Finding a CureThe Abbott HR Transformation Story

Strategy executed….results realized

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New rules of governance Improved HR service support Change data for better decision making Ability to act on change data and make mid-course corrections Improved internal communication around HR servicesOne Abbott—improved teamwork and the breakdown of the silo mentality between the various Abbott businessesSuccessful pilot for a new support services model which can be applied to other support services areasImproved organizational effi ciency and nimbleness

Situation Overview

Several years ago, in an effort to restructure the company’s revenue stream and overall makeup, Abbott began a period of acquisitions, particularly of medical device companies. Along with new lines of business, Abbott acquired a host of human resource challenges.

Some acquisitions were mature, some brand new, some in between, but all had their own unique issues. Investments in HR were signifi cantly outpacing the rate of growth in the company’s earnings, while benchmarking data showed Abbott’s HR headcount was high relative to competitors.

Internal customers (both old and new) were not being properly served.

Three Challenges

Abbott’s fi rst challenge was to sell the need for change to all the various stakeholders before much of the predicted pain impacted the organization. As part of Conner Partners’ Change Execution Methodology, the joint Abbott/Conner Partners team worked very hard to help clearly articulate the intent of the initiative and the importance of restructuring the HR organization. They successfully communicated why the current state could no longer be accepted and convinced sponsors of the change that moving to the desired future state was an absolute business imperative.

Abbott’s second challenge was to learn to listen to and fully appreciate the voice of the customer. After taking the time to truly listen to and work with all of their customers, the HR team was able to design a new structure to better support the needs of employees—past, current, and future—in all of Abbott’s businesses.

Abbott’s third challenge was to learn to manage the execution of the new HR plan, including the transition to the new HR structure. Although developing sound business strategies supported by the right portfolio of initiatives is challenging, executing those strategies successfully is even harder. Conner Partners worked closely with Abbott to establish a very detailed and well-organized process for executing change. At the root of this process was a risk framework designed to help Abbott closely monitor all the potential risks to the project and identify and implement courses of action to mitigate those risks.

Abbott’s HR Transformation—Mid-Project Results

Changing a successful organization can be much more diffi cult than overhauling one in decline, but Abbott executives are in the process of doing just that.

Executive Summary

“We made the amazing discovery that the best partner for us as we made this important HR transformation was a consulting company that didn’t offer a single HR product. Instead, Conner Partners offered us a change management process that would guide us through making the right decisions every step of the way.” —Steve Fussell, SVP Human Resources, Abbott

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For more than a century, Abbott has been at the forefront of the pharmaceutical and healthcare industries. It has prospered because it reminds itself on a daily basis about its mission and its reason for existence: to serve the patient.

In an industry that lives and dies by its ability to innovate and change, Abbott has been and continues to be a top performer, in large part because it stays on the leading edge of discovery, and reinvents itself to meet the challenges of an often-criticized and highly regulated industry.

Founded in 1888 by Dr. Wallace C. Abbott, a practicing physician, the company has grown to be one of the leading business organizations in the world, with US$22.5 billion in annual sales and 65,000 employees at the close of fi scal year 2006. It has survived a withering public opinion backlash against pharmaceutical companies and has successfully worked through its own relatively recent issues with the FDA. It is a healthy organization that has changed signifi cantly over the decades while at the same time

maintaining much of what Dr. Abbott began to build. He was a champion of scientifi c investigation to benefi t patients. His mission, vision, and values are intact and woven into the DNA of this huge economic entity.

“We struggle with change because we are alive.” —Daryl Conner, Leading at the Edge of Chaos

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Acquisitions and Overhaul

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All must be served effectively if Abbott is to continue to grow, prosper, and make a difference. Implementing change in this environment can be diffi cult at best. In fact, changing a successful organization can be much more diffi cult than overhauling one in decline, but Abbott executives are in the process of doing just that.

Several years ago, in an effort to restructure the company’s revenue stream and overall makeup, Abbott began a period of acquisitions, particularly of medical device companies. Today, Abbott is still mostly a pharmaceutical company, but 40% of its revenues come from the medical device business. These acquisitions were necessary and prudent, as the medical device business is less volatile than pharma. However, along with new lines of business, Abbott acquired a host of human resource challenges. Some acquisitions were mature, some brand new, some in between, but all had their own unique issues. In addition, investments in HR were signifi cantly outpacing the

rate of growth in the company’s earnings, while benchmarking data showed Abbott’s HR headcount was high relative to competitors. Furthermore, the internal customers (both old and new) were not being properly served. The old HR model that had worked so well before the acquisition period was in need of a major overhaul.

Abbott’s HR organization structure was typical—each business within Abbott had a dedicated HR support person (or small team) in place to handle all HR projects, transactions, and concerns. As Abbott acquired new businesses, however, more HR resources were required; often, a single HR professional was given responsibility for managing the needs of more than one business at a time. In such situations, the primary business received the lion’s share of the attention and the secondary business’ needs were not adequately met. The HR team was drowning in transac-tional overload.

Abbott’s HR leader at the time, Tom Wascoe, was visionary in his ability to anticipate future challenges and identify the pain that Abbott as a whole—and

the HR organization specifi cally—might face. Early on, he identifi ed several critical points that required action.

The challenges and frustrations many Abbott business leaders felt in the inability of the growing HR organization to serve their businesses would come to a critical point in the near future. HR costs were not in line with business growth and something would need to be done to reverse the trend in increasing costs. Without a plan to address the real issue of creating an organization for Abbott’s future, the HR team might be faced with a mandate to cut costs and reduce headcount before they had time to solve the root problem.

The current HR team was not able to meet the needs of Abbott’s rapid changes or support critical projects associated with the many acquisitions.

Wascoe saw the need to adapt the HR organization to truly support Abbott’s business operations and thereby play an integral role in its future.

More than a century of success casts a long shadow, and, not surprisingly, Abbott executives feel the weight of history as they lead. Their “customers” are myriad—internal clients, employees, candidates, external clients, and, above all, patients.

2001 Abbott acquires the pharmaceutical business of BASF AG, including the global operations of Knoll Pharmaceuticals. In addition, Abbott acquires Vysis, Inc., maker of genetic tests for cancer, pre natal disorders, and other diseases.

2002 Abbott acquires the cardiovascular stent business of Biocompatibles International plc.

1999 Abbott acquires Perclose, Inc., an arterial closure device manufacturer, which provides the foundation for building Abbott’s vascular business.

Transformation: Adding New Businesses and Reorganizing | 14 acquisitions and 1 spin-off in a span of 8 years.

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2003 Abbott continues to build its medical products business through several acquisitions: JOMED’s coronary and peripheral intervention business lines, Integrated Vascular Systems, Inc., and Spinal Concepts, Inc., an innovator of spinal implant devices. Abbott also acquires ZonePerfect Nutritional Co., which signals Abbott’s entrance into the fast-growing healthy living category of the nutrition market.

2004 Abbott acquires TheraSense, Inc., a blood glucose monitoring business, enters the point-of-care diagnostics market with the acquisition of i-STAT Corp., adds to its healthy living nutrition offerings with the acquisition of EAS, Inc., and fi rmly establishes its presence in the spinal device market with the acquisition of Spine Next S.A. Abbott also spins off its hospital products business as Hospira, an independent, publicly traded company.

2006 Abbott acquires Guidant’s vascular business and Kos Pharmaceuticals, expanding its presence in cardiovascular medicine, including lipid management.

Wascoe decided to bring in an expert on strategy execution to deliver the keynote address and to conduct workshops and breakout groups. He invited Daryl Conner, Chairman of Conner Partners, to speak.

It would be a fortuitous decision, one that would bring more focus and clarity to the entire change process than they could have imagined. “It became evident to us after our visit with Daryl Conner and his team that we had a clear understanding of what we wanted to do,” said Ryan Knapp, Abbott’s VP of global HR and leader of the Project Management Offi ce (PMO), “but we didn’t understand exactly how to do it.”

Steve Fussell, Abbott’s current SVP of human resources and successor to Tom Wascoe, said, “We made the amazing discovery that the best partner for us as we made this important HR transformation was a consulting company that didn’t offer a single HR product. Instead, Conner Partners offered us a change management process that would guide us through making the right decisions every step of the way.”

Abbott’s fi rst challenge was to sell the need for change to all the various stakeholders before much of the predicted pain impacted the organization. As Janice Darling, a Vice President at Conner Partners, described, “It’s hard to sell the need for change

when you don’t have current pain.” As part of Conner Partners’ Change Execution Methodology, the joint Abbott/Conner Partners team worked very hard to help clearly articulate the intent of the initiative and the importance of restructuring the HR organization. They successfully communicated why the current state could no longer be accepted and convinced sponsors of the change that moving to the desired future state was an absolute business imperative.

Abbott’s second challenge was to learn to listen to and fully appreciate the voice of the customer. Many members of the old HR organization viewed only the business managers of each of Abbott’s businesses as their internal customers. It was a huge paradigm shift for many of these people to begin thinking of every employee, retiree, and candidate as their customer in addition to the business managers.

After taking the time to truly listen to and work with all of their customers, the HR team was able to design a new structure to better support the needs of employees—past, current, and future—in all of Abbott’s businesses. This new structure had three elements:

A new group of HR business partners served as external consultants to each of the businesses within Abbott. It would be the responsibility of these team members to help assess the needs of each business and bring the appropriate HR resources to the table to support the specifi c needs of each business.

Moving Forward

Wascoe convened a global HR forum in Chicago in the spring of 2004, inviting nearly 400 members of his team from around the world to discuss options, participate in workshops, and plan together. He hoped the forum would help determine the new direction for Abbott’s global HR organization.

Several HR centers of expertise were created. Each center would have deep knowledge in one practice area and would support all the business partners.

Transaction centers were designed to handle all the various support functions associated with human resources (e.g., benefi ts, compensation, talent acquisition, and employee relations) and offl oad much of the administrative work from the day-to-day activities of the new HR business partners.

Abbott’s third challenge was to learn to manage the execution of the new HR plan including the transition to the new HR structure. Although developing sound business strategies supported by the right portfolio of initiatives is challenging, executing those strategies successfully is even harder. Conner Partners worked closely with Abbott to establish a very detailed and well-organized process for executing change. At the root of this process wasa risk framework designed to help Abbott closely monitor all the potential risks to the project and identify and implement courses of action to mitigate those risks.

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“It became evident to us after our visit with Daryl Conner and his team that we had a clear understanding of what we wanted to do, but we didn’t understand exactly how to do it.” —Ryan Knapp, VP of global HR and leader of Abbott’s Project Management Offi ce (PMO)

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Turning the Ship Around

Fussell compared making this kind of organizational change to “turning a yacht around in a bathtub.” Yet, Abbott is 18 months into a three-year transformation and great progress is being made as planned.

For example, new rules of governance have been put in place throughout the global Abbott organization. This was vital, according to Fussell. “If you’re going to change a culture, particularly in the area of HR practices, you need to deal very quickly with how decisions are made in the company. If the only thing we had done with Conner Partners was change the governance of the company, it would have been a tremendous benefi t to Abbott.”

In addition, Abbott’s smaller businesses are now receiving much-improved HR service support. The new plan for

Abbott’s global HR organization helps ensure that everyone receives the same level of service regardless of the size of the business.

As with any organizational upheaval of this magnitude, there have been bumps along the way. For some, it will get worse before it gets better. “But we are sensitive to that,” says Fussell. “We hope that our people will be patient during this ‘pardon our dust’ phase. It will turn around.”

Abbott constantly measures the impact of the change on the people involved while the change is occurring. “That’s a little scary,” says Fussell, “but necessary. We ask our internal customers about the current level of confi dence in the HR leadership. Are we anticipating your needs? Are we putting the right people on the ground to help you do your best work?” The regular analysis helps Abbott gauge progress every step of the way.

Most importantly, Abbott’s HR leadership is prepared to act on the results. The constant monitoring

helps keep them ready to respond to practically any issue with enough time to make effective mid-course corrections.

There is a great deal of success to trumpet, and much more internal communication necessary related to progress and timelines. The HR communication team has quadrupled in size in an effort to keep employees around the world apprised and updated.

The impact of the HR transformation effort is obvious to many of Abbott’s managers and internal customers. Stuart Hassell, Abbott’s learning and development director of global HR for Europe, describes the differences he can already see. “Before, there were a lot of silos, and it was more territorial. Now, it’s not what’s best for me or my division, but what’s best for Abbott as a whole.”

Fussell compared making this kind of organizational change to “turning a yacht around in a bathtub.” Yet, Abbott is 18 months into a three-year transformation and great progress is being made as planned.

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Global Impact

Countries where products are sold: 1302006 sales: $22.5 billion

Primary businesses: Pharmaceuticals, diagnostics, nutritionals, and medical devices

Employees: 65,000Facilities: More than 100 worldwide

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Market value: Abbott’s market value places it among the top 50 companies in the United States, and the top 100 companies in the world.

Giving back: In 2006, Abbott donated $76 million worth of products to 98 countries around the world and supported 665 medical missions.

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“Most HR organizations want the opportunity to lead changes in the culture, we’ve had the opportunity to actually do it.”—Steve Fussell

Although there is still much work to do, a strong indicator of success is the interest leadership at Abbott is taking in learning from this HR transformation. The global HR initiative is being reviewed and discussed with an eye to using it in other parts of Abbott’s support services. “Most HR organizations want the opportunity to lead changes in the culture,” says Fussell. “We’ve had the opportunity to actually do it.”

Still, change of this magnitude can be unsettling and downright scary. Knapp describes it this way: “It’s like being on a trapeze. The discomfort of letting go is mitigated by the fact that, even though you’re not sure of exactly where you’ll land, it’s going to turn out OK, because you have a plan in place to fi gure it out along the way.”

Deb Billig, another Abbott HR VP, explains: “We couldn’t go on the way we were going. Eventually, we would have become less competitive and less effi cient. That would have affected the cost of health care down the line, and maybe would have kept us from being as innovative and nimble as we could be.”

Who will benefi t the most from this sizable and sometimes uncomfortable HR transformation? Abbott’s ultimate client, and its reason for existing—the patient.

“If you’re going to change a culture, particularly in the area of HR practices, you need to deal very quickly with how decisions are made in the company. If the only thing we had done with Conner Partners was change the governance of the company, it would have been a tremendous benefi t to Abbott.” —Steve Fussell, SVP of Human Resources

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Conner Partners, formerly ODR, is an Atlanta-based consulting fi rm that specializes in strategy execution. Founded in 1974 by Daryl Conner, Conner Partners has worked with one-third of the Fortune 100 companies, as well as numerous U.S. and international governing bodies, to help them successfully navigate large-scale transformations and critical strategic initiatives.

Highly regarded for its research and standard-setting methodologies, Conner Partners works with a select group of clients each year, helping them out-maneuver competition, increase profi tability, and reduce risk.

For more information, please visit www.connerpartners.com.

About Conner Partners

TEL 404.564.4800 FAX 404.564.4850 www.connerpartners.com