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January 6, 2003

2003 - Throw Away Those Cookie Cutter Techniques

Many predictions are being made for HR professionals for 2003. So what can we expect in the coming year? First, let's review several United States economic projections that directly impact 2003 human resource planning.

The December 30, 2002 issue of Business Week provided a summary of economic projections from sixty economic experts:

Real GNP, the primary indicator of a nation's economic strength, will grow 3.2%.
Overall operating profits for all industries will expand by 9.7%.
The Consumer Price Index inflation rate will grow 2.2%.
There will be an unemployment rate of 5.7%.

In short, the experts see little change in 2003 from 2002. A major unknown is the potential impact of a war with Iraq or another terrorist attack in the United States. For the human resource executive this means that 2002’s plans must be adequate to support 2003's organizational strategies.

These same sixty economic experts have "graded" major industry segments in terms of overall financial strength and growth prospects for 2003:

B+
- Banking & Securities
B
- Advertising
- Drugs
- Retail
- Software
B-
- Computers
- Construction
C+
- Consumer Electronics
- Professional Services
C
- Healthcare
- Media
- Travel
C-
- Insurance
- Telecom
D+
- Defense & Aerospace
D
- Energy

An industry's financial strength impacts human resource strategies in terms of the potential for attracting and retaining qualified staff. Human resource professionals in the defense and aerospace, energy, insurance, and telecom industries may face increased challenges in retaining their "stars" as compared to those in banking and securities.

With this information as a backdrop, let's explore the most important and far-reaching 2003 compensation program design prediction. Recent articles in Workspan and Business Week revealed that many organizations are making a bold move away from benchmarking. Benchmarking is a method by which an organization reviews the "best practices" in either their industry or employee segment to determine successful human resource systems they can mirror in their organization.

For example, many organizations attempted to copy General Electric's and Microsoft's HR practices, only to find, rather quickly, that these systems worked well only for GE and Microsoft. These so-called best practices were adapted without first analyzing and comparing the employee population, business strategy, and culture of the best practice organization to their own. The result of blind benchmarking can be devastating.

According to Business Week (December 16, 2002), a major hospital chain CFO bragged that his aggressive use of part-timers was saving the organization $5 million a year. Each time the CFO found a rival organization with a lower ratio of full-timers, he would ax more full-time staff at his own hospitals. At one point one facility was run by a staff of 80% part-timers. Not surprisingly, those employees were often clueless about local hospital practices and wound up wasting the full-time staff's time. Upon closer analysis, the part-time staffing practice cost the organization $25 million in reduced productivity, or 3% of its total revenue. By ignoring the best practice data, and increasing the full-time ratio to 63%, the organization regained 18% in overall productivity in two months.

Instead of looking outward for cookie-cutter answers, 2003 will be the year where human resource professionals look at the organization's internal labor market. In doing this, the following human resource approaches should be considered.

Current Human Resource Approach	2003 Human Resource Approach
Pay is based on salary grades and hourly rates.	Pay is based on achieving specific goals and contributions.
Bonuses are tied to unit and company performance.	Bonuses are tied to individual performance and contribution.
Benefits are standard throughout the organization.	Benefits are tailored to specific employee groups.
Management strategy modeled on best practices at high performing companies.	Management strategy based on internal analysis of employees.
Career structures are predetermined.	Career structures are sculpted to individuals.

Source: December 16, 2002 Business Week and Mercer Human Resource Consulting

In 2003, successful organizations will move away from the "one size fits all" human resource strategy. This move will first impact compensation program design. For example, Gateway, Inc. has jettisoned its annual bonus payout based on performance grades (1 – 5). Instead quarterly bonuses hinge more directly on individual achievement. Sysco Corp. provides incentive pay for managers, drivers, and loaders when the right products are delivered at the right time, with no dented cans or torn bags. At Nationwide Insurance, managers' bonuses are contingent upon the level of employee satisfaction in their department. If there is a 5% drop in satisfaction levels, no bonus is awarded.

With all this experimentation comes a warning. Such programs increase the potential for managers to play favorites. Teamwork strategies can falter. Workers who do not understand the different programs may claim they are not being treated fairly.

The challenge for human resources in 2003 will be to develop strategies unique to their internal labor market that are implemented and communicated to employees while maintaining internal employee relations harmony. Failure to do so could result in employees looking for the support of outside organizations, such as organized labor.

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ISSN Number 1549-0467