Canadian Management Centre's Training Blog

New Programs Make It Easier for Employees to Blow the Whistle

As reported by HRI, driven by companies looking to comply with Sarbanes-Oxley and by a growing conviction that encouraging whistleblowers is good for business, a small industry has sprouted for organizations that create software and that offer other services which make it easy for employees to report possible wrongdoing. A report in Inc. Magazine says that companies of all sizes are buying the software and that more and more private organizations, which are not covered by Sarbanes-Oxley, are also buying the software. The goal is to head off problems before they start by using employees "as an early-warning system," according to the magazine. One problem some companies discover is the plethora of complaints they receive. Fios, a Portland, OR, company that inspects computer equipment for information pertaining to lawsuits, installed one of the systems in 2004 and was swamped. Of the 30 suggestions in the first 18 months, only two were serious, but experts say the little issues cannot be ignored if the system is to work. (Inc. Magazine [Dahl], March 2006)

Ethics May Lead to Higher Market Values

As reported by HRI: An ethical corporate culture is good for the bottom line, according to a DePaul University study cited by ISR in its 2005 white paper Predicting and Preventing Unethical Behavior: Fixing Problems Before They Happen. ISR said the DePaul study showed that companies with a strong, public commitment to ethics had a higher market value when compared with organizations that adopted an ethics code and did nothing else and with corporations that had no ethics policy. Those with a public commitment to ethics had an added market value of $10.6 billion. Companies that had adopted an ethics code and did nothing else had an added market value of $8.1 billion. Those organizations that had no code had the lowest added market value - $3.24 billion. Another benefit of actively promoting good conduct is to produce more highly motivated and productive employees who are more likely to remain with their employer for the long term. (Best Practices in HR, April 15, 2006, p. 1)

Not Enough Potential Top Leaders Are in the Pipeline

As reported by HRI, "Organizations report a pressing need to develop or acquire their next generation of leaders," says Human Resources Management Ideas & Trends, using data from Right Management Consulting. Right Management's survey of U.S. HR managers at 168 organizations revealed that 77% of respondents "said that they do not have enough successors to current senior-level managers already working in their organizations." (Human Resources Management Ideas & Trends, January 25, 2006, p. 11)

Leaders Tend to Lose Jobs for Lack of Soft Skills

As reported by HRI, the reasons CEOs get fired have less to do with firms' financial performance than with the demonstration of soft skills, or lack thereof, and the board's resultant loss of confidence, according to Mark Murphy, CEO of Leadership IQ. CEOs tend to place a higher degree of effort on areas in which they are more skilled, such as finance and operations, and less time on soft issues, such as change management and customer relationships. Murphy suggests CEOs step out of the office and connect with constituents. In Leadership Excellence, Murphy writes, "Lack of execution is much more damaging to a CEO's career than lack of vision." Interviews with board members of 286 firms that had asked their CEOs to leave revealed that ousters centered around these five reasons (multiple responses were allowed): mismanaging change (31%), ignoring customers (28%), tolerating low performers (27%), denying reality (23%) and too much talk/not enough action (22%). (Leadership Excellence [Murphy], September 2005, p. 14)

Controllers May Find HR Expenses per Employee a Useful Metric

As reported by HRI, The calculation of HR function operating expense per employee allows corporate controllers to see how well HR's cost-control efforts are working without getting caught up in the details. The Controller's Report, an IOMA publication, suggested that such a measure may be an advantageous way for controllers to monitor cost-control initiatives. The formula - HR function operating expense divided by total number of employees - and its associated benchmark data is from Watson Wyatt Data Services. The operating expense figure should include expenses associated with compensation, benefits, staffing, employee relations and other standard HR functions, but should exclude organization-wide training and non-HR expenses such as payroll, security and mail services. The employee figure should include the average monthly headcount of both full-time and part-time employees but should exclude temporary and contract workers.

Published in 2006, the overall median HR function operating expense per employee is $1,250. The figure is higher in firms with sales under $100 million ($1,818) than it is in firms with sales from $100 million to $499.9 million ($1,105) and firms with sales of $500 million or more ($1,000). Following is the median HR function operating expense per employee by industry.

Human Resources Function Operating Expense per Employee, by Industry

Industry Median Nondurable goods manufacturing $1,523 Durable goods manufacturing 1,500 Insurance 1,413 Banking and finance 1,341 Utilities and energy 1,251 Services 1,105 Retail and wholesale trade 948 Health care 754

Source: Watson Wyatt Data Services

(The Controller's Report [IOMA], February 2006, pp. 8-9)

Few Companies Calculate the ROI of Their Incentive Plans

As reported by HRI, Although companies evaluate the return on investment (ROI) for just about every project they undertake, very few do the same for their incentive plans. One of the reasons may be that many companies view incentive plans, as well as compensation in general, as a cost and not an investment. Also, many companies do not redesign or update their incentive plans very often. A third reason is that the process is sometimes difficult to do. It can be hard to evaluate intangible results through financial analysis, and there can be numerous factors beyond pay that lead to improved performance in any given period

Some ROI evaluations can be easy. A sales incentive plan can be measured by the increase in sales in the period after the plan was implemented, omitting any increase obviously caused by other factors. Project incentive plans can be measured against deadlines and budget targets. When plans are designed to reward things like increasing teamwork or changing culture, the task proves more difficult. It can be made easier by including the idea of ROI measurement at the outset of the plan. Every plan has a reason for existence, and that is where ROI evaluation begins. Whatever the reason for the incentive plan, the company will need to know when that goal is achieved. The method used to measure that goal can also be used to evaluate the ROI. The key is that the design of any incentive plan should include an element that measures the return on the plan. (HR Magazine [Sammer], July 2006, pp. 83-86)

Where HR Professionals Believe They Excel

As reported by HRI, HR professionals consider their ability to deliver HR services, their technical proficiency in HR and their skills in change management as their highest-rated competencies, according to a survey of 108 HR generalists, specialists, managers, directors and vice presidents. The survey was conducted by Sunil J. Ramlall of the Department of Management at Minnesota's University of St. Thomas and summarized in the May/June 2006 issue of Performance Improvement. These HR professionals' self-assessments did not indicate strengths in accounting, marketing and metrics. The following table presents the mean ratings of various competencies on a scale of 1 to 5, with 5 indicating the highest level of expertise.

HR Professionals' Mean Self-Assessment of Competencies

Competency Mean Rating* Delivery of HR services 4.18 Technical competence in HR 4.13 Change management 3.95 Business understanding 3.87 Managing the firm's culture 3.59 Organizational development skills 3.39 Studying research to stay abreast of HR 3.21 Strategic contribution 3.20 Metrics 3.11 Reading journals to stay abreast of HR 3.09 Marketing 2.70 Accounting 2.65

*Scale of 1 to 5, with 5 indicating the highest level of expertise
Source: Sunil J. Ramlall

(Performance Improvement [Ramlall], May/June 2006, pp. 35-38)

If at First You Do Not Fail Part 4 of 4 A strategy for errors

Doing the right thing, in the right way, the first time. Wasn’t that supposed to be our goal? So how is it that purposely pursuing what might be considered a questionable path has gained attention as an innovation strategy? Turns out, the lessons learned from failure may be of more value than those learned from success. This is part 3 of 4 in this series.

A strategy for errors

Schoemaker and Gunther say that “smart mistakes” follow a process.
First, you should identify some of the commonly held assumptions
about how your firm ought to run. Then select which of those
assumptions are to be tested, and rank them based on their
importance to the company and confidence in their accuracy. Next,
create a strategy for taking an action the firm wouldn’t ordinarily
take (i.e., “make the mistake”), execute it and, finally, learn from it.

This series of entries are originally part of Canadian Management Centre’s research partner HRI’s Strategic Insight article written by Donna Bear. For the complete article visit www.hrinstitute.org Copyright 2006 Human Resource Institute

If at First You Do Not Fail Part 3 of 4 Dissecting and sharing what went wrong

Doing the right thing, in the right way, the first time. Wasn’t that supposed to be our goal? So how is it that purposely pursuing what might be considered a questionable path has gained attention as an innovation strategy? Turns out, the lessons learned from failure may be of more value than those learned from success. This is part 3 of 4 in this series.

Dissecting and sharing what went wrong

This series of entries are originally part of Canadian Management Centre’s research partner HRI’s Strategic Insight article written by Donna Bear. For the complete article visit www.hrinstitute.org Copyright 2006 Human Resource Institute

While companies are typically eager to celebrate success, they may
be reluctant to dwell on failures. Even though stories about why ideas
fail might be as valuable a source of learning for businesses as
stories about success, few, it seems, are shared. Failed companies
tend to disappear from the business landscape, taking their data with
them. Even successful firms that first tried an approach deemed
unsuccessful rarely research failures, instead focusing on the hows
and whys of their success. Without examining why ideas fail, though,
valuable lessons that might be learned are lost, according to Jerker
Denrell, assistant professor of organizational behavior at the Stanford
Graduate School of Business (Wagner, 2005).

General Electric Co. is an example of a firm that has taken its
best-practices sharing to another level by adding discussions of
failures to its business unit practices. The firm’s “imagination
breakthrough” (or “IB”) projects represent ideas with sales potential
of $100 million or more in a three-to-five-year time frame. A
conference call in 2005 brought together champions of eight “IB”
projects that didn’t make it (McGregor, 2006). Such dissection of
failures is an important step in examining chosen paths and
extracting lessons for the future.

Sometimes companies can find out from customers how they’re
failing. QuickBooks, the highly successful business accounting
program from software company Intuit, was strengthened after the
division sent some 500 employees to users’ homes in 2003 to see and
hear firsthand not only how the product worked but also how it didn’t
work for customers. Intuit founder Scott Cook recently recognized
“The Failure We Learned the Most From” with an award at an
organization-wide meeting (Kirkpatrick, 2005).

Even public failures can provide lessons to organizations on risk
recognition and crisis avoidance. The 9/11 Commission, for example,
examined the institutional failures that occurred on that day and then
stressed the need to make “the exercise of imagination” part of the
fabric of organizations. That is, organizations must be willing and able
to visualize future failures if they want to avoid them.

Scenario planning must look at various possible outcomes and not
focus only on the one that executives want to hear. The Columbia
Accident Investigation Board is another case in point. It warned that
remaining fixed on past successes can build unwarranted confidence
that thwarts challenges to conventional wisdom. In other cases, a
failure of communication is as much at fault as a failure of
imagination. Investigators of the New York Times reporting scandal
found the organization vulnerable because of “too much information
… locked in too few brains” (McGregor, 2005).

If at First You Do Not Fail Part 2 of 4 A culture of risk acceptance

Doing the right thing, in the right way, the first time. Wasn’t that supposed to be our goal? So how is it that purposely pursuing what might be considered a questionable path has gained attention as an innovation strategy? Turns out, the lessons learned from failure may be of more value than those learned from success. This is part 2 of 4 in this series.

A culture of risk acceptance

Not only is there more potential to learn from failure than from
success, but creative firms that encourage risks also experience
those failures and learn those lessons sooner, according to Harvard
Business School professor Amy Edmondson. The willingness to do
that is directly related to the environment and tone set by leaders.
A recent BusinessWeek article shared examples of how some
organizations were establishing such a culture (McGregor, 2006).

Coca-Cola Co. chairman and CEO E. Neville Isdell, for example, used
the 2006 annual shareholder meeting as a platform to reassure
employees and shareholders that he was willing to tolerate the
failures that may accompany risk-taking as the organization strives
to change the nature of its historically risk-averse culture. “As we
take more risks, this is something we must accept as part of the
regeneration process,” he explained.

The IBM research division, too, demonstrates its acceptance of risks
in the design of its performance evaluation program. The division
uses two evaluation timelines – a one-year evaluation on which
bonuses are based and a three-year evaluation that determines job
level and base salary. The longer evaluation period encourages
innovation risks and allows potential setbacks from those risks to be
absorbed.

This series of entries are originally part of Canadian Management Centre’s research partner HRI’s Strategic Insight article written by Donna Bear. For the complete article visit www.hrinstitute.org Copyright 2006 Human Resource Institute