© 2003 Alsey International 1
What is the Role of the HR System in the Battle for Company Profitability?
Professor Zwika Segal & Dr. Yagil Weinberg
© 2003 Alsey International 2
Origins
Koç Holdings (KH) – the largest private sector entity in Turkey
77 year-old group of 100 firms & 54,000 employees
Turnover €13.8b, subsidiaries in 21 countries
Mid ‘90s: Ali Koç returned from HBS, amid global IT boom
Led an unrelated group of Koç companies in ICT, grew it to 13
Included MSP, SI, CATV, B2B/B2C e-commerce, training
Though incoherent, ICT became a strategic priority for KH
HBS’ Porter referred Koç to Weinberg, with whom he had established the ‘Competitive Advantage of Turkey’
© 2003 Alsey International 3
€ Million
2001 2002 2003
13,066
8,2019,790
33 %
19 %
0
Business Results & 2003 Targets(IAS)
Combined SalesCombined Sales
© 2003 Alsey International 4
2001 2002
€ Million
-181
280
Business Results & 2003 Targets(IAS)Business Results & 2003 Targets(IAS)
Combined Profit Before TaxCombined Profit Before Tax
© 2003 Alsey International 5
2001 2002 2003
53,613
43,40350,543
3,0707,140
Business Results & 2003 TargetsBusiness Results & 2003 Targets
Number of EmployeesNumber of Employees
© 2003 Alsey International 6
Alsey’s model: Process of Organizational Fit to Business Strategy
I/O gapreduction
Value creation Market access
Competitordifferentiation
Competitiveorg. core
competencies
Strategicrequirements
6. Test6. Test
2. Organizational 2. Organizational
Architecture AuditArchitecture Audit
1. Individual 1. Individual Competencies Competencies
AuditAuditTechnical skills
Generic competenciesKnowledge
Experience
Core values
3. Analysis3. Analysis
I/I fitanalysis
I/O gapanalysis
4. Restructuring4. Restructuring
5. Output5. Output
Audit Benchmark Gap Reduction
© 2003 Alsey International 7
Step 1 - Strategic Audit
Interviews with senior & middle management of all ICT companies:
IT an integral part of KH plans, incorporating a variety of initiatives
Strategy focused on GSM license, no reassessment when bid lost
A number of operational challenges:
Ongoing conflicts between ICT companies
Investment opportunities victim to lack of decision mechanisms
Low cross-company awareness of projects & direction
Lack of coordination between Information Systems
‘New Business Development’ group a source of conflict
© 2003 Alsey International 8
Step 2: Development of Key Strategic Principles
1. Business Development in Line with Synergies
Select portfolio according to synergies leveraged & created
2. Business First, Residential Later
Given strong differences in business & consumer demand for ICT, focus initially on high-demand high-profit business sector
3. One-Stop-Shop Package
Offer full integrated basket of ICT & financial services
4. Digitalise KH
Lead & implement IT-enabled productivity improvements at KH
5. Catalyse Turkey’s IT Development
Make KH the catalyst for advancing IT across Turkey
© 2003 Alsey International 9
Mapping of Existing Synergy Realisation Between KH Firms
SI
Consumerportal
Satellite
Cable
Elearning
B2B
Supermarket
ETickets
Software
ISP
Hardware
Travelagency
Access
Usage/hosting
Usage/hosting
Usage/hosting
Usage/hosting
Sales
Delivery
Whitegoods
Sales
Sales,Hosting
Bank,insurance
Usage/hosting
Applications
Hosting,call center
Uni
Cars
Training
EBookings Electronics
Sales
Usage/hosting
Promotions
Sales
Synergy Realisation Mainly Basic Sales Promotions
© 2003 Alsey International 10
Mapping Potential Synergies
ASP
DistributionE-learningE-learning
Hosting,applications
E-learning
E-learning
E-learning
Access
Usage/hosting
Usage/hosting
Applications
Usage/hosting
Usage/hosting
Sales
Sales
Sales
Sales
Sales
Sales
Logistics
Logistics
Logistics
Logistics
Logistics
Sales
Sales,Hosting
Usage/hosting
Applications,credit
Hosting,call center
Credit IVR
Distribution
E-learning
E-learning
B2B knowhow
B2B knowhow
B2B knowhow
B2B knowhow
B2B knowhow, databaseB2B knowhow
Network
Pilot e-learning project
Content Portal, technology, content
E-learning technologies, content and courses
Content
NetworkAccess
Potential Synergies A Deeper Richer, Varied Network
SI
Satellite
Cable
Elearning
B2B
Supermarket
ETickets
Software
ISP
Hardware
Travelagency
Delivery
Whitegoods
Uni
Cars
Training
Electronics
Consumerportal
Bank,insurance
EBookings
© 2003 Alsey International 11
Koç will become a leading ICT player in Turkey by transforming itself from a collection of separate and weak-linked activities into an integrated ICT service
provider incorporating LEC functionalities and services
Development of ITG Vision
© 2003 Alsey International 12
Step 3: Organizational Audit Identifies Fit with Strategy
Cross-disciplinary mapping of the companies, across 4 pillars:
5 months, 12 experts: 160 interviews of management, 600 survey questionnaires, 85 ITG research documents, dozens of market reports, quantitative performance assessment
Processes &Procedures
OrganizationalStructure
• Work systems• Communication management• Knowledge & info management• Management styles• Decision-making process
• Organizational structure• Span of control• Hierarchical levels• Power structure• Control system• Formal/informal• Cooperation/competition
OrganizationalCulture
• Core values• Ethical code • Symbols • Rituals• Heroes • Stories• Routine• Ceremonies• Social
responsibility
IndividualCompetency
Enhancement (HR)
• Planning• Recruitment & selection• Training• HR Development • Career management• Compensation• Performance management• HR structure
© 2003 Alsey International 13
E
X
P
E
C
T
E
D
CURRENT
Bryce
Example: Organizational Survey Results
Communication Management:Manager Encouragement
© 2003 Alsey International 14
Organizational audit Main Results
Processes &Procedures
OrganizationalStructure
Slow decision-makingHighly centralisedStick-to-proceduresRisk-avoidanceInformation-keepingLoyalty to hierarchySlow response to change
VerticalHierarchicalManagement-orientedLack of clear communicationInflexibleResource-centralized
OrganizationalCulture
TraditionTo be OKIndividualismPresent-preservation
Unknown cultureDependenceSatisfying superiors
Peaceful human relations
Client-orientation
IndividualCompetency
Enhancement (HR)
Recruitment based on past achievementNo career planningNo horizontal mobilityStandardised training
© 2003 Alsey International 15
Stage 4: Building Fit - Individual Competency Enhancement (HR)
HR expertise centre established at new ITG HQ
Use HR as a key strategic tool (Fit analysis)
Building HR system according to mission, goals & values
New career planning process within and between companies
New performance criteria (according to business plan)
Targeted employee and managerial development process
English lessons created a bi-lingual corporation
Common training programme for all ITG companies
Introduction of HR metrics
HR Now Used As Key Strategic Tool
© 2003 Alsey International 16
CategorySubcategoryJob RatioProficiencyCandidateITG
profile
HR Development
Training, development & career planning
15%AdvancedAB
organizational Culture
Motivation, surveys, core
values5% Advanced A alDtC
Compensation
Compensation, bonus, benefits
20%AdvancedAA
Strategic HR Business
requirments 10% Advanced B B
Recruitment
HR planning, job analysis,
recruitment & selection
10% AdvancedA A
Performance Performance and business
appraisal 10% Advanced A A
HR Budgeting
ROI and HR metrics
10% Advanced A A
HR policies All HR functions and transactions
15% Advanced B A
HR computerized
application Intranet, ERP 5% Low D C
LanguageEnglishrequiredAdvancedAA
Example: Selection by fit analysis
Appointment of VPs using proprietary strategic fit analysis
Compensation: 100 % (weight -moderate ) Human qualities :95 % (weight - high)
Experience: 85% (weight - high) Knowledge: 90 % (weight - moderate)
Education: 85% (weight - low) Skills: 90% (weight -high)
Overall FI T: 90%
© 2003 Alsey International 17
Building Fit: Organizational Matrix
New HQ management structure with VPs at heads of four new Expertise Centres (ECs)
Strategic focus on HR and corporate culture
Separate line & HQ functions
Human Resource
Executive VP
ITG President
Finance &Administration
Marketing Strategic Planning
ITG Companies
HQ
SBU
Expertise Centres (ECs)
ITG CompaniesITG
CompaniesITG CompaniesITG
CompaniesITG CompaniesITG
CompaniesITG CompaniesITG
CompaniesITG CompaniesITG
Companies
Support Team
Company focus on sales & operations
Strategic support at HQ level
© 2003 Alsey International 18
Building Fit: Organizational Processes
Alsey formulated 120 detailed micro-level guidelines on distribution of responsibilities, information and reporting:
Stages of major decisions
Distribution of responsibilities, information and reporting
Relationships between companies, HQ, ITG boards & fora
Work procedures, ITG meeting schedule & report templates
Shorter meetings & more concise written reports
Increased awareness of time budget management
Relative involvement of actors in decision-making
Together These Form a Comprehensive Fully Detailed Management Guide
© 2003 Alsey International 19
1 Sales2 New products & services3 Second-level recruitment 4 Organizational culture 5 Marketing plan 6 Marcom 7 Compound bidding 8 Training program 9 Cross-companies’ HR mobil 10 Companies’ structure 11 Strategy formulation12 New technology13 Mergers & acquisitions14 Compensation policy15 CEO recruitment 16 ITG staffing17 Annual investments 18 Non-budgeted investments
Max involvement of companies
Max involvement of HQ
Max involvement of Koç Holdings
Organizational Processes
Example: Overview of Guidelines onRelative Involvement in Decisions
© 2003 Alsey International 20
Organizational Processes
Decision/TaskResponsibilityReport toInformReceive information from
Shaping the philosophy, strategy and culture of the ITG
ITG PresidentKoc HoldingHQ, GMsEC, External Sources
Coordination with other PresidentITG PresidentKoc HoldingHQ- - -
Determine and present ITG’s goalsITG PresidentKoc HoldingVPs, GMsVPs, External Sources
Determine the annual goals and quantitative objectives of the VPs
ITG PresidentKoc HoldingVPs, GMsVPs, External Sources
Meet important customers under the request of VPs or GMs or directly
ITG PresidentKoc HoldingHQVPs
Determine the ITG PR policy and activities
ITG PresidentKoc HoldingVP marketingEC, External Sources
Represent Koc ITG to the media and on public affairs
ITG PresidentKoc HoldingVP marketingEC, External Sources
Prepare ITG’s investment plansITG PresidentKoc HoldingECEC, External Sources, GMs
Initiate mergers and acquisitions and lead the negotiation team
ITG PresidentKoc HoldingECEC, External Sources, GMs
Examples of 120 Guidelines on DistributionOf Responsibilities, Information and Reporting
© 2003 Alsey International 21
Building Fit: Organizational Culture
Employee empowerment, commitment, involvement & pride
Improved work atmosphere, self-image and open climate
Increased market awareness
New welfare activities, social events, library becomes pub at 18.00
Ethical code, social responsibility initiatives
95% signed the ‘psychological contract’, committing themselves to an active part in the change process
Regular employee use of change process electronic forum
© 2003 Alsey International 22
Step 5: Building Fit - Innovative Mechanisms for Involvement
Wide participation and involvement in:
CT and TFTs that managed and implemented the change process
New vision statement: ‘We will pioneer the e-transformation of our Customers, the Koç Group, Turkey, and become one of the leading Information and Communication Technology players of our region!’
Logo, jingle
Others: Mission, values, President’s speech, change process ceremonies, screen-saver jigsaw puzzle, news bulletins, dedicated intranet fora, internet radio, suggestion boxes
The Change Process Enabled Participation In Building The Corner-Stones of the Business
koc-jingle(vers1).MP3
© 2003 Alsey International 23
Building Fit: Innovative Mechanisms for Involvement
Greater awareness and communication through intranet portal
© 2003 Alsey International 24
Step 6: Monitoring Change: Organizational Culture (example)
Factors Bilkom Ultra TV KocBryce Biletix Bookin Turkey
GVZ Kangu. Kobiline Koc.Net KocSistem
Employees’ praising Information sharing Identification employees/company (values) Social climate (peer satisfaction) Cooperation within company Process/Performance fit Structure/Performance Fit Vertical communication Employees’ recognition ITG membership - Feelings Change process –Belief in success Change process- information quality Change process- utilization of information channels
Employee Survey Showed Strong Belief In Change Process, Identification With ITG & Employing Company
© 2003 Alsey International 25
Monitoring Change: Performance Criteria, BSC
Company performance criteria based on financial, HR, customer and internal process factors
Financial
Hardware
Software
Services
Total Sales
Cost of Goods Sold
Gross Profit
Sales & Marketing Expenses
General & Admin Expenses
EBITDA
Depreciation
Operating Profit/loss
Finance Expenses
Taxes
Net Income
Economic Profit
Sales growth year on year
Receivables days
Human Resources
Recruitment
Jobs filled from within the company
Training
Training new employees hours
Training experienced employees hours
Culture
Number of complaints
Number of suggestions
Improvement on the Survey results
Efficiency
Sales per employee
EBITDA per employee
Customers
Customer Satisfaction
Service call response time
Vendor/partner satisfaction
Market Share
Internal Processes
Employee independence
Inventory turnover
© 2003 Alsey International 26
Step 7: Impact- Best Practice Profitability Measures
$378,803
$75,302
Median Cross Industry Global Benchmark (MCIGB)
Koc ITG (before)
Revenue per Head
Income per Head
Koc (1 year after)
© 2003 Alsey International 27
Impact: Best Practice Profitability Drivers
Employee turnover
34.0920.87
Stability
Top 10% HR index
Bottom 10% HR index
Koc (before)
MCIGB
Koc (1 year after)
61.5034.90
Internal recruitment
© 2003 Alsey International 28
Impact: Best Practice Profitability Drivers
Competency generation and training
116.8735.02
Number of training hours for new employees (less than 1 year)
72.0013.40
Number of training hours for experienced employees
Top 10% HR index
Bottom 10% HR index
Koc (before)
MCIGB
Koc (1 year after)
© 2003 Alsey International 29
Impact: Best Practice HR Structure
HR expense per head
HR Headcount Ratio
1,447$
253:1
Top 10% HR index
Bottom 10% HR index
Koc (before) Koc (after)
140:189:1
MCIGB
© 2003 Alsey International 30
Key Lessons
1. Critical Role of HR
Alignment of HR system with company strategy
HR is key to flexibility, innovation, and speed to market
2. Strategic-Organizational-HR Fit
Career Development, Recruitment, Selection, Compensation, Training,
Performance Appraisal
Business Strategy
HR Strategy
HR Systems
Corporate Strategy
Performance Management
Vertical Fit
Horizontal Fit
© 2003 Alsey International 31
Key Lessons
3. Constant monitoring and testing of fit
Shows progress, allows adjustment
4. Four pillars method of diagnosis, fit, operation & measurement
Provides holistic evidence about organization
5. Cross-hierarchical participation in change process
Creates buy-in and stake in process
6. Innovative communications tools
Encourage and broaden participation
7. Continuous paradigm shift throughout theprocess and its implementation
© 2003 Alsey International 32
…And now Koc ITG is a reality
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