7

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Effectiveness in Policies and Practices

Creating the Strategic Portfolio of Talent Programs

Take a close look at where your HR organization spends its time, how it reports its results, and the guiding frameworks for its strategies, contributions, and plans. Very likely, you will find that they all are organized around programs and practices. In organization after organization, we find that leaders inside and outside the HR function gravitate toward programs and practices. It is almost a fixation. Discussions about HR strategies often begin with questions such as these: There is an aging workforce, so what programs are we using to retain our workers or to capture their knowledge before they retire? We need to be technologically up-to-date, so what programs are we implementing to improve our brand with the bright kids coming out of college? We don’t have sufficient bench strength, so what succession-planning program can you build?

Sound familiar? We find that when organizations start to incorporate talentship, one of the greatest hurdles is that their leaders are impatient for HR to explain what’s going to be done. Lacking a decision science, HR leaders, in the paradigm of client service delivery, are often all too eager (even relieved) to avoid the difficult discussions about impact and effectiveness and to jump right into designing programs. As we have seen, competing for and with talent will increasingly require that organizations embrace those difficult discussions before turning to the more familiar task of designing HR programs and practices. The essential evolution means recognizing the importance of policies, practices, and services but requires extending the focus to include the quality of decisions.

Still, policies and practices are a vital and important element of a mature decision science, as the prominence of policy areas such as accounting, advertising, and sales attests. In this chapter we address that element of the HC BRidge framework, connecting policies and processes to the talentship decision science. The policies and practices element of the HC BRidge framework reflects the programs designed to create and support culture and capacity. This includes policies and practices inside and outside the HR function. This is shown in figure 7-1.

Policies and practices are familiar ground for organizations and their HR functions, so we won’t attempt to cover the technical delivery of HR policies and practices in detail. There are many professional textbooks and associations devoted to the important work of improving the quality and delivery of practices and policies related to talent and organization. Instead, we’ll use this chapter to describe often overlooked decision factors for policies and practices where talentship suggests that organizations can learn a lot from other decision sciences. The questions we address here have proved useful in helping organizations refocus the professional activity of their HR functions toward a more decision-based approach. We focus on the three questions in figure 7-1.

FIGURE 7-1

HC BRidge framework: Policies and practices

Necessary and Sufficient Conditions

One of the most frequent frustrations we encounter from business leaders is that talent decisions are often presented as choices about whether and how to implement one or more HR practices or techniques. For example, HR strategy is sometimes an array of technologies, such as recruitment advertising, Internet technical training, or a new approach to assessing performance or setting merit-pay levels. These all may be fine programs, and they often are individually valuable. Even in organizations where the connection between HR and strategy is recognized and valued, it is surprising how discussions about programs focus mostly on the program budget (usually how to do the program at a lower cost) and on which programs it will be spent. There is often too little focus on the conditions required for success or on the principles that underpin how the program or practice will achieve its results.

More mature decision sciences approach this differently. For example, finance may automate the process of gathering information for the chart of accounts, but the discussion with business leaders typically focuses less on whether to automate and more on how doing so will help the manager make better decisions. This may be done by using automation to organize financial information so that business leaders get precisely the information they need to understand which accounting factors affect important outcomes such as asset utilization.

When marketing implements customer relationship management programs, it often incorporates the principles of customer relations and ensures that the new program provides leaders with not only the data but also a framework to enhance vital customer relationship decisions. Marketing focuses on the necessary conditions that must exist for the new program to work and on the sufficient conditions that the program must achieve to be successful. For example, the success of a new customer relations database requires that the users understand the principles of effective customer relations and that they be held accountable for achieving specific customer outcomes.

This distinction between the program and the requirements for its success is nicely captured by a mathematical concept known as “necessary and sufficient conditions” that apply to HR.¹ A set of necessary and sufficient (N&S) conditions comprises both the necessary requirements for an outcome and all sufficient conditions to satisfy an outcome. A simple example from plane geometry is the N&S conditions to have a square. You need to know that there are four sides, that each is a straight line of equal length, that they connect at their endpoints, and that one angle of connection is a right angle. No geometric figure other than a square satisfies all these conditions, and you have to know all of them to be certain you have a square. Notice that you don’t need to know that the other three angles are ninety degrees because that condition is satisfied by the others.

This idea is also quite common in engineering. There is only one necessary condition for an object to fly. The net lift (from whatever source) must exceed the weight. There are many different ways this N&S condition can be created. With a blimp the lift comes from gas that is lighter than air and uses gravity as the lifting force. Birds use flapping wings. Airplanes use differential air pressure created by the difference in speed between the air flows above and below a wing surface. The key here is that you can define the N&S conditions independently of the techniques used to create the conditions.

We find that when organizations begin to frame their conversations about talent programs and practices in terms of N&S success conditions, they uncover ways to be far more logical, productive, and systematic than when the conversations are primarily about techniques. For example, when considering investments in employee staffing, it is not unusual for organizations to frame the debate in terms of whether one technique or another is worth the investment. Examples include whether to purchase a selection test that more validly predicts job performance or to tap a recruitment source that may provide more applicants.

Yet, without a shared idea about the N&S conditions, there is little basis on which to make decisions. How much is greater test validity worth? Is this a situation where greater validity makes a difference? Is the increased validity worth a possible reduction in the quantity of applicants who won’t put up with the test? Is it possible that the better applicants might not accept our offers? Such questions are often lost in the debate over whether the technique is more valid or whether the recruitment source taps better applicants. Too often, the logic is something like “We are not getting enough high-quality employees, so we need to do something. Recruiting from sources that have more high-quality applicants sounds like a good thing, so let’s do that.” Yet it’s quite possible that the problem isn’t having enough good applicants but getting the good ones you do have to accept your offer! It’s like debating whether to implement a program to reduce the costs of ordering more raw materials inventory before you know whether the ordering costs are too high. It may be that you’re just holding on to too much inventory or not pricing appropriately.

N&S Conditions Applied to Talent Acquisition

Talent acquisition provides a good example of the distinction and its power to improve decisions. We find it very useful to see the talent acquisition process through the metaphor of a supply chain for any important resource. Talent acquisition’s goal is to have the appropriate quantity and quality of employees. Various staffing techniques can increase prediction validity, the number of applicants, and the percentage of accepted offers. Every one of these things can be helpful, but they are not always helpful, and they are not equally helpful. For example, if you can’t get good applicants to accept your offers, then tapping recruitment sources with better-quality applicants doesn’t help you much. This is an example where the decision science principle of optimization applies once again.

Figure 7-2 depicts the staffing process as a series of stages through which talent flows and that ultimately define the conditions that must be met. Like a filter, each stage eliminates an additional subset of the original group. In the diagram the talent flows in the top row show the results of the filtering process, beginning with a potential labor pool that is winnowed through recruitment and selection down to a group that receives offers and then is winnowed further as some accept offers and remain with the organization. The staffing processes in the lower row show the activities that accomplish the filtering.

Notice how the diagram is similar to standard supply chain diagrams that show the stages through which a key raw material must move (such as extraction, transport, storage, etc.). The N&S conditions of the staffing supply chain are the quality and quantity of talent that is optimal at each stage. HR organizations often develop diagrams like this, called “staffing process maps,” through HR processes or Six Sigma analysis. Usually, these analyses are used only for reducing the costs or speed of each process stage. This is a lost opportunity, because these very same maps can help analyze a process for its N&S conditions, with very significant insights. Let’s look at each stage of the staffing process to illustrate this.

Building and Planning. The first process, building and planning, influences the number and quality of individuals who might potentially become qualified candidates. It includes forecasting labor force trends and talent demands, as well as direct intervention to increase the population qualified for future talent needs. For example, the American Business Collaboration, a corporate partnership, produces middle school science and technology camps that serve five hundred kids at ten camps in cities in the United States and overseas. The program is funded by IBM, Texas Instruments, and Exxon Mobil. Boeing is exploring possible expansion of a popular summer science camp for first- through twelfth-graders near Huntington Beach, California. AT&T backs three science and math camps in Detroit and Chicago, and Intel sponsors three science camps in Colorado and Oregon. As the Wall Street Journal reported, year-round mentoring for campers reinforces lessons learned: “With pink-streaked hair and body piercings, IBM software engineer Janel Barfield fit right in at the Austin, Texas, middle school cafeteria she visited last year to see the technology camper she was mentoring. When the girl confided that a relative had laughed at her dream of becoming an astronaut, Ms. Barfield said: ‘Girl, he doesn’t know what he’s talking about … You’d make a great astronaut.’”² There’s no guarantee that every student in these camps will apply to one of the sponsoring organizations. At this stage of the pipeline, the goal is to increase the population of those that might.

FIGURE 7-2

Staffing as a supply chain

Recruiting. The second process, recruiting, gets individuals in the labor pool to apply to the organization. It includes recruitment advertising, job fairs, and online job posting, and it increasingly encompasses less direct activities, such as company product or service advertisements that create an attractive image for job candidates. Recruiting should strive for optimal quantity and quality rather than the largest number of applicants or the highest qualifications.³ The most effective applicant pools may be smaller (if a high percentage of them take the offers) and may even be less qualified than others (if the organization can train them after they are hired). For example, one of the biggest challenges in online recruiting is that online ads that generate a large quantity of applicants may require much higher costs of resume screening.⁴ The key is to optimize the higher quantity against the organization’s ability to use that higher quantity, based on its own unique requirements and integrated with its other programs.

Screening. The screening process decides which applicants should be rejected or hired immediately. Often screening is seen as weeding out the unqualified, but when labor is in short supply, screening can identify high-quality candidates who can bypass the selection process and receive immediate offers. So optimal screening must balance the benefits of quick hires and low cost against the long-term costs of making a poor hiring decision through too-low standards or missing “diamonds in the rough” with standards that are too high. These are subtle and important considerations, yet screening activities are often measured only with regard to cost and time or by the number of candidates who survive the initial screen. An interesting variant is to screen using temporary work. In India, which is facing an increasingly acute shortage of professionals, temping becomes a means to screen candidates and in effect becomes a fast-track apprentice program.⁵

Selecting. The next process, selecting, determines which of the pre-screened applicants will receive offers. Is it always worthwhile to increase the validity, or the relationship between selection techniques and performance? When selection is seen in the context of the talent acquisition pipeline, high validity is a necessary condition only if there are enough applicants and if the applicant pool varies enough in quality to make it important to find the good ones. For example, consider the situation when an organization recruits college graduates from regional campuses where the quality or fit varies a great deal but applicants have strong regional ties and are likely to accept an employment offer in the area. A highly valid test of management skills can be very important in finding the stars. On the other hand, when recruiting at a top business program, there is little to be learned from a such a test; increasing the rate of acceptances, however, may be very pivotal.

Offering and Closing. The process of offering and closing defines and makes the offer. The focus is often only on whether a high proportion of offers are accepted (i.e., the yield rate). The pipeline approach described here suggests that a more complete perspective would also examine whether the highest-quality applicants accept or reject offers and whether the organization is forced to make offers to candidates who are marginally qualified because of severe shortages. The offering and closing process often begins long before the final offer is presented. When striving for racial and ethnic diversity, it is interesting to examine whether the signals about organizational diversity that candidates encounter during their site visit may affect their later willingness to accept employment offers.⁶

On-Boarding. The final process, on-boarding, establishes new hires in their position and retains them. On-boarding is often evaluated by whether it removes barriers, such as a new hire not having all the equipment he/she needs to do their job, or if new hires received necessary information such as pay and benefit policies. The pipeline framework reveals that the N&S conditions should reflect retention and productivity: How long must employees stay to justify the investment in getting them to join? Can we optimize by reducing some investments early in the pipeline and making up for them at this later stage through training or motivation?

N&S Conditions for Development

The principles of optimization and N&S conditions also apply when considering outcomes in the realm of individual capacity. For example, consider how decisions about development are often approached. It is not unusual for such decisions to focus on learning or training techniques. In fact, many textbooks on training divide the training process into “doing the needs analysis,” “implementing the learning experience,” and “evaluating results.” This is a useful way to organize the decision to invest in one or another development program.

That approach can be enhanced, however, by incorporating the N&S conditions that must be created in the learner. One such framework was created by David Peterson and Mary Dee Hicks of Personnel Decisions International.⁷ Their framework divides these characteristics into five conditions, as displayed in table 7-1.

Consider how differently the logic and decisions about learning occur under the two different approaches. In a traditional model, if learning outcomes don’t materialize, the focus is often on whether HR failed to do a thorough needs analysis, provided a poor learning experience, or didn’t evaluate results correctly. In contrast, using the decision framework in table 7-1, an organization could measure and compare business units on their performance on each of the learning elements and then determine which units are high or low on each of the five necessary conditions. Suppose certain learning outcomes didn’t occur in one particular unit but were achieved in other units. Suppose further that in the unit that did not achieve the outcomes, employees were equally prepared (insight and motivation) but reported fewer opportunities and rewards for using their learning in their work (real-world practice and accountability).

The HR organization has some influence over the opportunity for real-world practice and accountability, but these are typically much more influenced by leaders within the business units. The N&S approach enables a richer conversation that first examines learning based on logical and scientific principles and then frames the solution in terms of the decisions and actions that are affected both inside and outside the HR function.

TABLE 7-1

Necessary and sufficient conditions for individual development

Development condition (in learners)	Learners must …
Insight	Know what they need to develop
Motivation	Be willing to invest the time and energy required to develop themselves
New knowledge	Know how to acquire the new capabilities required
Real-world practice	Receive and use opportunities to try their new skills at work
Accountability	Internalize their new capabilities to improve performance and results
Source: Mary Dee Hicks and David B. Peterson, “The Development Pipeline,” Knowledge Management Review July–August 1999.

N&S Conditions as a Decision Foundation

N&S conditions aren’t only useful for the talent acquisition pipeline and the development pipeline. We have found that N&S conditions exist for virtually all talent and organization processes such as succession planning and compensation. In organizations we have worked with that have adopted the N&S approach to their processes, we see a marked change in conversations about key policies and practice—from an exclusive concern with new techniques (tests, recruitment ads, etc.) to a greater emphasis on the conditions that each policy and practice must meet.

When such conditions are articulated in each of the functional areas of HR, opportunities for stronger synergy emerge. For example, if an analysis using the talent pipeline reveals the managers that are good at predicting new hires’ future value, then an organization could consider altering the rewards program to allow those managers to earn the right to make special hiring offers (e.g., an unusually big signing bonus or a salary offer beyond the usual range for this type of job) for candidates they consider particularly worthy. The N&S conditions for a reward system now integrate with those for the staffing system.

This approach is akin to more mature decision sciences. For example, the finance function first determines a set of N&S conditions and principles that define a well-managed business unit in terms of money, such as cash flow and asset management. Financial management discussions occur within those frameworks, and accountability rests where decision making makes the biggest difference. For example, a manager may not like the results of the cash-flow analysis, but he or she would seldom consider blaming the finance department for poor cash-flow results. Rather, the finance function is accountable for the decision principles and frameworks and for assisting managers to make better decisions. We foresee a future in which decisions about talent and organization programs and practices are approached with similar rigor.

A Portfolio Based on Synergy

Earlier we showed that human capacity requires capability, opportunity, and motivation to be in a synergistic balance. Similarly, policies and practices require synergy and balance. Research suggests that integrated combinations of HR practices are often key to creating culture and capacity.⁸ This is often called “internal fit” or “internal alignment.” Yet it is amazing how often we see this principle violated in organizations. Classic examples of overlooking fit include pairing individual performance incentives with organizational design and training that emphasize teamwork and coordination. Individual incentives can discourage cooperation if they motivate internal competition. Why invest in team-based designs and training only to discourage those effects with too much emphasis on individual rewards? When policies and practices are developed in the HR functional silos and considered only individually, optimization across policies and practices is difficult.

Focusing on Optimization, Not Just Maximization

A decision framework emphasizes optimization, not just maximization. Too often, organizations strive to maximize the returns from each program separately. A large number of approaches exist to calculate the ROI on programs such as training, compensation, staffing, and work-life balance.⁹ These approaches provide a useful logic, but too often they consider only one program or practice at a time. A mature decision framework shows when more is not better, even when it comes to the ROI from individual HR practices. The key to success is often in combining practices so that the total return is maximized, rather than pushing only one program to its fullest capacity. Investors achieve maximum returns by emphasizing the synergy of a portfolio of investments, not by trying to achieve goals through only one type of investment. In the same way, organizations need to carefully combine different programs and practices to balance their respective advantages and disadvantages. Synergy matters.

This means that measuring and tracking the effects of investments in talent and organization programs and practices becomes more complicated. Reporting the ROI of one program at a time will generally miss important synergies. Emerging research is developing statistical methods that can capture the effect of configurations, or sets of practices.¹⁰ One conclusion from this research is that the logic for creating the sets must be much more rigorous, which is why a decision science is so important. Once again, we see that it is often a lack of clear logic that prevents better measurement and decision making, not a lack of measures.

Improving Benchmarking

Understanding synergy between HR programs and practices and their alignment with strategic pivot-points is essential to avoiding some of the most common mistakes that occur in benchmarking. HR practices are often adopted because they resemble the practices of industry or business leaders.¹¹ One of our favorite examples is the extraordinary simultaneous decision by organizations in virtually every industry, competitive environment, and global region to implement a forced-distribution performance management system. Not only did they all simultaneously decide to require that employees be given performance ratings that distributed employees across the performance range, but they even required leaders to rank subordinates so that 10 percent fell in the bottom category (i.e., employees who needed to improve or be managed out), 70 percent in the middle (i.e., satisfactory employees), and 20 percent in the top (i.e., high-performing employees, those with high potential).

Imagine if such a phenomenon had occurred in the discipline of finance and such a large variety of organizations had decided to adopt a debt and equity structure based on 70 percent stock, 10 percent debt, and 20 percent cash! The motivation for such a widespread decision would have to be groundbreaking research and insights about capital markets and the organizations’ performance.

In HR the reason was not that every organization had done a deep strategic analysis of how the forced-distribution performance management system fit their strategic goals. Rather, their business leaders had read the book Jack: Straight from the Gut, by Jack Welch.¹² That book vividly describes Welch’s conclusion that the 20-70-10 system helped transform GE in the 1990s. What is often missed, however, is that at the same time GE was using this system, so too was Enron, as recounted in the book The Smartest Guys in the Room.¹³ Were organizations that adopted this approach benchmarking GE or Enron?

The answer lies in synergy. GE had decades of history and experience building leaders who were highly skilled and motivated at assessing their talent. The company had a long history of performance-based rewards, coaching, and feedback and had developed deep organizational processes for both formal and informal communication about performance and values. GE devoted a great deal of time and energy to those processes at all levels of the organization for many years before introducing the 20-70-10 system. With such a history, the 20-70-10 system had a supporting array of other talent practices that complemented it and made it effective. Many organizations have, to their regret, learned this lesson the hard way—by implementing the 20-70-10 system without such supporting processes—and found that it did more harm than good.

The talentship perspective suggests that by carefully analyzing where the pivot-points are and what specific capacity and aligned actions and interactions are necessary, organizations can capitalize on the power of a synergistic and integrated portfolio of HR practices. More important, rather than simply adopting certain combinations (such as high-commitment work practices) because they have proved to be generally effective, organizations can potentially develop very specific practices that reflect their own unique competitive position in the market for their offerings, as well as in the market for talent.

Policy and Practice Synergy at Boeing

We have seen how talentship and HC BRidge reveal opportunities for more sophisticated and targeted talent policies and practices at Boeing. An interesting example of synergy is how Boeing’s practices reach beyond its traditional boundaries.¹⁴ Recall Nagase, the Mitsubishi designer whose pivotal role was to understand Boeing and help the company integrate Mitsubishi’s intellectual and technical contributions into wing design and production. He spent 25 percent of his career as a Mitsubishi employee, located at Boeing’s plants in Seattle. Thus, Boeing’s programs and practices—such as career planning, training, and development opportunities—created a synergistic effect on his development, career path, and motivation. We often think of talent and organization policies and practices as they apply to those employees within the organization’s boundary, yet here is an example of a synergistic career plan for a Mitsubishi engineer that created precisely the kind of boundary spanner that Boeing needed.

Such talent outcomes often occur by chance. Talentship encourages more systematically identifying this kind of sophisticated human capital development. How many other potential Nagases exist within Boeing or its partners? How good is Boeing at identifying them and then creating the array of programs and practices that will systematically nurture them? Is Boeing doing this quicker and more precisely than its competition? Answers to those questions for Boeing, and similar questions for your organization, mean the difference between competitive success and failure and will increasingly characterize how leaders approach talent and organization decisions.

Competitive Advantage: Where Talent Supply Complements Talent Demand

Talentship reveals sophisticated opportunities to integrate talent supply and demand, just as portfolio theory and market segmentation revealed sophisticated opportunities to integrate supply and demand for financial and marketing resources. Classic supply-demand principles predict that markets set prices where suppliers charge what buyers will pay. Supply goes up as the price increases (witness the scramble to build or bring on line refining capacity as oil prices rise), and vice versa. Demand goes up as the price drops, and vice versa. Supply and demand curves are typically thought of as lines that intersect at one price. In real markets the supply and demand curves are thick, rather than thin, lines. So the intersection of supply and demand may actually be a range of prices, providing room for organizations to strike unique bargains.

Disney faced this kind of market for land in Florida. For decades the land had been bought and sold with one purpose—growing citrus fruit. Disney arrived in the market with special organizational resources that could make Florida land much more valuable—not as citrus groves, but as resorts and theme parks. Disney’s demand curve for Florida was higher than the demand curve for citrus growers because Disney could generate more value from the land. Disney understood its demand for land, so it could purchase Florida land at or near citrus grove prices and create value using it as a theme park.

A logical understanding of demand reveals opportunities to affect the supply of a resource in ways that often are hard for competitors to duplicate. In the 1960s Disney acquired twenty-eight thousand acres of Florida land, an area roughly twice the size of Manhattan. Disney wanted to create a buffer zone around planned parks to avoid the traffic congestion and development that had quickly surrounded Disneyland, in Anaheim, California. Disney also realized the land might someday be used for a leisure-based community. Because Disney had such a clear and (in the 1960s) unique strategic demand for the land, the company secured arrangements for the supply of land that were uniquely valuable. In 1985 the Wall Street Journal reported that:

In 1967, the Florida legislature, in a series of five acts, obligingly endowed Disney with powers normally reserved for county governments. Through the new, but unpopulated, municipalities of Bay Lake and Lake Buena Vista, and through the specially established Reedy Creek Improvement District, the company was authorized to float tax-exempt bonds, to establish its own zoning and to exercise police and eminentdomain powers. The legislature also gave the district specific authority, so far unexploited, to build an airport and even to generate power by nuclear fission.¹⁵

Such land-supply arrangements are of little value to a citrus grower but essential to a parks developer.

Unique Supply and Demand for Boeing Engineers

Talentship reveals unique ways to integrate talent supply in the Boeing example. As Boeing aligns its talent and organization resources to the strategic pivot-points of global collaboration, it dramatically redefines its demand for engineers, as we saw earlier. The traditional engineering role emphasizes technical engineering, but Boeing, more than other competitors, requires that engineers facilitate cooperative relationships with global partners.

This insight allows Boeing’s programs and practices to uniquely affect its supply. Boeing might go to universities to encourage engineering students to take courses in facilitation and negotiation or offer bonuses to engineering applicants who have these skills. Boeing’s selection systems might include interviews, assessments, or tests that probe not only technical engineering skill but also the ability to work with and for global partners and to facilitate cooperation and trust. Performance management systems might tap the impressions of Boeing employees as well as those of key global partners. Boeing might add rewards and recognition based on the quality of engineering designs and on the quality of relationships. These practices will increase the supply of engineers who are most motivated and skilled to perform the pivotal aligned actions and interactions.

Boeing’s strategy requires it to use suppliers for traditional parts assembly and increasingly for design responsibility for certain subsystems—on a global basis. Boeing can afford to compete more aggressively for engineers that are good global facilitators by offering better rewards and an environment where they get lots of opportunities for such facilitation. So more of the engineers with a passion for global facilitation will start to apply to Boeing, and Boeing will be able to identify them better than competitors.

This also holds for Boeing’s internal market for talent. Boeing can provide internal career opportunities for its existing engineers to develop such skills. Boeing will now have a unique career path that creates engineers who are uniquely adept at collaboration and facilitation. Such development opportunities will in turn attract engineer applicants who are passionate about that role, creating a self-reinforcing cycle.

Traditional selection, development, performance, and reward criteria for aerospace engineers might not emphasize these factors. Boeing will not accomplish the necessary talent changes simply by broad-based investments in generic competencies, such as cooperation, open-mindedness, global mind-set, or coordination. Every Boeing engineer is not in an equally pivotal role, and some should receive much greater investments than others. The only way for Boeing to target those investments where it can have the greatest effect is to develop the capability to have a deep, logical, and analytically rigorous decision framework that reveals precisely where the pivot-points are and how to optimize them.

Building HR Practices from a Foundation of Trust at Starbucks

Trust is a term that is frequently invoked by organizational leaders but rarely well integrated into a true strategic advantage. Yet something as soft as trust is the basis for a sophisticated strategic synergy between talent demand and supply strategies at Starbucks.

Try a Google search on “Starbucks and human resources,” and you’ll get a raft of stories extolling how the global purveyor of coffee, music, and other products has achieved awards for being a great place to work and how it is unique in providing an array of benefits and high pay to its full-time baristas (the employees in the stores who serve the coffee) and to its part-timers as well.¹⁶ The typical explanation has been described many times by reporters, academics, and consultants: Starbucks depends on good performance from its frontline workers, it needs to attract the best candidates for that work, and it needs a lot of those workers to fuel its massive growth. So Starbucks carefully selects its employees and provides the highest pay and benefits, massive amounts of training in coffee and customer service, and incentives for employees to stay.

This all sounds pretty simple, so why doesn’t every multilocation retailer invest like this in frontline talent? The answer is that this model works for Starbucks precisely because of synergy between the company’s business model and the way it approaches talent supply and demand. In fact, it might not be a good idea for other competitors simply to copy Starbucks. Talentship guides us to see how Starbucks has unique strategic pivot-points that make these investments particularly appropriate, using strategy analysis that goes well beyond the simple logic that frontline employees matter and therefore all companies should attract and retain the best by investing in them.

In location after location, Starbucks remains one of the most attractive employers for the talent pool of potential baristas. Dave Pace, executive vice president, Partner Resources, for Starbucks, expresses a fundamental value: “We don’t treat our employees well because we are a successful business; we are a successful business because we treat our employees well.” At Starbucks, it’s cultural.

Starbucks’ Strategy Pivot-Points: Growth and the Experience

For Starbucks, two key strategy pivot-points are essential to understanding why its commitment to fundamental cultural values is so vital: (1) growth and (2) the Starbucks experience. Regarding growth, Starbucks’ competitive advantage depends in part on its scale. A core promise to its shareholders is continued price appreciation, and that requires massive growth in new stores as well as in-store sales. Consider the scale of Starbucks in April 2006: “Our total store count now is over eleven thousand on a global basis, and we’re opening approximately five stores per day, every day, seven days a week, so it’s an unbelievable growth machine that we have to try and feed and keep up with…There’s over one hundred thirty thousand partners that participate in the business around the world, and we’re hiring something above two hundred partners per day, seven days a week as well.”¹⁷

Starbucks also must provide the experience that brings customers back (often over eighteen times a month). Product quality is important, as it is for every coffee retailer, but for Starbucks a key pivot-point is the distinctive and compelling in-store experience. With each passing day, Starbucks creates more products of greater complexity and adds new product types to the array of things that its store employees must know (e.g., music, movies, Wi-Fi, etc.). At the same time, it requires its store employees to understand and maintain an experience for customers that makes them feel valued and trusted. Baristas decide when to redo a customer’s order if it’s not satisfactory. They are expected to know the names of regular customers. Moreover, they are encouraged to put their own personal style into creating the in-store experience.

Translating Growth and the Experience into Starbucks’ Talent Strategy Based on Trust

Putting the pivot-points of growth and a unique experience together requires supporting processes that ensure consistent standards across a far-flung domain of stores, where part-time employees can make or break the value proposition. How do you ensure consistently high standards? Many food retailers do it by standardizing the job to the point where a person can’t do it differently no matter how hard they try. For example, fast-food restaurants often have pictures of their items on cash register buttons to help cashiers who may not read English well. Numbering the frequently ordered menu items and combinations also simplifies ordering. In fact, such practices have an interesting effect on customers who can be heard ordering a combination of a hamburger, fries, and a diet drink by saying, “I’ll have a #1 with a large diet, please.” McDonald’s has taken this concept to a high degree of specialization and geographic reach, as this New York Times item shows:

Like many American teenagers, Julissa Vargas, 17, has a minimum-wage job in the fast-food industry—but hers has an unusual geographic reach. “Would you like your Coke and orange juice medium or large?” Ms. Vargas said into her headset to an unseen woman who was ordering breakfast from a drive-through line. She did not neglect the small details—“You Must Ask for Condiments,” a sign next to her computer terminal instructs—and wished the woman a wonderful day. What made the $12.08 transaction remarkable was that the customer was not just outside Ms. Vargas’s workplace here on California’s central coast. She was at a McDonald’s in Honolulu. And within a two-minute span Ms. Vargas had also taken orders from drive-through windows in Gulfport, Miss., and Gillette, Wyo.¹⁸

This is an example of what we noted earlier, removing variation from a role to reduce the risk. McDonald’s removed drive-up order taking from the role of food server in their restaurants. In terms of our performance yield curve, such actions make the food server a flat-sloped talent pool with little downside risk and little upside performance potential. This is not inherently wrong or right. Rather, it is a choice that should be made based on logical strategic considerations.

Starbucks takes a different approach. The baristas are not only pivotal; they become more pivotal every day. And the slope in their yield curve includes some pretty big consequences if they make a mistake. Starbucks’ unique business pivot-points require that the company can’t standardize this kind of job performance, so it must rely on something less tangible but potentially much more powerful. A culture of trust and employee empowerment.

A core element of Starbucks’ value proposition to customers is trust. Customers trust Starbucks to deliver high-quality products and a high-quality experience across a huge array of stores and products. Talentship reveals that this customer value proposition provides a way to achieve Starbucks’ key strategic pivot-points: high service standards with explosive growth. The challenge posed by Howard Schultz, the chairman of Starbucks, to Dave Pace is to grow big while staying small.

The vital pivot-point in Starbucks’ culture, which most analyses of Starbucks’ success overlook, is one that Dave Pace has on the very first slide when he talks about the Starbucks’ approach to its human capital. Pace frames his discussion about HR strategy at Starbucks around one concept: trust. Virtually every organization says that trust is important, but what sets Starbucks apart is that the company approaches trust with a deep and precisely logical perspective on how it aligns talent and organization with strategic pivot-points.

It is no accident that the personalities and quirks of Starbucks’ baristas are the subject of blogs and human interest stories. The Cincinnati Enquirer featured a story about Elizabeth Saunders, a mezzo-soprano opera singer, trained at the University of Southern California and the University of Cincinnati’s conservatory of music, who belts out customer orders in operatic form. “Singing orders came out of necessity, she said. The professional opera singer said a year ago when she started working for Starbucks she noticed yelling out orders strained her voice. So she asked the manager if she could sing them. Sure, he said. And so the performances began.”¹⁹

What does trust have to do with this? As Dave Pace puts it:

I describe this like playing the world’s largest telephone game, where one person tells something to the person next to them, they tell the person next to them, they tell the person next to them, and you work your way around the table. Then you see if what comes out at the other end is what was actually said. And there’s usually quite a bit of distortion. The challenge for us is, in order to build and sustain the culture that we have in the organization, we have to take somewhat of a similar approach where we tell our existing employees about the culture. They have to tell others, and those others have to tell newer people, and then suddenly the new people are the ones that have to tell other new people.

Tapping the Hidden and Apparent Talents of Starbucks’ Baristas

Achieving massive scale while maintaining the experience means allowing frontline employees the freedom to bring their unique talents to the task. It means seeing beyond the standard job descriptions of coffee servers to realize that the talent and organization resource includes a variety of hidden capacities among the baristas that make the Starbucks experience so compelling and so consistent and yet achieved in such different ways.

Frontline employees at Starbucks must have the capability, opportunity, and motivation to understand what the high standards represent and creatively achieve those standards in their own ways. The typical analysis of Starbucks notes that baristas are encouraged to experiment and produce new product ideas. That’s certainly an aligned action that goes beyond the standard coffee-server job description. Starbucks takes the idea of creativity to a new level, however, when it shows that even operatic singing is a valued and legitimate way for its frontline employees to contribute.

Aligning Starbucks’ Programs and Practices to Create Synergy

Dave Pace notes the importance of recovery in maintaining trust: “We used to have pockets on our aprons, so our conclusion was that people were sliding money into those pockets. The reality was it involved a very small number of people. Pockets were removed from the aprons as a solution to this. We sent an unbelievably conflicted message with this to our frontline partners, and we heard about it. About a year and a half ago, we announced that we were bringing back pockets, and you would have thought we had given everybody a $50,000-a-year raise because it was that important for our frontline partners.”

Seen through this lens, the logic for the array of programs and practices that Starbucks provides its frontline workers is much clearer. It is also much clearer why this approach works for Starbucks but might not work for others. A fast-food retailer whose business model is built on standardization and process control would probably find a population of opera-singing servers more of a bane than an advantage! Thus, these deep insights about strategy pivot-points and aligned actions have clear implications for the practices and programs designed to create capability, opportunity, motivation, and culture at Starbucks.

For Starbucks, providing health insurance for its frontline workers conveys that the company can be trusted to take care of them if things go wrong. Providing the same pay and benefits to part-timers and full-timers communicates that everyone is a trusted member of the family and should help each other deliver for the customer. Starbucks provides very in-depth training on its products. A story on Tea & Coffee Trade Online describes it in the words of a Starbucks partner who is training another:

Training initially begins with what I would like to call “Starbucks University.” Many were ready to get behind the bar and experience hands-on training immediately. So, when I handed them a large spiral book and told them they had six hours to complete the sections, I often received looks of confusion and concern, much like when a teacher hands his students a pop quiz. Each section of the training manual was divided into sections that provided an in-depth description of the responsibilities required of all baristas. A written test was given after each section was completed to ensure the partner’s understanding. Usually, a new partner can take two days just finishing the book before they ever touch a cup!²⁰

Providing in-depth training in product processes and the essentials of the coffee product conveys the message that it is important to understand the vital fundamentals, in part so that frontline employees understand where innovations are consistent with those fundamentals and where they are not (it’s important for the opera singer to know that belting out orders is consistent but that making the cappuccino differently from standard is not). Starbucks’ performance reviews offer the possibility of careers to progress from the store to the executive offices. The company can do that because of the quality of in-store talent it attracts.

This practice is also essential to the portfolio of practices because with massive growth comes increased demand for another pivotal talent pool: store and regional managers. Starbucks needs thousands of store and regional managers, but not just for the generic manager role. Because of Starbucks’ strategic pivot-points of growth, scale, and trust, it must create managers who can effectively nurture the delicate balance between high standards and discretion. There is nothing in the standard job description of a barista that includes opera singing, but it is precisely that capability, and the savvy of the store manager to nurture and feature it, that provides Starbucks with some of its most potent competitive distinctions.

Disney, Williams-Sonoma, and Starbucks are similar in that their culture has been defined by the founder and reinforced from the top. For example, every year Williams-Sonoma has a conference in Arizona where it brings its managers to catch them up on the business’s development. At the conference, a highlight is the ceremony for the Catch the Spirit Award given to associates who caught the customer service spirit of founder Chuck Williams. It recognizes the best of the best and provides an implicit challenge of who will be next year’s award winner. Award-winning associates wear a Catch the Spirit pin on their apron.²¹

The Starbucks example focuses on culture and trust, but the basic analysis elements are the same as for Disney, Boeing, and Williams-Sonoma. The key to understanding how to invest in programs and practices lies in understanding the vital pivot-points in talent and organization, which are revealed through a logical analysis of the strategic pivot-points that drive sustainable strategic success. When organizations logically connect talent and organization to strategy, they find unique positions where they can compete for and with talent in a way that competitors simply can’t duplicate.

Conclusion

Effectiveness extends the logic of the talentship decision framework and the decision science principles of optimization, segmentation, and pivot-points to decisions about policies, practices, and organizational design. Understanding these connections sets a high bar for such choices. It reveals uncharted strategic opportunities that often require big changes in how HR and organizations approach their decisions. It is no longer sufficient merely to design and implement programs and practices in functional isolation. Identifying pivot-points makes it clear that a synergistic combination of policies and practices is required to create the necessary change.

Organizations frequently assert that they have integrated and coordinated HR programs to support their strategies. Too often, what this means is that their investments in programs and practices can retrospectively be connected to broad and general strategy statements. In contrast, effectiveness translates insights about specific pivotal roles into the specific pivotal policies and practices that will enhance execution where it matters most. Effectiveness analysis is an antidote to the common practice of spreading HR investments equally among everyone and to the tendency to jump to one element of human capacity (such as capability or motivation) as the answer to all problems.

It also provides a powerful way for organizations to find unique competitive positions in the supply and demand for talent, where the synergies between their business models and their talent requirements reveal powerful unique offerings to attract and retain the talent they need.

Finally, effectiveness reveals an exciting role for functional specialists in the HR organization by extending beyond today’s focus on HR processes and programs to take on a role as the teachers and developers of the fundamental decision principles about human behavior and organizational effectiveness.

As organizations get better at applying talentship, we will see far more specificity, logic, and integration between how they analyze and respond to talent and organization questions of supply, demand, and strategy. Much as the quality of advertising and sales depends on a good brand strategy, the quality of talent and organization policies and practices will rely on good strategies that integrate impact with effectiveness. Those strategies will be integrated on principles of necessary and sufficient conditions, synergy, and market uniqueness.