Leading HR delivering competitive advantage_7 pptx

192 Cooperative Financial Services 10.2. CFS: Background This case study examines the issues associated with aligning ethics, employee engagement, and employer brand in CFS from 2002 until early 2009, in the run up to the subsequent merger with Britannia Building Society. Why is linking ethics, engagement, and brand so important? The Cooperative is undoubtedly one of the best known, and certainly one of the oldest, brand names in the United Kingdom. Formed in 2002, CFS is the group of businesses that includes The Co-operative Insurance and The Co-operative Bank including Smile, the online bank. In line with its origins in the cooperative movement, CFS is prominent in its claims to operate ethically, publishing, for example, an ethical stance whereby it clearly tells its customers who it will and will not do business with. 2 Since launching its ethical positioning in May 1992 it has succeeded in attracting customers who are concerned by the kinds of businesses their bank invests in. The values-driven foundations of the cooperative movement have also been important for attracting and retaining its employees, who have tended to be long-serving and loyal. Studies in the mid-1990s pointed to the differentiating aspect of the Cooperative Bank seeking to return to the values of its cooperative origins, and the positive effects on both customer retention and employee engagement. 3 In the last few years the organization has undergone major changes. CFS itself was created in 2002 bringing together insurance, corporate, retail, and online banking. Since then change has been constant as these organizations, previously sharing little except the “cooperative” tag but having widely diverse strategy, processes, culture, and structure, were merged into a recognizably coherent entity. The process was not conducted without pain, as restructurings in 2003, and again in 2007 and 2008, resulted in large-scale reductions in workforce; in the most recent, 2,500 employees left the organization. The latter restructuring took place, however, in parallel with attention being paid to the brand, both internally and externally, as CFS rediscovered its roots in the cooperative insurance and banking movement founded in the mid-nineteenth century in North West England. The detailed research for this chapter was conducted in 2007 and 2008 during whichtimewewereabletotrackthebusinessandHRlogics.Thechapter examines the issues associated with aligning ethics, engagement, and brand just prior to the significant merger with Britannia Building Society. The transfer of the business of Britannia Building Society to Co-operative Bank plc formed a strategic response to the credit cr unch. It is interesting to note as a postscript to this research that, perhaps contrary to what may be seen in some merger events, a similar business and HR philosophy linking these three issues clearly existed in both component organizations for several years before the merger, and will undoubtedly continue to drive HR strategy in the medium to long term. After the merger, the new Chief Executive of CFS, Neville Richardson, stated: Craig Marsh and Rob Woolley 193 Trust has become a scarce commodity in other financial businesses of late and we aim to provide a genuine alternative to those disillusioned with shareholder owned banks. Ours will be an ethically-led organisation, part of a parent company which rewards members and is completely accountable to them. In this chapter we will retrace the major milestones of the premerger change process in the original CFS businesses, as seen through the eyes of several key managers, including David Andersen, the former chief executive officer (CEO), and the HR Director. We will then investigate the role of branding and engagement as tools in managing business model change. 10.3. Business model change at CFS Bringing two organizations together in 2002 – the Cooperative Bank and Cooperative Insurance Services (CIS) – saw the beginning of a long period of consolidation which accelerated with the arrival of CEO David Anderson in 2005. CFS had been created as a holding company to bring the two organizations together, but by the time of Anderson’s arrival, it had been realized that the two entities could not really work together. CIS did not have any of the capabilities that would allow it to increase sales in the bank, or increase bank customers, or indeed sell banking products to CIS customers. The synergies that had been perceived as a strategic objective of the merger could not be delivered, and progress on change had stalled, especially in the Bank. David Anderson recalls a Board meeting about 6 weeks after his arrival, which established a broad strategy for CFS expressed in a purpose statement, a definition of why the business exists: “to be a growing pioneering Financial Services Business bringing benefits to customers, members and communities through focus on fairness, value and social responsibility.” As he says, you sense a lot of CFS values within that statement. With this clearly defined, the next step was quickly to develop an aim – what CFS needs to achieve: and their vision, thus defined, is still “to be the UK’s most admired Financial Ser vices business.” Having established this, the Board’s task, to use the terminology the Board adopted fairly early on, was to develop, according to the CEO: a target business model, a target operating model, a target culture model, and a target architecture model. and to establish financially what the business needed to do to sustain future growth. Five targets were established to make the vision concrete and to ensure 194 Cooperative Financial Services that, in 5 years, they would know what would have been achieved in pursuing the vision: The original CFS targets 1. Profit generation to create a sustainable business 2. Market-leading colleague satisfaction 3. Market-leading customer satisfaction 4. Market-leading social responsibility approach 5. Membership growth Only then did the Board – in the words of Anderson: work this through to the change plan through a process of iteration. The first part was working out the customer proposition; in essence this was to target, at least initially, the current customer base rather than going out and getting new ones. With this defined, the organization’s structure could be tackled. The change of this aspect of the business model was far from straightforward. As Anderson says, there had been: two or three different business models within the business – different value propositions, targeting different customers, and offering it in a different way, grouped by nothing but the co-operative name. In its original conception, the idea was to “turn the model on its side.” There had been two or three sets of management functions, classic organization “silos,” remnants of the previously separate organizations, and consequently too many costs and inefficiencies inherent in CFS. So one person was placed in charge of each of the functions and of the customer-facing segments; and although cross-business systems and regulatory mechanisms were not in place, “we worked through that,” says Anderson. The result was a single business model, albeit operating in different sectors, that was focused back from CFS’ target customers in terms of delivery of what they want; CFS was also clear on the capabilities they need to deliver the value proposition to customers – the product, the service, the levels of quality required, and the ethical positioning. This allowed the business to move on to widen the customer base to “conscience customers” in the larger Cooperative group – in other words, customers were clearly being targeted for their attitude rather than anything else. In the CEO’s words: segmentation is shorthanded by the conscience of the consumer. Craig Marsh and Rob Woolley 195 Key processes such as the core banking system were upgraded, involving “huge time and effort”; according to the CEO, the benefits of which would really only be seenin3or4years’time. The change was significant. As one example of the degree of change, in 2005, 80 per cent of the general insurance business achieved its sales through field advisers; payment and queries were made through 120 field offices with no possibility of changing policies on the phone. By 2007, 75 per cent of insurance sales were on the phone or via the web, the number of claims centers had been reduced to six, the system for managing claims had been replaced, and the customer base has two-thirds different from 2 years’ previously. As is often the case, the internal restructuring did not go entirely according to plan, however. A structure consisting of two key commercial parts of the value chain, one dealing with distribution and service, and one with sector management and marketing, did not work even though “it should have worked on paper,” according to Anderson, and it was abandoned in July 2007. It foundered on the back of a gap between the flexibility and autonomy needed to make it work and the command-and-control culture that largely existed within the senior team in charge. In the CEO’s words: If you have an organisation where everyone is good at doing what they’re told and not much else, then put them into a completely new structure and ask them to make up how it works, then it’s perhaps not that surprising when it doesn’t work. However, a handful of people were brought in from outside, including a new HR Director, who were used to working in a much more flexible way, and the difficulties created by the twin structure were largely overcome. The next stage of the process of change was dependent on two or three key commercial decisions to be taken (the subsequent merger with Britannia was one of these), so as a result planning horizons were relatively short; but some broad strategic principles were quite clear. Financially, the target was not to become the biggest player but to achieve sustainable growth; and the ethical positioning was also strongly defended. So for instance, no customer-facing roles were to be sourced from outside the United Kingdom. Executive activity was largely focused on streamlining cross-business processes – transactional work – referenced in the Annual Report as a commitment to strip out £100 million of costs by June 2008. But their attention would soon return to the delivery of results for CFS. 10.4. Ethics, engagement, and branding at CFS We have already described how initial attempts at restructuring CFS internally were brought low by the inability of a group of people experienced in one operating style to cope with entirely different demands. From the beginning of the change process, the “people” element was identified as the key to making the 196 Cooperative Financial Services change work. CFS was in a unique position with its very strong heritage – at least from the former cooperative bank – of ethical treatment of all stakeholders (described in the annual report as its “principles of value, fairness and social responsibility”). 4 A key challenge was to “square the circle” – maintaining the credibility of this ethical positioning w hile making some very tough commercial decisions, including – in the summer of 2007 – outsourcing a substantial part of its back-office functions, and announcing 1,000 redundancies across the business. In principle, the CEO was in no doubt that there was no dilemma to be resolved, even though he a dmitted it might initially seem that way: we do require a lower return on capital than our competitors as a cooperative. Now we can either spend that on more expensive ways of doing things, or better return for our customers although there is potentially a dilemma, if you believe that’s what’s required for the people who remain – it’s either one thousand or it’s ten [thousand] – it’s not been so hard. Cathy Wilcher, the HR Director until 2008, was primarily engaged in the change process. She defined the objective as “changing the organization from a paternal one to a performance-driven organization– with values.” Recognizing, measuring, and driving high performance became the key priorities over the last 2 years for CFS. When the new structure was created in 2006, CFS had two broadly different approaches to managing its people. CIS, the Insurance a rm, was “command and control”; dictated by qualifications and time serving, with little room for initiative or creativity, highly structured and hierarchical. The Bank, which was ethically driven and had already experienced change and downsizing a few years earlier, was nevertheless paternalistic and slow moving. Senior members of the HR team in CFS who were interviewed at the time by Center researchers were in little doubt about the extent of change necessary in attitudes. An analysis of their responses showed that they identified eight existing challenges: The eight challenges at CFS 1) Risk aversion “The company is risk averse, the company is going through hard times but you’re still being paid bonuses, and still your distribution curve across the four scales – nearly everyone’s achieved.” 2) Abdication of responsibility for people issues: “They don’t know what they’re doing with their people unless HR tell them via an email. So from my perception I was saying “you’re the managers, you’re leaders, why aren’t you doing this?” They were saying we need to have people performance as part of their Craig Marsh and Rob Woolley 197 objectives. So they’ve not had that. They’ve not seen anything to do with people as an integral part of their role.” 3) A style of management considered to be “nice” rather than fair: “People like their immediate boss – probably because he’s worked for him for years, they’re mates etc and he certainly doesn’t manage performance.” 4) Communication of key messages was skewed: “The strategy isn’t clear, we don’t tell people on the street, we’re not open, we put a spin on communications.” 5) Levels of accountability and responsibility were wrongly positioned in the hierarchy: “Current thinking is that we as a business are performing one tier below where we should as a world class organization; our exec are performing as a tier 2, not doing strategic stuff, and our tier 2, they own up and they say they’re probably firefighting.” 6) The company’s matrix structure did not work well: “The matrix structure really just means we can blame someone else, we don’t have the ability to manage it from the top down.” 7) Individual performance was not well managed or measured, nor linked to overall targets: “We don’t tie performance back to business performance, and there’s not enough done for those who are disengaged either to get out or do something about it, we’re providing training for those who want to do something about it so the link to reward needs to be far stronger as well.” 8) There was a substantial amount of “disengagement” present in the company: “33 per cent of our people are disengaged and 20 per cent of those have no intention of going anywhere.” Much of the data for this evaluation of the state of CFS derived from two surveys – ECHO (Every Colleague Has an Opinion), an attitude survey, and OCI, an off-the-shelf organizational climate survey implemented by an external consultancy. The data from these two surveys provided the material for the first part of the People Program rollout, described below. 10.5. Making CFS receptive to change The first part of the answer to this challenge was to invest heavily in the leadership of the organization, which was a relative novelty for CFS at the time. At precisely the same time as a thousand redundancies were being implemented in the summer of 2007, CFS was training a similar number of managers in an extensive program of basics in people management and leadership – every individual who had a responsibility for people went through the course. This was not however before 17 of the 40 managers at “tier two” – those reporting into the Executive Team – were “exited” from the organization because they were not considered to be capable of making the required change. According to Wilcher: “they were selected between 198 Cooperative Financial Services the Board and the Executive, and there were members of the Executive among the 17. A very small number of people knew what was about to happen For a small minority that the investment required to get them to change [is too great] – we haven’t got the time. So it had to happen.” A second part of the answer was to conduct a collective objective-setting exercise in which the top team agreed their objectives in common, shared these with the next tier who went through a similar process, and on to the 800 managers, team leaders, and supervisors through the rest of the company who met in a hotel in Manchester in a series of facilitated seminars. There was a great deal of resistance at first, from those who believed this to be a private, one-on-one affair, to those who simply did not agree with the process of setting any kind of objective, let alone collective; but Wilcher observed a gradual buy-in of the senior members of the organization which filtered down to the lower levels. A “tipping point” was met, as managers who were also experiencing the leadership training “got the message,” understood the process, and became evangelists. Members of the Executive Team began to appear voluntarily at the lower-level managers’ seminars, sending a strong message of commitment, to the extent that those who were not present began to lose credibility for their absence. Central to the implementation of the second aspect – performance development – is a “vitality curve” forced distribution system for evaluating performance. The system was int roduced in steps; in 2006 /07 performance was differentiated for the first time, but no one was force r anked (a term CFS did not use). By mid-year the ranking process kicked in, linking to a differentiation in pay and bonuses by the end of the year. Cathy Wilcher commented: ‘You’ve got 100 people, if the curve of performance looks like that, we want you to force rank your people into 4 boxes – 50 in ‘achieved’, 10 in here, 10 in here, and 30 in here. You might say all my people are fabulous, but we’ll say you have to distinguish “fabulous.” ’ There is no doubt that these steps, especially the focus on performance, engendered a great deal of resistance at all levels. As the HR Director says, “there was a long period when everything was being challenged.” There was considerable thought invested into preparing the project however. As Wilcher noted: Before launching the 360 we got some actuaries to look at it and tell us all the things people would find wrong with it. And then we did it, we had the answers ready. Everything we did we trialled, we picked apart. 10.6. Signaling the capability transformation needed Support from the highest level was crucial to the success of the “people program,” especially in these difficult early days of the transformation, before new attitudes had entrenched themselves in the organization. The transformation of CFS’ business model was framed in a cross-organization initiative called the “Summit Craig Marsh and Rob Woolley 199 Program.” The Summit Program comprised of a series of projects extending into all areas of the business and was oriented to achieving CFS’ long-term vision of being the “United Kingdom’s most admired financial services business.” The transformation was conceived as a long-term plan, with key review points established for the end of 2007 and the end of 2009, each with a broadly defined set of outcomes. The 7 projects contained in the Summit program include: 1. Building a better financial platform and banking system responding to FSA requirements and customer expectations; 2. Outsourcing of the administration of Life and Savings, where a lot of the processes are manual, to Capita – affecting some 700 CFS employees; 3. Understanding the customer better, being able to tap into their lifestyle and offer them information relevant to the stage they’re at – advanced customer systems management; 4. “Target Operating Model” – how best to structure the organization to best meet the customer proposition rather than a historical structure that’s grown up over time – what is the typical size and shape of a financial services organization? 5. “Customer front end” all about providing people in the call centers the full customer story. We want to create an “umbrella” of technology that enables them to say “I see you’ve got car insurance with us, do you know you can also have ” 6. Making sure CFS is 100 per cent compliant to FSA regulations in Insurance 7. The People Change Program – moving the business to a high-performing culture. When the Summit Program was originally designed at the end of 2006, there were only six strands – those related to redesigning business processes and structures. Anderson originally intended that people issues would be an enabler of all the other projects and that it would be unnecessary to have a separate project for people transformation. The other six programs all have clear people-related implications – outsourcing, introduction of new technology, job changes, and so on. It became clear, however, that the performance and leadership agendas needed separate attention, time, and resources in order – in the words of Wilcher – to “create a high performance culture”; and so the “people program” was added some 6 months after the initial launch. Anderson reflects on the importance of the “cultural shift” to the success of CFS’ transformation: I think that the policies that emerge from the HR space they really shape the culture of the organisation and if you don’t get the culture right then organisations may get short term success but they generally don’t sustain it it seems to me the ones that do well in the long term are the ones that have the HR strategy most integrated into business strategy. 200 Cooperative Financial Services For the CEO, the shape of the organization for the future, the nature of the people, where they come from, how they are developed – these questions, he believes, are as important to CFS’ strategy as the question about which customers do they want. It is also clear that he has placed the HR Director in a central role in the nature of this transformation, attributing the work in transforming the performance of CFS’ employees directly to her “confidence and authority.” Equally as important, however, is the collective nature of responsibility in his senior team for re sults.He expresses particular pride in the fact that his leadership team now spends considerable amounts of their time understanding the culture of the organization using tools like OCI: “demanding their own bespoke surveys and devoting a lot of their own leadership time with their own teams developing responses to what it’s telling them” as evidence of the success of the “people program.” The head of the CFS University, Rob Woolley, who led the effort on the leadership agenda, points out that this shift in attention on the part of the leadership team to the management of people and culture cannot be overestimated: if we could have created a category below bottom quartile, we would have been there – there was a kick up the backside to say “we are nowhere near where we need to be to be a modern high performance driven culture.” Anderson and Woolley both argued that it will take 3 or 4 years to embed the change in attitude and culture so that it would become “part of the DNA rather than something that’s done to them.” So what steps were taken at CFS to “ embed” this cultural shift (prior to the later merger with Britannia)? 10.7. Embedding cultural change through leadership behavior and employer branding Questions about corporate reputation and employer branding are examined in Chapter 11 when HR at McDonald’s is analyzed, but for CFS the issue of branding was absolutely to the fore of their HR work. The core CFS values underpinning the brand were “value, fairness and social responsibility”; these, or something very like them, had existed as long as the cooperative movement itself. The values allowed colleagues, members, and customers to reconnect with the founding principles of the cooperative; they were a key differentiator in the market, and were used to create a powerful link between the company’s business model, and its people agenda. The Summit program, the overarching framework – and metaphor – used by CFS for delivering the change had four stages to it. 1. Clarify; 2. Catch-up; 3. Compete; and 4. Conquer. Craig Marsh and Rob Woolley 201 According to Woolley the company was then at the “compete” stage with the work complete on vision, strategy, and establishing a platform for moving forward. The “compete” phase had two main elements to it with regard to the organization’s people strategy: leadership and employer branding. A third strategic element to this phase, not dealt with here, was the introduction of a new banking platform, the largest investment the company had ever made; The CEO publically declared that the £170 million investment was a waste of money-without effective leadership. A first key element of the change centered around leadership. Having spent around 12 months getting managers used to being measured on their deliver y, and completing ranking of performance linked to differentiated rewards – the first time this had happened for the majority of the population – CFS then reoriented the expected outcomes of its leaders more toward “how” they deliver performance, as well as the results themselves. Up to 40 per cent of the 2008 performance bonus award to the top 170 leaders was based on their style of leadership. According to Rob Woolley: We’re getting to the stage now with the leadership part that we’re saying to people “we’re not just going to measure you on your sales perfor mance, we’re going to measure you on your engagement, on your people and your leadership styles.” Engagement “scores” were a key element of this measurement process. Woolley was also keen to pursue measurement of what he refers to as “good citizenship,” the willingness shown on the part of leaders to demonstrate their commitment to CFS as a whole, and the three values in particular, by becoming more visible across the organization and not merely “in their own silos,” as he puts it. The performance management rating of senior leaders has driven by a substantial, unified, moderation exercise from top down. The Executive Team at the most recent half-yearly review debated rankings from across the company – thus demonstrating their collective responsibility across the business – and changed them where they felt the ratings did not reflect the true nature of performance, an approach which could not have happened 12 months previously in the old “silo” mentality where senior managers would have fought to push “their” candidates for top r atings at the expense of others. Now, the exec, had a collective, and consistent, view of who the leaders were across the orga nization who exceed expectations; and thereby an agreed understanding of what “good performance” looked like in each area of the business. In order to measure the all-important behavioral elements – including “good citizenship” – an indicative, rather than mechanical, approach was used supported by a 360 assessment. In 2007, the 360 had been purely developmental; negative ratings were excluded to avoid alienating managers for whom this was a huge change. In 2008, however, managers were to receive their true scores, and the evaluation would be underpinned at senior level by a target score for improvement [...]... didn’t get through the selection process that this entailed At the time of writing, a new HRIS was in the process of being implemented implying a substantial change in HR delivery to a self-service model The department’s service is currently delivered Craig Marsh and Rob Woolley 205 through a Business Partner role supported by four Centers of Excellence (see the discussion in Chapters 2 and 3 on HR Structuring)... brand, and leadership agendas); 2) operations (delivering eventually a self-service HR administration and employee advice line) and business partners; 3) reward, organization development, and employee relationship; and 4) resourcing The Heads of the Centers of Excellence report to the HR Director along with three senior Business Partners A key challenge for the HR unit as they support the change process... the customer 10.9 Changes to the HR structure at CFS The HR team at CFS itself underwent substantial changes in the 2 years even prior to the merger with Britannia Building Society, including a new HR Director (promoted from within, an important message to the organization about developing in-house talent), the recruitment of new senior team members, and a revised HR department structure Former team... to apply consistency and conformity to the delivery of HR services supporting the strategic direction toward a unified branding and value offering to the customer, described above The new IT platform is an enabler, but this move to consistency also represents a change in the role of the HR Business Partner (HRBP) Traditionally the agenda of the HRBP had almost entirely been dictated by the needs of... Strategic imperative: Having got the privilege of having a seat at the top table, the real judgment concerns how HR uses this seat Leading HR requires courage to get the business to invest in potentially disruptive strategies and to be measured against this Corporate social responsibility without HR is just Public Relations A poor employer brand reduces the return on investment both in targeted recruitment... qualifications through McDonald’s in 2009: 6,000 through the GCSE-level apprenticeship scheme championed by the UK Prime Minister Gordon Brown, and another 3,000 through the company’s Shift Management Diploma announced in September 2008.13 In March 2008, when commenting on the apprenticeship initiative, Jez Langhorn drew attention to the scalability of these programs – a factor that applies to much of their HR. .. appeal HR processes have to be linked up around the engagement theme, but there also needs to be a range of “pull mechanisms,” that pull employees into the process of engagement Must-win battle: In an information-rich digital world HR needs a different mindset Consumers are listening to new channels, and are acting and changing their behaviors and purchasing power based on what people are saying HR cannot... that emerge from this chapter 1) HR needs to position itself against the corporate reputation and employer branding activity taking place inside the organization 2) To do this effectively HR must understand how it can move away from those activities associated with traditional employer brand management, toward a reputation management approach rooted in a trust-based HR strategy 3) This is aided by the... of cross-disciplinary teams, of which HR are one part (but with an important and guiding voice) 4) A degree of courage on behalf of the HR Director, and a high level of transparency in the practices, becomes necessary if organizations pursue, as in this chapter, a disruptive communication strategy aimed at changing the nature of trust 5) In turn this requires that HR provision meets a number of important... platform upon which to build the corporate reputation (how an organization is seen as time goes on) Events at McDonald’s contain important lessons about Leading HR The issue faced by the McJobs label was a problem of association amongst the external population HR had to build a strong degree of identification amongst the workforce to tackle these associations For Graeme Martin and Susan Hetrick, in their book . business achieved its sales through field advisers; payment and queries were made through 120 field offices with no possibility of changing policies on the phone. By 20 07, 75 per cent of insurance sales. the HR Director along with three senior Business Partners. A key challenge for the HR unit as they support the change process in CFS is to apply consistency and conformity to the delivery of HR. how HR uses this seat. Leading HR requires courage to get the business to invest in potentially disruptive strategies and to be measured against this. Corporate social responsibility without HR