What the most admired do Twelve years of insights.

What the most admired do Twelve years of insights

2© 2009 Hay Group. All rights reserved

What the most admired do

Hay Group has partnered with Fortune magazine for over ten years to identify and rank The World’s Most Admired Companies (WMAC)

The study not only identifies the companies that are the most admired in their industries, but also uncovers the reasons for their strong reputations

Candidate companies include: Fortune 1,000 companies; non-US companies in Fortune's Global 500 database with revenues of $10 billion or more; and the top non-US international companies operating in the US

Companies are rated both overall and relative to their industry peers by over 10,000 top executives, directors and analysts

Industry rankings are generated for 64 industries (25 international industries and 39 primarily US-market industries)

WHAT THE MOST ADMIRED DO — TWELVE YEARS OF INSIGHTS


What the most admired do

WMACs do not follow any particular blueprint, so their success cannot be bought ‘off the shelf’

What they do have in common is alignment of: corporate culture attitude of managers strategy global coordination

Those that get it right tend to enjoy success over the long-term

They stay at the top because they are constantly building, refining and developing the operating themes through which the company has won its success

Their competitive advantage becomes built into the very fabric of the organization



Outperforming the market

The WMACs study is the only one to shine a light on these companies and give real insights into why they’re so successful, enduring, well-led and packed with talent. This is important because WMACs outperform industry peers and the market as a whole

Total shareholder returns for the top ten WMACs over the last three years are nearly three times the returns for the Standard and Poor’s 500

18.5%WMAC

-7.1%Standard and Poor’s 500



Consistent highest scorers include industry giants like GE, Coca-Cola, Microsoft, Berkshire Hathaway, Toyota Motor, Johnson & Johnson and Citigroup

People

01


Success through people

WMACs focus on achieving success through people

This focus on people means: they are more likely than their peers to have strategies and metrics related to the

management of human capital. WMACs are 19 per cent more likely to provide expertise to the CEO and management on human capital issues

over 80 per cent of WMACs have a human capital strategy that has been reviewed and approved by the board, compared to just under 70 per cent of their peers

their leaders take a ‘hands on’ approach to developing talent. Leaders devote as much as 30 per cent of their time to coaching staff

the boards of the WMACs are strongly oriented towards taking care of human capital. WMACs are 22 per cent more likely to have a human capital strategy that has been reviewed and approved by the board



Success through people

WMACs focus on achieving success through people


0 20 40 60 80 100

More likely to hire anew CEO from inside

the organization

Well defined plans forCEO and executive

succession

Peer group WMAC

This focus on people means: they have better plans for

CEO and executive succession. Over 90 per cent of WMACs have well defined plans compared to 65 per cent of peer-group companies

as a result they are more likely to hire a new CEO from inside the organization – 77 per cent compared to 60 per cent of peer group companies


“My main job was developing talent. I was a gardener providing water and other nourishment to our top 750 people. Of course, I had to pull out some weeds, too.”

Jack Welch, former CEO of GE, the highest-scoring World’s Most Admired Company


Succession planning

The Most Admired Companies are prepared for the unexpected loss of the CEO or other top executives


0 10 20 30 40 50 60 70 80 90 100

Our board receives regular updates on development of the internal candidates for top

leadership positions

In terms of a CEO successor, our board has a preference for an internal candidate

We have developed a comprehensive profile for the CEO’s successor that reflects our

strategy and business model

Peer group Most Admired


Profound employee engagement

The Most Admired Companies are more successful at maintaining high levels of loyalty and motivation during times of economic uncertainty


They achieve this is by: ensuring opportunities for

personal advancement and growth are consistently available. Just over 60 per cent of WMACs say planned career assignments are used a great deal compared to 35 per cent of their peers, while 57 per cent say one-to-one coaching is greatly used compared to 22 per cent of their peer group

0 10 20 30 40 50 60 70

One-to-one coachingis used a great deal

Planned careerassignments are used

a great deal

Peer group WMAC


Profound employee engagement

The Most Admired Companies are more successful at maintaining high levels of loyalty and motivation during times of economic uncertainty

They achieve this is by: placing a strong emphasis on reward strategy – 82p per cent of WMACs say they

regularly reinforce their reward philosophy in communications with employees, compared to 64 per cent of their peers

making sure they get performance management right focusing on employee development. The boards of WMACs are 15 per cent more

likely to receive regular updates on the development of internal candidates for top leadership positions

creating a culture that motivates and supports employees.


Strategy

02


Strategy that gets executed

WMACs are much more successful than their peers at making their strategies happen


This has a lot to do with clarity, as our research shows: strategic objectives are

clearer at all levels of the company. For example, 92 per cent of WMACs say that the business strategy is well communicated to management in the company, compared to 72 per cent of their peers. Furthermore 67 per cent believe it is well communicated to employees, as opposed to 50 per cent of their peers

0 10 20 30 40 50 60 70 80 90

Business strategy iswell communicated to

employees

Business strategy iswell communicated to

management

Peer group WMAC


Strategy that gets executed

WMACs are much more successful than their peers at making their strategies happen

This has a lot to do with clarity, as our research shows: performance measures are more closely aligned with strategy executives are held more accountable for carrying out strategic plans. Just under 80

per cent of WMACs say managers understand their roles in implementing strategy compared to 58 per cent in the peer group

they are less tolerant of ‘off strategy’ behavior to meet financial targets. Only 22 per cent of WMACs say that this type of behavior was tolerated to some or great extent in order to meet the numbers, compared to 52 per cent of their peers

they are more likely to take action if executives do not actively support strategy



Globalization: WMACs balance global and local approaches

WMACs show more skill than their peers when it comes to leveraging global scale and local presence

Here are the reasons why: good global integration of their operations help them exploit opportunities of scale local business units are given the flexibility to respond to local market needs. Some

84 per cent of WMACs say they can respond flexibly to local situations, compared with 73 per cent of other companies

knowledge management is used effectively on both a local and global basis. As a result WMACs are good at identify new business practices and leverage them across other business units. Some 78 per cent say they can do this effectively, compared with only 53 per cent in other companies

good international coordination means even far-flung business units are united around a common strategic vision

they ensure local managers are prepared to sacrifice local priorities to benefit the global enterprise

compensation strategies are generally centralized, enabling a global approach to talent management



Charting a course for success

What makes WMACs special is the distinctive way that they manage their organizations

They build strategies that work through good times and bad, helping them avoid the distractions that trap their peers when business cycles turn. For example, Southwest Airlines has not altered its strategy for almost 40 years!

There is no single best organizational structure for WMACs, but their structure is always aligned to the strategy and to the business model

They have more focus on the operating model than their peers. They build in flexibility and ensure the model is made visible across the organization

They are better at equipping leaders. They identify, develop and reward leaders who are successful at working across the organization. As a result, 83 per cent of WMAC executives feel that they manage the matrix organization effectively, compared to only 58 per cent of the peer group



Toyota takes its competitors on plant tours, confident that no one is going to be able to reproduce excellence that has been painstakingly built over many years

Culture

03


Strong organizational culture

Organizational cultures are important drivers of employee behavior and WMACs display a different cultural profile to their peers

Their leaders tend to have a consistent, shared understanding both of what the company’s culture is at present and where it should go in the future

Their cultures promote both individual initiative and high levels of teamwork

This combination of individual initiative and teamwork is used to drive innovation and employee loyalty

For the WMACs, it is crucial that employees mesh with their culture.



0 10 20 30 40 50 60 70 80 90 100

We are effective in communicating changes in/strategic direction and corporate policies

procedures to business unit/subsidiary managers

We have succeeded in aligning our variousbusiness units/subsidiaries around a common

corporate culture

We have succeeded in aligning our variousbusiness units/subsidiaries around a

common strategic vision


Vision and culture

For global leaders, vision and culture are key to integration of operations



Long-term focus

WMACs are more focused on the future than their peers

Our research highlights a number of ways in which this manifests itself in their behavior: their performance measures are structured to focus on the long term. For example,

WMACs are 56 per cent more likely to have performance measures based on building customer loyalty

compromising long-term objectives for the sake of short-term demands is frowned upon

they take a long-term approach to talent management. For example, the boards of WMACs are 23 per cent more likely to evaluate CEOs on success in developing human capital, in addition to evaluating financial outcomes and strategy implementation

even in stormy economic conditions they continue to hold to their long-term objectives



Managed innovation

WMACs excel at innovation because they actively manage it to ensure that the best ideas make it to market

At WMACs, innovation starts at the top because their leaders: direct innovation and establish a culture in which it can flourish. For example, they

are more patient with promising ideas that fail to generate immediate returns promote high levels of initiative. The organizational culture in WMACs supports

empowerment and risk taking and their performance management systems are designed to reward innovative activity

encourage cross-functional teamwork that ensures best practices are used across the organization. For example, 30 per cent of WMACs say they are very effective at exchanging leadership practices between business units, compared to 23 per cent of their peers

WMACs also continually look to reinvent themselves and thus frequently address potential problems before they occur

Rather than exploring completely new areas, they often innovate in areas where they’re already strong



Innovation through empowerment

Innovation: empowerment promotes innovative behavior

0 10 20 30 40 50 60 70 80 90 100

Staffing levels are adequate to ensure that managers and employees have sufficient

time to pursue and develop innovative ideas

Managers are given the decision-making authoritynecessary to carry out their responsibilities

Decisions are generally made at the right level ie where the most appropriate knowledge)

(and expertise resides



Reward

04


Unlocking reward effectiveness

Our research shows WMACs achieve a better return on their reward program investments than their peers and as a result actually end up paying about five per cent less for talent They get more mileage out of their reward programs, because they:

ensure reward strategies are clearly aligned with organization goals, strategy and culture

tend to take a more centralized approach to reward strategy have stronger talent development programs and processes that encourage the internal

sourcing of candidates. This is one reason why they pay about five per cent less in base pay for management and professional positions

focus on executional excellence in reward programs, not sophisticated design



Unlocking reward effectiveness

Our research shows WMACs achieve a better return on their reward program investments than their peers and as a result actually end up paying about five per cent less for talent They get more mileage out of their reward programs, because they:

promote a ‘total rewards’ view across the organization and leverage an array of intangible rewards. As a result:

74 per cent of WMACs state that their employees understand and appreciate that rewards consist of both tangible and intangible components, compared with 61 per cent of their peers

engage line managers in the rollout of reward programs and do a better job of communicating reward strategies.

For example, 82 per cent of WMACs regularly reinforce their reward philosophy in communications with employees, while only 64 per cent of peer companies do the same


What the most admired do Twelve years of insights.

Documents

Transcript of What the most admired do Twelve years of insights.