estimated Voluntary Attrition Rates, Core Performers Versus High Performers

Ave

rage

Vol

unta

ry

Att

ritio

n

2001 2002 2003 2004(E)0%

6%

12%

High Performers

Core Performers

n = 86.

I.

Limited Defi nition of “Value Creator”

Organizations defi ne contribution narrowly, often excluding the value provided by core performers

II.

Limited Understanding of Employee Needs

Organizations assume that employee expectations and demands are uniform across the workforce

III.

Misaligned Performance Management Systems

Performance management practices ill-suited to maximize value and realize potential of all contributors

41

Engaging Key Contributors

Practice #2: Solid Performer Career Pathing

DescriptionHarrison Company’s* HR department discovers that the organization does not clearly understand the value created by different performance/potential segments across the workforce. The company identifi es a group of solid performers who create considerable value for the company, despite their limited potential to ascend to more senior roles in the company. To retain these key contributors, Harrison Company creates career paths that better refl ect the contribution and demands of this employee segment.

GoalsHarrison Company’s primary goal is to retain and engage all employees who are critical to business performance. By understanding the value of solid performers’ contributions and their expectations of the organization, Harrison Company is able to remove a number of structural barriers to their contribution, realizing the full value of these solid performers.

Key Differentiating FeaturesHarrison Company’s management of its solid performers differs from standard practice that the company recognizes there can be multiple types of contribution. Previously under-recognized employees create considerable value with:

• Their internal and external networks

• Their job-specifi c or company-specifi c skill sets

• Their execution of business-critical roles

Harrison Company also understands that rewards and career paths can differ greatly across employee segments and that designing career paths and structures around these different needs helps retain highly valued solid performers.

ResultsAcross the past three years, Harrison Company has seen steadily increasing satisfaction among employees, particularly regarding employees’ ability to contribute to the company’s goals, their ability to leverage their key skills, and their ability to build careers within the organization. Harrison Company is confi dent that this is leading to greater retention and engagement of its solid performers and that this stability is helping the company to grow its domestic and international businesses.

• Harrison Company* is a European retailer with more than 50,000 employees and revenues greater than 20 billion in 2003.

*

* Pseudonym.

€


Practice Driver

At fi rst glance, Harrison Company* appears to have few problems retaining key contributors: overall staffi ng is stable, while retention of high performers is high. Yet the company’s HR department realizes that departures of certain employees are causing considerable harm to the business. The HR department discovers real disparity in its information about the identity and value of different employees. While Harrison Company understands the value created by high performers and actively manages the group, its understanding of solid performers—their contributions and the cost of their departures—is limited.

Source: Harrison Company; Corporate Leadership Council research.

A (Partly) Hidden ProblemIn the late 1990s, Harrison Company’s HR department recognizes

that it has not fully understood the impact of all departures…

HR and Manager Perceptions of Attrition Impact

…nor the reasons for departures among all employees

Limitations of Traditional Performance and Potential Grids

* Pseudonym.

HR Manager

HR Report

Attrition Analysis

• Total attrition is low

• No single unit is showing higher than average attrition

• Attrition rate is relatively stable over time

• HIPO attrition is very low

*

Manager Feedback

• Some departures are disrupting day-to-day processes and causing customer problems.

• Replacements for some positions are diffi cult to fi nd.

• Team morale drops after certain departures.

•

•

• ••

•••• •••

•

••••

••• •

• •••

••••

••• •• •

•••

EmployeePotential

EmployeePerformance

•

LowLow

High

High

•••

A Concerning Blind SpotHR has only limited information on the reasons for the departures of solid performers and often assumes that these individuals want the same things as HIPOs.

A Known QuantityManagers and HR spend time ensuring there is low HIPO attrition and have a clear understanding of what motivates and retains these performers.

Chapter II: Engaging Key Contributors 43

Practice in Summary

Seeking to address the drivers of disengagement and attrition among solid performers, Harrison Company’s* HR department investigates this employee segment’s specifi c needs. First, HR defi nes solid performers’ contributions, enabling decisions regarding the appropriate amount of investment in these employees. Then, the company studies the drivers of engagement for solid performers to understand how best to tailor the employment offer for them. After examining its organizational structure, Harrison Company discovers structural barriers that have inadvertently limited its ability to engage solid performers and meet their needs. Last, the organization revisits its performance management process in order to lock in solid performers’ contributions over time.

Reengaging Key ContributorsHarrison Company reanalyzes solid performers’ contributions and identifi es structural barriers limiting the company’s ability to retain these performers

Harrison Company Practice in Summary

Source: Harrison Company; Corporate Leadership Council research.* Pseudonym.

Redefi ne Solid Performers’ Contribution

Remove Structural Barriersto Solid Performer Engagement

Maximize Lifetime Contributionof Solid Performers

• Identify contribution types and their impact on the business

• Distinguish highly contributing subgroups of solid performers from the larger pool of “B players”

• Research the compelling offerfor highly contributing solid performers

• Identify opportunities and barriersin the current structure to engage highly contributing solid performers

• Restructure roles to support engagement

• Formalize role descriptionsand structure

• Encourage career discussion candor

• Explain performance improvement rationale

• Align performance assessment with contribution

Employee of the Year


Step #1: Redefi ne Solid Performers’ Contribution

To defi ne solid performers’ contributions, Harrison Company* determines which roles are critical to business success, as well as the specifi c individuals whose solid performance bring signifi cant benefi t to the company. The company concludes that, while they may not possess the potential to rise in the organization, some solid performers make substantial and business-critical contributions.

What Is “Contribution?”Harrison Company discovers that a combination of role, business strategy, and employee characteristics creates a critical subset of solid performers

Assessment of Critical Solid Performer Subgroups (Illustrative)

Harrison Company fi nds a group of critical solid performers with the following characteristics:

• Reached middle management through internal promotions

• Tenured in the organization

• Strong supporters of organization’s values


Solid Performer CharacteristicsOrganizational Factors

+

Certain People Have:Certain Roles Have:

• Immediate operational impact when empty

• Relatively high subordinate-to-manager ratios

• Criticality during drastic change

• Key learning moments for advancing HIPOs

• Built up organization-specifi c knowledge

• Particular skill coaching and developing HIPOs

• Built important networks over time

• Plateaued in their career progression


What Do They Need?While these solid performers want similar things from the employment

offer, they have different expectations of their delivery

Assessment of Solid Performers’ Expectations

Head of HR

Director, HR Research Unit

Analyst, HR Research Unit

Step #1 (Continued): Redefi ne Solid Performers’ Contribution

With little access to promotion opportunities, many solid performers become disengaged. While highly contributing solid performers have similar needs to high performers, they differ in their view of how the company should deliver on these needs—for example, valuing cross-functional projects and lateral moves in contrast to high performers’ focus on upward moves.

Source: Harrison Company * ; Corporate Leadership Council research.

Line HR Manager

Output ActionsEngagement Driver

HIPO Expectations

Solid Performer Expectations

To be treated with respect

• Opportunity to provide input into strategy

• Recognition of informalresponsibilities and expertise

• Flexible rewards to recognize value

To have the opportunity to get ahead

• Opportunities to advance upward, rapidly

• Challenging projects• Opportunity for cross-

functional orlateral movement

To have interesting

work

• Variety and signifi cant responsibility

• Clear ownership of process designand improvement

• Clear accountability for areas of expertise

Better manage career expectations and opportunities for lateral movement

New careers and job structures that increase solid performers’ “opportunity to get ahead”

1

2

HR researches solid performer demands utilizing:• Employee surveys • Exit interviews• Employment preferences• Manager feedback

* Pseudonym.


Step #2: Remove Structural Barriers to Solid Performer Engagement

Harrison Company * discovers that solid performers’ “opportunity to get ahead”—a key driver of engagement—is limited by structural barriers. Unable (or unwilling) to move upward in the company, these performers also fi nd few lateral growth opportunities. In response, Harrison Company introduces broad band “work levels,” in which solid performers can hold multiple jobs over time, at the same rank. In addition, the company designates some positions as “go-to” roles to recognize and reward deep subject matter expertise. At the same time, Harrison Company revises reporting structures to ensure that managers have enough staff supporting them so they do not need to “fi ll-in” on tasks inappropriate to their skill and tenure.

Breaking Down WallsRecognizing that organizational structure prevents solid performers from

having the “opportunity to get ahead” within their current roles…

Structural Barriers to Engagement at Middle Management Level

…Harrison Company adjusts its structure to broaden management bands and adds role elements designed to engage solid performers

Elements of the Revised “Opportunity to Get Ahead” at the Middle Management Level

Minimal Lateral Growth OpportunitiesStructure and compensation do little to encourage lateral movement

Shrinking Role ChallengeMinimal gaps between levels; roles separate process design from implementation

Limited Upward Growth OpportunitiesManagers can either go no higher or are not interested in escalating responsibility

B

Create “Go To” Roles

“Go To” position holders:

• Have complete ownership for a process’ design and implementation

• Are recognized across the company as specialty experts

• Must commit to their “go to” role for at least 18 months

Broaden Span of Control

Harrison Company revises structure and policies to ensure there is:

• A clear separation between management levels

• An appropriate number of subordinates to support managers

• Flexibility for managers to shape their roles



Step #3: Maximize Lifetime Contribution of Solid Performers

While the structural changes help to remove the barriers to solid performer engagement, Harrison Company * refi nes its career management and performance management systems. A new career discussion framework drives more candid discussions between managers and employees, encourages lateral moves for solid performers, and defi nes movement requirements to help manage employee expectations.

Harrison Company’s new talent-planning process forces managers to be candid about career prospects…

Elements of Harrison Company’s Career Discussion Guide

Experience: What types of businesses and roles have you experienced? Please check the relevant box(es).

Role Types Business Types

Have you experience in these roles: Have you experience of working in:Operational role in Stores r The core business rOperational role in Distribution Center r The international business rOperational role in Head Offi ce r Turning round an under-performing area rRegional Operational Role r A high growth business rManaged more than 3 people r New acquisitions/Joint ventures rSpecialist/Process role in Head Offi ce r Other organizations external to Harrison rBusiness Plan Change Program or Project role r

3 Emphasis on Cross-Functional Movement3

1 Open Statement of Career Expectations1

2 Clear Criteria for Movement2

* Pseudonym.

Amending the

CAREER MOVE READINESS: Will you be ready for a move in the next 12 months? (See attached supporting notes.)

To be ready for a move in the next 12 months, you would probably answer yes (x) to most of the following:

Have you:

r Achieved a top performance rating at your last review?

r Been in your role for a minimum of 18 months?

r Developed your skills to the required level for your current role?

r Gained the sponsorship of colleagues?

r Made contributions that have left lasting improvements in the business?

r Been recognized as practicing values?

Career Discussion Summary Please complete after your career discussion

Mobility Code

0–12 Month Talent Pool

Move Next Work Level

Move Within Work Level

Continue to Perform

Improve Performance

Timescales Ready Now

0–6 Months 6–12 Months

12–24 Month Talent Pool (if applicable)

Move Next Work Level

Move Within Work Level

Experience: What types of businesses and roles have you experienced? Please check the relevant box(es).Role Types Business TypesHave you experience in these roles: Have you experience of working in:r Operational role in stores r The core businessr Operational role in distribution center r The international businessr Operational role in head offi ce r Turning around an underperforming arear Regional operational role r A high-growth businessr Managed more than three people r New acquisitions/joint venturesr Specialist/process role in head offi ce r Other organizations external to Harrisonr Business plan change program or project role


Annual Manager Performance

Discussion

Annual Objective Setting

Compensation

Performance Appraisal

1. Communicate the rationale for escalating expectations to highly contributing solid performers

2. Build fl exibility in appraisal to assess different types of contribution

3. Develop fl exible approaches to rewards

4. Vigorously address performance problems and increase performance standards over time

Conscious of the need for solid performers to keep contributing over time, Harrison emphasizes its expectations of steadily improving performance. Harrison communicates a clear rationale to solid performers for this ongoing performance improvement and amends its standards for performance and rewards.

…while ensuring that solid performers improve their performance over time

Harrison Company’s Performance Management System

Sticks and Carrots

Source: Harrison Company; Corporate Leadership Council research.

Performance Appraisal Performance Appraisal


Results

Harrison Company * employees report increasing conviction that the company values their contributions. The number of employees who perceive that Harrison values their opinions, that they can impact their work environment, and—most notably—that their jobs make full use of their skills, is increasing. Harrison Company also notes that engagement and retention of solid performers is increasingly important to the organization, as the company expands into new regions and new product lines.

Harrison Company Domestic Retail SalesIndexed

Realizing the Value of Solid PerformersHarrison Company fi nds that individuals’ belief in the value of their contribution is on the rise…

Harrison Employee Survey Results

…driving increasing sales and supporting the company’s ability to expand internationally

Critical to Growth“As we expand into new countries and into different types of services, our business will rely on the retention and productivity of our core solid performers to keep our domestic business profi table.”

Senior Vice President, HRHarrison Company


Q: “My opinion is valued.” Q: “My job makes the most of my skills.”

Q: “I get the chance to make suggestions for improvements at work.”

Percentage of Respondents

Strongly Agreeing with

Statement

76% 81%61%

66%69% 73%

2002 2004

2001 2002 2003 2004

1.01.1

1.2

1.4


Contribution Diagnostic Tool

To help members understand the identity and contribution of their B players, the Council has synthesized academic, consulting, and HR analysis on solid performers to create the Contribution Diagnostic Tool. Members should use the tool to defi ne who is responsible for creating value in the organization. The fi rst table assesses which B player contributions are important for the business overall or for particular business units.

Not All Solid PerformersCLC Contribution

Instructions:1. Complete the fi nal column of the fi rst table for the organization as a whole and for each

major business unit.2 Sum the scores in the fi nal column for the organization as a whole and for the major units.3. Totals above 60 indicate that B-player contributions are particularly important for the

business or for a particular unit.

We have a high subordinate-to-manager ratioOur employees work together very closely and departures affect moraleWe develop good technical but poor people managers

Our strategy is likely to change substantially in the near futureWe have recently completed a period of signifi cant change or restructuring

We are concerned about being able to advance HIPOs quickly enoughThis is a unit or level where HIPOs often fail

Our customers place a premium on the consistency of our staffDeep customer knowledge is critical to customer acquisition or retention

We are in the process of executing against a new strategyOur work means project management skills are at a premium

We put signifi cant emphasis on promoting organizational values

Our business is a hard place to form networksOur success relies on the formation of informal networks

Our processes or practices are very different from other organizations’The external labor market rarely provides us “ready-made” expertiseOur current strategy relies on technical innovation from those with multiple years’ experience

Degree of Need Within BusinessAgreement (5 = high, 1 = low)

Operational/Technical Expertise

Management of People

Organizational Continuity

Leadership Development

Customer Retention

Execution Skills

Organizational Values

Cross-Functional Networks

Type of Contribution

* Pseudonym.


Source: Delong, Thomas J., and Vineeta Vijayaraghavan, “Let’s Hear It for the B-Players,” Harvard Business Review (June 2003); “Letters to the Editor,” Harvard Business Review (November 2003); Pfeffer, Jeffrey, “Fighting the War for Talent Is Hazardous to Your Business,” Organizational Dynamics (Spring 2001); Bossidy, Larry, and Ram Charan, “Execution, The Discipline of Getting Things Done,” Random House Business Books (5 September 2002); Harrison Company * ; Corporate Leadership Council research.

4. Calculate the average score for each type of contribution featured in the fi rst table.5. For average scores of more than 3.5, move to the relevant questions in the table below.6. Answer these questions for specifi c employees or teams of employees.7. Identify employees or groups of employees scoring highly for these questions and target these

individuals for engagement attention.

Are Created EqualDiagnostic Tool

The second table identifi es which individuals or groups of individuals provide key contributions to the business. The organization can use this to target engagement research and efforts to the most important groups of B-players.

Builds loyalty in subordinatesHas signifi cant people management skillsIs a good developer of others

Has performed solidly over many years and in different organizational circumstancesShows readiness to change and adapt

Is a good coach of others, particularly in transferring key functional or technical principlesCan fi ll more senior roles on a temporary basis

Is responsible for managing key customer accounts or constituentsHas built personal relationships with important customers

Has highly developed organizational skillsCan manage large projects

Is an ambassador of organizational values

Has developed and maintained informal networks over long periodsUses key contacts to get work done quickly

Has deep knowledge of our processesIs a teacher and advisor to others on company processesHas designed key processes used by the organization

Solid Performer ContributionAgreement (5 = high, 1 = low)

Operational/Technical Expertise

Management of People

Organizational Continuity

Leadership Development

Customer Retention

Execution Skills

Organizational Values

Cross-Functional Networks

Type of Contribution


Managing “B Players”

The Council has seen a number of organizations redressing perceived inequities in the treatment of solid performers with programs to engage highly valued solid performers.

“Core Performers”To recognize solid performers’ contributions, Kellogg adjusted its HR strategies to offer even more support to its core performers:

• Core performers receive development through opportunities to participate in special projects

• Kellogg reserved funding to increase bonuses of solid performers

• The company celebrates the contributions of core performers in a number of companywide forums

“Critical Positions”Brown-Forman manages 90 critical positions that are highly important to business success:

• Many critical positions are deliberately fi lled with employees who have not yet been slated for a leadership development position, but have unique skills and expertise

• Individuals in critical positions receive career development and management focused on developing their expertise—not, as is the case for their HIPO peers, cross-functional exposure

“Oak Trees”General Motors Corporation designates individuals with business-critical functional expertise and deep knowledge of the organization as “Oak Trees.” Components of the Oak Tree program include the following:

• A rigorous application process that assesses the level of expertise and relevance of expertise to the business

• Targeted benefi ts and rewards for participants

Voluntary attrition among Oak Trees is less than one-fi fth of that of GM as a whole.

Engaging Value Creators in the “Middle 70”Organizations report a variety of approaches to

meeting the needs of highly contributing “B-Players”

Source: Kellogg Company; General Motors Corporation; Brown-Forman Corporation; Corporate Leadership Council research.


Council Assessment: Solid Performer Career Pathing

Caveat

Harrison determines that some solid performers are critical to business success due to their internal and external networks, their job-specifi c or company-specifi c skill sets, or their execution of business-critical roles. However, other organizations may fi nd that the highly valuable solid performers in their own business may be a different subgroup.

Implementation Tips

Delicate Conversations—After some solid performers were identifi ed as key contributors, many of these valuable employees took offense when referred to as “solid performers,” even in the context of discussing their careers as key contributors to the organization. Organizations seeking to defi ne their own key contributors need to frame these discussions carefully to ensure that key contributors are reassured of their value, their contribution, and their role within the organization.

Performance Management Discipline—The success of Harrison’s management of key contributors depends on maintaining and increasing the performance levels of these employees to maximize contribution and prevent “coasting.” Over time, organizations should recognize that building and communicating strong performance expectations for all types of employees will pay dividends in the form of increased contribution and comprehension of organizational requirements.

5757

Chapter IIITargeting Drivers of Disengagement

Key Insight


Chapter III: Targeting Drivers of Disengagement 59

Companies That Analyze Retention Data to Assess Engagement

Companies Using Discussions Between Managers and Direct Reports to Understand Engagement Barriers

77%

23%

75%

25%

43%57%

31%

69%

The Council’s survey of HR executives identifi ed a key gap in many members’ approach to engagement. While more than three-fourths of members actively measure engagement, far fewer undertake activities to allow for a deeper understanding of exactly why engagement levels are low. In this chapter, the Council explores an approach to assessing the diverse—and sometimes diffi cult to discern—barriers to employee engagement.

While a strong majority of organizations measure engagement levels…

Practices to Measure Engagement

Cause Versus Effect

…far fewer use practices to build an understanding of barriers to engagement

Practices to Measure Barriers to Engagement


= 86.

Companies That Use Organization-Wide Surveys to Measure Engagement

Companies Using Executive-Led Focus Groups or Discussions to Understand Engagement Barriers

Yes Yes

Yes Yes

No No

No No

61

Targeting Drivers of Disengagement

Practice #3: Cultural Assessment Process

DescriptionCaterpillar develops the Cultural Assessment Process (CAP) to gain a deeper understanding of the barriers to employee engagement. The CAP offers individual business units a detailed diagnosis of employee perceptions about the working environment that constitute barriers to engagement, guidance in creating action plans to address engagement barriers, and an ongoing post-action plan implementation assessment.

GoalsThe CAP’s goal is to provide business unit leaders with a complete picture of barriers to engagement not possible through employee opinion surveys alone. A better understanding of the root causes behind disengagement in the workforce allows for more targeted action plans and increased employee engagement.

Key Differentiating FeaturesCaterpillar’s CAP differs from the standard practice of identifying engagement barriers in three main areas. First, whereas employee opinion surveys merely measure the perceptions and culture in the work environment, the CAP provides business units with a deep understanding of the root cause behind all barriers to employee engagement. Second, Caterpillar ensures the effectiveness and relevance of engagement interventions by involving all employees in the identifi cation of engagement barriers and their solutions. Third, a series of short-term, focused action plans ensure that engagement actions stay at the top of management’s agenda and create a continuous cycle of cultural improvement.

ResultsThe CAP continues to demonstrate a long-term positive impact on the business units’ work environment and bottom-line results. For example, an international manufacturing facility used the CAP to attain a 59% decline in attrition, a 44% decline in absenteeism, and a 74% decline in overtime pay—creating an annual savings of $8.8 million.

• Caterpillar is a Fortune 100 company and the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines.

• In 2003, the company generated revenues of more than $22 billion and employed more than 69,000 individuals worldwide.


Practice Driver

Recognizing that a highly engaged workforce is key to achieving ambitious growth objectives, Caterpillar adds a “people” component to its list of critical success factors, while the company’s CEO establishes specifi c employee engagement targets for each business unit. However, business unit leaders do not feel that the company’s annual employee survey provides adequate information to overcome engagement barriers. While surveys reveal employees’ perceptions of “visible” aspects of the work environment, they fail to capture the “invisible” aspects of employees’ perceptions, such as social norms and unwritten rules. Caterpillar’s line managers need to understand employees’ perceptions of the “visible” and “invisible” aspects of the work environment to increase employee engagement.

Caterpillar adds a people componentto its list of critical success factors…

Caterpillar’s Critical Success Factors

…which is reinforced by targets for employee engagement…

CEO’s Employee Engagement Challenge

From: CEOTo: Business Unit VPsTo support our growth objectives I’m expecting each business unit this year to improve its employee engagement index* scores by fi ve points…

Critical Success Factors

• Growth • Six Sigma• Cost Reduction • Best Products• Order Fulfi llment • People—Quality Work Environment

What They Need to Succeed

…prompting line leaders to identify the need to overcome gaps in information about employee engagement

Identifi ed “Visible” Barriers to Engagement Unidentifi ed “Invisible” Barriers to Engagement

BU Employee

BU Employee

Our overtime policy is never applied consistently.

BU Manager

Head of BU

Employee Survey Results

AnnualAction Plan

• Benefi ts• Compensation• Training• Communication

* Caterpillar has created several indices, covering each of its Critical Success Factors, which are measured on an annual basis.

Source: Caterpillar Inc. ; Corporate Leadership Council research.


Step # 5: Create a Continuous Cycle of Cultural Improvement

Step # 4: Identify Solutions to the Cultural Barriers to Engagement

Step # 3: Identify the Cultural Barriers to Engagement

Step # 2: Identify the “Invisible” and “Visible” Components of

Organizational Culture

Step # 1: Establish the Relationship Between

Culture and Results

Practice in Summary

Caterpillar’s Organizational Effectiveness and Engagement group (OE+E) creates a “Cultural Assessment Process” (CAP) to assist business units in identifying and overcoming barriers to employee engagement. OE+E consultants diagnose engagement barriers through a series of focus groups and one-on-one interviews with business unit managers and employees. Candid communication with employees enables consultants to determine which “visible” and “invisible” aspects of units’ cultures are eroding engagement. The CAP ends with a rigorous action-planning and follow-up process to ensure that business units see action steps through to completion.

Providing a More Complete Picture of Engagement

Caterpillar’s Organizational Effectiveness and Engagement (OE+E) unit provides business units with a Cultural Assessment Process (CAP)

that enhances business results through increased employee engagement levels

Caterpillar’s Cultural Assessment Process*

Perceptions Actions Results

120-Day Action Plan

________________ ________________ ________________

Implementation

AssessmentAction Plan


Survey__________________

Focus Group Survey Interviews

Power Through Knowledge“We have no authority over business units—our infl uence lies in the rigor of the assessment process that opens managers’ eyes to misalignments between their people and their strategic objectives.”

Head of the Organizational Effectiveness and Engagement Division

Caterpillar Inc.

Three “Visible” Aspects of Culture

CommunicationLearningReinforcements

Three “Invisible” Aspects of Culture

Road MapsRelationshipsReinforcements

* Caterpillar’s Cultural Assessment Process is currently patent pending.

Organizational Effectiveness and Engagement Unit (OE+E)

• Structure A self-sustaining unit within corporate HR that—on a demand-driven basis—offers business units an end-to-end assessment of their culture

• Staff Eleven consultants with diverse functional and educational backgrounds (including HR, Manufacturing, Engineering, and Marketing)

• Mission To help business units achieve strategic, sustainable business results through improved culture and employee engagement


Step #1: Establish the Relationship Between Culture and Results

Caterpillar establishes a clear link between employees’ perceptions—their attitudes about the “visible” and “invisible” aspects of the work environment—with employee actions and behavior and, ultimately, the company’s culture and fi nancial results. The company notes that employee actions such as increased absenteeism, attrition, and inventory shrinkage often serve as strong signals of negative employee perceptions of the working environment that result in undesirable employee behaviors and employee disengagement.

The Power of Perceptions Caterpillar fi nds that employees’ perceptions of the workplace directly

impact their actions and the company’s fi nancial results…

Caterpillar’s Culture Impact Value Chain

Are we meeting our strategic objectives?

Perceptions

Employees’ beliefs and attitudes about the “visible” and “invisible” aspects of the work environment…

Actions

…drive what they do,how they do it, when they do it,

and why they do it…

Results

…which shape the company’s cultureand impact

fi nancial results

Caterpillar’s Cultural Assessment Process Objective

To assess and address perceptions about the “visible” and “invisible” aspects of the workplace that have a negative impact on employee engagement and the organization’s ability to meet strategic goals

…and thus identifi es the need to react immediately to symptoms of negative employee perceptions that infl ict costs on the business

Symptoms of a Derailing Culture It’s Perceptions That Matter“If an employee perceives an inequity, then he/she will react to it regardless of whether an actual inequity exists.” OE+E Presentation Material

1. Absenteeism 2. Attrition 3. High level of grievances 4. Inability to attract most qualifi ed

candidates 5. Increase in injuries 6. Inventory shrinkage 7. Low level of employee idea input 8. Low levels of volunteerism 9. Low productivity 10. Resistance to change


Caterpillar’s Defi nition of Culture

“The perceived ‘right way’ we do things at the facility.”


Step #2: Identify the “Visible” and “Invisible” Components of Organizational Culture

The Cultural Assessment Process enables thorough understanding of employees’ perceptions of all aspects of their work environment, identifying the full list of barriers to engagement. “Invisible” aspects of culture do not appear in survey data, organizational charts, or process maps; instead, they manifest in employees’ behavior. Caterpillar groups invisible aspects of culture into three categories: “road maps” that provide cues about what the organization values, “relationships” between employees, and, fi nally, “reinforcements” by which these cultural aspects perpetuate themselves.

Caterpillar’s Cultural Assessment Process (CAP)of a business unit’s culture to identify root causes of

“Invisible” Aspects of Organizational Culture

1. Road Maps

SymbolsNonverbal communications that explain what is valued

Rites and RitualsCeremonies or events that highlight what is important

Stories and MythsStories that describe what the company stands for

ValuesWhat the organization cares about most

2. Relationships

Norms and RoutinesDay-to-day ways people behave and interact

PowerInfl uencers of opinion (not necessarily linked to position)

StructureRelationships, communications, and power

Roles and ResponsibilitiesWhat is expected of people and their performance against expectations

3. Reinforcements

AssumptionsThe unwritten rules accepted as facts

Systems and RulesThe methods that control, measure, and reward desired behaviors

Get It All Out


Caterpillar also assesses “visible” aspects of the facility’s culture—characteristics easily identifi able in a facility’s operations. “Communications” represent policies conveyed by management to employees, “learning” consists of formal people-related policies, and “reinforcements” indicate how Caterpillar sustains its culture.

assesses three “invisible” and three “visible” aspectsemployee disengagement and/or strategic misalignment

“Visible” Aspects of Organizational Culture


1. Communication

CommunicationGenerating understanding with employees

Policies and ProceduresRules and processes supporting desired behaviors

MeasurementDetermining if the organization is on track to reach goals

2. Learning

LearningProviding employees with needed knowledge to act effectively

Decision MakingClarity and acceptance of decision-making structures

LeadershipEffective modeling, guiding, and coaching of desired employee behavior

AccountabilityClarity and acceptance of accountability structures

3. Reinforcements

RewardsRewarding desired behaviors

RecognitionRecognizing desired behaviors

SelectionRecruiting employees who support desired behaviors

on the Table


Step #3: Identify the Cultural Barriers to Engagement

To assess employee engagement in a business unit, OE+E consultants meet with business unit personnel. Focus groups, attended by individuals representing a range of functions and levels, provide insight into line employees’ perceptions, while one-on-one meetings with supervisors present unit leaders’ points of view. Caterpillar’s OE+E consultants deliberately ask open-ended questions to generate candid conversation regarding the “visible” and “invisible” elements of the business unit’s culture.

From Anecdote to AnalysisThe OE+E consultant conducts employee focus groups and manager interviews

to assess the “visible” and “invisible” aspects of the business unit’s culture

Cultural Assessment Interview Guide (Excerpt)


Focus Group Sessions Manager Interviews

OE+E Consultant

Manager

Section I(20,000-Foot

Culture Questions)

Section II(“Invisible” Elements of Culture Questions)

Section III(“Visible” SupportSystems Questions)

• What is improving in the facility? • What are some things that are not written down but are accepted as fact?

• Who comes to mind as the infl uencers of opinion in your facility?

• What are some signifi cant events in your facility in the past 12 months?

• How do people know what is expected of them?

• How does your unit reinforce desired behaviors?

• Do you have the materials, equipment, and training you need to do your job?

• How effective is the internal communication and feedback system?

• What is the recognition process?

• Are managers consistent in their expectations for employee performance and behaviors?

• What is disappointing or causing pain in the facility?

OE+E Consultant

Business Unit

Personnel

The open-ended nature of the questions offers the OE+E consultant a better opportunity to identify employee and manager perceptions of the key aspects of the facility’s culture.

The OE+E consultant assesses the perceptions of employees and managers in regard to both the “visible” and “invisible” aspects of the facility’s culture.


Establish Baseline Understanding

• Participants share and compare perceptions of words commonly used in the facility.

• Purpose: To identify perceptions of communication clarity.

Trust Exercise

• Participants identify behaviors that inspire trust, then compare trust factors against current level of employee/supervisor trust.

• Purpose: To identify employees’ level of trust in management.

Say–Do Gap Analysis

• Participants discuss perceptions of the gap between what leaders say is important versus what they actually do

• Purpose: To identify perceptions of management’s ability to “walk the talk.”

Step #3 (Continued): Identify the Cultural Barriers to Engagement

Recognizing that participants in focus groups may be reluctant to speak frankly, the OE+E consultant leads three exercises designed to create a candid discussion of the barriers to engagement in the working environment. The fi rst exercise identifi es business unit “buzzwords” and discusses their often varied meanings. The second exercise addresses the issue of trust; participants identify the behaviors and actions that enable people to build trust among themselves and then consider their own level of trust in business unit managers. Last, participants assess the degree to which business unit leaders’ behavior aligns with the messages they communicate. This exercise reveals employees’ perceptions of managers’ sincerity and integrity.

Reading Between the Lines Focus groups comprise a series of exercises that assist

the OE+E consultant in identifying key employee perceptions

Focus Group Exercises

Focus Group Overview

• Between 9 and 12 employees in each focus group

• Each focus group session lasts approximately 90 minutes

• Employees are selected by the management team representing different functions of the organization to meet a 95% statistical confi dence level for data collected

Verifi cation of Qualitative Data1. Walk-Around Verifi cation OE+E consultant verifi es dominant themes raised in the Focus Group sessions and interviews through visual observations.

2. Quantitative Verifi cation OE+E consultant verifi es themes raised in the focus group sessions and interviews through analysis of quantitative data.

• Employee opinion survey data• Productivity data• Safety record data

OE+E Consultant


Well-Understood Words

Words with Mixed Meaning

• Load Factor • Quality• Six Sigma• Core Value

Does Well At

Needs Improvement

• Consistency• Follow Through• Honesty

• Respect

Policies

Say Do Gap

Set disciplinary action policies

Change the policy, it’s applied inconsistently

Not for everyone

Write the policies They implement them as they please

No credibility


Step #4: Identify Solutions to the Cultural Barriers to Engagement

Armed with results from the assessment process, the business unit leaders convene an Action Planning Team, tasked with identifying solutions to the most signifi cant causes of disengagement. The group of between 12 and 40 employees, representing line workers and management, screens a list of potential action steps, ultimately prioritizing between 10 and 12 items.

• Twelve to 40 participants across functions• Desired 1:2 ratio of managers to employees• Participation of positive and negative “infl uencers”

of opinion


CAP Action-Planning Steps

The OE+E consultant presents the main fi ndings of the CAP to the business unit…

…while an Action Planning Team identifi es a prioritized list of action recommendations…

…and the business unit management team decides on a 120-day action plan

3

2

1

An Action Planning Team provides team with a prioritized list of

120-Day Action Plan

Caterpillar’s Seven Action Plan Areas

Typical Follow-Up Actions

Leadership Greater consistency in management

Strategy Communicate vision, mission, and strategic objectives

Policies and Procedures Clarify and communicate overtime policy

Communication Improve bottom-up communication channels

Training and Development Improve functional career development opportunities

Operations Increase fl exibility around production scheduling

Organizational Culture Enhance sense of belonging through communications and events

From Assessment

Executive Summary 1. Lack of understanding and shared vision 2. Lack of consistency in policy application 3. Some leaders are not “walking the talk” 4. Lack of personal growth opportunities 5. Limited recognition of desired behaviors 6. Perceived lack of support tools and equipment 7. Inadequate two-way communication


A/C/E ScoreCompensation TotalGive everyone a raise or no one a raise 79Leadership TotalSet clear expectations of behavior; develop metrics; communicate results; hold accountable 115

Team/EE Involvement TotalEmpower production teams to make decisions on line movement and cross-training plan 77

Validate and communicate metrics/values in capacity charts 67

Prioritized Action RecommendationsAbout 10–12 Prioritized Recommended Actions

Data InputAbout 150 Action Ideas

• Results from employee opinion survey

• Results from cultural assessment

• OE+E Consultant recommendations

• Action Planning Team recommendations

Action Prioritization Process

Action Filtering Process

• Need-to-do actions, not nice-to-have

• Actions controllable by business unit

• Actions that can be completed within 120 days

The Action Planning Team provides input to business unit managers, who create a formal action plan with a 120-day deadline. Caterpillar fi nds that employees’ direct involvement in the action prioritization process helps the business unit ensure that employees have realistic expectations of overcoming engagement barriers.

the business unit management suggestions for the 120-day action plan

“ACE” Action Prioritization Tool

Each member of the Action Planning Team rates each action idea on a scale from 1–5 to prioritize the action ideas:5 = Absolute action 3 = Consider action1 = Execute later

to Action



Post 120-Day Action Plan Assessment

• OE+E conducts short online survey of employees’ perception of success in implementing action areas

• OE+E obtains qualitative feedback on all action items rated the same or worse since the assessment began

Step #5: Create a Continuous Cycle of Cultural Improvement

OE+E consultants conduct a short employee survey at the 120-day mark to collect employee feedback on progress against the action plan. Consultants present feedback on the success of action plan implementation to business unit leaders, who in turn determine if they have successfully achieved goals. When work remains to be done, business units typically implement a second 90- to 120-day action plan.

A Virtuous Cycle of Culture ImprovementAt the end of the 120 days, a post-implementation assessment

is conducted to identify actions yet to be addressed

The Post–Action Plan Implementation Assessment Process

120-Day Action Plan Adopted• Organization-wide communication

of (new) action plan and priorities• Clear ownership of actions identifi ed

3

Identifi cation of New Action Areas• OE+E Consultant presents results from the

post–action plan implementation• Business unit management team decides

on a new list of actions, if needed

Implementation of Action Areas• HR, CAT University, and the OE+E provides

implementation support and best practice solutions

• Employees are updated about progress toward implementing actions

24

1

120-Day Action Plan

________________ ________________ ________________

OE+EConsultant

BU Manager HR

After the post-120-day action plan assessment, business units typically

identify remaining actions for a fi nal,

more limited, 90- to 120-day action plan



Step #5 (Continued): Create a Continuous Cycle of Cultural Improvement

Throughout the implementation of the 120-day action plan, the OE+E consultant updates employees in the business unit through a monthly newsletter, reporting progress made toward implementing the plans. Caterpillar considers the high level of transparency and two-way communication between business unit management and line employees throughout the Cultural Assessment Process crucial to successful completion of action plans.

A Sense of Urgency The OE+E consultant informs all employees in the business units on a monthly

basis of progress against the goals set out in the 120-day action plans

120-Day Action Plan Newsletter*

Source: Caterpillar Inc; Corporate Leadership Council research.

*

* All names in newsletter are pseudonymed.

Caterpillar’s monthly action plan newsletter highlights the time remaining to implement the 120-day action plan to ensure that employee engagement actions stay on top of management’s agenda.

Updates on actions implemented and actions soon to be started gives employees confi dence in management receptivity to their input.


Results

Across the 75 Cultural Assessment Processes that Caterpillar has conducted to date, the company reports high levels of satisfaction with results. For example, an international manufacturing facility experienced a notable turnaround due to the CAP process. Once plagued by low employee job satisfaction, high attrition, and frequent absenteeism, after a CAP diagnosis and action-planning effort, the facility reported a 59% decline in attrition, a 44% decline in absenteeism, and 74% decline in overtime pay, creating an annual savings of $8.8 million.

Case in Point: International Manufacturing FacilitySituation: In 1999, a newly acquired manufacturing facility in the United Kingdom experienced low levels of employee job satisfaction and high levels of employee attrition and absenteeism.

Action: Through the CAP, the root causes of the problems were identifi ed to be a lack of employee trust in management, a disconnected leadership style, and inconsistent communication and application of company policies. The facility’s management team decided on a 120-day action plan targeted at those problems.

Returns on a Healthy CultureCaterpillar’s Cultural Assessment Process has a long-term

positive impact on business unit’s culture and bottom line…

Business Unit Annual Savings:$8.8 Million

Absenteeism(Indexed)

Beforethe CAP

18–24 MonthsAfter the CAP

Overtime(Indexed)

Beforethe CAP


Beforethe CAP


Attrition(Indexed)

A High ROI Exercise“The overall cost of the assessment and follow-up was far less than the value it generated to the company and employees. It greatly contributed to a feeling of renewal by employees in having a positive infl uence on where their company goes.”

President of International Manufacturing Facility Caterpillar Inc.

…and is gaining companywide popularity with business unit managers

“Investors in People Award” 1

2001

“Manufacturing Excellence Award” 2

2002

“Employer of Choice Award” 3

2003

1 Annual award given by the “Investors in People” group, United Kingdom.2 Annual award given by the “Institution of Mechanical Engineers,” United Kingdom.3 Annual award given by the “Investor In Northern Ireland,” United Kingdom.


1.00

0.56

1.00

0.41

Caterpillar has conducted 75 CAP engagements to date and has expanded applications of the CAP beyond manufacturing operations to encompass acquisitions, suppliers, and international operations.

1.00

0.26


Council Assessment:Cultural Assessment Process

Caveat

The Cultural Assessment Process (CAP) is an effective tool for organizations that fi nd they do not adequately understand engagement barriers. However, because of the time and resources required to successfully see the process through, the Council fi nds that the CAP is less relevant as a method of monitoring engagement over time. Organizations are well served to pair the CAP with a more traditional pulse survey to monitor engagement on an ongoing basis.

Implementation Tips

Demand-Driven Process—Caterpillar has learned that the CAP is only successful in identifying and overcoming engagement barriers when the organization devotes the necessary time and resources required of the process. For that reason, Caterpillar has designed the CAP to be a demand-driven process, so that only organizations that are prepared to dedicate the needed time and resources (e.g., not going through major organizational transformation such as a merger, acquisition, or downsizing) will be eligible for the CAP.

Employee Involvement—The success of the CAP in identifying and overcoming barriers to engagement depends in large part on the active involvement of employees and managers in the process. However, organizations should be aware that active involvement of the workforce in diagnosing and identifying solutions to engagement barriers also increases the need for transparency, communication, and implementation of follow-up actions. Increasing employee involvement in identifying engagement barriers and solutions but failing to effectively implement or communicate follow-up actions is likely to result in a negative impact on the working environment.

Note to the MembershipMembers interested in information on Caterpillar’s patent-pending Cultural Assessment Process (CAP) and/or potential licensing of the process are invited to contact Caterpillar’s Organizational Effectiveness and Engagement group; contact information follows below.

Caterpillar Inc.Organizational Effectiveness + EngagementPeoria, IL+1-309-675-1000

77

Key Insight


Chapter IVBuilding a High-Engagement Culture

79Chapter IV: Building a High-Engagement Culture

* The 2004 Corporate Leadership Council Employee Engagement Survey of 50,000 employees at more than 50 organizations assessed 300 drivers of engagement. Top drivers of engagement ranked in the top 25 of 300, and each represents the potential to increase employee commitment by 20% to 30% or more.

The Council’s Employee Engagement Survey* identifi es the 25 top drivers of engagement; across all 25 drivers, three themes emerge regarding the type of organizational culture most generally conducive to high levels of engagement among employees. • Connection—The culture emphasizes the importance of the individual’s work to the organization’s success. • Contribution—The culture respects individual strengths and assigns employees to interesting and impactful roles. • Credibility—The culture must position the organization as worthy of this contribution.

The Three-Part High-Engagement Culture Imperative

Most of the top drivers of engagement* rely on a high-engagement culture, which can be characterized by connection, contribution, and credibility

Top Drivers of Engagement* Relating to High-Engagement Cultures

Connection Contribution Credibility

• Understanding of the Connection Between Work and Strategy

• Manager Clearly Articulates Organizational Goals

• Manager Identifi es and Articulates a Long-Term Vision for the Future

• Understanding the One Job’s Importance to Organizational Success

• Manager Clearly Explains Job Importance at Onboarding

• Manager Demonstrates Strong Commitment to Diversity

• Manager Sets Realistic Performance Expectations

• Manager Puts the Right People in the Right Roles at the Right Time

• Manager Accurately Evaluates Employee Potential

• Manager Respects Employees as Individuals

• Manager Encourages Employee Development

• Importance of Projects to Employees’ Personal Development

• Manager Provides Job Freedom

• Manager Demonstrates Honesty and Integrity

• Organization Has Reputation of Integrity

• Manager Accepts Responsibility for Successes and Failures

• Manager Has a Good Reputation Within the Organization

• Manager Defends Direct Reports

• Manager Inspires Others

• Manager Places Employee Interests First

• Manager Appropriately Handles Crises

• Manager Trusts Employees to Do Their Job

• Manager Lets Upper Management Know of Employee Effectiveness

81

Building a High-Engagement CultureCreating a Connection Between Employees and the Organization

Practice #4: Leader Storytellers

DescriptionContinental realizes that the ability of its CEO to connect with employees on an emotional level is one of his greatest strengths as a leader. Seeking to develop other executives’ leadership skills, Continental determines that the CEO’s practice of telling stories to communicate is highly powerful and that it can be taught to other leaders. The company rolls out storytelling training to all of its executives.

GoalsContinental’s main goal is to increase leaders’ abilities to forge connections with their employees, generating emotional commitment from their teams and gains in performance and retention.

Key Differentiating FeaturesContinental’s approach differs from standard practice in two ways. First, the company believes that effective communication not only requires facts and logic, but also speaks to employees’ emotions. Second, Continental believes that storytelling is not an innate talent of a few leaders, but is a skill that can be taught to all executives—in four hours, at that.

ResultsMore than 95% of course participants believe the program has made them more effective communicators. The response of Continental’s 460 executives to the training has been so positive that the company has decided to roll out the training to all 4,000 of its managers.

• Headquartered in Houston, Texas, Continental Airlines, Inc., is the sixth-largest airline in the United States.

• The company had approximately $8.9 billion in revenues in 2003 and 37,700 employees.


Practice Driver and Summary

In 1994, Continental caps a long period of declining performance with its eighth straight year of losses. At the time, incoming CEO Gordon Bethune recognizes the importance of engaging employees to restore the air carrier to profi tability. Over the subsequent years, as Bethune leads the company to improved performance, his colleagues count his ability to engage employees emotionally through stories as one of his primary strengths as a leader. Wanting to extend the power of storytelling beyond the CEO and develop the communication skills of its executives, Continental creates a four-hour storytelling class, entitled “Leading to Win.”

There’s Nothing Like a Good Story

…Continental decides to replicate its CEO’s storytelling ability across the company...

Recognizing the need to addressdeclining business performance...

...and the power of engagementin support of operations...

…and rolls out training for leaders

Training Summary

Continental’s Net Income, 1990–1994

($1,400)

($700)

$0

($1,272)

($306)($125)

($39)

($613)

Net

Inco

me

($ M

illio

ns)

1993199219911990 1994The Value of Engagement

“In order for our operations to run properly, we need all of our people to be putting in their best work every day. We have people who want to get the job done. If you don’t have that edge, you’re going to be an also-ran.”

Gordon Bethune, CEO Continental Airlines

Storytelling Training• Course title: “Leading to Win”• Course lasts four hours• 460 Directors and Vice Presidents each

participate in one of 20 sessions• Course will be rolled out to all 4,000

Continental managers• Training is taught by Continental’s Director

of Human Resources Development• Total cost of developing the training

is $5,000

Follow the Leader“Continental’s culture of Working Together is key to being a great airline. Communicating our cultural initiatives and business strategy through stories increases our workforce’s understanding of what we need to do to be successful.”

Larry Kellner, President and Chief Operating Offi cer Continental Airlines

“We’ve all retold Gordon’s best stories over and over, but our executives can’t approach his level of leadership unless they are telling their own stories.”

Director of Human Resources Development (HRD) Continental Airlines

Source: Continental Airlines, Inc. ; Corporate Leadership Council research.

Chapter IV: Building a High-Engagement Culture 83

Step #1: Teach the Basics of Storytelling

The course commences with a short discussion, led either by CEO Gordon Bethune or President Larry Kellner, of Continental’s business strategy. The executives communicate by “telling tales” to demonstrate storytelling as an effective way to generate emotional commitment. The course instructor introduces a two-part framework for telling stories that teaches students to incorporate their own values into story content and to use emotions and symbols in addition to logic and data when delivering stories to an audience. Continental also provides preparation checklists to assist fl edgling storytellers in designing and delivering stories.

Learning to Lead with Emotions

…and tools to help executives craft and tell their own storiesStorytelling Preparation Checklists

…after which an HR instructor offersan introduction to storytelling

content and delivery…

Gordon Bethune or Larry Kellner begins each class by using stories to discuss

Continental’s business strategy…

Leading by Example“We get some hard-edged executives who may not buy into emotional leadership. But when Gordon starts talking, he turns the class into a group of friends in a huddle. Everyone points to him and says ‘I want to be a leader; I want to be like that.’”

Director of HRDContinental Airlines

Content Considerationsin Storytelling

Delivery Considerationsin Storytelling

Effective content shares the values of the speaker with the audience

Effective delivery embraces many elements of communication.Facts

Numbers, logic, and organization that appeal to your listener’s rational self

EmotionEnthusiasm, inspiration, and persuasion that appeal to your listener’s feeling self

ActionWhat are the values that guide your behavior and decisions?

SymbolsMetaphors, vision, and images that appeal to your listener’s visual self

BeliefsWhat is important, or desirable, or worthy to you personally?


Delivery Preparation ChecklistParticipants: As you prepare to tell your story, ensure that your delivery:

Is sincere Includes dialogue Is enthusiastic, dramatic, and engaging Describes characters and settings Paints vivid pictures with words Acknowledges how the audience is responding

and adjusts accordingly Expands the link between the story and our

business when necessary

Content Preparation ChecklistParticipants: As you prepare your story, ensure that the story’s content:

Illustrates and exemplifi es our defi nition of success Focuses on team values Is based on a single, well-defi ned plot Is brief and simple Begins with normalcy Includes a challenge or problem to be solved Has a defi ning moment Ends with something resolved, changed, or learned Will be meaningful to everyone in your audience


Step #2: Develop Managers’ Storytelling Abilities Through Practical Exercises

Class participants begin to test their storytelling skills by preparing an anecdote of their own for delivery. Participants identify an event from their own experiences, construct a story around it, and audition their story with fellow storytelling trainees. Subsequent exercises challenge participants to modify story content, based on understanding different audiences’ motivations, priorities, and touchstones, as well as the different objectives or lessons that a single story might accomplish. The training concludes with a challenge to participants to use stories in their routine interactions with employees, in hopes of instilling a permanent habit of communicating through stories.

Putting Theory into PracticeCourse participants build skills by creating and telling a story to peers, receiving feedback, and learning to adjust stories for specifi c audiences and objectives…

I. Design a Story

• Identify a true event that can become a compelling story

• Determine how the story relates to current challenges or opportunities

• Prepare the story using the content preparation checklist

• Practice telling the story using the deliverypreparation checklist

II. Tell the Story and Receive Feedback

• Deliver your story to class participants and serve as an audience for their stories

• Assess your listeners’ overall reactions to the story, including emotional and motivational impact

• Parse story content for pacing and fl ow

• Review story delivery for speaker empathy, tone, and cadence

IV. Tailor the Story for Specifi c Objectives

• Consider how your story could be used to teach different lessons

• Could it demonstrate our culture, or how we compete?

• Could it motivate your team or teach a new way of thinking about our work?

• Craft two new versions of the story and share them with other participants

III. Tailor the Story for Specifi c Audiences

• Consider how the story should be tailored to reservation agents, fl ight attendants, and mechanics

• Consider motivationsand priorities ofdifferent audiences

• Identify critical touchstones and taboos of audiences

• Modify the story, creating a version for each audience

Storytelling Basics Advanced Storytelling

…with the goal of integrating storytelling into daily management practice

Bringing Storytelling Back to the Offi ce• Upon returning to your business today, use a story to communicate business strategy

to a team member

• For the fi rst week following completion of the course, convey any important message with a story

• For the 30 days following the course, tell a story each day



Results

Executives participating in Continental’s storytelling class report overwhelming satisfaction with the course; more than 95% indicate that they have improved their communication skills. In part due to strong leadership and emotional engagement, Continental has reported positive fi nancial results—particularly relative to peers—across the last three years. CEO Gordon Bethune continues to use stories as a highly effective means of transmitting the company’s values and teaching the behaviors expected of employees.

Words MatterThe course has been well received by participants

and has helped leaders drive engagement in their business units…

…which, in turn, drives successful operations at Continental

The Power of Stories“Consider a fl ight attendant, looking to close the airplane doors and get ready for takeoff, but she’s fi ve meals short. She knows that those passengers think getting where they’re going on time is more important than meals—and she knows she’ll be rewarded if they get there on time. She’ll fi gure she can fi nd fi ve investment bankers on the plane who’ll trade their meals for free drinks and she’ll solve the problem that way. The difference is that she now has the ability to solve that minor problem—we want her to solve that problem. We fi gure that’s her job.”

Gordon Bethune

From Worst to First: Behind the Scenes of Continental’s Remarkable Comeback

($4,000)

($2,000)

$0

$1,000

Operating Profi t and Lossof Major Airlines, 2001–2003

Operating Profi t/Loss($ Millions)

2001 20032002

Continental

Other Major Airlines

Source: Bethune, Gordon, with Scott Huler, From Worst to First: Behind the Scenes of Continental’s Remarkable Comeback , Wiley, 1999; Continental Airlines, Inc. ; Corporate Leadership Council research.

Summary of Course Feedback

95.5%

Neutral

False

True

4% 0.5%

“This course helped me to be a more credible communicator”

Connecting with the Team“An integral component of being a successful leader is learning how to communicate with your team. Storytelling has become the main staple in our communication. We are able to communicate complex industry or strategic issues by presenting them in a format people can relate to.”

Senior Vice President of Marketing Continental Airlines


Council Assessment: Leader Storytellers

Caveat

Continental determined that its primary goal—developing leaders’ ability to communicate and connect effectively to engage employees —was best achieved by teaching storytelling. Organizations should consider the fi t between their culture and leadership style before deciding to replicate Continental’s storytelling training, lest the attempt to connect with employees appear insincere or forced.

Implementation Tips

Support from the Top—Continental’s CEO or president led the introductory portion of each storytelling course, in part to demonstrate their belief in the value of the training. Organizations should make sure that senior leaders support, visibly, the training’s goals in order to improve the likelihood that training produces lasting change. This is particularly relevant in organizations where line managers tend not to value softer skills.

Made, Not Bought—After considering using an external vendor to supply storytelling training, Continental decided to create the course in house, making it effective and relevant by tailoring the training to company culture and strategy. Organizations should evaluate training offerings’—internal or external—overall goal and fi t with culture.

Practice, Practice, Practice—The success of Continental’s training depends on the degree to which participants adopt the new style of communicating and incorporate storytelling into daily practice. Continental’s program emphasizes immediate and daily use of storytelling following the course to raise the effectiveness of the training in producing real change.

87

Building a High-Engagement Culture Creating Opportunities for Personalized Contribution

Practice #5: Targeted Employee Contribution Cascade

DescriptionAlcoa’s RPD, experiencing poor results and low returns on capital, realizes that a turnaround of the business requires contribution from all employees. Recognizing that barriers to employees’ participation differ across levels of the organization, the RPD tailors organizational structure, communication, and desired contribution to each employee level’s ability to contribute.

GoalsThe RPD seeks to spur the contribution of every employee by providing all levels of employees with a sense of ownership for the business’s challenges and opportunities to participate in the design and execution of solutions to those problems. To succeed, the RPD must avoid a “one-size-fi ts-all” approach to employee contribution in favor of targeting the specifi c needs, knowledge, and perspectives of different workforce segments.

Key Differentiating FeaturesThe RPD’s “Targeted Employee Contribution Cascade” differs from traditional approaches to involve employees in the business’s goals and challenges because it recognizes that change must be relevant and managed in a way that is tailored to each level in the organization. For example, while organizational structure may represent the key barrier to greater employee contribution at the most senior levels of the organization, the contribution of frontline employees depends on precise, accessible communication of how the business competes in the market and how each employee contributes to organizational success.

ResultsBetween 2000 and 2003 the RPD successfully reverses its business results, almost doubling the unit’s return on capital (ROC), transforming it from one of the worst performing business units in the company to one of the most successful. The RPD attributes the successful turnaround to the greater contribution of all employees and the shift in the business unit’s culture.

• Alcoa Inc. is the world’s largest producer of alumina and aluminium, with operations in bauxite mining, alumina refi ning, and smelting. The company employs approximately 120,000 employees and generated annual revenues of more than $21 billion in 2003.

• The Rigid Packaging Division (RPD) of Alcoa is the United States’ leading producer of aluminum rigid container sheet for the packaging and consumer products market. RPD has 4,700 employees and is part of Alcoa’s $4.6 billion fl at-rolled products segment.


CEO’s Assessment of the RPD

Internal Assessment• 50% shortfall in target fi nancial returns

• Shrinking revenues (14% of Alcoa-wide revenues in 1996, now 5%)

• Poor employee morale

External Market Assessment• Consolidation of competitors

• Consolidated customer base

Practice Driver

In the late 1990s, Alcoa’s Rigid Packaging Division (RPD)—operating in a market characterized by overcapacity and fi erce competition—is falling short of corporate targets, leading Alcoa’s CEO to consider divesting the RPD entirely. The RPD’s new president launches a “competitiveness plan” using headcount reductions and process adjustments to revive the business, but results are disappointing. An external consultant, tasked to analyze recent failures and to devise a new turnaround plan, judges that the leadership team should take a more “hands-on” role in business operations. However, the unit president determines that the “command and control” style of leadership is actually driving poor results; to succeed, the unit needs to commit to breaking the “boss-centered” culture.

Source: Alcoa Inc. ; Corporate Leadership Council research.

Reversing a Downward TrendIn 2000, Alcoa’s Rigid Packaging Division faces failure in its

efforts to reverse poor results or generate new ideas...

…and the business unit president begins to reassess the strengthsand weaknesses of the current organizational culture

RPD Assessments of Potential Actions

Conclusion : Consider sale of unit

Rolled Cansheet Demand Versus Industry Capacity

1995 2000 2003

Demand

Market Oversupply

Consultant Assessment• High levels of operational expertise among leaders• Good discipline from employees executing on leaders’

directions• High levels of pride in meeting function and plant targets

President Assessment• Little proactive identifi cation of process improvement

from employees• A risk-intolerant culture, which punishes employees

for mistakes• Low levels of cross-business collaboration

Consultant Recommendation

Business unit president should change leadership style to match existing culture.

President’s Conclusion

The business needs to move away from our “boss-centered” culture.

The new business unit president enlists an external consultant to assess the unit’s culture, while he also evaluates why a recent “competitiveness plan” did not succeed.


Standard Practice Pitfalls Alcoa Practice

Leadership team defi nes approach to employee involvement and communicates down to lower ranks

Leaders devolve few of their powers; their structure inadvertently blocks individuals’ efforts to contribute

Restructure Leadership to Enable Contribution

• Understand drivers of low contribution

• Remove structural barriers to contribution

Managers try to fi nd opportunities to contribute and build opportunities for subordinate involvement

In the face of pressing business targets, managers’ efforts are piecemeal and often disconnected from business strategy

Involve Managers in Defi ning Contribution Strategy

• Involve managers in business problem solving

• Link contribution behavior to business strategy

Employees have access to broadly available forms of contribution, for example, via suggestion boxes

Employee suggestions are low in quality; managers rarely follow up on suggestions

Build Contribution Opportunities in the Wider Workforce

• Communicate the rationale for employee contribution

• Raise frontline business acumen

Contribution CascadeThe RPD successfully shifts to a culture of employee contribution

by tailoring contribution strategies to each level of the organization

Contribution Strategy Pitfalls and Alcoa Practice

FrontlineStaff

LeadershipTeam

MiddleManagement

Practice in Summary

The RPD recognizes the need to manage different contribution challenges across all levels of the organization. The leadership team defi nes a simple vision for employee contribution and applies this to its own team structure. The unit then focuses on engaging managers by giving them greater ownership for businesswide problems and having them design the necessary roles of employee contribution. Finally, the RPD encourages frontline employee contribution by ensuring that employees understand the businesswide challenges and have opportunities for two-way communication and local-level idea generation.



Step #1: Restructure Leadership to Enable Contribution

The RPD’s leadership team conducts an extensive analysis of its work style—from current leadership philosophy and their interactions, to missteps across recent years and past attempts to improve results. The group determines that employees’ lack of participation in decisions and reluctance to take action for (justifi able) fear of punishment for errors are signifi cant barriers to engagement and fi nancial success. The RPD’s leaders establish a vision for the unit’s new culture, called the “New Business Owner Mentality” (NBOM). All employees, regardless of rank, will be expected to behave as business owners, challenging long-held assumptions and increasing the level of risk taking.

Q: How do we currently lead?

Leadership team participates in a 360-degree review.

Q: How do we currently interact?

External consultant reviews leadership team dynamics.

Q: Where have we gone wrong?

Team reanalyzes competitiveness plan failures.

Q: What types of solutions might we need?

President refocuses on key fi nancial “survival points.”

The New Business Owner Mentality (NBOM)

Everyone should act like they bought the company yesterday:

• Challenge everything

• Focus on the entire enterprise, including revenue, cost, and working capital

• Except for health and safety, increase the risk profi le of the business, be aggressive

Our Own Worst EnemyAlcoa’s fi rst step is to ensure that leaders understand the role

of employee contribution in achieving the unit’s fi nancial goals

RPD’s Analysis of Current Cultural Gaps

Cultural Barriers

• Lack of Proactive Action—Employees wait for direction

• Organization Silos—Focus only on own goals

• Poor Customer Focus—Little understanding of customer needs

• Risk-Intolerant Culture—Errors are punished

• Poor Engagement—Low commitment post-layoffs


Business Needs

• Find new areas for cost cutting

• Address and resolve quality issues

• Fix delays to customers

• Add new product lines to some plants

• Increase total output of all plants

• Identify possible new streams of revenue


Impact of New Culture on Leadership Team

Reduced Team Size No-Fault Exits

Less Cumbersome Reporting Structure

Executive Relocation to Manufacturing Plant

Skills Redeployment HR Restructuring

Step #1 (Continued): Restructure Leadership to Enable Contribution

The leadership team, realizing the signifi cance of its role in the culture shift, applies the NBOM to its own activities and behaviors. The RPD’s leaders revisit their decision-making processes, communication channels, team member dynamics, and change-management skills. The RPD’s president determines that not all leaders are well equipped, or willing, to participate in the cultural change; some executives depart from the company entirely, while others take new roles within Alcoa. The leaner RPD leadership team also makes a number of highly visible changes to its operations, most notably moving its headquarters from a downtown offi ce tower to one of the unit’s plants to symbolize their commitment to supporting the business lines’ contribution to business goals.

New Culture: Leadership Team Considerations

Decision Making Decision-making speed and process

Structure for cooperation between units

Readiness of team members to change

Flow of Critical InformationFlow of information between business unit president and leadership team

Nature of reporting between line and senior leadership team

Flow of information between team members

RelationshipsPerception of the leadership team in managers and employees’ eyes

Relationship between business unit president and team

Structure to help support line managers’ success

SkillsLevel of appropriate skills for change

Leading by ExampleThe leadership team demonstrates its commitment to employee

contribution by applying the New Business Owner Mentality to itself

RPD Leadership Team Actions

EXIT

HR

January

February

March

April

May

June

July

August

September

October

November

December



Step #2: Involve Managers in Defi ning Contribution Strategy

Realizing the key role of middle managers in cascading the NBOM to frontline operations, the leadership team asks these managers to expand their contribution to the business. To promote the widespread adoption of new behaviors, the RPD involves the top 50 managers in solving the current fi nancial problems via a series of meetings that encourage behaviors consistent with the NBOM, with managers working in cross-functional teams to address specifi c RPD problems. Although this challenges many managers to improve the effectiveness of their suggestions, as well as deepen their commitment to wider employee contribution, managers fi nd that the RPD’s greater reliance on their contribution strengthens their own commitment levels.

Managing for Buy-InRPD Leadership Meetings involve the top 50 managers in solving businesswide

problems, building their understanding of employee contribution

RPD Leadership Meetings

Spring 2001 Fall 2001 Winter 2002

Key Activities

First Problem-Solving Meeting

First Follow-Up Meeting

Report on progress of change and key successes

Second Follow-Up Meeting

Assess how successful culture change has been

Purpose

Involves managers in contributing to business-wide problem solving as “New Business Owners”

Uses experiences of real business successes to defi ne the role of employee contribution in the RPD

Assesses and reinvigorates managers’ buy-in for ongoing employee involvement and contribution and begins to defi ne needed behavior

Teaching

The organization must allow managers opportunities for cross-business contribution before they can understand its role in the organization

The design of opportunities for employee contribution must be grounded in real examples of how contribution drives business success

Employee contribution can involve extra manager effort and can therefore erode over time without ongoing reinforcement

Key OutputSet of solutions for each manager to introduce in his or her unit

Leadership model to guide manager behavior in the new environment

Action plans for sustaining culture change

Supporting Elements

Informal networking events Individual feedback for every participant

Identifi cation of potential future leaders

RPD’s Cultural Beliefs

• Urgency starts now (speed)

• Think RPD (interdependency)

• Step up (results through Alcoa Business System)

• Expect excellence every day(high standards)

• Speak up (continuous feedback)

• Proudly invested (ownership)

Briefi ng on the business problem

Cross-function problem-solving groups

Structured dissent on problem solutions

Rearticulation of the New Business Owner Mentality

Alcoa uses the leadership meetings and the business successes to articulate a more detailed defi nition of the NBOM.

2%

10%12%

17% 17%20%

25%



Step #3: Build Appropriate Contribution Opportunities in the Wider Workforce

The RPD next cascades the NBOM to frontline employees to encourage their contributions to the business. The RPD’s fi rst task is to educate employees on the business and how they each contribute to it, thus creating a clear rationale for their enhanced involvement. Leaders share more customer, fi nancial, and market information with employees than they had previously, raising employees’ engagement levels and trust in leaders while conveying the urgency of the unit’s situation. Leaders carefully tailor communication to audiences and collect extensive feedback to assess employees’ understanding of the message. HR uses focus groups and workplace feedback technology to fi ne- tune messaging.

Increased Visibilityof Senior Leaders

Continuous Improvementof Messaging

Opportunitiesfor Feedback

Town Hall Meetings—In mid-2001, senior leaders conduct town hall meetings with groups of 250 from different levels and roles.

Focus Groups—After the meetings, HR conducts more than 20 focus groups with attendees to improve meeting communication effectiveness over time.

Electronic Polling—HR introduces polling technology to allow managers to gather anonymous employee feedback.

Key Components

• Detailed customer, company, and industry information

• Signifi cant time for questions and answers

Key Components

• Honest feedback on leaders’ credibility

• Information from employeeson message effectiveness

Key Components

• Demonstration of manager interestin employee input

• Anonymous, instant feedback

Key Benefi t

Opportunities for employees to question leaders

Key Benefi t

HR helps continuously improve messages after every meeting

Key Benefi t

Managers have measures of their employees’ reaction to the culture change

It’s Not What We Say, It’s What They HearTo encourage the new culture of broad participation, the RPD’s leadership

team must present a compelling rationale for change to employees

RPD Culture Communication Measures

How empowered are you to solve key problems?

Did you understand the messages?Did you feel able to challenge leaders?

1 2 3



Step #3 (Continued): Build Appropriate Contribution Opportunities in the Wider Workforce

The RPD keeps employees apprised of business conditions through a variety of channels. Manager communication cards give managers snapshots of key metrics, competitive assessments, and other information to guide communications with their teams. The RPD sends a Homepage Newsletter to employees’ homes, educating them on the broader cansheet market. Managers incorporate “Return on Capital Sessions” into meeting agendas, giving employees frequent opportunities to discuss their ideas and suggestions with managers. HR aims to incorporate these opportunities into the daily workfl ow, emphasizing techniques that do not require additional resources.

It’s Everybody’s BusinessTo ensure employees’ contributions are of a high quality, HR educates employees on the whole of the business’s, and market’s, challenges...

RPD’s Employee Education Channels

...and then creates opportunities for employees to suggest business improvements

RPD’s Return on Capital Idea Generation Methodology

Weekly Manager Communication CardsManagers receive weekly “headlines” from across the businessto communicate to employees.

Homepage NewsletterThe newsletter goes to employee homes, educating employeesand their families on the beverage and food market.

US MAIL

MAIL

JXYZ12

Getting the Big Picture“Some workers’ whole families have worked in these plants, they’ve seen hundreds of ‘business crises’ before. They don’t believe you unless you show them the complete picture of what is going on.” HR Director, RPD Division

HR Manager

Idea Generation Methodology1. Sponsorship—Reiterate employees’

role in cost-cutting and ROC.2. Brainstorm—Progress around the

group, getting an idea from each person, until ideas are exhausted.

3. Multi-Vote—Have employees vote on what they think the best ideas are.

4. Plan and Report—Set a calendar of activities and indicate when you will report back.

Meeting Agenda

• Weekly Goals

• Progress Updates

• Upcoming Executive Visit

• Return on Capital Ideation

Manager

RPD Team



Results

More than 96% of the RPD’s leaders report positive changes to their leadership style in the year of the NBOM’s introduction, with employees across the company echoing the affi rmative feedback. The RPD and Alcoa’s Chairman are confi dent that these behavior changes were integral in nearly doubling the RPD’s return on capital between 2000 and 2003; the RPD transformed from one of the most poorly performing units at Alcoa to one of the strongest, demonstrating operational, cultural, and fi nancial success. The RPD was recognized as the best unit within Alcoa, winning the companywide “Chairman’s Award” in 2003.

Changes in AttitudesThe RPD’s efforts have driven a signifi cant shiftin manager and employee behavior since 2001…

Leadership Survey Results

Q: It has been a year since we introduced the new beliefs. How would you characterize the changes you’ve

made in your personal leadership?

…which has led to substantial improvements in resultsand public recognition from Alcoa’s CEO

Financial Results RPDReturn on Capital, 2000–2003 (Indexed)

A Change in Fortunes“…By shifting the culture of the unit to one where employees feel accountable and involved, the RPD has almost doubled its Return on Capital, and its production facilities are now some of the best examples of the Alcoa Business System in the company.”

Chairman, Alcoa Inc.

Excerpt from his speech to present the RPD with the “Chairman’s Award” for being the year’s most effective unit in the company

1.0

1.51.9 1.8

56%

4%

40%

Major Positive ChangeMinor Positive

Change

Not Much Change

0%

50%

100%

0%

50%

100%86%

100%

Q: It has been a year since we introduced the new beliefs. Do you feel challenged to participate in the

“New Business Owner” turnaround?

Percentage of Respondents Answering

“Yes”

Staff Supervisors


2000 2001 2002 2003


Council Assessment: Targeted Employee Contribution Cascade

Caveat

The Rigid Packaging Division’s precarious fi nancial situation led it to make dramatic changes to its culture, using contribution as a lever to drive employee engagement. Organizations should plan their own contribution strategies with an eye toward the risks inherent to wholesale organizational upheaval; making drastic changes to an organization’s culture and leadership team can be ineffective or disastrous, if planned or executed poorly.

Implementation Tips

Senior-Level Sponsorship—The RPD’s efforts benefi ted from the unit president’s belief in the links between employee contribution, engagement, and business results. HR departments wishing to drive engagement through a greater level of employee involvement should identify senior executives who promote the need for greater employee contribution and model behaviors consistent with the new levels of contribution.

“No-Fault” Exits—The RPD’s leadership team removed managers who resisted the desired changes. The RPD engineered no-fault exits that did not attribute blame to or restrict managers from other opportunities within Alcoa.

External Viewpoint—Despite the difference in opinion between the external consultant and the unit’s president concerning the correct course of action for the unit, the RPD does believe in the value of incorporating an external party’s feedback into the engagement strategy. The consultant’s observations particularly helped team members understand the “boss-centric” culture that leaders had inadvertently promulgated. An external party can often assist an organization in identifying the ingrained elements of culture that may not be obvious to internal leaders.

97

Building a High-Engagement CultureDriving Organizational Credibility

Practice #6: Values Realization System

DescriptionRealizing that misalignment between the company’s stated values and its actions would damage its credibility with employees and thus diminish its ability to attract, retain, and engage employees, Novo Nordisk translates the company’s values into specifi c behaviors and creates systems to measure and govern the organization’s adherence to these standards.

GoalsNovo Nordisk’s primary goal is to strengthen organizational credibility, and thus engagement of employees, by ensuring that the actions of company leaders are aligned with the company’s stated aspirations. The secondary goal is to provide employees with a credible and specifi c set of values that effectively guide them to make the right decisions.

Key Differentiating FeaturesNovo Nordisk’s approach to values-based management is unique in four ways. First, the company has created an integrated charter that clearly defi nes specifi c behavioral expectations for employees, managers, and executives related to its values. Second, the company actively reinforces expected behaviors by integrating its values into key HR processes and programs. Third, Novo Nordisk has designated senior executives as Values Facilitators, a full-time position, who actively support the values and hold leaders accountable for living them. Fourth, the company creates accountability for living its core values through constant, open communication with internal and external stakeholders.

ResultsNovo Nordisk’s efforts to constantly reinforce its values have had a positive impact on the credibility of the organization’s employment brand. In 2003, 85% of Novo Nordisk employees agreed that management is living the values of the company in practice; Novo Nordisk has been an employer of choice among university science graduates in the past two years. The company also credits its values-based management with contributing to three years of revenue growth that strongly outpaced competitors’.

• Headquartered in Denmark, Novo Nordisk is a European pharmaceutical company and a world leader in diabetes care

• In 2003, the company generated revenues of more than DKr 26.5 billion ($4.5 billion) and employed more than 18,000 individuals worldwide.


16%

40%

7%

39%

6%

32%

Employees SeriouslyThinking

of Leaving

Employees Are Dissatisfi ed

with the Organization

Employees Don’t Feel

a Strong Sense of Commitment

Practice Driver

A company with well-established and publicized corporate values, Novo Nordisk confronts startling evidence in the early 1990s that employees are not behaving in accordance with these values. After nearly losing an FDA license to market a new insulin product in the United States due to product quality shortcomings, the company realizes a need to revisit its method of teaching and transmitting its values. In recognition of the benefi ts of strong alignment between business operations and values—in the form of high employee satisfaction, reduced intent to leave, high levels of employee commitment, and fi nancial results—Novo Nordisk aligns operations with values throughout the organization.

The Cost of Values Misalignment…Novo Nordisk fi nds day-to-day actions do not exemplify values…

Novo Nordisk Values

Despite its ambition to be a values-based company…

Novo Nordisk Vision Statement (Excerpt)

...with damaging effect on its ability to attract, retain, and engageemployees, as well as on the company’s bottom line

Impact of Communicatingand Supporting Company

Values on Key Talent Metrics

Organizations That Communicateand Support Company Values and Visions

Organizations That Do Not Communicateand Support Company Values and Visions

Vision Statement

(Excerpt)

We will be the world’s leading diabetes care company

Our values are expressed in all our actions

We will achieve competitive business results

A Competitive Factor“In a competitive labor market, values are increasingly a determining factor of the ability to attract and retain talented people. As a relatively small company, we cannot compete on the size of the workforce. Rather, we intend to compete on the quality of our employees and the corporate values.”

Lars Rebien Sørensen Chief Executive Offi cer Novo Nordisk A/S

Source: Mercer, “People at Work Survey,” 2003; Novo Nordisk A/S; Corporate Leadership Council research.

Our Values1. Accountable2. Ambitious3. Responsible4. Engaged with stakeholders5. Open and honest6. Ready for change

In 1993, Novo Nordisk almost loses an FDA license because of product quality issues, despite value statement that underlines the importance of setting ambitious product quality standards.


Step #2: Reinforce Values at All Employment Levels

Sustainability Risk

Values are neglected over time because the business fails to hold itself accountable for living the values.

Practice in Summary

Organizations seeking to leverage values systems to strengthen their credibility and employment brands typically confront four risks: 1) “Defi nition Risk,” the failure to provide employees with specifi c behavioral guidance that refl ects the values; 2) “Integration Risk,” key policies and processes do not incorporate the values; 3) “Alignment Risk,” the absence of a mechanism to correct behaviors inconsistent with the values; and 4) “Sustainability Risk,” the dilution of values over time because of failure to enforce accountability for living the values. Novo Nordisk addresses each of these risks by translating the company’s values into specifi c behaviors and measuring and governing adherence to these standards.

Source: Novo Nordisk A/S; Corporate Leadership Council research.

Alignment Risk

Actions become misaligned with values because there is no mechanism to identify and correct worldwide cases of misalignment.

Integration Risk

Expected behaviors are not reinforced because values are not integrated into key policies and processes.

Defi nition Risk

Values are irrelevant to the strategic objectives of the company or fail to give adequate behavioral guidance related to the values.

Step #4: Report Values’ Alignment to Internal and

External Stakeholders

Step #3: Assess Behavioral Alignment with Values

Step #1: Translate Values into Behaviors and Actions

Increasing Returns on ValuesTo reap the benefi t of its values, Novo Nordisk constantly reinforces

and holds managers accountable for living the values

Novo Nordisk’s Approach to Managing the Four Values’ Derailment Risks

Values’ Derailment

Risks

Novo Nordisk Response

Perceived Benefi ts from Implementingand Supporting Values

• Sharper focal point for decision making (e.g., less confusion) • Increased customer loyalty

• Employees know what decisions to expect from the management team • Stronger attraction of new employees

• Customers know what actions to expect from the company • Improved employee satisfaction and retention

• Increased morale, pride, and team identity • Stronger market and employment brand

Novo Nordisk Sustainability Report

Global ValuesFacilitation Team

Employee Manager Executive


Step #1: Translate Values into Behaviors and Actions

Novo Nordisk’s management team overcomes “defi nition risk” by examining the relevance of its current set of values. The company identifi es the need to link expectations for behavior, decisions, and policies to its values for employees at all levels of the organization. Novo Nordisk drafts a formal position on its values and defi nes behaviors expected of employees and the company for living the values in practice, known as the “Novo Way of Management.” This charter has three parts: defi nition of the company’s six core values, a “Business Conduct Commitment” describing the expectations of the company’s actions, and 10 “Leadership Fundamentals” that outline clear behavioral expectations for company leadership.

Assessing Values’ EffectivenessNovo Nordisk’s management team identifi es key actions

to strengthen the effectiveness of their values…

Management Team Values Meeting

Values Effectiveness Checklist Relevance—Are the values relevant to the history of the company?

Strategy—Are the values linked to the mission and goals of the company?

Adaptability—Are the values adaptable to changing circumstances?

Applicability—Are the values applicable across a global organization?

Embeddedness—Are employees aware of the values?

Clarity—Are the values easy to understand and apply in practice?

Alignment—Are we conducting business in accordance with the values? CFO

COO EVP HR

CEO


…and creates an integrated charter that clarifi es behavioral and business management expectations linked to its values

The “Novo Way of Management” Charter*

* Complete version of the “Novo Way of Management” charter can be found in the appendix.

The Six Values

AccountableEach of us shall be accountable—to the company, ourselves, and society—for the quality of our efforts, for contributing to our goals and for developing our culture and shared values.

AmbitiousWe shall set the highest standard in everything we do and reach challenging goals.

ResponsibleWe shall conduct our business in a socially and environmentally responsible way and contribute to the enrichment of the communities in which we operate.

Engaged with StakeholdersWe shall seek an active dialogue with our stakeholders to help us developand strengthen our business.

The 10 Leadership Fundamentals

1. Each unit must share and use betterpractices.

2. Each unit must have a clear defi nition of where accountabilities and decisionpowers reside.

3. Each unit must have an action plan to ensure improvement of its business performance and working climate.

4. Every team and employee must have updated business and competency targets and receive timely feedback on performance against these targets.

5. Each unit must have an action plan to ensure the development of teams and individuals based on business requirements and employee input.

The Three Business Conduct Commitments

Financial ResponsibilityWe will work to continuously improve our fi nancial performance by setting high objectives for growth and value creation…

Environmental ResponsibilityWe will work to continuously improve our environmental performance…

Social ResponsibilityWe will work to continuously improve our social performance…


Manager(Acting as a role model for how

to live the values)

Executive(Managing the business

in alignment with the values)

Employee(Learning the values)

Step #2: Reinforce Values at All Employment Levels

To circumvent “integration risk,” Novo Nordisk weaves values into all HR and company activities on an ongoing basis, realizing that stand-alone communication campaigns around values will not suffi ce. Novo Nordisk adjusts messaging content to different audiences, given that employees, managers, and executives each have different responsibilities vis-à-vis values. For example, while values-related messaging to line employees concentrates on teaching values, managers and senior leaders are instructed to act as role models for how to live the values and manage the business according to company values.

Hardwiring ValuesNovo Nordisk constantly reinforces its values at all levels by

teaching, communicating, and enforcing behavioral expectations

Employment-Level–Based Value Reinforcement


Learning/Training

Onboarding: All new hires participate in a presentation of the Novo Way of Management charter. Company managers give examples of desired behaviors linked to the values through Novo-specifi c stories and examples.

Communication

Communication: Through its intranet and monthly newsletter, Novo Nordisk regularly communicates actions taken by the company or individual employees, which serve to illustrate how to live the values in practice.

“Leadership Foundation”: Through case studies, group discussions, and role plays, this course strengthens new executives’ (vice presidents’) ability to manage a business unit in accordance with the Leadership Fundamentals.

“New Manager Program”: All new managers are taught by experienced leaders through simulation exercises and classroom presentations on how to act as role models for values.

“From Vision to Results”: All managers must participate in this course, which strengthens their ability—through business simulations and practical workshops—to make everyday business decisions that support values.

Leadership Forum: Annual gathering of the top 300 executives to celebrate and discuss companywide actions and challenges related to the company’s values.

Events: Events that confi rm or celebrate the company’s commitment to its values—e.g., the Take Action program, which provides employees with a formal opportunity to initiate individual or team activities in the name of sustainable development.

Rewards and Recognition: Reinforcement of behaviors that support the values through informal and formal performance feedback as well as bonus incentives.

“Values Facilitation”: Corporate-led unit tasked to assess the extent to which business unit leaders are managing the unit according to the Novo Way of Management charter.

Enforcement

Employee Survey: “Vision and Values” section in employee opinion survey (E-Voice) measures the level of application of the values throughout the organization.


5. Action Planning Facilitator agrees with manager about

follow-up action and timeline for completion

Facilitation Action Plan

4. Assessment Reporting

Facilitator analyzes results from assessment to identify key areas of misalignment with charter Unit

Facilitation Report

3. Assessment Interviews Facilitator interviews employees in the

business unit to identify application of Novo Way of Management charter

2. Assessment Planning Facilitator clarifi es assessment expectations

and request with business unit leader

Step #3: Assess Behavioral Alignment with Values

To ensure that business unit leaders comply with the Novo Way of Management charter, Novo Nordisk creates a “Values Facilitation Team” with 15 executives serving as facilitators. These facilitators assess each business unit every two to three years; facilitations are also initiated at the request of business leaders or the CEO. For a period of fi ve to seven days, the facilitator interviews employees to identify areas of misalignment with the Novo Way of Management charter, using insights generated to create an action plan to mitigate “alignment risk.” The company indicates that the facilitation team provides highly effective guidance for managing the business in accordance with values.


Are You Walking the Talk?An internal Values Facilitation Team assesses the extent to which leaders in business

units are managing in accordance with the Novo Way of Management charter

Novo Nordisk Value Facilitation Process

Not Just Nice Words on Paper

“Our values are the lifeblood of our business. If we did not actively ensure that our leaders are effective role models of how to live the values in practice, then our employees would never be able to commit to this organization, and the values would eventually just end up being nice words on a piece of paper.”

Business Unit Manager Novo Nordisk A/S

Novo Nordisk Values Facilitation Team

Structure: Independent unit within the holding company (not part of HR)

Staff: Team consists of 15 facilitators of seven different nationalities recruited from line executive ranks who frequently rotate back into line positions

Tasks: Conduct business unit values assessments to ensure compliance with the Novo Way of Management charter and assist with annual organizational audit of business units

1–2 months Prior to Assessment

5–7 Day Intervention

1. Deployment

• Business unit assessments every two to three years

• CEO request

• Heads of the businessunits request


Novo Way of Management Action

AreaAgreed Action Points Deadline

Value Improve communication with relevant external stakeholders June 30

Business Conduct Commitment

Improve employee awareness of Novo Nordisk’s bioethics policy and the related targets April 30

Leadership Fundamental #5

Ensure that development plans include clear actions and deadlines on improvement areas April 30

Leadership Fundamental #3

Come up with a plan to address climate survey issues, including communication of business priorities to employees

March 15

Step #3 (Continued): Assess Behavioral Alignment with Values

Facilitators measure the alignment between manager and employee behavior and company values within the business unit, using the three components of the Novo Way of Management charter as a guide. Facilitators discuss fi ndings with business unit leaders, identifying areas of strong and weak alignment with the company’s values. Together, the two create an action plan to address any areas of concern. Action plans include clearly defi ned next steps and hard timelines to effectively offset values “sustainability risk.”

Assessing Values Alignment The facilitator assesses the extent to which the business unit is being

managed according to the Novo Way of Management charter…

“Novo Way of Management” Assessment Interview


Business Unit Employee

Facilitator

…and agrees on necessary realignment actions with the business unit manager

Facilitation Action Plan (Illustrative)

Assessment Questions, “Values” (Excerpt)

• Has there been any effort from unit management to support the importance of living the values?• Are there clear examples of how the values are applied to practices and decision making in the unit?

Assessment Questions, “Business Conduct Commitments” (Excerpt)

• Are environmental considerations clearly integrated in management decisions?• Has the unit engaged in activities related to environmental and bioethics dialogue with relevant

stakeholders?

Assessment Questions, “Leadership Fundamentals” (Excerpt)

• What are the mechanisms to discuss and clarify possible issues of relevance to improving the working climate?• Are there actual plans to improve the working climate?• Are the plans considered effective to ensure improvements?

Need Help?

The audited leader works with the business unit’s HR partner to implement follow-up actions.

Realigning with Values?

The facilitator regularly assesses progress against goals and decides to what extent the action point has been completed.


Step #3 (Continued): Assess Behavioral Alignment with Values

An organization with global operations, Novo Nordisk is highly aware of the need to ensure values are relevant to all geographies. The company adapts values to local cultures by balancing corporate-wide mandates for values alignment with local solutions for implementing the mandates, thus creating needed fl exibility for cultural differences. The employee opinion survey measures fulfi llment of corporate mandates across the global business units. Values facilitators—themselves a cross-cultural group—play a critical role in teaching local leaders how the company’s values apply to them.

Global Leadership Conference

Novo Nordisk communicates worldwide values alignment priorities…

Local Implementation

…but leaves it to the local leadership teams to decide on specifi c alignment actions…

Global Values AlignmentNovo Nordisk reinforces its values worldwide

through its team of global facilitators…

Novo Nordisk Global Facilitation

Immutable Values, Customizable Application“Our values must always be adhered to even if it means that we will have to refrain from locally accepted business management practices. However, we accept that local rules, regulations, and traditions will alter how we adhere to our values.”

SVP of Facilitation and Development Novo Nordisk

2 3 Global Employee Survey

…while HR measures the worldwide results of the alignment actions taken

E-Voice

Novo Nordisk Global Facilitation Team

Structure: 7 out of 15 facilitators have a nationality other than Danish and are stationed at facilities in Canada, Greece, Japan, Spain, France, and the United States.

Benefi t: A regional facilitator can effectively teach local leaders how to apply the Novo Way of Management charter in practice given his or her knowledge of the local culture and Novo management experience.

…and by constantly balancing corporate mandates around global values alignment with local implementation authority

Novo Nordisk Global Values Alignment


Novo Nordisk’s Canadian facilitator, living in Toronto

Background• Worked 16 years with Novo Nordisk

in Canada, Denmark, Ireland, and Egypt

• Previous positions as national sales manager, general manager of an affi liate, and director of sales effectiveness task force

• Joined facilitation program in 2004

1


Step #4: Report Values Alignment to Internal and External Stakeholders

The head of the facilitation team provides semiannual updates to the CEO on the state of values across the company, and the two identify corporate-wide values issues and appropriate next steps. In turn, Novo Nordisk’s CEO reports each year to the board of directors the extent to which business units across the company are adhering to the values, discussing emerging priorities and new areas of focus within the existing values. Novo Nordisk also publishes results on alignment with values to external audiences in its annual “Sustainability Report,” which details performance on the three components of the Novo Way of Management charter.

Companywide Accountability for Living the Values

The facilitation team updates the CEO on areas of

values misalignment…

CEO Novo Way of Management Update

…while the CEO reports on alignmentto the board of directors…

Annual Board Discussion About Novo Way of Management

…and the company uses annual reports to hold itself accountableto internal and external stakeholders for living its values

Novo Nordisk Annual Sustainability Report


Chairman

Board Members

CEO

Agenda

1. Living the Values: Update on how well we are managing the business according to our stated values.

2. Values Health Check: Discussion about how well the Novo Way of Management charter is supporting our strategic objectives as the business develops.

3. Refi ning Values: Introduction of new values focus areas to support strategic objectives.

Sustainability Report 2003

Performance highlights2003 2002

Financial Net turnover DKK million 26,541 25,187Operating profi t margin % 24.1 23.7Growth in operating profi t % 6.8 6.5Return on invested capital % 19.1 20.1Cash to earnings (three-year average) % 32.0 34.9

EnvironmentalWater consumption 1,000 m3 2,621 2,044Energy consumption 1,000 G 2,299 2,083EPI for water1 110 116EPI for energy2 124 115

Social Number of employees 19,241 18,372Employee turnover rate % 7.1 6.4Frequency of occupational injuries2 Per million working hours 5.4 8.9Frequency of occupational illnesses2 Per million working hours 1.1 1.1

CEO SVP of Values Facilitation

Six-Month Update—Novo Way of Management

1. Companywide areas of values misalignment

2. Regional-specifi c misalignment issues3. Progress of realignment actions since

last update4. Companywide misalignment areas that

need a corporate-wide response

Novo Nordisk’s Sustainability Report contains:

• Triple Bottom Line Results: Social, environmental, and economic performance metrics

• Employee Survey: Data indicating the extent to which employees feel that the company is living its values


Results

Novo Nordisk’s values management system has been received warmly by current and prospective employees. Employee survey data reveals that the company’s staff increasingly agrees that management lives the core values in practice, while Novo Nordisk ranks as the employer of choice among Danish university graduates. In addition, the company has demonstrated revenue growth rates well above those of its competitors. Moreover, Novo Nordisk earned the top place among pharmaceutical companies on the Dow Jones Sustainability Index. The company indicates that strong business ethics are an increasing source of competitive advantage.

2001 2002 2003

78% 82% 85%

19.5%

2.5% 3.6%5.3%

Percentage of Novo Nordisk Employees Agreeing ThatManagement Is Living the Core Values in Practice

Three-year Revenue Growth, NovoNordisk Versus Competitors

Novo Nordisk

Aventis Eli Lilly Wyeth

...while reinforcing the competitiveness of the business

Most Preferred Employers in Denmark Among Business, Engineering, and Science Students

Dow Jones Sustainability World Indices Pharmaceutical Company Ranking, 2003

Strengthening Our Credibility“In the light of the increasing focus on business ethics in the pharmaceutical industry, we feel that it is more important than ever that we are living our values.”

Novo Nordisk, Sustainability Report 2003

1. Novo Nordisk

2. AstraZeneca PLC

3. GlaxoSmithKline plc

4. Novartis AG

5. Pfi zer Inc.

6. Schering AG

7. Johnson & Johnson

The Value of ValuesNovo Nordisk’s continual efforts to reinforce its values have had a positive

impact on employee trust and attraction toward the organization...

Source: Novo Nordisk A/S; “The European Graduate Survey” 2002 and 2003, Universum Communications.

Launched in 1999, the Dow Jones Sustainability Index is the fi rst global index tracking the fi nancial performance of the leading sustainability-driven companies worldwide.

2003 Ranking

1. Novo Nordisk A/S

2. Bang & Olufsen

3. A.P. Moller Maersk Group

2002 Ranking

1. Novo Nordisk A/S

2. A.P. Moller Maersk Group

3. Carlsberg A/S


Council Assessment:Values Realization System

Caveat

While the Novo Nordisk case speaks directly to maximizing the benefi ts from value systems, the Council believes that the case emphasizes a wider point about establishing and sustaining organization-wide credibility by aligning stated company aspirations with management actions. Even organizations that do not have a formal values system face the challenge of ensuring that employees believe in their employer’s integrity, a key engagement driver. A formal organization-wide values system is one means of communicating companywide aspirations to guide management and employee behaviors and create high levels of employee engagement.

Implementation Tips

No One-Off Solution—To experience long-term benefi t from values systems, organizations must actively manage all four value derailment risks. Addressing instances of misalignment between values and actions on a case-by-case basis will not generate maximum return on investments in values systems and company brand.

Employee Involvement—Direct involvement of employees in identifying cases of values misalignment, as well as prompt company response and communication of alignment actions, are key to ensuring organization-wide belief in the company value system.

Global Application—Organizations with global operations should introduce adequate fl exibility in the defi nition of values and the system to monitor alignment with values, allowing for cultural differences.

109

The EvolvingEmployment ContractShifts in the Employee–Employer Contract


The Council’s work on Employee Engagement provides new insight into the evolution of the employee contract. The employment contracts of the past decades focused on the shifting composition in the “give/get” of the employee–employer relationship. The early relationship was dominated by the security provided to employees in return for their hard work. More recently, the employment contract has evolved, with opportunity for career advancement dominating employees’ demands of their employers and employers offering future “employability” over long-term job security.

Feeling Nostalgic?The past decades have been dominated by two predominant employment contracts

Evolution of the Employment Contract

Source: Charness, B.G., D.I. Levine, ”Changes in the Employment Contract? Evidence from a Quasi-Experiment,” Journal of Economic Behavior and Organizations, 1379 (2001); Corporate Leadership Council research.

“Loyalist”“We expect loyalty and we provide loyalty in return. If you work hard, and receive satisfactory performance ratings, your job is secure.”

“Free Agent”“The work you do will be interesting, and you will learn new skills while you are here. Your employability will be high, although perhaps not at this employer.”

Time

The Evolving Employment Contract 111

The Council’s research on engagement has identifi ed a new, more recent shift in the nature of the “transaction” between organizations and their employees. In fact, employees today are unanimous in their demand for a new form of participation in the business—a personal mission to give back to the company. In deciding to devote extra effort to their jobs and in going above and beyond the call of duty, employees are driven by a self-interest grounded in the “fairness” and “good” of the organization and by the opportunity to make meaningful contributions in support of personal and organizational goals.

Revealing a New Face New understanding of the relationship between employees and their

employers enables reconsideration of the employment contract

Eras of the Employment Contract

Source: Charness, B.G., D.I. Levine.,”Changes in the Employment Contract? Evidence from a Quasi-Experiment,” Journal of Economic Behavior and Organizations, 1379 (2001); McShane, S., “The Psychological Contract,” Organizational Behavior, 2004; Pfeffer, Jeffrey, The Human Equation, Harvard Business School Press, 1997; “The Meaning Behind the Message: Climate Perceptions and the Psychological Contract,” Kickul, J., and M. Liao-Troth, Journal of Organizational Behavior 18, no. 2 (2001); Corporate Leadership Council research.

“Free Agent” Era• Employees own responsibility

for their skill development

• No guaranteed employment

• No guaranteed bonuses, pensions, or benefi ts

• Contingent workin abundance

• High risk tolerance

• Skills training designed to maximize desirability to other companies

• External labor market increasingly navigable

“Loyalist” Era• Steady work

• Regular bonuses

• Pensions

• Insurance

• Employer is “in charge” of employee career

• Lifetime employment

• Reduction in costs and uncertainties of external labor market through mutual obligation

Permanent EmployabilityJob Security Meaningful Contribution

“Mutual Self-Interest” Era

• “Targeted” agency—freedom to contribute

• Shared obligation to match employees’ unique skills to the needs of the organization

• No guaranteed employment

• No guaranteed bonuses, pensions, or benefi ts

• Increased performance and productivity expectations

• High value on transparency of information, clarity, and trust

• Emphasis on diversity—social signals in the workplace are critically important

• External labor market remains navigable, but perceived high switching costs born of high value put on “relationship” intangibles

Time

113

Appendix

Intuit

• Guidelines for Using the Star Model • 114

• Sample Action Plan • 115

Novo Nordisk

• Novo Way of Management Charter • 116

Top 50 Drivers of Engagement • 119

CLC Member Resources Guide • 120


Source: Intuit Inc.

Organization and Talent AssessmentGalbraith Star Model

• What are your major growth initiatives?• Any changes to the three core processes?• Any initiatives that span business units?

• What are the organizational implications for how you design and execute on your major initiatives?

• What systems and processes are required to execute? And where will you get them?

• What are your major process excellence and customer initiatives?

• How aligned are people’s goals with the organizational strategy and priorities?

• How embedded is performance management in your organization’s DNA?

• Which talents do you consider strengths in your current leadership bench?

• What is your strategy to close skills gaps?

• What is your talent mobility strategy?

•• Process Excellence: Talent Acquisition, Process Excellence: Talent Acquisition, Developing Existing Talent, Mobility…Developing Existing Talent, Mobility…

•• SimplicitySimplicity

•• Benefi ts, Pay, and IncentivesBenefi ts, Pay, and Incentives•• Recognition, Building for Future SecurityRecognition, Building for Future Security

•• Leadership Assessment, Skills Leadership Assessment, Skills and Competencies, Job Diversityand Competencies, Job Diversity

Culture (Values, Mind-Set, and Behaviors)

Talent (Skills and Capabilities)

Rewards and Recognition

Processes (Operations and Systems)

Business Strategy (Company and Business Unit)

•• Three Stakeholders, Big Y’s, Aligned X’s Three Stakeholders, Big Y’s, Aligned X’s Line of Sight, Three Core Processes…Line of Sight, Three Core Processes…

•• Social Architecture, Operating Social Architecture, Operating Values, Change ManagementValues, Change Management

•• “Boundarylessness”…“Boundarylessness”…

•• What behaviors do you What behaviors do you want to keep, and what want to keep, and what do you want to change?do you want to change?

•• Which operating Which operating values are culturally values are culturally embedded, and which embedded, and which are not?are not?

Organizational AssessmentInstructions: Evaluate the organizational implications of your three-year plan, considering the six dimensions of the model:

• Use your judgment to diagnose and assess the aspects most relevant to executing your strategy• Examine your current state and required future state, and identify the most critical gaps• Create action plans to address critical gaps• Have data ready to support your assessment

Guidelines for Using the Star Model

Structure (End-to-End Accountability)

•• Organizational Design: Levels, Span of Control…Organizational Design: Levels, Span of Control…•• Centers of Excellence, Functional ExpertiseCenters of Excellence, Functional Expertise

Appendix 115

Sample Action Plan

Source: Intuit Inc.

Action Plan Step #4:Synchronize process library with K@W tool to provide centralized access to processes

Owner:Joyner

Due Date;01-01-2005

Action Plan Step #5: Enable Callidus tool with new variable comp metrics

Owner: Martin

Due Date:01-01-2005

How will action plan success be monitored and measured?Monitored through regular focus groups, Customer and Employee CompStats. Measured by Net Promoter Index for STS. VOE interim surveys.

Comments:

Shared Owners of this action plan:Original Owner: Stephanie MartinShared Owners: Phil Snet, Bill Joyner

Managers Sent a Copy of Action Plan:None

Action Plan Progress Report

Current Status: In Progress

Describe Your Results or the Impact You’ve Had:

Estimated Percent Completion:0%

Describe Any Obstacles You’ve Experienced in Working on This Action Plan:

What Learning (Insights, Refl ections, Wisdom) Have You Gained While Implementing Your Action Plan:

Action Plan for: [Stephanie Martin]Action Plan Owner: Stephanie MartinAdditional Shared Owners: Phil Snet and Bill JoynerSubmitted on: 6/5/2004 2:13:27 AM Last Updated on: 6/5/2004 2:13:27 AM

Type of Action Plan:

Organizational Action Plan

Desired Outcome of This Action Plan:

Variable compensation, key metrics, policies, and processes will align with driving excellence in customer experience balancing employee and shareholder needs.

The GPTW® Survey Question(s):

Resources/Work ProcessesQ.28–Processes and procedures allow me to effectively meet my customers’ needs.

Customer ContactQ.56–My performance metrics are focusedon the right outcomes.

Main Points and Agreements from the Feedback Session(s):

Metrics drive us to provide a suboptimal customer experience. Policies and processes are not clearly understood and vary depending on the source of the documentation.

Action Plan Details

Implementation Team: 3–4 Ses. 1 Coach. Stephanie Martin, Phil Snet, Bill JoynerGB process developer/analyst tbh

Budget–Total Cost of completing this action plan: $5000.00 (dollars)

Action Plan Step #1:Create process library database

Owner:Snet

Due Date:07-01-2004

Action Plan Step #2: Focus groups w/reps on greatest areas of pain in policies, metrics, variable comp

Owner:Martin

Due Date:08-15-2004

Action Plan Step #3:Work w/KCS team to develop and implement key metric expectations to refl ect impact on Net Promoter Index, and implement realignment of processes to drive consistent SE behavior

Owner: Martin

Due Date:10-15-2004


Values

AccountableEach of us shall be accountable—to the company, ourselves, and society—for the quality of our efforts, for contributing to our goals, and for developing our culture and shared values.

AmbitiousWe shall set the highest standard in everything we do and reach challenging goals.

ResponsibleWe shall conduct our business in a socially and environmentally responsible way and contribute to the enrichment of the communities in which we operate.

Engaged with stakeholdersWe shall seek an active dialogue with our stakeholders to help us develop and strengthen our businesses.

Open and honestOur business practices shall be open and honest to protect the integrity of the Novo Group companies and of each employee.

Ready for changeWe must foresee change and use it to our advantage. Innovation is key to our business and therefore we will encourage a learning culture for the continuous development and improved employability of our people.

Novo Way of Management Charter

Source: Novo Nordisk A/S.

Appendix 117

Commitments

Financial responsibilityWe will work to continuously improve our fi nancial performance by setting high objectives for growth and value creation and deliver competitive performance in these areas. We will maintain an open dialogue with our stakeholders and comply with international reporting standards.

Environmental responsibilityWe will work to continuously improve our environmental performance by setting high objectives and integrating environmental and bioethical considerations into our daily business. We will maintain an open dialogue with our stakeholders and report annually on our environmental performance.

We subscribe to the International Chamber of Commerce’s Charter for Sustainable Development. We support the United Nations Convention on Biological Diversity.

Social responsibilityWe will work to continuously improve our social performance by setting high objectives and integrating social, human rights, and health & safety considerations into our daily business. We will maintain an open dialogue with our stakeholders and report annually on our social performance. We support the United Nations Universal Declaration of Human Rights.

Novo Way of Management Charter (Continued)



Fundamentals

1. Each unit must share and use better practices

2. Each unit must have a clear defi nition of where accountabilities and decisionpowers reside

3. Each unit must have an action plan to ensure improvement of its business performance and working climate

4. Every team and employee must have updated business and competency targetsand receive timely feedback on performance against these targets

5. Each unit must have an action plan to ensure the development of teams and individuals based on business requirements and employee input

6. Every manager must establish and maintain procedures in the unit for living up to relevant laws, regulations, and group commitments

7. Each unit and every employee must know how they create value for their customers

8. Every manager requiring reporting from others must explain the actual use of the reports and the added value

9. Every manager must continuously make it easier for the employees to liberate energy for customer-related issues

10. Every manager and unit must actively support cross-unit projects and working relationships of relevance to the business

Novo Way of Management Charter (Continued)


Appendix 119

Top 50 Drivers of Engagement

Note: The Drivers of engagement are listed in order of their ability to increase discretionary effort. Drivers marked with a check ( ) are also one of the top 50 drivers of increasing intent to stay.

Rank Lever

Top 50 Lever for Intent to

Stay?1 Employee Understanding of Connections

Between Work and Organizational Strategy2 Importance of Job to Organizational Success

3 Employee Understanding of How to Successfully Complete Work Projects and Assignments

4 Internal Communication

5 Demonstrates Strong Commitment to Diversity

6 Demonstrates Honesty and Integrity

7 Reputation of Integrity

8 Adapts to Changing Circumstances

9 Clearly Articulates Organizational Goals10 Possesses Job Skills11 Sets Realistic Performance Expectations

12 Puts the Right People in the Right Roles at the Right Time

13 Helps Find Solutions to Problems

14 Breaks Down Projects into Manageable Components

15 Accepts Responsibility for Successes and Failures

16 Encourages and Manages Innovation

17 Accurately Evaluates Employee Potential

18 Respects Employees as Individuals

19 Demonstrates Passion to Succeed

20 Cares About Employees

21 Has a Good Reputation Within the Organization

22 Innovation

23 Is Open to New Ideas

24 Defends Direct Reports

25 Analytical Thinking

Rank Lever

Top 50 Lever for Intent to

Stay?26 Helps Attain Necessary Information, Resources,

and Technology27 Makes Sacrifi ces for Direct Reports28 Quality of Informal Feedback29 Career Advisor Effectiveness30 Encourages Employee Development31 Persuades Employees to Move in a Desired

Direction32 Accurately Evaluates Employee Performance33 Identifi es and Articulates a Long-Term Vision for

the Future34 Inspires Others35 Places Employee Interests First36 Flexibility37 Provides Job Freedom38 Is Intelligent39 Clearly Communicates Performance

Expectations40 Appropriately Handles Crises41 Creates Clear Work Plans and Timetables42 Ability to Obtain Necessary Information43 Importance of Projects and Assignments

to Employees’ Personal Development44 Trusts Employees to Do Their Job45 Clearly Explains Job Importance46 Customer Focus

47 Future Orientation48 Lets Upper Management Know of Employee

Effectiveness49 Listens Carefully to Views and Opinions

50 Is Open to New Ideas


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