Author: Patrick Kiger

The view from his window gives David Lewis, CEO of Stamford, Connecticut-based human resources consulting firm OperationsInc, a pretty good sense of the discomfort that his employees are experiencing from rising gas prices. “My office looks out upon three gas stations,” Lewis says. “I watch the guys climbing up ladders with poles, changing the prices every week.”

Lewis allows two of his 25 employees to work from home, and another two are able to use public transportation to get to clients’ work sites. But for the remaining staffers, who live in distant suburbs, there’s no real alternative to an increasingly expensive daily round trip of as far as 70 miles by car. Each upward tick in prices at the pump makes Lewis a little more nervous about losing hard-to-replace talent to job opportunities that offer a less costly commute. “My big­gest concern is that somebody is going to walk in and say, ‘I’m quitting because I can’t afford to keep coming here,’ ” he says.

Lewis isn’t the only employer who’s noticing that for the American workforce, gasoline prices are reaching a tipping point. With the cost of regular unleaded hovering around $4 a gallon nationwide, the cost of filling the tank is eating up so much of workers’ incomes that many are finding themselves in financial crisis, compelled to make painful and humbling cutbacks in their lifestyles simply so that they can afford to drive to work each day. Research shows that workers’ stress over gas prices is actually harming their productivity, and it’s leading them to re-evaluate their career priorities as well. Recruiting consultants say workers increasingly are turning down job offers that might require a longer commute, and many are now looking for a job closer to home, even if it doesn’t involve a salary bump or professional advancement.

45% Percentage of employees who have fallen behind on their finances because of gas prices

The potential impacts of these shifts have U.S. companies scrambling to find ways to ease commuters’ pain. Roughly half of employers have instituted programs and benefits to assist employees, ranging from providing ride-sharing databases on corporate intranets and free shuttles from public transit stops to offering compressed work­weeks that reduce the number of trips from home, ac- cording to a recent study by Challenger, Gray & Christmas, a Chicago-based nationwide executive outplacement firm. Others, such as Lewis, are reimbursing employees for some of their gasoline costs or even contributing some of the cost of buying or leasing a more fuel-efficient car.

Corporate HR leaders and consultants say that no single remedy works for everyone, and that an employer should evaluate data about workforce commuting patterns, staffing needs and cost-to-benefit ratios before embarking upon a program. While any such effort requires some financial commitment, experts say that investing in commuter assistance can provide companies with a significant strategic advantage when it comes to retaining and competing for talent.

So Lewis decided to help out his employees. He gave an American Express card to everyone in his operation who drove to work, and allowed them to charge up to $100 a month to pay for gasoline purchases. “It was easy to set up,” he says. “And people seem to have really appreciated it. It doesn’t cover all their commuting costs, but they don’t expect that. This gives them a little more breathing space. It costs us an extra [$20,000]-$25,000 a year, but fortunately, we’re in a business that even in this economy is doing very well, so we can afford it.” Lewis’ company may actually come out ahead on the deal, considering that the program’s cost is a fraction of the replacement cost of an experienced HR consultant, which can exceed $100,000.

How high fuel prices hurt workers, employers
    High gasoline prices are a huge problem in a nation long accustomed to getting to work by car. U.S. government data shows that nearly nine in 10 Americans drive to work, with nearly eight in 10 driving alone. And those daily commutes can be lengthy because they’re based upon population distribution and workplace locations that remain from an era of cheaper fuel. The fortunate ones, who commute five miles or less each way to work, amount to less than a third of the workforce. Twenty-two percent travel six to 10 miles each way, while 27 percent travel 11 to 20 miles and 23 percent cover more than 20 miles each way. Two percent of workers are what the U.S. Census Bureau calls “extreme commuters,” spending 90 minutes or more on the road each way daily.

39% Percentage of employees who have cut back to a lesser standard of living because of gas prices

Recent studies create a stark picture of the discomfort caused by fuel costs among workers. A June Gallup survey found that nationwide, 11 percent of Americans say the high price of gas has left them with little or no disposable income and/or wrecked their family budgets, with 9 percent saying they are hurting financially. A study released in May by Florida State University management professor Wayne Hochwarter, which examined the plight of 800 full-time employees who drove an average of 15 miles each way to work, showed an even higher level of distress. Hochwarter found that 45 percent have fallen behind on their finances because of gas prices, and 39 percent have been forced to cut back to a lesser standard of living.
Thirty percent are considering cutting back on food, clothing and medicine to keep up.

The researchers have news that’s nearly as bad for their employers. According to Gallup, 15 percent of Americans say they can no longer afford the cost of driving or commuting to work because of fuel costs. Hochwarter’s study of long-distance commuters found that one in three would quit their job if they could find one closer to home.

Fortunately, most don’t seem to have followed up on that threat—at least so far. But companies already are seeing the impact of higher gas prices on corporate recruiting. While commuting costs once were a deterrent only for lower-wage employees, the expense of a lengthy drive from the nearest suitably posh suburb is starting to cause even job candidates in the $150,000-$200,000 range to think twice about making a career move. In the recent study by Challenger, 34 percent of companies said they’ve had job candidates turn down offers because of the commute.

30% Percentage of workers considering cutting back on food, clothing and medicine because of gas prices

Paradoxically, even when job candidates want to switch to a job in another region with a shorter commute, they sometimes have to nix the move because prospective buyers for their old homes are deterred by the cost of driving to work from there. “People in the Phoenix area, where we’re based, are really stuck,” says Mickey Matteson, an account executive for Recruiter Relocation, a firm that helps job candidates settle in new locations. “If you want to take the bus to work here, you’d need to get five transfers and walk a half-mile in the heat. We’re seeing deals not come together because of this.”

Beyond that, stress from fuel prices is combining with a tough economy to threaten workforce productivity. Hochwarter found that workers stressed out about gasoline prices tended to be “less attentive on the job, less excited about their work, less passionate and conscientious and more tense.”

“What I see is that people are just worn out from this,” Hochwarter says. “They see no end to this—they hear the news media talking about five, six, seven dollars a gallon in the future. Worse yet, this is happening at a time when corporate profits are down and nobody is getting the 4 to 5 percent raises of the past, which might have helped them to keep up. Instead, they’re falling behind and struggling financially, and they’re thinking, ‘The company isn’t stepping up and helping me out. The days of me busting my butt for my employer are over.’”

84% Percentage of workers who expect their companies to institute measures to remedy rising commuting costs

By the same token, workers clearly are looking to employers to do something about the problem of rising gas prices. A survey released in June by Opinion Research Group found that 84 percent of employees expect their companies to institute measures to remedy rising commuting costs. Fifty-one percent wanted the opportunity to work from home, and 42 percent wanted their companies to provide allowances for gasoline, as OperationsInc’s Lewis has done.

What companies can do
    The escalating crisis is compelling many employers to rethink the traditional benefits boundaries and reach out to help employees with commuting costs, as they already do with needs such as health insurance and child care. Challenger reports that 57 percent of the companies it surveyed say they’ve already implemented at least one program—often several—to help ease the pain at the pump.

While telecommuting from home is widely touted as the answer to gas-price woes, employers don’t seem to be embracing the concept. Only 14 percent of the companies in the Challenger study allowed employees to work from home at least one day a week. It’s not a practical solution for everyone, anyway, because by even the most optimistic estimate, 60 percent of workers still have jobs that have to be performed on site, according to a 2005 study, “Telework Adoption and Energy Use in Building and Transport Sectors in the United States and Japan,” by H. Scott Matthews and Eric Williams.

Instead, the Challenger study found that 23 percent of companies are allowing their staffers to work a compressed workweek, such as a schedule of four 10-hour days, to reduce the number of trips they need to make. An additional 20 percent are helping organize car pools for employees, and 18 percent are subsidizing the use of public transit.

“[Employees] see no end to this—they hear the news media talking about five, six, seven dollars a gallon in the future. … They’re thinking, ‘The company isn’t stepping up and helping me out. The days of me busting my butt for my employer are over.'” —Wayne Hochwarter, Florida State University management professor

Which of these measures is best? HR consultants, academics and transportation experts counsel that there’s no one-size-fits-all solution to the problem of commuting costs. A program that’s effective at one company may not be right for another with different logistical challenges or geographical distribution of its employees. And it’s likely that an employer will have to offer an assortment of commuting benefits to meet the needs of a diverse workforce.

“The fundamental thing we’re trying to do is to get companies to offer a choice,” explains Phil Winters, a program director at the University of South Florida’s Center for Urban Transportation Research, which recognizes employers with its Best Workplaces for Commuters awards. “It’s not enough for a company to just provide a free parking spot. They’ve got to be willing to help people who want to take the bus, or car pool, ride a bicycle to work.”

Experts say that before doing anything, a company should gather and analyze an assortment of data about its workforce, including employees’ commuting patterns and the economic impact that high fuel prices are having on workers. It’s also important to assess the transportation options that are available in a particular area, including public transit agencies with which a company might be able to partner to offer fare discounts or subsidies.

It also might be a good idea to survey employees and find out what sort of commuter assistance they favor. Florida State’s Hochwarter notes that when the Florida government asked its employees how they felt about switching to a four-day workweek, most favored it, but a significant minority were strongly opposed.

“It turned out that it threw a wrench into some people’s child care arrangements,” he says. “For them, it created more problems than it solved.”

“We had trouble filling jobs for housekeepers, nursing attendants and others because they had come from far away and it cost too much.” —Joe Cabral, chief human resources officer, North Shore-Long Island Jewish Health System

North Shore-Long Island Jewish Health System, a regional network of 13 hospitals with 38,000 employees, went through a careful planning process 18 months ago in an effort to stay ahead of the curve on commuting expenses. “Our situation is kind of complicated,” says chief human resources officer Joe Cabral. “Our employees tend to come from within a 25-mile radius, but we’ve got some outliers. Probably about 80 percent of our people were driving to work, because the way that public transportation in Long Island is set up made it impractical for them to use. We also had the problem of having two hospitals in affluent areas where it was too expensive for some of our staff to live. We had trouble filling jobs for housekeepers, nursing attendants and others because they had to come from far away and it cost too much.”

Cabral’s team devised a multifaceted plan. One initiative was a free shuttle bus that traveled inside the 25-mile radius and connected the 13 hospital sites. To help those outside that area, the health system is setting up a second shuttle along the Long Island Expressway that will pick up employees at park-and-ride sites at the far end of the region. To assist those who still needed to drive, the health system partnered with the New York Metropolitan Transportation Council and the New York state Department of Transportation to create a ride-sharing program that allows hospital employees to schedule their commuting trips online. Lastly, North Shore-Long Island Jewish Health System expanded the compressed workweek option that it already offered to nurses as a recruiting inducement, offering the schedule to physical therapists, respiratory therapists and operating room technicians.

Some employers even have managed to turn the problem of gas prices into an opportunity. One example is Ener­NOC, a Boston-based energy management company that has made commuter-friendliness—and environmental awareness—a significant part of its employment brand. The company deliberately located its headquarters in pricey downtown Boston rather than out in the suburbs, which makes it possible for all but a handful of the company’s 300 employees to get there via the region’s extensive public transit system. To help those few who need to drive to work, EnerNOC offers to pay an additional $100 a month to anyone who buys or leases a gas-electric hybrid car.

“We have several folks who are taking us up on that,” says executive vice president David Samuels. “The important thing is that we’re giving everyone the chance to make responsible, cost-efficient choices.”

Workforce Management, August 11, 2008, p. 1, 22-29 — Subscribe Now!

In its culture reinvention process, Crouse chose to utilize the Baldrige performance-excellence criteria as a framework. Here are its seven key areas of focus, adapted from the Institute of Standards and Technology’s Baldrige National Quality Program Web site
 

1	Leadership:How senior executives guide the organization and how the organization addresses its responsibilities to the public and practices good citizenship.
2	Strategic planning: How the organization sets strategic directions and how it determines key action plans.
3	Customer and market focus:How the organization determines requirements and expectations of customers and markets; builds relationships with customers; and acquires, satisfies and retains customers.
4	Measurement, analysis and knowledge management: How the organization manages, analyzes and improves data and information to support key processes and the performance management system.
5	Workforce focus: How the organization enables its workforce to develop its full potential and how the workforce is aligned with the organization’s objectives.
6	Process management:How key production/delivery and support processes are designed, managed and improved.
7	Results: The organization’s performance and improvement in its key business areas: customer satisfaction; financial and marketplace performance; human resources; supplier and partner performance; operational performance; and governance and social responsibility. How the organization performs relative to competitors.

Workforce Management, March 17, 2008, p. 22 — Subscribe Now!

It was early 2002, and Syracuse’s Crouse Hospital was still in the excruciating throes of bankruptcy when interim CEO David Speltz and his turnaround senior management team summoned the hospital’s middle management to an off-site retreat.

    The managers at Crouse, whose 566 beds and 2,600 employees make it the largest acute-care institution in the central New York region, undoubtedly were prepared for the worst. Even before Chapter 11, they’d already endured painful layoffs and budget cuts, and struggled to remain focused on their work despite rumors that the once-proud institution, home to one of the nation’s finest neonatal intensive care units, would be broken up or sold outright.

    But what transpired was probably an even bigger shock. Instead of leading the meeting, the turnaround management simply sat around the table like everyone else while a hired consultant ran the show. When it was the top executives’ turn at last to speak, their message was brief and to the point.

    “They told us, ‘At some point in the near future, we’re going to be gone,’ ” recalls Derrick Suehs, who was at the meeting and is now Crouse’s chief quality officer. ” ‘We’ll be turning it over to you, to sink or swim. This is the team right here that’s going to lead the organization forward.’ “

    It was not an admission born of sheer benevolence.

“When [employees] saw that they not only had the ability to make recommendations, but that they would actually be tracked and put into practice, it really helped give the culture change credibility.” —Derrick Suehs, chief quality officer, Crouse Hospital

    “The turnaround guys knew that once the financial bleeding is stopped and the holes are stitched up, you’re still vulnerable,” Suehs says. “You’ve got to sustain life, or the patient’s not going to make it. To get Crouse healthy again, the culture had to change, and they were smart enough to know that wasn’t their area of expertise. So they handed that job off to us. I’m not sure they realized it at the time, but what they had done was very powerful—and empowering.”

    What transpired was a marked contrast to the typical institutional struggle to survive a bankruptcy, in which scorched-earth austerity measures leave the workforce feeling alienated and powerless, and erode the commitment to the organization’s mission that is so essential to high performance and a positive relationship with customers.

    Instead, Crouse used its reorganization and the aftermath not just to regain its financial footing, but also to reinvent its culture. As a result, the hospital has significantly improved the quality of its services and regained its position as a leader in a highly competitive regional market. The key to that success has been bringing together employees from all levels and allowing them free rein to remake the organization, from refocusing the hospital’s mission to reinventing processes from the ground level to improve efficiency.

Loyalty despite crisis
    Crouse’s revival, which earned the hospital the 2006 “Business of the Year” award from the Greater Syracuse Chamber of Commerce and an “Employer of Choice” citation from the central New York chapter of the Society for Human Resource Management, is reflected by a healthier bottom line and improvements in key workforce and performance metrics.

    Crouse posted a profit of $11 million in 2007, compared with a $15 million net loss in 2000. Crouse’s operating margin of 3.5 percent approximates the national average, but is outstanding in New York state, where more than half of hospitals either lose money or achieve a margin of less than 1 percent, according to the Healthcare Association of New York State, an industry group.

    Crouse has regained much of the market share that it lost to other Syracuse-area hospitals during its financial travails; last year, the hospital handled 55,000 emergency room visits and discharged 26,000 patients, both tops in the region.

    “All of the indicators, such as ambulance traffic, are back up,” says Bob Allen, Crouse’s vice president for communications and governmental affairs. “We’re delivering half of all the births in our county, and our neonatal intensive care unit is treating the sickest premature babies from Binghamton in the south all the way to the Canadian border,” a distance of 200 miles.

“Traditionally, people would come to work at Crouse and then stay here for their entire careers. Despite all the problems, people still were loyal to the place, and working to keep it going. If they hadn’t, we would have gone down the drain.” — Bob Allen, vice president for communications and government affairs, Crouse Hospital

    Within the organization, annual workforce turnover has declined from a high of 49 percent in 2001, before the hospital’s culture change, to just 18 percent today. Employees’ belief that they are treated fairly by senior management has risen from below industry-average levels to a high of 74.5 percent, significantly above the industry norm of 67 percent. Overall job satisfaction has climbed to 91.9 percent, slightly above the industry average of 87 percent. After Crouse’s most recent labor negotiations in 2006, a new contract won approval from 97 percent of unionized employees.

    For much of its 120-year history, Crouse Hospital was both a market leader and a venerable community institution in the Syracuse area. But starting in the late 1990s, the institution began to struggle financially and operationally. Crouse stumbled to net losses of more than $6 million in 1999 and $15 million in 2000. By January 2001, the hospital was barely generating enough cash to cover its payroll and other expenses, and Standard & Poor’s slashed Crouse’s bond rating by seven notches to single B-minus, denoting it as one of the financially weakest hospitals in the nation.

    According to news accounts, the hospital’s then-management blamed Crouse’s woes on a variety of problems, from cutbacks in federal Medicare payments to the high cost of delivering services not provided by other local hospitals, to computer-related billing problems. But Allen, who was with Crouse at the time, offers a different explanation.

    Rather than focusing on Crouse’s traditional strengths, he says, the hospital’s executives became preoccupied with building an alliance with another local hospital and creating an integrated system of “cradle to grave” health care services.

    “It was a miserable failure,” he explains. “The cultures of the two institutions and their medical staffs were totally different, and not necessarily respectful of each other. Management got caught up in trying to make it work on a big-picture level, at the expense of the details. In this industry, where quality is absolutely vital, you can’t do that.”

    Budget cutbacks and layoffs at Crouse only served to worsen the downward spiral. In February 2001, Crouse was forced to file for Chapter 11 bankruptcy protection. Senior management eventually resigned, and at the urging of debt holders, in early 2002 a new team headed by Speltz, a turnaround specialist, took over.

    The turnaround team made some important discoveries. Crouse’s troubled cash flow and aging infrastructure notwithstanding, the hospital had one very solid asset—its wealth of human capital, such as a nursing staff whose members often had 15 to 20 years of experience.

    “Traditionally, people would come to work at Crouse and then stay here for their entire careers,” Allen says. “Despite all the problems, people were still loyal to the place, and working to keep it going. If they hadn’t, we would have gone down the drain.”

“The biggest challenge for us was open and honest communication. … The committee became both a reliable source of information that helped decrease rumors and a sounding board. Everything said in there stays in the room.” —Luana Reeves, director of educational services, Crouse Hospital

    That said, the workforce’s relationship with hospital leadership had badly deteriorated because of what Suehs describes as a top-driven, bureaucratic organizational culture, in which managers and line employees had little autonomy and few opportunities to advocate their ideas for solving problems or improving performance. As a result, Crouse’s traditional reputation for high-quality care had suffered.

    “Quality begins with people,” Suehs says. “You can try to manage the technical aspects of work, but if it isn’t aligned with your people strategy, it isn’t going to work very well.”

    The turnaround team, whose expertise was in straightening out financial problems, didn’t have a solution for Crouse’s cultural malaise. So they asked the workforce to find one.

Focusing the mission
    At the first off-site corporate retreat in early 2002, middle and senior management got down to business with what for Crouse was unusual candor. What was working in the organization, and what wasn’t? What operational trouble spots should be priorities for attention and energy? But gradually, the attendees realized that to truly fix all of Crouse’s problems, they needed to shift to the more philosophical level of mission, vision and values.

    “At the time, we had a 53-word mission statement—two paragraphs that nobody could even remember,” Suehs says. “We started working on writing something that had a real meaning. Why do we exist? What are we doing for this community? We had to all be clear on that before we could figure out how to make things better.”

    Eventually, Crouse employees whittled the verbose mission statement down to just 12 words: “To provide the best in patient care and to promote community health.”

    “Notice that we didn’t say, ‘high-quality patient care,’ but ‘the best in patient care,’ ” Suehs says. “That’s significant, because this is an industry where everyone compares themselves to the norm. We wanted to go beyond average, to optimum.”

    Based upon that mission statement, they also developed a list of six core values for the organization, corresponding to the letters in Crouse’s name: community—working together; respect—honor, dignity and trust; open and honest communication; undivided commitment to quality; service to our patients, physicians and ourselves; excellence through innovation and creativity.

“I could see that with the STB committee, something radical was happening.” —Dr. Paul J. Kronenberg, CEO, Crouse Hospital

    To help transform those abstract concepts into actual change, senior management appointed an 18-member oversight committee consisting of volunteers from middle management and staff. Suehs led the oversight group—which was dubbed the “Simply the Best” committee, or STB for short—in creating a culture reinvention pro­cess that would help achieve the hospital’s mission.

    For structure, Suehs chose the National Institute of Standards and Technology’s Baldrige performance-excellence criteria, a self-auditing process that an organization can use to improve overall performance.

    “We needed a model that the management group could buy into relatively easily,” he explains. “It was proven, and it was broad-based, which was important because we needed to change the entire organization, not just a part of it.”

    To that end, the STB committee, which eventually grew to 25 members, would organize another 10 corporate retreats over a five-year period. The committee’s twice-monthly 7:30 a.m. meetings became a forum that facilitated cooperation among the hospital’s various departments, according to director of educational services Luana Reeves.

    “The biggest challenge for us was open and honest communication,” she says. “But in every organization, there are some people that everybody trusts, that if they say something is or isn’t going on, you can bank that it’s for real. So the committee became both a reliable source of information that helped decrease rumors and a sounding board. Everything said in there stays in the room. So if you have somebody that’s not performing, you can talk about it without creating gossip.”

    The reinvention process also spawned scores of smaller group discussion sessions to which employees at every level of the organization were invited to participate. The small groups grappled with how to translate the mission statement and values into specific behaviors that would improve customer service and other aspects of performance. In the first year alone, the small-group process generated more than 900 recommendations.

    In the past, employee ideas at Crouse might have vanished into a bureaucratic shredder. To keep that from happening, Crouse put the ideas into a project management process, and assigned each one to a member of management who would guide it to fruition. At the end of the first full year, Crouse achieved an 85 percent implementation rate.

    “When people saw that they not only had the ability to make recommendations, but that they would actually be tracked and put into practice, it really helped give the culture change credibility,” Suehs says.

Words into action
    In February 2004, six months after Crouse successfully emerged from Chapter 11, Dr. Paul J. Kronenberg, a 20-year practicing physician and former chief of medicine at Crouse, became the CEO. Under the new leader, the pace of cultural reinvention has accelerated.

    “I didn’t know much about hospital administration, but I could see that with the STB committee, something radical was happening,” he recalls. “I had some discussions with them, to the effect of, ‘Why are you guys off on the side? This has to go mainstream.’ ”

    Kronenberg tossed out an existing strategic plan created by his predecessor and embarked upon creating a new blueprint based upon the mission, vision and values that the employees had developed, an effort that is still in progress.

    “Instead of focusing on specific metrics, we’ve decided to make a plan focused on our values.”

    Under Kronenberg, Crouse began to apply its mission, vision and values to the recruiting, hiring and onboarding process. Job applicants now watch an eight-minute video on the hospital Web site that spells out Crouse’s values and includes interviews with employees and a patient about how they are applied. The hospital also has expanded its orientation process to deal more with Crouse’s values, and has added follow-up sessions at the six-month and one-year marks to reinforce the message. Suehs credits those changes with reducing the turnover rate for employees with one year of service by more than half.

    To aid in the cultural transformation, Crouse also developed its own distinctive terminology. Exceeding the basic job requirements has come to be known as “STB Performance.” An example of it is the Crouse security guard who ventured out into the parking lot before a rainstorm to close the windows of an emergency room patient’s car.

    The workforce also learned to apply “The Momma Test” to behavior. “It’s simple,” Suehs says. “If the patient was your momma, how would you want her to be treated? Naturally, you’d want her to have the best. Not the industry average, but the best.”

    The Momma Test spurred Crouse to redesign processes such as the delivery of antibiotics to patients.

    “We were getting the first dose of an antibiotic from the pharmacy to the patient within 3.9 hours of it being prescribed, which is slightly better than the industry norm of four hours,” he says. “But you wouldn’t be satisfied with that if Momma was the patient—you’d want her to have the medicine as quickly as possible. So we went in and simplified the documentation and made technological improvements to enhance our ability to manage medication. In the end, we got it down to 1.9 hours.”

    To reduce emergency room gridlock, Crouse began sending an employee with a wireless notebook computer to register patients while they receive care, instead of making them wait in line to sign in.

    Kronenberg also has put a new cultural emphasis on the welfare of employees as well as patients. “We hired a physician whose job is to focus on employee health,” he says. “We’ve started a lot of wellness activities, and we’re creating a ‘healthy option’ on the cafeteria menu. We may eventually reward people with healthy habits by giving them a reduced cost for health care.”

    Perhaps because employees have been so heavily involved in reshaping Crouse’s culture, the culture change has achieved an unusually high rate of workforce buy-in. According to an internal survey, 86 percent of employees say that they rely upon Crouse values in their decision-making.

    “That’s compared to an industry norm of 45 percent,” Suehs says. “So we must be doing something right.”

Workforce Management, March 17, 2008, p. 1, 18-26 — Subscribe Now!

General Electric’s 50-year-old Human Resources Leadership Program is perhaps the seminal program for developing future HR executives. As manager of HR development programs, Andrea Nunes says the program has produced at least half of the HR executives in the company’s six business divisions.

Most of the candidates entering the HRLP are straight out of graduate school in business or human resources. A minority are early-career transfers from another business function, such as the legal department or customer service. About half of HRLP candidates come from outside the U.S., reflecting the increasingly global nature of GE’s business.

“In interviews for the program, we’re looking for a certain profile in terms of leadership,” Nunes says. That profile includes “the ability to implement and drive a project, innovative abilities, problem solving [and] the ability to energize teams.”

The HRLP’s core is a series of three eight-month rotations, including one in a job outside the HR field, such as working on the corporate audit staff or managing a shop floor. But the HRLP’s most distinctive feature is the emphasis on networking. Twice annually, all the participants from around the world gather in one location for a week of training, workshops, presentations, and lunches and dinners with GE senior executives.

“There’s a strong correlation between your experience with the program and your success in the company,” says Nunes, a graduate of the program. “Five years later, most of my networking is still with people I met through the HRLP.”

Workforce Management, June 25, 2007, p. 35 — Subscribe Now!

As Coca-Cola sets out to develop its next generation of executive talent, the international soft-drink maker isn’t just relying on courses and seminars. Instead, participants will also learn by doing.

    A select group of high-potential leadership candidates from various business functions and countries will soon begin working on a newly formed corporate task force that will spend four to five months tackling a list of “big thorny problems” facing the company, according to Cynthia McCague, senior vice president and human resources director.

    “We believe the vast majority of learning experiences come from doing,” McCague explains.

    Coca-Cola has picked up on what human resources consultants and academics say is a training tool with powerful, if underutilized, potential. Cross-functional corporate task forces and project teams, they say, are good for more than just accomplishing business goals. Such teams can also provide an invaluable training and development experience for high-potential candidates by compelling them to apply their functional expertise at the strategic level and develop big-picture problem-solving skills.

    Experts say that assigning up-and-coming talent to task forces is less expensive than sending them to outside leadership courses, and candidates can learn more by working on a company’s real-life business problems than they would from case studies or role-playing. To make task force assignments most effective as a development tool, companies should offer coaching and debriefing to ensure that the right lessons are reinforced. They also may want to use internal and external surveys to evaluate leadership candidates’ performance and future potential.

    “Some companies let development happen haphazardly, but the smart ones are focused,” explains John Sullivan, a human resources consultant and San Francisco State University management professor. “They’re looking at you and saying, ‘You’re in the succession planning, but you’re not going to get good at baseball by watching. We need to get you in the game.’ Task forces are a way to do that.”

    That’s why Prudential, IBM, General Electric and other forward-thinking companies have been using task forces as a development tool for years, according to Jim Walker, a La Jolla, California-based consultant and founder of the Human Resource Planning Society.

    “I really believe in it as a tool for leadership development,” Walker says. “If you’ve got a business task that needs to be done, why not get some developmental value out of it also? It’s better than sending them off to a workshop at Harvard or someplace, and it’s cheaper too.

    “Ironically, we try to simulate reality in executive training programs by introducing case studies and doing role-playing exercises. Why not just give people the chance to work on a real task with measurable outcomes? That’s the way to build up new strengths and shore up your weaknesses.”

    What makes work-based learning effective is that the projects are real and they matter to the organization, says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School of Business.

    “People learn from each other in task forces,” he says. “It’s a way of passing along the tacit knowledge of how things actually get done in the organization, as opposed to the abstractions that you might get in a formal training program.”

    Task forces are a way to prepare leadership candidates for the fluid, multi-dimensional structure that big organizations increasingly will adopt in the future, says Ed Lawler, director of the Center for Effective Organizations at the University of Southern California and a professor at the university’s Marshall School of Business.

    “More and more companies are aligning people for functional skills, but also for geography or product line or customer base, so a person might have multiple reporting matrixes,” he explains. “In that environment, you’re putting a premium on the ability to listen to other people and build from their ideas, on the ability to capture input from multiple people and synthesize that into a product that fits the group’s view. Task forces teach you to do that.”

    Beyond that, he notes: “Companies form task forces because they need to adapt to change in their environment, and to do that it’s necessary to break out of the traditional, less-responsible structure. Working on a task force is a chance to learn about managing change, and that’s something for which companies will have an increasing need.”

    Using task forces as a development tool may often require human resources executives to overcome institutional resistance—particularly from line managers who may be more worried about solving a business problem than they are about developing future talent.

    “The managers are likely to say, ‘I don’t care about growing people, particularly for some other part of the organization,’ ” Cappelli says. “Their view is, ‘Let’s get this done right, by the experts.’ “

    Those issues can be resolved, experts say, by putting the neophytes on a task force under seasoned leadership. Steve Gross, a global compensation leader for Mercer Consulting, says every task force should have a sponsor, a senior executive who can observe its work from the outside and offer guidance to the team’s leader. Walker says it sometimes may be useful to bring in an outside consultant to guide the process, though he advises companies not to lean too heavily upon their expertise.

    “Too often, project teams turn into basically a vehicle for supporting outside consultants’ work,” he says. “It’s OK to tap their expertise, but you want the potential leaders to be doing the heavy lifting themselves.”

    Before a task force is convened, experts recommend writing a charter that describes the business purpose and the developmental goal, as well as the expected time commitment and duration. The latter details are crucial, since in most instances a participant will be working on the task force in addition to his or her regular responsibilities.

    “Four to six months is good, because after that people generally start to peter out,” Walker advises. “But in the case of merger-integration task forces, those generally last up to 18 months.”

    The selection of task force members should come next. Cappelli advises companies to have a specific goal for each participant, outlining what they should learn from the experience. Other experts say it’s vital to strike a balance between the task force’s twin objectives and to choose people who have some knowledge of the subject as well as a potentially useful skill set—in addition to needing a leadership development opportunity.

    “It’s great that you’re going to get a chance to learn,” Gross says. “But at some point you also need to get something done.”

    Gross recommends taking particular care in picking the task force’s leader.

    “It can be a developmental experience for that person too,” he says. “But it’s crucial for him or her to have at least some prior leadership experience. The person has to know how to run a meeting, how to gather feedback, how to set ground rules for preparation and hold other people accountable.”

    Another important part of making a task force work as a development tool is for the leader and/or sponsor to help each team member define his or her role.

    “Otherwise, there’s a risk that a person may just become an observer,” Gross warns. “You need to actively observe, but you also need to contribute, because most of the learning will come from an apprentice model—you learn, you do, you get feedback, you learn some more.”

    The learning experience is also enhanced by providing plenty of background content on the task force’s subject for members to absorb.

    “If you’re on a task force to develop a new pay plan, you should be reading up about pay plans,” Gross says. “If it’s a new venture, you need to learn everything that you can about it.”

    University of Michigan professor and author Dave Ulrich agrees. “People need to learn the context and theory behind a task,” he says. “That way, the ideas can be applied later to another setting.”

    In evaluating the performance of a task force as a learning tool, it’s crucial to look not just at the group’s success at achieving its mission, but also at how well individual members are performing. Walker says this can be accomplished by doing external and internal evaluations.

    “You should survey the people that the task force interacts with, especially those who are reviewing their data,” he says. “But you should also survey the members to see how they perceive each other, and how well they think others perform in terms of teamwork, consensus building and sharing of information. You want to see improvement in those areas, because the task force takes people out of their old hierarchical setting, their well-defined job, and gives them a chance to blossom a bit.”

    It’s important that the learning experience continue after the task force assignment is over.

    “You need to have some coaching or debriefing afterward, to make sure that people learn what you want them to learn,” Cappelli says. “You need to get them to think through the experience. If things worked, why did they work? If they were screwed up, why did things get screwed up?”

    Ulrich agrees. “Without the reflection,” he says, “tasks may be done, but learning does not occur.”

Best Buy is so convinced of ROWE’s merits that it has taken the unusual step of allowing Cali Ressler and Jody Thompson, who developed the program as Best Buy employees, to spin off CultureRx as a separate consulting organization.

   CultureRx, a wholly owned subsidiary of Best Buy, has been in business since November, and while it hasn’t yet taken on any outside clients, it is talking to some “very interesting” potential ones, according to public relations representative Rebecca Selby.

   But some are skeptical about ROWE’s effectiveness elsewhere.

   “Best Buy’s culture is very young,” says Washington, D.C.-based flexibility consultant Paul Rupert of Rupert & Co., who has worked with clients ranging from Wal-Mart to Xerox. “They have a lot of significant managers who are still in their 30s. It’s very appropriate for them, with the breezy style and the humor and the slogans. But the headquarters at a typical company is filled with managers in their 50s and 60s-a different generation.”

   Some aspects of ROWE, he thinks, might clash too strongly with the core principles upon which some conservative companies have been built.

   “You can ridicule an obsession with face time, for example, but some companies have a strong belief that having people at the same place, in the same time, creates synergy that is valuable to the company,” he says. “You’re going to have a hard time changing that. But Ressler and Thompson are undeterred. Now that Best Buy’s headquarters is well on its way to converting to ROWE, they’re in the exploratory stages of what would be a vastly more ambitious project-a modified form of ROWE in one of the chain’s 780 stores, which have about 125,000 total employees.

   “It’s a well-known fact that it’s difficult to keep people working in retail-not just at Best Buy-because of the hours and the stress,” Thompson says. “We want to look at deeply held beliefs in the retail environment and whether they’re actually in the way of both associates’ and customers’ needs.

   “For example, we might look at what we’re really trying to accomplish with a scheduling system, and having rewards and consequences around it. If you get written up for being five minutes late for your shift, maybe that results in you being upset about it for the next several hours and not giving as good of service to customers as a result.”

   Ressler and Thompson hope to identify some of the impediments to change, systematically remove them from a pilot store, then chart the effect on productivity, employee and customer satisfaction, and turnover.

   What would such a store environment look like? They’re not yet sure.

   “Obviously, a retail environment is very different from a corporate headquarters,” Thompson admits. “So trying to imagine exactly how this might work is pretty mind-boggling.”

These days, if you’re interested in a career in the human resources field, you’re going to hear an awful lot of talk involving the word strategy and its variations.

    It’s no longer enough to advise employees about benefits programs or post job vacancies. HR departments have to become strategic partners and practice strategic HR. Almost invariably, you’ll be told that the corporate HR positions of the future are likely to be reserved for HR strategists, and that if you hope to ever land one of those jobs, you’d better learn how to think strategically.

    “It’s a very popular word,” notes David Creelman, chief executive of Toronto-based Creelman Research, an HR consulting firm. “People throw it around a lot, even if they’re not quite clear about the meaning.”

    So what is strategy from an HR perspective, and just as important, how does one learn to become an HR strategist? Academics and consultants vary on the precise definition, but generally agree that strategic HR involves stepping outside the traditional duties of a corporate HR department and developing a broad understanding of what the larger company is trying to achieve, and how HR functions such as recruiting and talent development can be harnessed to help meet those larger goals.

    As for becoming an HR strategist, the experts say there isn’t a single path for everyone to follow. But future HR professionals can acquire the requisite knowledge, skills and experience from a wide variety of sources, ranging from MBA programs to volunteer work.

    “The best way to understand strategy is to think of it as mission-driven,” says Cathy Lee Gibson, director of the HR management program in Cornell University’s graduate business school, and author of several books.

    “You’re starting with the end in mind. Why does the company exist? What is it trying to achieve? From the top down, how do we align all our objectives and energies toward accomplishing that mission? The company doesn’t exist so that it can have an HR department; HR exists so that it can help the company meet its goal.”

    That’s the general concept, but there’s a lot more to it.

    Gautam Ahuja, professor of corporate strategy and international business at the University of Michigan’s Ross School of Business, explains that a company’s strategy is built from several main components: “What is the market in which the company is choosing to enter? Who is the customer? What are the opportunities and threats of a given environment? How does the company organize all its functions in order to compete successfully?”

    Consultant Creelman says those strategic decisions tend to involve the entire business over a long-term period, and the stakes usually are high.

    “When you’re thinking strategically, you shouldn’t just be thinking, ‘What is the effect next year?’ You should be looking three to 10 years down the line,” Creelman says. “And you don’t just look at how it affects your job or your department, but everything that every part of the organization is doing. One characteristic of strategic decisions is that they’re hard to undo. If you sell off the PC business, as IBM did, it’s not that easy to buy it back. Strategic moves always involve considerable risk—and a substantial payoff, or else you wouldn’t do them.”

    Benjamin Campbell, an assistant management professor at the University of Pennsylvania’s Wharton School, says that another element of strategy is understanding change and how to deal with it.

    “Competitive markets are dynamic,” he says. “Market conditions change, technology changes, competitors change. I think this is one area in which HR is really important but largely overlooked. You hear about companies changing their products or their production technology, but you don’t hear as much about how to change the workforce to support those things. That’s bad, because it’s people who make the products and develop the markets for them. In a dynamic environment, you need a dynamic workforce. You have to make sure you have the right employees with the right skills to support the strategic objectives of the company.”

    Since the goal of companies is to make money, finance is a business discipline that figures strongly in strategic thinking.

    “Strategic HR is being called upon more and more to measure the impact of human capital on business performance,” says John Chaisson, principal analyst for the Prophet Group, a New Orleans-based HR consulting firm. “In the past, when HR was called to provide metrics, it was looking at people as a cost factor for the organization–you know, what does it cost us to recruit someone? Today, the question is, what’s the return on each worker within our organization?”

    Chaisson says that as investors increasingly look at the impact of human capital upon a company’s market value, HR strategists will become increasingly important.

    “Factors such as the compatibility of teams, the loyalty and commitment of the workforce, the attrition rate–all these things are starting to figure in the due diligence that’s being done prior to mergers and acquisitions, Chaisson says. “Strategic HR players are going to be involved in the reporting of that information, and in understanding what it means.”

While some say that HR professionals must become strategic thinkers in order to prove their relevance, experts say it’s also true that HR can bring something to the strategy table that other players lack.

    “The conventional business strategist may not appreciate the subtleties of dealing with people and developing a good system for them,” says Wharton’s Benjamin Campbell. “I’ve heard a lot of anecdotal evidence of this in the corporate world–situations where the executive in charge of the technology strategy puts something in place, and then realizes, belatedly, that the company doesn’t have the right people to support the strategy.”

    So how does one prepare for playing a strategic role in HR? Some experts advise getting an MBA rather than an advanced degree in HR.

    “If you’re going to shape HR to support a corporate strategy, you first have to have a good understanding of the overall business model,” says Ed Lawler, founder and director of the Center for Effective Organizations at the University of Southern California. “That’s the sort of knowledge you start to develop with business school courses—finance, marketing, organizational design, business strategy.”

    But consultant Creelman thinks other, less orthodox academic routes can be useful for preparing a would-be HR strategist as well.

    “It may not seem as obvious as an MBA, but there are benefits to having philosophy or English literature at the master’s level, or maybe even a scientific field such as biochemistry,” he says. “All these fields involve a high level of abstract thinking, and the ability to understand complex systems and see both the details and the broad picture. All those abilities are very useful for someone who wants to do strategic HR.”

    The experts agree that having some non-HR experience on the operating side of the business is an increasingly significant credential for a would-be HR strategist.

    “I think it’s really important,” USC’s Lawler says. “The problem at bigger companies is that people tend to start in HR and stay in it, and then just do a single area of HR, such as compensation or training. They may not even understand the other parts of HR, let alone how the larger business works. So unless you started in on the operations side and rotated into HR, you’ve got to look for opportunities to get that operations experience. If you can’t get it at your own company, it may even be in your interest to take a different job at another firm for a while.”

    But if rotating into operations or taking a job elsewhere isn’t an option, there are other ways to get operations experience and develop a feel for how the larger enterprise functions.

    Even outside volunteer work can turn into a way to get operations experience, Cornell’s Gibson suggests.

    “Volunteering is a chance for people who don’t have hands-on experience to get some at low risk,” Gibson says. “The key thing is that you want to learn how to deliver a product or a service.”

    “Another thing you can do is hang around with people who think strategically,” Creelman says. “Any time that you have an opportunity to talk to a senior person in a strategy-level position or work with him or her, you should. You can pick up a lot by osmosis, just by listening to what kinds of questions they ask, by noticing what details they find interesting. You can get a better feel for the strategic worldview that way. Even if it means just sitting beside someone in the cafeteria and overhearing their conversation, you should do it.”

    Additionally, Creelman recommends that would-be HR strategists jump at any opportunity to interact with other departments or divisions, or with other companies. “Anything that gets you out of the narrow box of what you do daily—that’s going to help you develop a broader, strategic mind-set.”

For those interested in a career in human resources, first the bad news. During the next decade, experts say, the sort of corporate job that many HR professionals have today may cease to exist.

    Academics, HR consultants and executives at major outsourcing firms describe a future in which the continued growth of outsourcing, advances in information technology, and bottom-line pressures may lead to the demise of the traditional HR generalist who handles everything ranging from benefits programs to recruiting.

    “In the old days, companies had delivery boys who scooted around with packages,” explains David Creelman, chief executive of Creelman Research, a Toronto-based HR consulting firm. “Today all those jobs have disappeared because of Federal Express. We’re rapidly approaching the point where HR will be like that, where companies will use outside vendors for all but the strategic level of tasks.”

    But there’s good news too. There still will be a place for HR professionals–but often that place is going to be on the outside rather than in-house, working for an outsourcer or an IT vendor. The remaining HR jobs inside companies usually will be for HR strategists, focused on finding ways to leverage the company’s human capital to improve business results. And with globalization proceeding at a breakneck pace, both in-house and outside HR professionals will have to deal with corporate workforces scattered even more widely around the globe than they are today.

    “There are going to be tremendous opportunities out there in HR,” says John Gibson, senior vice president for operations at Convergys Employee Care, a Cincinnati-based global HR outsourcing firm. “But what HR professionals will be doing on a daily basis is going to be very different from what they do today.”

    To get those jobs of the future, prospective HR specialists will need a much broader set of skills, background and experience than their predecessors have had. A degree from an HR program at a major university undoubtedly will still be a plus for entry-level applicants. But that won’t be enough, according to Peter Weddle, an HR consultant and publisher of Weddle’s Guides, a print guide to 40,000 online job boards.

    “If you’re just taking HR courses, there’s a danger that you’re going to be rooted in the old way of thinking,” Weddle says. “You may have an easier time getting in today, but you’re training for a corporate job that may be outsourced two or three years down the line. What you really need to do is adopt more of a business-school, leadership mentality. Take a broader range of business courses. You need to understand how companies make money, and then focus on how HR facilitates that. You’ve got to aim for a kind of job that is going to be harder to get, but in the long term there’s going to be a lot more security. You’ve got to be ready to compete for a more powerful and influential position in the company.”

    Convergys’ Gibson says: “Look for opportunities for international exposure, because that’s going to be increasingly crucial. There are some very respected university HR programs in other countries, and if you have an opportunity to study at one of them, that’s an asset.”

    But both in the U.S. and abroad, university HR programs themselves are likely to evolve to fit the new realities, predicts Kathryn Kelly, president of ExcellerateHRO, a Plano, Texas-based outsourcing firm. “In the future, we may see HRO providers partnering with universities to develop programs around HR outsourcing, to be offered through HR as well as the IT curriculum,” she says.

    New HR professionals who land those entry-level jobs at HR outsourcing firms, however, will find themselves learning the HR trade in an environment very different from traditional corporate HR.

    “Outsourcing firms are looking for a very different skill set,” says Ed Jensen, an Atlanta-based partner in the human performance consulting practice of Accenture, a global HR outsourcing firm.

    “They’re less focused on your certification in payroll or benefits administration, and more on your customer relationship skills,” Jensen says. “After all, you’re not hidden away in the back office—you’re right up front, in a job where you’re supposed to be creating revenue, dealing with people. You really have to be able to focus on the business side, and be able to justify the worth of what you’re doing, because somebody else is paying for it. You’ve got to have good communication skills, so you can explain all that to the clients. And you’re going to have to learn now to do this for multiple clients at the same time.”

    Convergys’ Gibson agrees. “To work for us, not only do you need to have the broad HR generalist skills, but also business acumen, financial skills, the ability to collaborate with clients,” he says.

    As their market continues to expand, outsourcing firms are filling their staffing needs by hiring HR professionals away from companies. But during the next decade, that pattern is likely to reverse.

    “We’re already at the point where big companies are outsourcing two-thirds to three-fourths of their HR functions, and it’s not difficult to foresee that in five to 10 years, basically every company will have done that,” Jensen explains. “That’s going to change the way that people break into the field, because the entry-level jobs will be at the outsourcing companies who actually provide the HR services. What I think you may start seeing is the same pattern that now exists in accounting and finance, where people generally come out of school and go to work for an outside firm. Then, after they’ve developed themselves for a few years, they begin to move over into a company’s finance department. That eventually may be how it works for HR, as well.”

    As those young HR professionals gradually migrate from outsourcers to the companies they formerly served, they’re likely to find a very different corporate environment from what exists today. For one thing, many companies may no longer even have an HR department.

    “It used to be that there were HR generalists who would do a lot of administration, some technology, and hope to get a little strategy in,” consultant Creelman says. “What you’re going to see in the future, in midsized and larger companies, is that these will be different career tracks, with increasingly different skills. Possibly, those functions may even be scattered across different parts of the company.”

    Though administration largely will be the province of outsourcers, Ben Dattner, a New York University professor and organizational effectiveness consultant, thinks it will also create the need for a new type of in-house position–the HR executive who is skilled at managing the efforts of outside services vendors.

    “In the future, you’re going to have outsourcing firms, consultants, all these different planes buzzing around,” Dattner says. “On the inside, there’s going to be a need for somebody who will be the equivalent of an air traffic controller, somebody who can develop a coherent HR strategy around all these outside resources and manage them.”

    Creelman agrees. “I think the generation of people coming into companies from outsourcing firms will better understand how to maximize the value that companies get from outsourcers,” he says. “Right now, mostly what we see is a one-off model, in which each outsourcing contract has its own unique elements. But with their background, these new HR people will be able to make outsourcing relationships much more standardized, so that they’ll be able to benchmark much more in terms of costs. They’ll make the whole process much more sophisticated.”

    Creelman says he sees technology management as another emerging opportunity for HR professionals.

    “HR technology already is a big deal, and it’s going to be an even bigger deal in the future,” Creelman says. “But there aren’t nearly enough people who are skilled at all the aspects of making it work, from selecting the right vendors to understanding how to roll out HR technology inside an organization and get the buy-in.”

    For the HR professional of the future, Creelman believes, project management skills will become as important as understanding the nuances of benefit plans.

    Experts agree that the in-house HR positions will focus increasingly on finding ways to serve the company’s business strategy.

    “There’s a limit to how far you can go with outsourcing,” Accenture’s Jensen explains. “Tasks such as developing an overall talent strategy that helps the firm to meet its business goals–it’s going to be hard to outsource that. These things are maybe 5 to 10 percent of the traditional corporate HR function, but in the future, they’re going to be magnified in importance.”

    HR professionals who got their start in outsourcing firms will be well prepared for strategic roles in companies, Creelman says, because in addition to HR knowledge, they’ll also have been exposed to the operating side of a business.

    “Frankly, HR departments historically have been very insular,” he says. “They’ve usually been composed of people who’ve been with the company in HR for a long time, if not their whole careers. But in the future, they’ll be mixing that up, with folks coming in from the outsourcers, plus people they bring in from other parts of the business. I think they’re going to bring a lot of energy and new ideas to HR.”

Next to its lack of job titles, W.L. Gore & Associates is most famous in the business world for its flat, nonhierarchical organizational structure and use of small, self-managed teams. But other American companies over the years have tried to institute flat hierarchies and utilize self-managed teams as well, with varying degrees of success.

    Eileen Shapiro–president of the Hillcrest Group, a Cambridge, Massachusetts, consulting firm, and author of the book Fad Surfing in the Boardroom: Managing in the Age of Instant Answers–is skeptical about whether those concepts ever work as well in reality as they do in theory.

    “I’ve been inside a lot of companies that espouse flat organizational structures and self-management,” she says. “But when you really start looking at how things actually work, you find that there is in fact a hierarchy–one that is not explicit.”

    Companies that espouse flattened hierarchies and self-managed teams, Shapiro says, often are headed by charismatic founders who either impose a subtle, unspoken hierarchy or allow one to develop. In Shapiro’s book, she cites the example of her former employer, consulting firm McKinsey & Co., where co-founder Marvin Bower coined the term “nonhierarchical meritocracy.” In actuality, Shapiro writes, the firm had an unofficial hierarchy of three to six levels, “each with progressively more scope and control–and each with progressively higher billing rates.”

    The existence of a shadow hierarchy didn’t make McKinsey less effective as an organization, Shapiro writes. Instead, “it simply meant that this firm had a hierarchy, just like every other organization that I’ve ever seen.”

    A company that didn’t fare so well in its experiments with flat organizational structure and self-managed teams, Shapiro says, was Digital Equipment Corp., a powerhouse in the mainframe computer era of the 1970s and ’80s. DEC produced or popularized many technological innovations, from networking to the first comprehensive Internet search engine. “DEC invented things that could have been the whole S&P 500,” Shapiro says. “But they had a phenomenal ability to see around corners and then to miss those opportunities.”

    In place of a conventional corporate hierarchy, DEC had a matrix team structure in which workers in engineering, marketing and other departments also served on teams organized around product lines, according to a 1994 Fortune article. That structure made DEC vulnerable to struggles between team and departmental leaders.

    “But the real problem, looking from the outside, was that self-managing really came down to one person,” Shapiro says. “The company founder, Ken Olsen, was the one who controlled everything.”

    After DEC suffered big losses in the early 1990s, Olsen left and the company abandoned the matrix team structure. But the company never regained its footing, and eventually was acquired by Compaq in 1998.

    “The reality is that people do organize around rules and rewards and punishments,” Shapiro says. “In the worst cases, it’s a more unfair system than one with clear rules and boundaries. It doesn’t necessarily benefit the best people, but rather the most politically adept people, the ones who speak the language of the open system, the no-hierarchy or whatever the buzzwords are.”

Workforce Management, February 27, 2006, p. 24 — Subscribe Now!