Author: Patrick Kiger

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New Hope for Troubled Retirement Plans

To understand the magnitude of the dilemma that scores of American businesses face in their retirement-benefits planning, im-agine that you’re the chief financial officer of a fictitious company, Rebus Inc. Like other companies across the nation, Rebus long has relied on a conventional defined-benefit plan that provides retirees with a generous monthly check, based on the average of their best earning years.


    But Rebus is finding the expense increasingly difficult to manage in tough economic times, and shareholders are unhappy about the bite that covering future pension liabilities takes out of the company’s bottom line. And younger workers, whom Rebus must attract to stay competitive, don’t find that benefit very alluring. They may be thinking of leaving to pursue career opportunities elsewhere before they rack up enough years of service to become vested. They’re more interested in Rebus’s defined-contribution plan, in which the company matches their 401(k) account contributions, so they can take their savings with them if they hop to another career opportunity elsewhere.



    How does Rebus reduce its pension-related financial woes while keeping its promise of a regular, dependable pension check to one age group of employees and offering a portable benefit to another? A few years ago, the answer might have been for Rebus to offer defined contribution only to new hires and convert its existing workforce to a cash-balance plan. Benefits essentially would be based on an employee’s salary average for his entire career. This formula would have resulted in a lower payout, and less expense for the company.


Pension complexities & hope
    The harsher economic realities of 2003 are making such decisions vastly more difficult. Today, companies that are rethinking their pension systems are faced with a world of legal uncertainty and possible financial peril. In the wake of a three-year bear market and accounting scandals at Enron and other companies that wiped out many workers’ savings, defined-contribution plans, which once seemed to be the wave of the future, now are viewed with less enthusiasm by employees. The cash-balance conversion, another corporate pension strategy that became popular in the late 1990s, is in legal limbo after a federal judge ruled in July that IBM’s cash-balance plan discriminates against older employees.


    None of this leads to clear answers. But while the situation may look forbidding, some pension consultants and other experts offer glimmers of hope. They say that regardless of how the cash-balance controversy ultimately plays out in the courts and possibly in Congress, improved strategies for managing defined-benefits plans may give that old concept new life. They also tout an ingenious new model that would combine some of the most desirable features of traditional pensions and defined contribution, a plan that is dependent on whether the federal government can be persuaded to make it legal.


“We’re really mortgaging our future. Somebody is going to have to support these people. If they can’t do it themselves, younger workers are going to end up paying taxes out the wazoo.”


    The present logjam over the future of pensions threatens not only companies’ financial health but also the promise of a comfortable old age that generations of American workers have come to view as a quid pro quo for leading the world in productivity. In truth, employees in the United States are facing an ominous retirement future. According to a recent article in The American Prospect, a liberal public-policy journal, just 58 percent of the nation’s private companies offer pension plans. Only 44 percent of workers presently are covered. The Prospect also reported that a disturbing 64 percent of retirees depend on federal Social Security benefits for at least half of their income. Considering that this government safety net is in long-term financial trouble and the number of Americans over 65 is projected to increase from 13 percent today to more than 20 percent in 2029, according to U.S. Census data, what lies ahead is scary, says Brent Longnecker, a Houston-area human resources consultant. “We’re really mortgaging our future. Somebody is going to have to support these people. If they can’t do it themselves, younger workers are going to end up paying taxes out the wazoo.”


    It’s vital, experts say, to preserve existing pension plans and encourage more firms to offer benefits. When cash-balance conversions appeared on the scene in the mid-1980s, Institutional Investor magazine touted them as “the wave of the future” for companies that wanted to keep providing defined benefits. Since the worth of employees’ retirement accounts was based essentially on the average career salary, companies ended up paying less than they would have with traditional formulas based on the highest-earning years near retirement. (When Delta Airlines switched to a cash-balance plan in 2002, for example, the airline projected $100 million a year in reduced costs.)


    Cash-balance plans also tended to reduce the gap between employees with differing tenures, a feature that proponents argued is fairer to younger employees who might not stay as long. Ed Ryan, a vice-president at MassMutual Retirement Services, cites another advantage: Companies could offer workers the choice of using the money to fund an annuity, with payouts based on Treasury bill rates or a similar index, or getting it in a lump sum. The latter had the advantage of taking the retirees’ long-term pension costs off the books.


    But older employees soon complained that cash-balance plans were unfair. One disgruntled IBM employee quoted in The New York Times in 1999 characterized it as “an exercise in corporate greed.” They got less money than they’d expected to receive under their old traditional plans, and they no longer were rewarded for their longevity with the company, as the old system had promised. Some companies, such as Boeing, tried to fix that problem by contributing a higher percentage of older employees’ pay to the plans. Other companies froze their existing plans and credited older employees with the amount they’d earned up until that point, while covering the rest of their careers with the new cash-balance formula. Nevertheless, more than 800 workers at dozens of companies have filed federal complaints charging that cash-balance conversions are a form of age discrimination, according to a January 2003 letter sent by 271 members of Congress to the White House.


    Adding to the confusion over the past several years, the Treasury Department and Congress have vacillated about whether cash-balance plans should be allowed under federal law. In late 2002, the Bush administration proposed new regulations that would have enabled companies to make conversions without the risk of committing age discrimination. The White House then withdrew the proposal in April after critics pointed out that the changes might have the unintentional effect of barring companies from compensating older workers for what they might lose from a conversion.


IBM employees sue
    At the end of July, cash-balance plans ran into a brick wall in federal court. In a class-action suit by IBM employees, a federal judge in Illinois ruled that IBM’s 1999 cash-balance plan–and also an interim system adopted in 1995–discriminated against older workers because its formula left them with smaller benefits than younger workers would earn in the course of their careers. The decision clearly has cast a pall over the future of cash-balance plans. Mercer Human Resource Consulting recently conducted an unscientific poll of several dozen companies that had been considering a switch to cash balance, and learned that nearly all had put their plans on hold, says Jerry Levy, a Mercer actuary and pension expert. In the meantime, some pension experts complain that the standoff in the courts and federal government over cash-balance plans is hindering innovation. Others say that regardless of how the issue eventually is decided, additional strategies may help companies to solve their pension woes, and save defined-benefit plans from extinction. “There may be be some employers who’ll want to continue with defined benefits,” says Syl Schieber, VP of research and information for the consulting firm Watson Wyatt Worldwide. “They may think it serves their interests, despite the cost, because it helps them to attract and retain the particular sort of workers they want.”


    One potential method for rescuing defined-benefits plans is to reduce the cost through better management, rather than just paring benefits. About 13 percent of corporate plan sponsors, for example, now outsource the actual management of their plans, according to research by MassMutual Retirement Services. MassMutual offers a “bundled” package of services, in which its staff handles everything from record-keeping and regulatory-compliance issues to answering employees’ pension-related questions. The firm actually hires independent managers to invest the money, so that it can oversee them without conflict-of-interest problems.


    “If you’re a company trying to manage its own plan, you might have a person who tries to keep an eye on the portfolio by looking at the quarterly reports,” says Vern Meyer, MassMutual vice president and managing director of investment strategy. “We can monitor the investment managers on a daily basis, looking at what stocks they buy, watching to spot problems or a drift from the investment philosophy.” As a result, Mass-Mutual says, its clients typically are able to reduce their administrative costs by 25 to 40 percent.


    But defined-benefits plans might be even more attractive if companies didn’t have to shoulder the entire cost. Jack VanDerhei, an instructor at Temple University’s graduate business school and research director of the fellows program at the Employee Benefit Research Institute, conducted a study in the 1980s of a dozen companies that started defined-contribution plans. He found that management was attracted primarily by the chance to utilize employees’ own pretax contributions to help finance the benefits. “I’ve always thought that if you want to keep the DB plans viable, we have to give employers the same advantage,” he says. “They ought to be able to tell employees: ‘We want to keep offering you the same generous lifetime pension that we’ve always had, but we’re going to need you to chip in something–and by the way, you’ll get a tax deduction for doing it, just like you would with a 401(k).’ “


    The American Academy of Actuaries, a professional association of business statisticians, is touting its “DB-K Plus” plan, which would combine the most desirable features of defined benefits and defined contribution in one program. Like a traditional pension, a DB-K Plus plan would offer retirees the security of a regular stipend for the rest of their lives. But instead of the company bearing the entire cost, the money that it put into the plan would be augmented by voluntary contributions from employees that would be tax deductible, in the fashion of a 401(k). The DB-K Plus could combine all that money into one pool for investment purposes, while keeping it segregated in individual accounts on the books, so that employees would have some say about how their money is invested. Employees who made bigger contributions would get more of a payoff in retirement, but all would be guaranteed at least a certain income.


Sweeping reform
    John Parks, vice president of the academy’s pension practice council, says DB-K Plus would be more affordable for companies than traditional pension plans. It would also offer numerous advantages to workers that either a traditional pension or defined-contribution plan doesn’t provide, even the opportunity to have both a separate pension and a 401(k). It would cut management’s cost of complying with regulations, he says, while simultaneously reducing the investment fees and costs that now come out of employees’ 401(k) earnings. Because the new plan would provide benefits that appeal to both younger and older workers, it could eliminate age-discrimination problems. Parks also says that “You wouldn’t have to worry about having to leave at a time when the stocks in your 401(k) are down.”


    There’s one big drawback to such a hybrid. It’s not legal under present federal regulations. The rules now require companies that offer conventional pensions and 401(k) plans to run them as completely separate entities, and don’t confer tax-deferred status on voluntary employee contributions to defined-benefits plans. “Admittedly, we’d have to rewrite a ton of laws,” says Parks, who also would have the federal Pension Benefit Guarantee Corp., which at present insures only traditional defined-benefits plans and cash-balance hybrids, cover DB-K Plus plans as well. “The PBGC probably would have to charge a higher premium for DB-K Plus plans, but even so, I think companies would still end up saving money,” he says. In any case, corporate pension plans are overdue for sweeping reform, says pension-policy expert Paul Weinstein, a senior fellow at the Washington, D.C.-based Progessive Policy Institute. “We’ve got a system that was designed for the economy of 40 years ago,” he says. “But it doesn’t work for the very different set of circumstances we have today. We need to make big changes across the board, and really rethink how we can best help people. What I’m really afraid of is that, as with the savings-and-loan crisis in the early 1990s, we’ll wait until we have a financial disaster before we do anything. It doesn’t have to be that way.”


Workforce Management, October 2003, pp. 53-56 — Subscribe Now!

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The $300 Billion Pension Funding Shortfall

As if the economic downturn’s lingering fallout of layoffs, budget cutbacks and sagging employee morale didn’t give human resources professionals enough to worry about, there’s another dark cloud looming on the horizon: underfunded pension plans.



    The situation is ominous. Over the past three years, thanks to the combination of a struggling stock market and low interest rates, companies have seen the value of the stock and bond portfolios in which they’ve invested their pension reserves plummet by nearly $1 trillion. The nation’s corporate pension plans are $300 billion short of what they’ll eventually need to cover the benefits for 44 million active and retired workers, according to federal government estimates.


    It’s a shortfall that threatens to wreak havoc with corporate balance sheets and dangerously strain the federal government insurer that backs up companies unable to make good on their pension commitments. But while it’s obvious that something must be done about the pension-underfunding crisis, nobody can agree on a solution. Congress is pondering controversial changes to federal pension regulations that proponents say would make it easier for companies to weather the crisis, though critics say the changes also might ultimately leave pension plans even more dangerously short of money.


   Meanwhile, millions of workers–some of whom have already received unsettling notices informing them that their companies’ plans have dipped below federal funding requirements–are left to worry about whether they’ll have enough money to live comfortably in their retirement years. The loss of worker confidence in pension plans could have a ripple effect, with a negative impact on everything from recruiting and retention to succession planning, according to compensation and retirement expert Brent Longnecker, president of the Houston area-based Resources Consulting Group. “There’s been a lot of focus on the financial side, but every way you look at it, this is a big human resources problem as well.” He says it’s crucial for human resources leaders to plan for how they’re going to deal with potentially pervasive impacts of pension underfunding, because the problem may well get worse before it gets better.


    Clearly, executives are already worried about the damage that pension underfunding may cause to the overall health of their businesses. In a recent survey of 151 companies by SEI Investments, a consulting firm in suburban Philadelphia, 68 percent of the participants said the crisis had already had a negative effect on corporate finances. Fifty-eight percent said they’d posted lower profits as a result; and 75 percent were concerned about future impacts ranging from cash-flow problems and lower profits to a decrease in the value of company stock. Some prominent companies already have taken a major financial hit. General Motors, for example, found it necessary last year to put up $5 billion in cash and to raise billions more through bond offerings to pump up its retirement fund, according to a report in BusinessWeek.


    The government is just as alarmed. In July, a report by the General Accounting Office, the investigative arm of Congress, concluded that the Pension Benefit Guaranty Corp., which regulates and insures pension plans against failure, is in dire financial straits itself. Thanks to corporate bankruptcies, the PBGC’s reserves have diminished from a $9.7 billion surplus in 2000 to a $3.6 billion deficit in fiscal year 2002, and the number of employees whose pensions the PBGC had to cover rose from 268,000 in 2001 to 400,000 last year, according to news reports. Already, some observers are drawing ominous analogies to the savings-and-loan crisis of the early 1990s, when the federal government was forced to spend hundreds of billions of dollars to bail out collapsing S&Ls. “It’s mind-boggling,” Longnecker says. “Years ago, I would have said, sure, there will always be companies with underfunded pensions. But none of us ever imagined a situation this bad, where the PBGC itself would be in trouble.”


    Companies have been lobbying for a legislative fix that they think would help them to weather the crisis, at least for the short term, until the stock market recovers and pension funds’ investments can recoup some of their losses. HR 1776, the Pension Preservation and Savings Expansion Act, introduced this past spring by Rep. Benjamin Cardin (D-MD) and Rep. Rob Portman (R-OH), would do this through bookkeeping. The Cardin-Portman bill would change, for at least the next three years, the complex method by which the government calculates corporate pension funds’ liabilities, shifting the standard from 30-year Treasury bonds to the long-term rate for corporate bonds. The practical result, experts say, would be that companies wouldn’t have to put as much money into their pension plans to meet the federal standards for being adequately funded.


    Deanna Keim, communications director for the American Benefits Council, which represents corporate pension plans, says the change would give a more accurate picture of companies’ pension liabilities. Since the 30-year Treasury bonds were discontinued by the Bush administration, Keim says, they have an artificially low interest rate and no longer are a fair benchmark. As a result, she says, companies are being forced to sink too much money into their funds to comply with federal funding standards. In 2002, according to the council’s calculations, companies had to contribute $43.5 billion to their plans–more than they had contributed in the previous three years combined. In 2003, they may have to shell out as much as $83 billion. It’s money that companies might put to other uses–upgrading their technology, paying workers instead of laying them off–that could result in higher profits. That, of course, might ultimately contribute to higher stock prices, which in turn would lift the value of the assets in pension-fund portfolios.


    Critics of the Cardin-Portman bill deride it as essentially a bookkeeping trick, and warn that over the long run, allowing companies to make smaller contributions will result in pension plans that are even more seriously underfunded. “Basically, companies are using this as an opportunity to reduce their costs,” says the Pension Rights Center’s John Hotz. “But they’re not doing anything about fixing the actual problem, which is just going to keep on getting worse.” Hotz isn’t too sympathetic to companies’ complaints about the financial pressure of pension underfunding. In the 1990s, he says, many companies took advantage of arcane loopholes in pension regulations to reduce their payments and even divert surpluses from pension funds to other uses, making the blithe assumption that the rising stock market would enable them to cover their obligations. “They’re basically at it again,” he says. “But this time, the consequences are even more dire for future retirees.”


    It’s unclear if the Cardin-Portman bill will make it to the House floor for a vote, though Keim says that could conceivably happen late this month. The Bush administration is advocating an even more complicated alternative, which would use the yield curve of corporate bonds and workers’ ages to calculate a company’s pension liability. But that proposal–which also includes more stringent reporting requirements for companies with underfunded plans–has met with a cool reception from business leaders.


    If a stalemate develops, Keim says, the result could be grim. “If we don’t get a solution to this problem, more companies may decide that in the future they can no longer fund that type of [defined-benefit pension] plan,” she says. “They’d freeze the plans, so their existing employees wouldn’t receive any more accruement of benefits, and new employees would no longer get pensions at all.” SEI’s survey data backs her up. Nearly a quarter of the companies polled said they were considering discontinuing their pension plans and/or replacing them with defined-contribution plans, such as 401(k) accounts.


    Defined-contribution plans, in which companies can pay into investment accounts controlled by the employees, are advantageous for companies because they don’t have to continue paying benefits after workers retire, and because the workers, not the company, assume the risk that the investments may not generate enough return. As Hotz and others note, employees tend to have a lot more qualms these days about them, after watching several years of tumbling stock and mutual fund values. “It all looks so risky to people now,” he says. “They’re realizing how much they want the security of having a pension plan.”


    But no matter which scenario plays out, Longnecker expects that employees’ uncertainty about their pension plans will have troubling effects on companies. When recruiters talk to job candidates, for example, they’re going to have to be careful what they tell them about their companies’ retirement benefits, as there’s an increasing chance that the programs will change. If workers begin to doubt companies’ commitment to providing for their retirement, they’ll be more inclined to shop elsewhere for a better deal, and corporate loyalty and retention rates may suffer a serious hit. Other employees, Longnecker says, may decide that they can’t afford to retire at all, which will interfere with succession planning. “I’m not sure what the solution is [to pension underfunding],” he says, “but everyone has to start thinking now about how they’re going to deal with the impact.”


Workforce Management, September 2003, pp. 76-79 — Subscribe Now!

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Optimas Award Innovation Healthy, Wealthy and Wise

Any company would be deliriously happy with an in-house health-care program that saves nearly $1 million a year and offers lower insurance premiums, fewer workdays lost to illness and doctor’s appointments, and high-quality employee care for less money. But SRA International, Inc., a Fairfax, Virginia-based provider of information technology services to government and corporate clients, values its Nurse Advocacy Program for another reason. The company’s innovative system for monitoring and managing medical problems has helped employees who otherwise might have become too ill to work at all. Instead, it has enabled them to have successful, productive careers.


    There was the SRA employee with Parkinson’s disease who suffered from chronic, incapacitating dizziness–until the company’s nurse advocates analyzed his case and discovered that he was taking an overdose of medication. Another employee’s diagnosis of kidney failure might have forced him to retire on disability. Instead, SRA nurses devised a flextime schedule that allowed him to reduce his workload on days when he was fatigued from dialysis treatments. Another employee’s job performance was hindered by bouts of severe back pain, which vanished after an SRA nurse convinced her to try a regimen of stretching and exercises, and then monitored her to make sure she followed the prescription.


    “We started the program with the intention of saving money on health care,” says Ted Legasey, SRA’s chief operating officer. “We figured that if 20 percent of your cases result in 80 percent of the insurance cost, the trick is to manage the heck out of those cases. And it worked. For the last four years, for example, we’ve had single-digit increases in our insurance premiums, compared to 20 percent for the rest of our industry. But we also discovered that there were plenty of other pluses that we hadn’t anticipated. We could really make a big difference in employees’ lives. That’s really paid off in terms of loyalty and job satisfaction.” For the past four years in a row, Fortune magazine has rated SRA one of the best 100 companies to work for in America, an assessment based in part on confidential surveys of the workforce.


    Many large companies, from automotive giant Nissan to aerospace and electronics manufacturer Honeywell International, have some kind of on-site medical program for workers–often through contractors such as Whole Health Services in Cleveland, which operates clinics for 40 U.S. companies. But according to health-care experts, it’s unusual for a company of SRA’s modest size–2,100 employees, located mostly at the Virginia headquarters and 10 other sites in the Washington, D.C., area–to offer such a program.


    SRA goes far beyond the conventional occupational-medicine focus in treating work-related injuries and illnesses. “The traditional approach is sort of like the school nurse, taking care of anyone who gets sick,” says Kay Curling, SRA’s director of work/life solutions, who runs the Nurse Advocacy Program. “We do that, too, but afterward, we keep working with people to help them stay well.”


    SRA, which operates a clinic at its headquarters and sends its three-nurse staff to visit other sites, strives to proactively manage the cases of employees who seek care. In addition to checking the blood pressure of employees with hypertension and monitoring asthma sufferers’ lung function, SRA’s nurses will suggest diet, exercise and other lifestyle changes, and then monitor the patients to make sure they’re following directions and benefiting from the recommendations.


    “Health costs are increasing because health care isn’t getting to the root of the problem,” Curling says. “You can’t just treat symptoms. You’ve got to coach people and help them to change underlying behavior that contributes to the problem. Their regular doctors don’t have time to do that, but we can.”


    SRA’s nurses also help employees cope with one of the most stressful health-related problems–the difficulty of caring for a sick family member, whether it’s a child with cancer or an elderly parent who is frail. “If mom and dad are in another state, and they’re having a lot of problems, you may spend a lot of your workday calling around and trying to find help for them,” Curling says. “Here, you can bring in their medication list and have our nurses look at it, to be sure they’re getting what they need.”


    SRA also does its own aggregate analysis of employee health cases–with the identifying data stripped out, for privacy protection–in an effort to spot patterns of health concerns in its workforce that the company can remedy. “Our data showed a correlation between the birth of new babies and emergency-room visits,” Curling says. “As a result, we saw that our people could benefit from a new-baby coaching program. We teach them some basic skills, so that if it’s 4 a.m. and the kid is crying, they have other options besides rushing off to the ER.”


Because SRA puts so much effort into managing employees’ health, it also is able to keep a tight rein on costs. The company often has been able to reduce the financial reserve required by the insurance underwriters by showing them that cost projections for disability benefits are unnecessarily high.


    SRA’s health-care ingenuity often does get employees back at their desks with startling speed. For example, when one employee suffered a serious fracture of her wrist, Curling recalls, the workers’ compensation insurer proposed keeping the woman at home for 10 weeks to heal. “One of our nurses, Karen Amato, started working with the employee to analyze the problem,” Curling says. The answer was voice-activated computer software, which would allow her to work and let the wrist heal, without taxing her other arm. “Instead of 10 weeks, the person was back at work in nine days, and she was a lot happier.”


Workforce, July 2003, pp. 41-42 — Subscribe Now!

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Search and Employ

The director of staffing for Chiron Corporation, a Silicon Valleybiopharmaceutical firm, Anthony Damaschino is used to filling jobs in scientificspecialties that are so exotic and arcane that only a handful of potentialcandidates in the entire world would qualify to fill them. But one recentassignment really had his recruiting staff stumped. “We needed to hire apharmacist for one of our labs,” he says. “Not someone with fancy researchcredentials–just a person with some pharmacy experience. You’d think thatwould be easy, right?” After trying Web-based job boards and numerous othermethods, Damaschino’s team discovered, to their surprise, that the labormarket for ordinary run-of-the-mill pharmacists is nearly as tight as it is forelite oncology researchers. They were forced to be considerably more creative.

    “Two of our recruiters went down to the local Walgreen’s,” Damaschinosays. “They talked to the pharmacists behind the counter–not to hire them,but to get their ideas. How would we get in touch with pharmacists? Where dopharmacists hang out on the Internet? If they were trying to hire anotherpharmacist, how would they go about it?”


    As it turned out, the Walgreen’sstaffers offered some leads from their own personal network of colleagues, andwhile Chiron is still in the process of filling the job, the company now hasrésumés from bona fide candidates to consider.


    That’s the sort of ingenuity that Damaschino has sought to instill in hisfirst year and a half at Chiron, where he has been entrusted with an unusualmission. He’s not the first humanresources professional hired to create an in-house recruiting operation fromscratch. But he’s likely one of few who have had to create one at an alreadyestablished, successful multinational company, let alone one in amind-bogglingly complex technology business–biopharmaceuticals–where thereis intense competition for a small pool of elite job candidates with highlyspecialized skills. And in a field where expiring patents continually force acompany such as Chiron to develop new drugs and other products and get them tomarket, there’s little margin for hiring mistakes.


    To deal with those realities, Damaschino has devised a system that gives himstrategic control while simultaneously allowing recruiters to work closely withmanagers in Chiron business units and grasp the intricacies of their work. Hehas also upgraded Chiron’s applicant-tracking technology. Perhaps mostimportant, company recruiters now use focus groups and other research to developa detailed image of the ideal candidate for a job, down to nuances such as whichWeb sites he or she might prefer. They then use that profile to guide them tothe most likely places to find the person.


“If you’re going to hire top scientists, you need to understand them–whatbooks are on their shelves, what they listen to on the radio.”

    “If you’re going to hire top scientists, you need to understand them–whatbooks are on their shelves, what they listen to on the radio,” says the35-year-old Damaschino, who confesses to sometimes stealing a peek at thedesktop clutter of Chiron’s scientists as part of his research. “We’retrying to develop what I call a ‘persona.’ Most human resources people wouldcall it a profile, but that implies that you’re just looking atqualifications. A persona includes both qualifications and aspects of behavior.”He pauses and then laughs. “Also, it sounds more strategic, doesn’t it?”


    Damaschino can afford a little self-deprecating levity. Chiron producesanti-cancer drugs, vaccines to combat life-threatening diseases such asmeningococcal C, and tests that protect the world’s blood supply from HIVcontamination. This spring, when the first reports emerged from Asia of themysterious, potentially deadly Severe Acute Respiratory Syndrome, Chironassigned a team of 15 scientists to search for a cure. “If you’re using ourproducts, chances are that you’re really sick,” he notes. The market formedical miracles persists even in a stagnant economy, and last year Chironposted a healthy $232 million profit on $1.2 billion in revenue.


    At a time when many companies are agonizing about how to deal with layoffs,Damaschino faces the sort of challenge that many human resources managers wouldcrave.


    Chiron has 3,700 people in 18 countries ranging from India to Italy. Over thenext year, the firm will have to increase its workforce by more than 10 percent.A recent list of Chiron’s current openings on Biospace.com had 89 positions,including a lab technician experienced in sterile handling procedures, amechanical engineer to maintain temperature controls in labs and productionfacilities, a safety specialist qualified to track the health of human researchsubjects, and a manager to plan the marketing of Chiron’s cancer drugs.


    While it may seem as if Damaschino is sitting on top of the world, runningthe job-recruiting operation for a booming biotechnology company isn’t easy.For one thing, the supply of talent in the industry is extremely tight. “Unemploymentmay be 6 percent in the overall economy, but there’s probably only a 1 to 2percent rate in biotech specialties,” says Kevin Wheeler, president of GlobalLearning Resources, a Silicon Valley-based human resources consulting firm. “Collegesaren’t producing enough science graduates, and people with experience are evenharder to come by.”


    To make matters more difficult, when Damaschino joined Chiron in early 2002,the 23-year-old company was just completing a radical transformation underthen-CEO Sean Lance. It leapfrogged from being a research-oriented outfit betterknown for great science than business success to being an aggressive companytightly focused on bringing products to market in three key areas–infectiousdisease, blood-testing technology, and cancer. But even as Chiron rose to becomeone of the biggest biotechnology players in Silicon Valley–its $7.5 billionmarket capitalization is surpassed only by Genentech andGilead Sciences–the company was struggling with recruiting methods that hadnot kept up with its growth.


    For most of its existence, Chiron had clung to what Wheeler calls the “academic”model of recruiting. “There’s the equivalent of the biology department, theaccounting department, and the English department, and an administration abovethem that is barely noticeable. The departments handle their own hiring, mostlyby getting on the phone and working their own professional contacts. All of thebiotech companies usually start out like that because the founders come fromuniversities. The managers don’t like the idea of relying on corporaterecruiters. Their thinking usually is ‘I’m a scientist and you’re not, sowhat the heck do you know about hiring scientists?’ Usually what happens isthat once a company grows beyond a certain size and evolves from doing scienceto making products, they realize that they can’t just keep dipping into theirRolodexes, because they need people with skills the company doesn’t have.Chiron, though, stayed at that stage a bit longer than most, so they had somecatching up to do.”


    To solve its problem, Chiron hired a human resources professional with anunusual background. Damaschino, a Bay Area native, earned a political sciencedegree at the University of California-Santa Barbara. He began his businesscareer at human resources software maker PeopleSoft, in Pleasanton, California,where he worked in marketing and developed domestic and overseascustomer-support staffs. “Instead of beginning with traditional touchy-feelystuff [in human resources], I was starting from an analytical, business-orientedview. I think that gave me a sense of the big picture that’s really helped.”He later rounded out his skills by moving to Groundswell, a Pleasanton-basedWeb-portal firm, where as vice president of human resources he handled employeeissues ranging from performance management to retention.


    When Damaschino arrived at Chiron, he had a makeshift mess to clean up. Thecompany was beginning to realize that its managers no longer had time to dotheir own hiring. It was trying to get the job done with freelance recruiters.The latter sat together in a row of cubicles at headquarters, waiting formanagers in the business units to come to them with assignments. “Theconsultants didn’t really know anything about the business–who the managerswere, what sort of needs the operation really had,” he recalls.


The real test of Damaschino’s methods lies ahead, when the inevitableeconomic recovery makes an already tight market for talent even tighter.

    The arrangement had other drawbacks, too, says Master Burnett, an associateat Dr. John Sullivan and Associates, a Pacifica, California-based humanresources consulting firm. “Outside recruiters tend to focus on what benefitsthem,” Burnett says. “Because they’re earning a commission, they’ve gotan incentive to focus on filling the jobs with the highest salary level. Butthat may not be where the company has the most critical need.”


    Damaschino quickly replaced the freelancers with a five-member staff offull-time recruiters, and made another important change. He dispersed them intoChiron’s various business units, such as pharmaceutical manufacturing andblood-testing products. That enabled them to sit in on meetings, talk frequentlywith managers, and gain some familiarity with what their hires actually did forthe company. Burnett says this was a deft move on Damaschino’s part because itnot only won the trust of the managers in those units, but also enhanced hisrecruiters’ credibility with the job candidates they were trying to lure. In ahighly technical field such as biotechnology, “I don’t think there’sanything that impacts the recruiting process more than the ability to have aknowledgeable professional conversation with a candidate on that first call,”Burnett says. “You’re a lot more likely to grab that person’s interest.”


    Before Damaschino’s arrival, Chiron’s haphazard hiring operation keptrecords and communicated mostly on paper printouts–an oddly antiquatedapproach for a Silicon Valley technology company. “There were a fewcontractors keeping data in Microsoft Outlook,” he says, “but that was aboutit.” He remedied that by switching to a suite of Web-based softwareapplications developed by Hire.com, which enabled managers and recruiters toaccess and share information about candidates quickly from their desktops.


    Damaschino also set out to systematically analyze Chiron’s hiring needs. Hequickly deduced that while the firm still needed elite scientists for its labs,the recruiting operation would help the company more by focusing on thetechnical talent required to manufacture the medicines and other products thatresulted from the researchers’ discoveries. “Because Chiron is one of thecompanies with a reputation for science, a lot of times the researchersgravitate toward us anyway,” he says. “And if there are only six or sevenpeople in the world who can do something, it’s not that tough to figure outwho they are and go after them. The hardest jobs to fill actually are themid-level jobs–someone who’s got 10 years’ experience in pharmaceuticalQA/QC [quality assurance/quality control], for example. There aren’t enough ofthose people to go around, and every biotechnology company wants them becauseyou need to make products to make money.”


    One way to acquire such talent is by raiding competitors, but Damaschinotries to avoid that if he can. “For the most part, I think pillaging is alosing proposition. If you steal other companies’ phone lists, they’re goingto turn around and try to steal yours. It becomes just an endless loop.”Beyond that, he worries that such hired guns may turn out to be poor fits atChiron. “There’s nothing worse than working hard to get someone in here, anddiscovering that they don’t really buy into the company’s ideals and don’tfeel like they’re a part of things,” he says.


    Instead, he prefers to find job candidates who are already in the market,through carefully focused search methods. By doingfocus-group interviews of Chiron employees, for example, Damaschino’s teamlearned that Ph.D.s prefer to listen to news programs on National PublicRadio during their morning commute, as opposed to rock music or sports-talkstations. As a result, when Chiron conducted a job fair targeted at finding morequality-assurance professionals, the company publicized it throughdonor-recognition spots on a local publicradio station. “We were hoping to get 100 people to show up,” Damaschinosays.


    “We got 345.” Similarly, Damaschino abandoned Chiron’s old practice ofposting job openings on all-purpose Web sites such as Monster.com whenfocus-group researchrevealed that biotech professionals tend to visit specialized sites such asBiospace.com and Medzilla.com. “We immediately started seeing more qualityapplicants,” he says.


    Chiron also has developed another subtle tactic for getting to potential jobcandidates before the competition has a chance at them. Damaschino’s team paysclose attention to the rumor mill for hints of impending restructuring at otherbiotechnology or pharmaceutical companies. When they recently learned that a NewJersey-based pharmaceutical firm might lay off 3,000 workers, forexample, Damaschino quickly contacted that company’s human resourcesdirector. “I offered to save him a lot of money on outplacement,” Damaschinosays. “Instead, he could refer his employees directly to us.” The New Jerseycompany readily agreed, and even set up a link on its outplacement Web site sothat employees could send their résumés to a special e-mail box at Chiron.


    Damaschino’s team also learned that not all Chiron workers needed anadvanced science degree, or even a college diploma. Instead, many jobs inpharmaceutical production can be filled by laid-off workers from Internetcompanies or manufacturing firms. “There’s an untapped segment that nobodythinks about–people who’d never imagine that they could get intobiotechnology, but would do an excellent job for you,” he says.


    Chiron looks for such candidates through local organizations such as BerkeleyBiotechnology Education, Inc., which retrains unemployed workers. Damaschinoactually sees that entry-level labor pool as a potential source of more advancedtechnical talent down the line. “We provide $5,000 a year in educationassistance to employees, and we’ve got 350 to 400 of them utilizing it rightnow,” he says. “Remember, not every hotshot developer at a software companywent to MIT. You can work your way up through the ranks in biotechnology aswell.”


    The real test of Damaschino’s methods lies ahead, when the inevitableeconomic recovery makes an already tight market for talent even tighter. “Thebiotechnology companies were already heading into a serious talent shortage in2000, when the downturn hit and actually eased the pressure,” Wheeler says.”But when the economy picks up again, we’re going to be back to the sameproblem, only worse.”


    While that may make Damaschino’s work a lot more difficult, it’s unlikelyto dampen his enthusiasm. “Recruiting, I think, is the absolute best part ofhuman resources,” he says. “It’s one of the rare win-win deals in life,because you’re helping the company but you’re also helping the person. Humanbeings, after all, define themselves by what they do for a living. They think,‘I’m a scientist,’ not ‘I watch Friends and drive a nice car.’ There’snothing I like more than giving somebody a job.”


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Cisco’s Homegrown Gamble

With bold unwavering confidence, John Chambers, president and CEO of CiscoSystems, set out to amass the top 10 to 15 percent of technical talent in thefield. It was the late 1990s, and his groundbreaking Silicon Valley tech empirewas riding the New Economy boom, developing a reputation for its extremelyaggressive–and often highly creative–recruiting efforts. Sometimes the firmbought small companies simply to acquire their best engineers.

In an effort to lure star players from competitors, Cisco resorted to thesort of brash marketing tricks used to hawk soft drinks and sneakers. To gaininsight into the likes and dislikes of potential hires, it held focus groups tolearn what sorts of movies and Web sites were favored by the best and brightest.Hoping for chance encounters with possible hires, recruiters fanned out toplaces like garden shows and microbrewery festivals. The firm even rigged itscorporate Web site to spot visitors from rival 3Com and greet them with aspecial page that said, “Welcome to Cisco–would you like a job?” Formervice president for human resources Barbara Beck once told the WashingtonPost:”If someone was aggressive enough to try to check up on their competitor, wefigured we could use that person.”


Back when it was flying high, Cisco’s hiring and retention practices wereviewed as keys to its success. To keep ahead of the competition, the companydrew in top talent at an enviable rate. Now, with revenue stagnant and companystock way down, it has had to adopt new practices, approaches some experts thinkmay hurt the company in the long run by hindering the flow of talent and ideasthat makes the company great.


Just a couple of years ago, Cisco, the dominant producer of hardware andsoftware for routing traffic on the Internet and on corporate networks, was oneof the fastest-growing companies anywhere. For a brief moment in early 2000,Cisco’s market capitalization of $500 billion made it the most valuablecompany in the world. But these days, with its stock hovering at about a thirdof its peak value and its sales flat over the past two years, the San Jose,California, company is operating in a radically different mode. In the spring of2001, for the first time since the company’s founding in 1984, Cisco cut itsstaff, laying off 8,500 employees, nearly a fifth of its workforce, andsubsequently began consolidating and streamlining its far-flung operations.These days, the company’s human resources team is facing the difficult task ofhelping employees and management cope with both a tough economy and thenecessary evolution of Cisco’s corporate culture.


The party isn’t over–far from it. But Cisco, like so many other bigcompanies, is changing, experimenting, and rethinking the way it recruits,hires, and trains its employees, and how it will maintain its winning culture.Today when the company must fill a key position in one of its business units,for example, the talent often comes not from the outside, but from another Ciscounit–with the help of a network application, Pathfinder. The software allowsCisco employees to search for jobs that interest them and contact thesupervisors directly to set up interviews.


“It was amazing how little time and effort the whole thing took,” saysAshish Gupta, a Cisco engineer who used Pathfinder to move from a strugglingunit to one with brighter prospects. “Within a month, I was in my new cubicle,working.” Though the move was lateral, he was pleased with the chance to keephis Cisco salary and benefits, at a time when many other Silicon Valleyengineers are out of work.


Human resources executives have devised innovative ways to help laid-offemployees, including a program that paid them a portion of their salary andbenefits if they went to work for a local charity or community organization. ButCisco also must help its remaining 35,000 employees maintain the focus andentrepreneurial spirit that originally made the company so successful, at a timewhen there are few opportunities for advancement or raises and the pressure toproduce is increasing. At the same time, Cisco is trying to achieve an ambitiouslong-term strategic goal. It’s seeking to transform itself from a “buy”culture, in which growth was sustained and expertise obtained via corporateacquisitions, to a “build” model, a leaner, more agile company focused ondeveloping talent internally.


Academics and consultants say the jury is still out as to whether Cisco canremake its culture so radically–and whether it’s a wise strategy.

Academics and consultants say the jury is still out as to whether Cisco canremake its culture so radically–and whether it’s a wise strategy. “In myopinion, they’re making a mistake,” says John Sullivan, a professor ofmanagement at San Francisco State University and a founder of CaliforniaStrategic Human Resource Partnership, a consortium of 33 leading senior vicepresidents of human resources from Fortune 500 firms. “Cisco was the top brandin the world, but it got tarnished. They’ve got to rebuild the brand, to getout and remind everybody that they’re the best. Instead, what they’re doingis moving away from a lot of what made them great.”


Maintaining a humane culture
    Cisco is reluctant to discuss its strategy and tactics for coping with thechallenges of a downturn. The company’s senior vice president for humanresources, Kate DCamp, declined to talk to Workforce, and a subordinate, HollieCastro, senior director of human resources for worldwide business functions,provided few specifics in a half-hour interview. A public-relations officialanswered some additional background questions. That reticence is a markedcontrast to the boom years of the 1990s, when a Wired story described Cisco as aplace where cubicles were filled with “shiny, happy people,” so blissfullycontent with their jobs that they regarded 60-hour weeks as “electronicheroin.” Mindful of the $250,000 cost of replacing every engineer who left tojoin an Internet start-up, Chambers and then vice president for human resourcesBeck set out to keep employees so exultant that they wouldn’t even takerecruiters’ calls.


The company achieved an attrition rate of less than 9 percent–remarkable bySilicon Valley standards–by focusing on workplace satisfaction down to thesmallest details, such as putting executives’ offices in the middle of floorsso that rank-and-file workers could have the windows. It offered a dazzlingarray of benefits, such as a state-of-the-art day-care center equipped with “nannycams” so that employees could check in on their kids without leaving theirdesks. And Chambers was quick to offer support whenever an employee needed help.Once, when a Cisco worker’s home burned down, the human resources departmentasked Chambers for permission to advance funds to the person until an insuranceclaim came through. The CEO’s response: “Double it.”


Even when Cisco was compelled to furlough 8,500 workers in the spring of2001, the company put a lot of effort into easing their pain. Chambers, who cuthis own salary to $1 in order to save jobs, visited the company’s outplacementcenter in an effort to boost morale. The company gave six months’ severancepay to those who had to leave, contacted recruiters from other companies ontheir behalf, and even assisted workers who were foreign nationals instraightening out possible problems with immigration status.


As DCamp, who became head of human resources in mid-2001, explained in apublic radio interview in January, the company wanted departing employees tohave the attitude that “I’m going to go out and find a job, and come back toCisco when conditions permit.” To make that a reality, Cisco developed aninventive program in which it agreed to pay employees one-third of their salaryand continue their health benefits and stock-option grants if they agreed towork for a local charity or community organization. About 80 employees took theoffer, and the company recently renewed 40 of them for another year.


As a result, Cisco seems to have lessened the deterioration in employeesatisfaction that other companies have suffered. In 2001, it won third place on Fortune’s list of the 100 best companies to work for in America, an honorbased on confidential interviews with employees. In 2003, Cisco is still rankedin the top quarter of the list, at number 24–a remarkably slight decline for acompany that has had major layoffs and restructuring.


Retaining values that spurred growth
    Still, the mandate for Cisco to streamline its operations has producedstress. During the 1990s, when the firm was continually acquiring companies andadding up to 1,000 workers a month, it didn’t waste time worrying aboutefficiency. It was known to launch separate, competing development teams in aneffort to get the best possible product. “This was a company that planned forgrowth,” Sullivan says. “They didn’t plan for shrinkage.”


Cisco now has had to shift its talent to the most promising places. Ratherthan resort to wholesale reassignments, however, Cisco adopted a somewhatunorthodox approach that gives employees a choice of where they go in thecompany. It created and launched the Pathfinder software application on itscorporate network. Pathfinder enables employees to load their résumés andqualifications into the system, sift through a database of openings throughoutthe company by location, career level, and other criteria, and then contact thehiring managers in other business units directly. While Cisco is far from beingthe first company to use such software, it has relied heavily on Pathfinder.About 20 percent of the company’s engineers have used the system to changejobs, according to a Cisco official.


Cisco engineer Gupta, one of those who have used Pathfinder, believes thatthe system reinforces the workplace values that helped make Cisco successful,such as personal initiative and an emphasis on skills rather than schmoozing asthe route to success. “The program makes it possible for an engineer like me,who might not know a lot of people outside his unit, to find opportunities,”he says.


Sullivan, however, thinks such a free-form flow of talent around the companymight actually hinder Cisco’s ability to cope with an increasingly mercurialmarketplace. Compared with some of Cisco’s other management tools–executivescontinuously track and analyze sales performance over the Internet, for examplePathfinder seems surprisingly unsophisticated. It doesn’t contain anyintelligent capabilities, for example, that would guide workers to jobs wherethey are most needed. “What you really want is your A players, your topperformers, going to growth areas,” Sullivan says. “This system doesn’thelp put them there. It’s not easy for people to figure that out bythemselves. What you have instead is the chance that top performers may end upin places where they’re not going to make much money for you.”


Additionally, Pathfinder has met resistance from Cisco managers, who face theprospect of losing staffs that they’ve worked hard to develop. “I know themanagers dislike it,” says Kevin Wheeler, president of Global LearningResources, who has worked for Cisco as a contractor. “But the reality is thatif you’re a good manager, your employees are less likely to be out therelooking.”


Going from buy to build
Joe Strongone, worldwide talent resourcing manager, says that one purpose ofthe Pathfinder system is to allow employees to move within the company anddevelop skills that facilitate Cisco’s goal of relying on internally nurturedtalent. The company continues to strive to employ the best technical talent inits industry, he says. “We’re trying to develop all our people to be thattop 10 to 15 percent.”


“In the past, people at Cisco would have viewedtheir careers as moving up through the company. We’retrying to grow in a different way.

During its high-growth years, Cisco was the business equivalent of a baseballteam that wins pennants by continually luring superstar free agents away fromother franchises. By contrast, the new Cisco is determined to stick with theplayers already on the roster, with the aim of further developing their talent.For those employees, however, the development process may often mean movinghorizontally, since Cisco’s streamlining and consolidation mean feweropportunities for promotion. “In the past, people at Cisco would have viewedtheir careers as moving up through the company,” Castro says. “We’retrying to grow in a different way.”


Cisco also is trying to give employees more exposure to others outside theirown business units. The company hopes to do this through initiatives such as itsBusiness Cooperation Council, which brings together individuals from far-flungbusiness units to work on common projects.


Like Pathfinder, the “build” approach isn’t totally novel, but it’s asurprising turn for Cisco. “Lots of companies have begun to think again aboutdeveloping talent internally, though few actually have made a big move in thatdirection,” says Peter Capelli, director of the Center for Human Resources atthe University of Pennsylvania’s Wharton School. “What’s interesting isthat Cisco really was unique in its buying of talent.”


The “buy” mentality has long been woven integrally into Cisco’sstrategy. Most of its product line was created by engineers who came to Ciscowhen it acquired smaller companies, according to a 2000 study by StanfordUniversity professors Charles A. O’Reilly III and Jeffrey Pfeffer. Much ofCisco’s competitive advantage, in fact, came from the company’s skill atmaking talent from acquisitions feel comfortable enough to stay with Ciscorather than fleeing, as “new” employees often do. Those periodic additionsof top performers enabled Cisco to aim at quickly becoming first or second inevery segment in which it chose to compete.


San Francisco State’s Sullivan is skeptical about whether Cisco can achievethe same high performance level while relying mostly on internally developedtalent. “In the past, great people got even better when they came to Cisco,but it wasn’t because of Cisco’s training,” he says. “It was becausethey continually put some new guy next to you who was smarter than you were, andyou had to find a way to keep up with him. I remember somebody admitting to meonce, ‘I feel stupid when I go into work at Cisco.’ When you just buildinternally, you don’t have that sort of fear factor, the pressure that makesyou keep getting better and better.”


Even if a “build” culture can produce the same results, another questionis whether it can deliver quickly enough to keep Cisco on top. In February,Cisco posted a record quarterly profit of $991 million for its most recentquarter, up nearly 50 percent from the comparable period in 2001. But analystssay those numbers are chiefly the result of cost cutting measures. Sales actuallyslipped slightly, and the company doesn’t expect any growth this year.


Over the horizon, Cisco faces increasingly tough competition from new playerssuch as China’s Huawei Technologies and domestic computer giant Dell, whichwill try to undercut Cisco with cheaper networking hardware and software. JohnChambers has indicated that Cisco will try to compete both on price and byinnovating on high-end features such as network security. Those challenges willprovide an early indication of how well Cisco’s new culture can supplant theold.


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Unite or Die

It’s tough to be upbeat, personable, and focused when your recently bankruptcompany is losing up to $22 million a day and fighting for survival. But GlennF. Tilton, chairman, president, and chief executive of UAL Corporation, theparent company of United Airlines, did an admirable job of it. It was earlyDecember, and Tilton–barely two months into his tenure–worked his way througha roomful of airline mechanics at San Francisco International Airport, shakinghands all around. Without retreating behind a podium, he fielded questions on adifficult subject: what United could do to survive and to re-emerge as a viableairline-industry player. As reported by the San Jose Mercury News, Tilton said, “Theissue is not how many jobs we lose, but how we are going to compete in a marketthat’s changed dramatically.”

It was one of many such meetings with employees that Tilton would conduct infive cities over a three-day period. By several accounts, he received ravereviews from his workforce. One union officer described him as a “straightshooter,” while a pilot noted that “every time he opens his mouth, he seems tosay the right thing.”


“Theissue is not how many jobs we lose, but how we are going to compete in a marketthat’s changed dramatically.”
–Glenn F. Tilton

The United CEO also earned plaudits from human resources experts, who said itwas exactly the right tactic for a leader trying to turn around a sinking,strife-filled organization–one that must cut $2.4 billion a year from its laborcosts to stay in business. “Tilton’s interaction with front-line employees is akey success factor for United right now,” says Jody Hoffer Gittell, an assistantprofessor at Brandeis University’s Heller School for Social Policy andManagement and an expert on using human resources to boost performance atairlines. She says the face-to-face reassurance from Tilton was an importantfirst step toward building “a reputation of credibility and caring.” She seesthat as an essential for rallying the Elk Grove, Illinois-based airline’sworkers–about 78,000 full and part-timers in late January–to persevere throughwage cuts and other austerity measures.


Tilton must do more than cut expenses, say academics and businessconsultants. In the short run, United’s management must gain the workforce’sconfidence and cooperation simply to keep the airline running. But over thelonger term, Tilton will have to overhaul an ailing corporate culture longplagued by tension between management and unions, divisions among the workersthemselves, miscommunication, and resistance to change. He must replace it witha new model that emphasizes flexibility, cooperation, teamwork, and commitment.For inspiration, industry experts point to the successful human resourcesstrategies of some of United’s competitors: Southwest, whose vaunted efficiencystems in large part from management’s ability to get along with and motivate itsunionized workers; low-cost upstart JetBlue, with its streamlined bureaucracyand effective two-way internal communication; and bankruptcy survivorContinental, which reinvented its dysfunctional culture in the mid-1990s byreplacing ineffective managers and giving workers a voice in shaping itscomeback strategy.


Whether Tilton will be able to accomplish such a transformation at Unitedremains unclear. Previous chief executives have also tried to alter theairline’s culture, only to fail. Even if Tilton does succeed in remaking United,there’s the question of whether changes are coming too late to make a differencein the company’s fate, given its financial ill health and a stagnant economy. Asone United mechanic told the San Francisco Chronicle: “Everybody’s crossingtheir fingers and hoping this guy is the guy to do it, because he’s all we’vegot right now.”


Disgruntled employees contributed to United’s plight
    Publicly, Tilton has so far offered few specifics about the reorganization,other than his intention to launch a new discount airline to compete withJetBlue and other airline companies–an idea that sounds a lot like the UnitedShuttle, an experiment that the company tried for seven years but ultimatelyabandoned in 2001. In an interview with BusinessWeek, Tilton seemed intent onmaking measured adjustments and improvements to the failing airline’s sprawling,complex operation, rather than tearing it apart and building anew. While Unitedmust transform itself, he cautioned, the company “can’t go back to a blank sheetof paper.”


But if there’s one area in which United needs revolutionary change, it’shuman resources. The company’s labor costs, according to a J. P. Morgananalysis, are the highest in the industry. Then there are work rules–pilots,for example, fly only about 60 hours a month, compared to 80 for Southwest–thatexperts say are efficiency-busters. Costs at competitor Southwest are far lower,in part because management has been able to convince unions to accept lower payand minimal rules. The reason: the upbeat, cooperation-oriented culture createdby Southwest legend Herb Kelleher. “Workers at Southwest are delighted to bethere, work hard for less pay, and feel like part of the team,” says Universityof Chicago business school professor James Schrager. “United has more of thetraditional union/management model, where there is a constant fight over goalsand outcomes.” Indeed, from 1997 to 2002, the human resources division at Unitedwas headed not by a career human resources executive but by William P. Hobgood,an attorney and former U.S. Department of Labor official whose expertise was inlabor negotiations.


Gittell, author of The Southwest Airlines Way: Using the Power ofRelationships to Achieve High Performance (McGraw-Hill, 2002), says one key tothat airline’s success has been promoting “relational coordination”–that is,strong, trusting partnerships between managers and workers that allow allconcerned to execute the mind-boggling intricacies of making an airline runsmoothly. Instead of imitating Southwest’s human resources ideas, Gittell says,United has either ignored them or tried them only halfheartedly. At United, “employeesare hired for functional skills rather than relational skills,” she says. “Performanceis measured in a functionally specific, divisive way, rather than allowingcross-functional responsibility for performance.”


United has made some attempts to innovate–in particular, its experiments inthe mid-1990s with an employee stock-ownership plan and the introduction of theUnited Shuttle, a low-cost, no-frills, high-efficiency clone of Southwest. Whileboth ideas generated bursts of employee enthusiasm, Gittell says, the effect wasshort-lived. One reason was poor conception. The ESOP, for example, gaveemployees 55 percent of United’s shares in exchange for pay and benefitreductions from 1994 to 2000. But workers soon discovered that tax laws tookaway much of the financial benefit of the stock grants, and since flightattendants didn’t participate in the plan, the distribution created groups withdivergent interests. Beyond that, stock ownership didn’t translate intoinfluence in day-to-day operations–though it did create plenty of nervous,angry worker-shareholders as United shares gradually lost close to 90 percent oftheir value between 1998 and 2003. And while the United Shuttle’s innovationsenabled planes to get in and out of the gate more quickly and cheaply, bothmanagement and unions resisted some of the ideas and gradually watered themdown, until the project finally was discontinued in late 2001 as part ofcost-cutting.


Poor communication between management and employees also has hurt United,according to Wayne Cascio, a University of Colorado-Denver management professor.He cites the airline’s costly imbroglio in the spring of 2000, when pilots wereangered by what they saw as foot-dragging in contract negotiations. Then theyfelt blindsided when they discovered that then-CEO James Goodwin secretly hadbeen pursuing a merger with U.S. Airways, which would have caused many to losetheir seniority. The result was a work slowdown that resulted in thecancellation of tens of thousands of flights. Ultimately, the pilots were givena placating raise that incited other workers to demand more money, and thatdrove up costs.


Continental’s response to crisis
    Can United be resurrected? Industry leaders point to other companies thathave made comebacks from similarly dire straits. Continental, which wentbelly-up in 1983 and again in the early 1990s, is the most notable example. In a1998 Harvard Business Review article, former Continental president and chiefoperating officer Greg Brenneman reported that pilots routinely turned downair-conditioning on flights–despite passengers’ discomfort–because of amisguided policy that gave them incentive pay for reducing fuel consumption.Supervisors tended to concentrate more on winning promotions by sabotagingin-house rivals than on improving the airline’s performance. Management’simplicit communication policy was “don’t tell anybody anything unless absolutelyrequired,” Brenneman wrote. Employees were expected to adhere to the “Thou ShaltNot” book, a nine-inch volume of arcane rules, even if it meant displeasingcustomers. Morale was so low that when he visited a facility in Houston,Brenneman was shocked to discover that employees had torn the airline’s logo offtheir uniforms in embarrassment.


As a result, when Brenneman and his boss, chief executive Gordon Bethune,devised a rebuilding plan for Continental, they realized they had to fix morethan just the airline’s finances and market share. They also strove to jettisonContinental’s negative environment and replace it with a new culture. They fired50 of Continental’s 61 corporate officers in the first few months and weeded outincompetent managers at all levels–and aggressively recruited the topmanagement understudies from their competitors to replace them. To showemployees that their judgment was trusted, they made a show of burning the “ThouShall Not” book in a company parking lot. They instituted a “tell everybodyeverything” communication policy and installed hundreds of bulletin boards atContinental facilities. To give employees a voice in company plans, Brennemanand Bethune directed each corporate officer to visit a city where Continentalhad operations at least once per quarter to brief workers on the airline’s plansand to seek feedback. The company continued to pay incentives, but tied them toContinental’s financial performance.


The airline rebounded strongly. Although the September 11 attacks plunged theentire industry into a brutal slump, Continental has not been hurt as badly asUnited. In the most recent quarter, as United was forced to declare bankruptcy,Continental was reporting revenue growth that beat Wall Street expectations.


Overhauling a failing corporate culture
    It might seem as if United should simply copy Continental’s or Southwest’shuman resources blueprint. But emulating the tactics without real philosophicalchange won’t work. In recent years, United also has tried to improve itsinternal communication, setting up a toll-free hotline and an online chat thatemployees can use to offer suggestions or air problems and criticisms. But thosetechnological tools haven’t solved management’s and workers’ fundamentaldifficulties in communicating, and the resulting frustrations.


“Basically, United has a culture where the players have a win-loseorientation,” Cascio says. “But everyone is pitted against each other, ratherthan seeing that they all win if they beat the competition.”


Instead, what United desperately needs to do, experts say, is replace thatfailed culture with one emphasizing cooperation, trust, and teamwork–the samecore values that helped strengthen Continental and Southwest. The first step isfor Tilton to regain employees’ trust. But in addition to making appearances andpressing the flesh, it’s crucial for him to not make any initial flubs thatwould destroy his credibility with workers. United’s human resources division,in turn, has its own crucial role to play. Tilton must compensate for hisnewness and lack of firsthand knowledge of the airline industry. “They have toserve as his archivists, to make sure he’s fully aware of company history whenhe makes a move,” says Peter Cappelli, director of the Center for HumanResources at the University of Pennsylvania’s Wharton School. “It would bedisastrous for him to be caught proposing something that didn’t work 10 yearsago. The workers will pick up on that, and write him off.”


Tilton has to show workers that he really has a strategy for saving thecompany, beyond just subjecting them to more wage cuts. One way to accomplishthat is to enlist the workforce in creating the nuts and bolts of that strategy.Last September, before United declared bankruptcy, Tilton announced that he wasputting together a task force of company officials and outside experts to lookat ways to improve productivity at United, and that the group would reviewemployee suggestions. University of Colorado-Denver professor Cascio, who’sstudied successful downsizing efforts, thinks Tilton needs to go much further.


“United has tended to look at its workforce as a cost rather than as a sourceof innovation,” he says. “Tilton has to change that.” If Cascio were in charge,he’d bring representatives from United’s employee constituencies together andform a group to brainstorm about improving efficiency without harming customerservice. “Look, let’s face it–the customers are the only ones who are going tosave this airline. Management needs to get ideas from the people who are closestto the customers. All the wage and expense cuts in the world aren’t going tohelp if the customers flee because service deteriorates.”


As a start-up in the late 1990s, JetBlue used a similar approach to avoid the”culture of blame” that inevitable snafus at a new airline could create,according to a Harvard Business School case study written by Gittell andStanford business professor Charles A. O’Reilly III. JetBlue created “TigerTeams” to come up with solutions for persistent problems–and made a practice ofappointing as members the worst complainers among the employees. That encouragedthem to focus on solutions rather than criticism. The Southwest model includesinvolving workers in planning, gaining greater flexibility and efficiency bygetting rid of cumbersome work rules, and making job descriptions more elastic.


Tilton already has expressed an interest in starting a new low-cost service.Gittell recommends that he take a long look at the innovations that were part ofthe mothballed United Shuttle project. By experimenting with procedures, Shuttlecrews found that they could empty a plane of passengers and luggage, performnecessary maintenance and safety inspections, and reload the plane for takeoffin half the time it usually took. Flight attendants were allowed to try thingssuch as using trays to deliver drinks instead of pushing cumbersome carts downthe aisle–a trick that speeded up service and allowed them to give customersmore personal attention.


Whether Tilton will be able to effect such sweeping changes–and to save theairline–is anyone’s guess. Continental did emerge from bankruptcy. Once-bignames such as Eastern Airlines, Pan Am, and TWA did not. Nevertheless, when herecently met with United employees in Denver, Tilton seemed determined to moveupward and onward. As reported in the Rocky Mountain News, the unwavering CEOdeclared, “We cannot afford to indulge ourselves in looking back. We don’t havethe time.”

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Optimas Health Partners Delivers Training that Works

It was October 1999, and inside the offices of Health Partners, the360-person workforce was anxious. The nonprofit organization, which administersMedicaid and Medicare coverage for 130,000 patients in the Philadelphia area,had spent two and a half years and $3 million building and installing a majorupgrade to its data-processing system. Technicians finally were poised to flipthe switch.

To the company, the new system was a godsend–a software tool sophisticatedenough to cope with the mountains of data on doctor visits, wheelchairauthorizations, and other services that Health Partners had to make sense of. Toemployees, however, the unfamiliar program, with its complicated commands andmultiple windows, was a monster waiting on their desktops to devour them.


There was a certain bitter irony to this, because Health Partners had paidtens of thousands of dollars to outside training consultants. However, becauseof delays in the installation of the system, those lessons now were a distantmemory in most employees’ minds. Obviously, a second round of instruction andfollow-up support was needed, in addition to a motivational campaign to boostslumping corporate morale.


But how could the HR department provide all that without burning a hole inthe company’s tight budget? And how could the workforce find the time to takemore instruction without losing days of work time and dangerously disrupting thecompany’s business?


Fortunately, Vicki Sessoms, Health Partners’ vice president for humanresources, had somewhere to turn for help. She called upon the HR department’sOrganizational Learning Center, a three-person team that she had created just afew months earlier to beef up the company’s in-house training and supportcapabilities. OLC’s leader, HR professional Bill Austin, analyzed the problemand then rolled out an innovative, multi-faceted initiative that relied oningenuity rather than more spending.


Instead of outsourcing the training, OLC identified a handful of employeeswho’d been top performers in the initial training course and persuaded them tobecome part-time instructors and support resources for the rest of the staff.Instead of presenting grueling daylong crash courses, OLC broke the traininginto a longer series of 45-minute sessions that employees could fit into theirwork schedules, and offered plenty of chances for employees to retake thetraining and reinforce their skills.


Rather than organize the curriculum by tasks, OLC organized it by department,and invited staffers from other departments to attend, too, so that they couldget a better understanding of how the entire company utilized the system. Lastbut hardly least, OLC devoted a portion of the training time to talking withemployees about the inevitable stress of going through changes in the workplace–andthe benefits that might be gained from successfully weathering it.


It worked. Within weeks, managers reported that their staffers, who had beenstuck pondering screen menus for 10 minutes at a time on day one, were able toclick through in a third of the time after taking the courses. The initial waveof complaints from client hospitals and administrators about logjams just asquickly dropped to virtually nil. And the palpable sense of dread among theworkforce had been replaced by an eagerness to sign up for refresher courses.


Given such a smashing initial success, it’s little wonder that HealthPartners kept turning the OLC loose on other corporate challenges. And in thethree years since its launching, the program has proven to be invaluable. OLChas enabled the company to provide extensive training to its workforce in a widerange of areas, from the basics of giving a PowerPoint presentation to theintricate nuances of patient-privacy regulations.


By recruiting instructors from its own workforce, OLC is able to deliver training for a typical cost of just $50 per student, less than half of what it might spend for outside trainers.

Although the company hasn’t attempted to calculate OLC’s complete impacton the bottom line, it’s clearly a money-saver. By recruiting instructors fromits own workforce, OLC is able to deliver training for a typical cost of just$50 per student, less than half of what it might spend for outside trainers. Byproviding short on-site sessions that fit comfortably into employees’workdays, OLC minimizes the distraction from work at hand that often is thedownside of training initiatives.


In the information-systems conversion, for example, Austin estimates that thelearning center saved the company $25,000 in lost productivity. And although OLCgets the job done cheaply, it still provides effective high-quality instruction.In post-training surveys, more than 90 percent of the employees who’ve takencourses rate their own knowledge of the subject material as good or excellent.


Beyond that, the program has contributed to making the Health Partnersworkforce happier and more cohesive. Turnover, once a worrisome 19 percent, hasdropped to just 8 percent, and employees often mention OLC’s training coursesas a key reason for their improved job satisfaction. In addition to providingemployees with new skills and the chance to develop contacts with experts inother departments, OLC helps employees to perceive the corporate culture asteamwork-oriented, supportive rather than critical, and responsive to theirneeds.


Health Partners’ OLC program provides a salient example of how a companycan reach out to its employees and raise their skill levels while lowering theiranxiety–and at minimal cost. For that reason, Health Partners receives thisyear’s Optimas Award for Service.


Gathering internal intelligence and keeping in touch
    In the case of the data-management system upgrade, OLC was able to step inand stave off what could have been a corporate disaster. In large part, this wasaccomplished because Austin and his team previously had been assigned bymanagement to monitor the workforce’s initial training by outside instructors.Not only did they possess firsthand knowledge of the software interface, butthey also had met extensively with the instructors and had access to employees’training results. They understood the potential problems that employees faced,and also could identify individuals within the workforce who’d achieved somemastery of the new system. OLC’s resulting success impressed upon Austin thevalue of good internal intelligence.


He has since taken that information-gathering to an even higher level. Hetries to pick up signs of future training needs even before OLC receives aformal request. “We don’t have the resources to spend a lot of timequantifying employees’ performance,” he says. “So instead, I’ve made ahabit of walking around the organization every morning and talking to people,just trying to keep my finger on the pulse of what’s going on.”


He and OLC staffers Bonnie Smyczek and Lisa Cosentino routinely sit in onvarious departments’ planning meetings, trying to maintain a continuouslyup-to-date sense of what different parts of the organization are up against–andhow the OLC might help. “It’s sort of like we’re training the trainers,”says Health Partners vice president Barbara Rebold. “They’re with us all thetime, working to understand what we do–listening to our ideas and trying tofigure out how to get them out to the employees.”


That background knowledge gives Austin and his team a running start inresponding to departmental requests to create new training programs. Minimizinglead time is critical, Austin says, because one of the core tenets of OLC is “just-in-time”training.


He knows that when managers ask him to provide instruction to their staffers,they’re usually trying to deal with a looming problem or challenge rather thanpeering into the future. “They don’t want to hear something like, ‘Well,we can do some research, draw up a design, and then you’ll need to approve it,’”he says. “They won’t tolerate someone who’ll get back to them next month,because by then, their needs may have changed. What they want to hear is, ‘Wecan have something ready for you next week.’ We emphasize quick turnaround. Bydelivering on that consistently, we’ve been able to win managers’confidence.”


That, in turn, has enabled OLC to obtain a high degree of cooperation frommanagers–in terms of both encouraging their staffs to participate in thecourses and making subject experts on their staffs available to the OLC when theneed arises.


Finding teaching talent and expertise internally
    While Austin does hire outside training consultants, he does so sparingly.Usually he develops expertise within the Health Partners ranks by turningtrained employees into volunteer instructors. “I found a business-writingconsultant within our price range,” he says. “I used her six times to teachcourses. But we’ve got enough people who’ve mastered the material that fromnow on, we can teach it in-house.”


“There’s more of a comfort level when you’re learning from someone you see every day. And you know that if you need help down the line with something, you can go up to that person in the hallway or the kitchen and casually get the advice you need.”

One obvious reason that OLC relies on employees to teach courses is cost. Butin addition, Austin says, “there’s more of a comfort level when you’relearning from someone you see every day. And you know that if you need help downthe line with something, you can go up to that person in the hallway or thekitchen and casually get the advice you need.” And because they understand thecompany’s business, employee-trainers tend to be able to make the knowledgethey impart directly applicable to their students’ work.


Austin says he has relatively little difficulty lining up in-house trainers,even though they are not paid more for the work. “One thing I try to do ismake it as easy as possible for someone to teach a course,” he says. “Forexample, there was one guy I wanted, a manager who was perpetually busy and keptsaying that he didn’t have time. I said, ‘I’ll have one of my peopleinterview you, get inside your mind, and we’ll put together some slides basedon that.’ After he taught his first class, it turned out that he enjoyed it somuch that he came up and said, ‘If you need me again, just let me know.’”


Besides capitalizing on the satisfaction that comes from teaching, OLC worksto retain instructors by making sure that they are recognized within the companyfor their efforts. Austin and his staff have organized an annual appreciationday, at which time trainers are treated to dessert and presented with gifts.Beyond that, managers note that volunteer instructors’ performance andsatisfaction level in their regular jobs often seems to improve.


To fill the company’s training needs, Austin and his staff are always onthe lookout for quick learners who’ve mastered a skill that the rest of thestaff must learn. “One of Bill’s secrets is that he’s really persuasive,”says company VP Rebold, who herself has taught courses on data integrity andother subjects. “Once he’s got you to teach once, he keeps coming back withways to use you again, any way that he can.” OLC’s staff works withprospective trainers, helping them to write their programs and critiquing theirpresentations in advance to give them more polish.


Providing learning that doesn’t clash with employees’ work obligations
    Instead of taking employees off-site for intense day- or weeklong courses,the OLC team prefers to deliver learning right at the company’s Philadelphiaheadquarters, and in shorter segments–never longer than an hour and a half,and often as brief as 45 minutes. “When you give information to people inlarge blocks, they tend not to retain that much,” Austin says. “It’sbetter to give them a quick, digestible amount of information and then let themgo back to their desks and put it to use.”


“When I sign up for a training course at 9 a.m., I know that by 10 a.m., I can be back at my desk,” says quality management nurse Laura Brown. “The phone and e-mail messages aren’t going to be piled up when I get back.”

By offering shorter classes, OLC also eases employees’ worries aboutcatching up with work they’ve missed. “When I sign up for a training courseat 9 a.m., I know that by 10 a.m., I can be back at my desk,” says qualitymanagement nurse Laura Brown. “The phone and e-mail messages aren’t going tobe piled up when I get back.”


Additionally, OLC likes to schedule numerous repeat classes, to giveemployees another chance to reinforce the material if they feel they need it.When OLC trained employees to use the new data-processing system in 1999, forexample, it offered them a chance to sit in on the course again when it wassubsequently offered to other departments. That not only helped employees todevelop more mastery, Austin says, but it also gave them a chance to meet peoplein other departments and learn about how they utilized the system in their jobs.As a result, day-to-day cooperation among workers in different parts of thecompany seems to have improved. “When you do training across departmentallines rather than keeping everyone separate,” he says, “you help to shatterbarriers, rather than helping create more of them.” 


Using training to build morale
    In OLC’s initial challenge of helping employees cope with a newdata-processing system, perhaps the most immediate problem was employees’sinking spirits. In response, Austin and his team focused on providing workerswith reassurance as well as new skills. “We concentrated on getting as faraway as we could from the ‘you’ve failed, you’re not getting the concept’sort of pressure,” he says. “If they were ashamed because they couldn’t doit, they wouldn’t want to come back for more training. Instead, we tried toproject the message that this wasn’t their fault, that the company recognizedthat the timing of the rollout had gone awry, and that we were there to supportthem with the help to which they were entitled.”


To that end, OLC also provided a non-technical motivational program toaugment the software nuts and bolts. The course was based on Dr. Spencer Johnson’sstorybook-manual on coping with change, Who Moved My Cheese? Employees liked theprogram so much that OLC now offers it on a quarterly basis to both new hiresand veteran employees who feel that they need a lift.


“One of the things the course accomplishes is to give the employees acommon language to describe what they’re going through,” Cosentino says. Itwas particularly helpful when they recently got a new CEO and went through acorporate reorganization. “We would hear people jokingly comparing themselvesto Sniff and Scurry, the mice in the book. One person took it further andstarted calling herself Velveeta, saying that her cheese had been shredded. Itwas a great way to reduce the tension.”


OLC continues to work hard to stay abreast of Health Partners’ continuallyevolving training needs, offering courses ranging from medical privacy to amonthlong, four-session class on leadership for top executives and managers.Austin considers it a measure of success that even people at the top of thecompany are finding time to squeeze OLC’s courses into their schedules. “It’s45 minutes, in and out, zip,” he says. “And when they say that it isn’tlong enough–well, that’s a criticism that I really welcome.”


Workforce, November 2002, pp. 60-64 — Subscribe Now!


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02 – Innovation – New Brunswick

Situated along the Gulf of St. Lawrence in eastern Canada, the province of New Brunswick is blessed with forests of spruce and balsam fir, hillsides rich in copper, lead, and zinc, and offshore waters filled with herring, cod, and crabs. For generations, residents made their livings in lumber mills, mines, and fishing boats, collecting and processing the natural wealth. But by the early 1990s, the provincial government’s economic planners realized that the traditional way of life was no longer sustainable and, unless the economy changed quickly, New Brunswick faced a bleak future.


As the province struggled to automate, it had to shed jobs. Its old resource-based industries could no longer compete in the new world economy. “We already had 15 percent unemployment,” says Leonard Weeks, an HR professional who is New Brunswick’s manager in charge of knowledge industry and innovation. “And our projections showed that during the 1990s, we were going to lose at least 10,000 more industrial jobs, nearly 5 percent of the province’s workforce.” Beyond that, the lack of opportunity in the region was causing young educated people to move to other parts of Canada and the United States.


New Brunswick officials knew they had to find a way to reverse the unemployment tide before it turned into a tsunami that might wreck the province’s already destabilized economy. It was the sort of dire plight that demanded a radical solution.


Fortunately, the province’s political leader at the time, Premier Frank McKenna, was a man with an unconventional style of thinking. “Chairman Frank,” as the Canadian newsmagazine Maclean’s once labeled him, liked to think of himself not as a politician in charge of one of Canada’s poorest provinces but as a business executive running a big, diversified corporation. He was fond of applying ideas that worked in business to government—total quality management, performance benchmarking, and customer-service orientation.


Like a turnaround expert trying to revive a failing company, McKenna methodically assessed New Brunswick’s prospects. The existing industries weren’t going to add new workers. And the province’s small size—at 750,000, its population was roughly a third that of the city of Toronto—and relatively remote location made it an unlikely choice for new manufacturing operations.


Instead, McKenna decided that the province had to reposition itself. It must develop a new, growing industry where it could quickly become a leader in a field in which initiative mattered more than location. He zeroed in on the then nascent field of information technology and multimedia. With companies increasingly relying on computer networks and the Internet to manage their far-flung global operations, it seemed like a promising bet.


Additionally, the strategy enabled New Brunswick to leverage a significant asset—1,800 miles of fiber-optic cable that its phone company, NBTel, already had installed. The project was an effort to create a digital phone network, and cost $50 million. That same infrastructure could be harnessed for high-speed data transmission, giving the rural province enough bandwidth to compete with large metropolitan workers.


At its core, New Brunswick’s economic crisis was an HR problem that required an inspired HR approach.

But McKenna’s vision contained one big if. To transform New Brunswick’s economy, the province needed plenty of technologically skilled, intellectually creative people. That was no easy task in a place where the populace was more accustomed to fishing lines than keyboards, the youngest and brightest had fled, and the older workers feared new technology and change. At its core, New Brunswick’s economic crisis was an HR problem that required an inspired HR approach. Weeks posed this question: “As we’re building the technology base, why not use it to develop our workers?” The workforce could serve essentially as a laboratory subject for the information products that New Brunswick sought to develop.


Today, a decade later, the success of the HR strategy is obvious. Largely because of its information-technology thrust, New Brunswick’s unemployment rate has dropped 5 percent. Twenty thousand people are now employed in the new sector, and the province’s training infrastructure produces more than 2,500 workers skilled in software development and content creation each year.


With IT employment growing at a 30 percent annual rate, workers now are moving into the province to find jobs. Both New Brunswick’s economy and its image have undergone a dramatic shift. The former rural rust belt is now considered a global leader in producing software and content for distance learning and online corporate training. Its information products are used by an estimated 100,000 companies worldwide.


In March, IBM hired two New Brunswick companies, Advanced Training & Services and CertifyOnline.com, to train Web developers throughout the world. Paul McErlean, IBM Canada’s vice president of software, says the technology giant’s decision was influenced largely by “the amazing amount of skills” possessed by the province’s technology-savvy workers. The workers also produce much of the content for SmartForce, an Irish company that is the world’s biggest provider of online learning services to businesses.


HR’s leadership helped New Brunswick to reinvent itself. For its outstanding turnaround, the province wins the Workforce Optimas Award for Innovation.


Creating a high-tech training infrastructure
In the early 1990s, one of New Brunswick’s biggest challenges was simply finding a way to provide training to thousands of people scattered throughout the largely rural province. “You simply couldn’t build and staff a new school everywhere that you needed to reach people,” Weeks says.


New Brunswick turned to one of its existing assets—NBTel’s fiber-optic network. “Our telecommunications infrastructure was second to none in the world,” he notes. “Literally, you could get a digital line in your hunting camp.” From 1991 to 1994, the government set up a dozen tele-education centers across the province. The centers were equipped with computers, video-conferencing equipment, and digital “white board” technology that displayed an instructor’s writing and diagrams to students in a classroom hundreds of miles away. Over the next five years, the province increased the number of centers to 100. Today, the TeleEducation NB program offers tens of thousands of course offerings, in at least five languages.


When the program was in its infancy in the early 1990s, instructional software and course content for retraining workers was virtually nonexistent. As a result, the province was forced to create its own offerings. At New Brunswick Community College-Miramichi, the teaching staff began developing classes, and eventually the school established the Distributed Learning Centre, which has created two dozen technology-based courses. Since there was an obvious market for courseware, the college came up with an ingenious solution. Why not train students how to create it? Funded with $15 million in grants from the province, Canada’s federal government, and some private-sector partners, the college in 1994 became the first institution in North America to establish a program devoted specifically to educational technology. The Multimedia Learning Technology Center of Excellence offered instruction in virtual reality, game design, computer animation, and other technical skills. It also taught students how to use those skills to design online courses.


The learning center’s two-year program incorporated other novel tactics. There are no tests or exams. Instead, in order to graduate, students show competency by actually producing a viable product. They are divided into entrepreneurial teams, which are legally incorporated as companies, and assigned to work with private-sector clients, who provide guidance and are committed to purchasing the finished product. There was a shift from watching to learning by doing.


To help further nurture that transformation, in 1996 New Brunswick started Miratech, a center four miles from the NBCC-M campus that serves as an incubator for technology start-ups. Within two years, the center housed 12 new information-technology companies, many of them run by graduates of NBCC-M’s educational-technology program. Today, a typical Miratech tenant is HLS Multimedia, which employs more than a dozen animators to produce educational CD-ROMs for a California-based distributor.


Helping workers adjust to a new work culture
New Brunswick officials realized early on that there was more to retraining than simply teaching new technological skills. Workers accustomed to spending eight hours a day in a lumber mill or cannery had to make the transition to a new world with very different demands and stresses. “Traditionally, we don’t have a hard-driven, hustling culture,” Weeks says. “We have a service-oriented culture. We’re very diligent at work, but we’re not used to leading the way. So basically, we’ve had to introduce the concept of entrepreneurship—to teach people to create their own opportunities. If there’s no one out there to hire you, start your own shop.”


Additionally, a worker studying to switch careers faced very different challenges than the typical college student. The “re-careering” workers generally were 15 to 20 years older and had families, mortgages, and other obligations that their 20-something classmates didn’t have to worry about. They had to learn how to keep up with those responsibilities, while striving to succeed in a demanding field where the workday seldom ends at 5 p.m. and travel is often essential. “When you’re more mature, it’s not so easy to go off for three months to work on a project in India just because there’s a business opportunity there,” Lobban says.


One of the keys to helping workers make such a transition, Lobban says, is helping them to understand themselves. NBCC-M makes extensive use of the Myers-Briggs Type Indicator and other testing tools, so that re-careering workers can get an objective picture of their strengths, liabilities, and inclinations. “We’re even starting to test potential students,” she says.


Another important part is getting continuous feedback from the retraining workers about what sort of extracurricular help they need. Lobban meets each month with student representatives to assess NBCC-M’s programs and services and how they might be improved. As a result of those discussions, the school has added services specifically tailored to re-careering workers’ needs—for example, programs on how to cope with stress and manage debt load. “We started a dinner-theater outing,” she says. “For the more mature retraining students, that was a more comfortable atmosphere than, say, a pub night. And it still gave them the opportunity to network with other entrepreneurs and develop the sort of relationships that are crucial when they go out into the business world.”


Achieving fuller participation in the retraining process
Many of the re-careering workers attracted to the NBCC-M program already had college degrees, some supervisory experience, and track records in their former professions. But New Brunswick officials wanted to reach the widest possible range of workers—not just those who’d occupied lower rungs in the province’s traditional economy but also individuals who’d never quite been able to succeed before.


For that reason, in the mid 1990s, New Brunswick installed Internet access in more than 230 schools, recreation centers, and other gathering places in small towns throughout the province. The Community Access program offered free e-mail accounts, Internet access, and computers and printers, as well as basic instruction on using those resources, to anyone who walked in the door. The idea was to give people who hadn’t been exposed to computing a chance to become comfortable with the technology—and eventually, to use it for retraining.


But program director Gary Wood didn’t leave any of that up to chance. The key to having the centers work as a retraining tool, he says, “is to make people feel as if they’re in control of the program, that they own it.” Before opening a center, Wood and his staff set up a meeting with town residents, to do what he calls “community asset mapping.”


“Basically, we would find out what skills, interests, and other assets the people had, and get them to talk about how they might utilize those assets with the help of computers,” he says. (In farming communities, for example, Wood discovered an interest in developing bookkeeping and management skills related to agriculture.)


Additionally, Wood came up with the idea of hiring unemployed or under-employed workers who were eligible for government assistance and teaching them to help other residents learn to use the technology. “Eighty-three percent of them went on to get jobs elsewhere after working for six months at a center.”


As a result, the centers were immediately popular. In the working-class village of Saint-François, for example, a third of the area’s 1,500 people came out to give the Internet a try, and the 34 computer stations at a local school and public library were tied up 60 percent of the time. In the first year, more than 250 people took online courses.


In another area, Sussex Corner, Angie McNabb, an out-of-work bookkeeper and mother of two, tried the Internet for the first time and within a few months was designing Web sites. She eventually landed a job with the center as a computer instructor, and went on to start her own bakery business, Angelina’s Fine Desserts, utilizing cheesecake recipes she collected on the Internet. Her success story is far more humble than that of, say, the New Brunswick start-up companies that garnered lucrative contracts from IBM. But it’s a sign that New Brunswick’s HR efforts are reaching every level of the workforce. About half of the 20,000 new technology jobs have been filled by workers who were out of work or under-employed in low-wage or part-time jobs.


Sustaining the progress
Though New Brunswick has achieved impressive success in remaking its workforce and turning its economy around, Weeks and other officials know that, given the frenetic pace and increasing competitiveness of the global economy, it’s dangerous to rest on one’s laurels. Under the leadership of the province’s current premier, Bernard Lord, who took office in 1999 at age 34, New Brunswick has continued to work aggressively to create new jobs. As the province’s training efforts continue to produce new technology workers, the three-year-old Work-Ready Workforce Initiative tracks current and future labor-market needs and attempts to match employers and workers through NBJobNet, an online database that contains thousands of résumés and job openings.


New Brunswick’s HR high-tech training strategy actually has spawned an entire new industry. There are now more Internet users throughout the world who are taking courses created in New Brunswick than there are people living in the province. That may be the surest sign that New Brunswick’s innovative approach is catching on.


Workforce, July 2002, pp. 46-50 — Subscribe Now!

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Why Customer Satisfaction Starts with HR

In a conference room at Philadelphia-based Rosenbluth International, one ofthe country’s most successful travel agencies, a dozen new employees areparticipating in a customer-service training exercise. What’s astonishing isthat the new company associates are practicing how to provide bad customerservice.


One group is asked to dream up the rudest ways a motor-vehicle bureau staffmember could treat a hapless customer who comes in to apply for a driver’slicense. After a few minutes of preparation, the associates perform a skit foran audience of other new employees. The trainee who plays the customer arrivesat the ersatz office and stands in line. Just as he reaches the counter, thetrainee portraying the clerk posts a sign proclaiming that he’ll be back in 15minutes. Other trainees make the hands move on a fake clock to simulate the waitstretching to 20 minutes, then 30, then 40. As the customer pleads for service,the clerk — who is sitting behind the counter, reading a magazine and loudlycracking gum — berates him for his impatience. The ultimate indignity comeswhen the customer proceeds to the license-photo area and learns that the camerais broken.


Rosenbluth’s HR team uses the exercise because it’s fun, but mainly tofocus trainees on a serious lesson: Customer service arguably is the mostcritical factor in an organization’s long-term success and even survival.


There was a time when customer service was seen as the responsibility ofsales managers and tech-support team leaders. Today that attitude is as dated asrotary telephones at corporate call centers. Increasingly, companies arerecognizing that HR plays a seminal role in building a customer-friendlyculture. Throughout the business world, HR departments are focusing theirefforts on improving customer satisfaction. They’re using HR activities –hiring, training, coaching, and evaluation programs — to give employees thetools and support they need to develop and nurture positive, lastingrelationships with clients.


Most service-quality gurus say that hiring is the first and most criticalstep in building a customer-friendly company.

The evidence is compelling that HR practices can promote customersatisfaction — and, in the process, improve corporate revenues. A landmark 1999analysis of 800 Sears Roebuck stores, for example, demonstrated that for every 5percent improvement in employee attitudes, customer satisfaction increased 1.3percent and corporate revenue rose a half-percentage point.


Moreover, subtle changes in hiring or training sometimes can produce majorimprovements in customer happiness. One of this year’s Workforce Optimas Awardwinners, NCCI Holdings Inc., discovered in a survey last year that its customerswanted more help in using the company’s insurance-data software products. As aresult, NCCI created a training initiative to give its customer-service repsmore technical expertise. By the fourth quarter, the surveys were showing thatcustomers were much more favorably impressed with the reps’ technicalabilities. Apparently as a result, the overall customer-satisfaction rating rose33 percent during that period, from 6 to 8 on a 10-point scale.


A company with strong customer satisfaction and loyalty can survive andprosper even when faced with a tough economy or an unforeseen disaster. Thesalient example: Southwest Airlines, which consistently ranks first amongairlines in customer satisfaction. Following the September 11 terrorist attacks,which pushed many airline companies to the brink of demise, Southwest actuallymanaged to post a profit in the fourth quarter of 2001, and was confident enoughabout the future to add new routes.


Conversely, a company that provides lousy service may have trouble hanging onto its customers over time, and thus may be forced to continually replace lostaccounts that have fled in frustration. The cost of acquiring new customers isfive times higher than the expense of servicing existing ones, says MichaelDeSanto, a consultant for Walker Information, an Indianapolis-based businessresearch firm. At that rate, chronically dysfunctional customer service becomesa monster that can devour whatever gains a company is making in other areas. Ifthat company runs into a stalled economy or an aggressive competitor, its badcustomer karma can prove fatal.


For proof, you only have to look at Kmart, the once-mighty discount retailerthat went bankrupt in January, at least in part because it couldn’t competewith the famously courteous folks at Wal-Mart. (A recent study by MOHR Learning,a New Jersey-based consulting firm, found that 20 percent of customers willimmediately walk out of a store when confronted by bad service, and 26 percentwill warn their friends and neighbors not to shop there.) Last year, the DowJones News Service reported that customer dissatisfaction was costing theMcDonald’s chain a breathtaking $750 million in lost business annually.


“We don’t want people who are mavericks or into self-aggrandizement.We’re looking for a person who plays nicely with others.”

Identifying employees with customer-satisfaction potential
Most service-quality gurus say that hiring is the first and most criticalstep in building a customer-friendly company. “You need to be selective,”says Ron Zemke, president of the consulting firm Performance ResearchAssociates, located in Minneapolis. “It’s a lot easier to start with peoplewho’ve got the right personality qualities to work with customers than it isto struggle to teach those skills to whoever walks in the door.”


Zemke says the key indicator of customer-service potential is a high level ofwhat mental-health professionals call “psychological hardiness” — qualitiessuch as optimism, flexibility, and the ability to handle stressful situations orcriticism without feeling emotionally threatened. Those are, of course, goodqualities for many jobs. But experts note that the personality of acustomer-service maven may be markedly different from those of achievers inother business venues. Verbal eloquence and persuasiveness, for example, aren’tas important as the ability to listen.


“The great customer-relationship person has a very even-handed view ofthings, a strong sense of fairness,” says Dianne Durkin, who teachescustomer-satisfaction techniques at Loyalty Factor, an HR consulting firm in NewCastle, New Hampshire. “This is a person who tends to balance his or her owninterests and the company’s interests with the customer’s interests.”


Ruth Cohen, Rosenbluth’s director of HR/learning and development, says hercompany doesn’t want “people who are mavericks or into self-aggrandizement.We’re looking for a person who plays nicely with others.”


What’s the best way to distinguish those who are the most likely to pleasecustomers from a raft of applicants? Some companies have tried standardizedpsychological tests. But many consultants and HR professionals say that it’smore effective to observe an applicant at work. At Rosenbluth, the scrutinybegins the moment that a job-seeker walks in the door for an interview. “We’relooking for a person who shows the same courtesy to everyone he or sheencounters,” says Cecily Carel, company vice president for HR. “Ourreceptionist, who’s been with the company 20 years, is a pretty good judge ofcharacter. One time she called me from her desk to say, ‘This person is notpolite.’ That applicant wasn’t hired.”


Patrick Wright, director of the Center for Advanced HR Studies at CornellUniversity, recommends a carefully structured, situational interview processlike the one he helped develop for Whirlpool. “You want to present anapplicant with a series of potential scenarios that he might face on the job,and ask him what he would do,” Wright says. “Just because a person gives agood answer, of course, doesn’t ensure that he’s going to actually do thatwhen he becomes an employee. But you want to make sure you’ve got a person whoat least has the right instincts, which you can reinforce through training.”


Talent+, Inc., an HR consulting firm in Lincoln, Nebraska, has designed asystem for evaluating job applicants that compares their answers in anopen-ended interview to analyses of the traits of top performers in thatparticular field. The company’s managing director, Lisa French, says theprocess can predict a candidate’s job performance 80 to 85 percent of thetime. In the case of customer service, she says, one of the key determinants isa strong sense of values. A good customer-service performer will work hard on acustomer’s behalf, not with the hope of getting a raise or a promotion, butbecause it’s the right thing to do. “This is the sort of person who will godown fighting for his or her customers,” she says.


Talent+ started working with Ritz-Carlton in 1992, when the rate of “customerdefects” — people who complained about the service — had reached adisturbing 27 percent. The consultants helped Ritz-Carlton overhaul itsinterview and hiring practices, with a focus on identifying applicants with thebest customer-service potential. With the new system in place, complaintsdropped steadily. By 2000, they had dropped to 1 percent. At the same time,annual job turnover at Ritz-Carlton also decreased from 75 percent to 25percent.


Turning the knack for niceness into skilled service
Service-quality consultants and HR professionals from service-consciouscompanies say that even an employee with the right personality traits needsguidance on how to channel positive qualities into developing good customerrelationships. At a time of economic uncertainty, when many companies may try tocut costs by scrimping on customer-service training, it’s all the more crucialfor HR to make a strong case for its vital importance.


A large part of achieving great customer service is keeping the employeeshappy.

One of the most basic steps in teaching good customer-service skills isfostering employees’ self-awareness, Durkin says. “You’re not going to begood at customer relations unless you first understand yourself. You have toknow how you come across to other people, how you react under stress, what yourcommunication style is.”


To help an employee become more self-aware, a company may want to use anassessment tool. The Myers-Briggs Type Indicator, for example, helps an employeesee her own personality style, such as whether she is a “thinker,” amethodical person; a “sensor,” one who learns through observation; an “intuitor,”who is enthusiastic and excitable; or a “feeler,” who tends to avoidconflict. With training, a customer-service employee also can learn more aboutidentifying customers’ personality types.


Another crucial area of customer-service training is communication skills.“Research shows that only 7 percent of the impact of your communication withanother person is in the words you use,” Durkin says. “Thirty-eight percentis in the tone of voice. The remaining 55 percent of the message comes fromphysical appearance, mannerisms, eye contact, and so on.” Because so much ofcommunication is nonverbal, customer-service employees who have to deal withcustomers primarily over the phone find themselves at a major disadvantage ingetting across their message — or, conversely, in understanding the customer’sneed.


One way to compensate for the lack of human contact is by teachingcustomer-service employees the technique of “active listening” — restatingand summarizing what the customer tells them. This not only helps understandingbut also conveys a message of attentiveness and concern. Employees also can betaught to notice and respond to subtle cues in a customer’s speech.


Rosenbluth takes a slightly different approach. The travel agency focuses oneducating its customer-service associates to use what it calls “elegantlanguage” — words and phrases intended to create a tone of courtesy, respect,and attentiveness to detail. A company associate uses the word “certainly”instead of “yeah” or “sure,” and after helping a customer with aproblem, reflexively responds, “It has been my pleasure.” And they always,always ask for permission — and wait for the response — before putting acustomer on hold. “We think this gives customers a message about how muchattention we pay to little details,” Cecily Carel says. “It’s subtle, butimportant.”


But good customer service requires more than just “soft,” ornon-technical, skills. Customer-service consultant Zemke notes thatorganizations frequently neglect to give their customer-service employeesadequate product training. “If I order something and it doesn’t work, I wantsomebody who knows the product and can help me, not somebody who’s beentrained to smile at the right times.” Companies such as NCCI have successfullyused surveys to find out what kind of technical knowledge and assistancecustomers most need, and incorporate the information into customer-servicetraining.


Supervising to build a customer-friendly environment
In order for carefully selected, well-trained employees to build greatrelationships with customers, a company must develop its own good internal relationships,HR professionals say. Walker Information’s Michael DeSanto says that he’snoticed an intriguing phenomenon: customers’ and employees’ relationshipswith companies tend to have striking parallels.


Research at Cornell University’s Center for Advanced HR Studies and atother institutions indicates that there’s a strong link between customer andemployee satisfaction. “The really crucial issues are retention and, moreimportant, loyalty,” DeSanto says. “Both of them tend to operate in a three-to five-year cycle. Brand-new employees tend to love you, because they’restill learning new skills and have the potential to move up in the company. Newcustomers love you because you’ll do anything to keep them happy.” Threeyears down the road, both the employee and customer relationships with thecompany suddenly are different, he notes. “The employee may feel like he’sburied in the organization. Chances are, he’s already got whatever trainingyou’re going to give him. He’s hearing from headhunters. And the customer isin a similar rut. He’s being taken for granted, and he’s already learnedabout the business from you, so maybe he doesn’t need you as much.”


Strong relationships between employees and customers may actually keep bothfrom fleeing the company. “Good customer relationships may actually be afactor in employee retention,” DeSanto says.


A large part of achieving great customer service is keeping the employeeshappy. Service-quality experts say that customer-service employees tend to modelexternally the treatment they receive from management. An intensely top-driven,autocratic corporate culture with spotty internal communication leads to tense,confused customer relations. A company with a collegial atmosphere and goodchannels of communication will be a lot better at keeping its customers happy.


There are many things HR can do to help create an environment that nurturesgood service and customer relationships. Rosenbluth International has developeda culture that encourages associates to seek one another’s help in solvingcustomer problems, and emphasizes its concern for the customer with “elegantlanguage.” CEO Hal Rosenbluth often personally serves tea and cookies to newassociates at the completion of their training. “It’s a little corporateritual that sets the mood,” Carel says. At the same time, it helps Rosenbluthtalk with new employees about what they can do to serve customers.


Rosenbluth’s HR team has discovered an important truth. Just as subtlequalities such as a facial expression, choice of words, or a nuance of etiquettecan help make a good impression on a customer, any comprehensive HR strategy forcustomer satisfaction depends on attention to detail. In designing hiring,training, evaluation, and other programs, nothing should be left to chance.


Workforce, May 2002, pp. 26-32 — Subscribe Now!


 

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02- Managing Change- NIMA

Inside windowless brick buildings sequestered in a high-security compound in Bethesda, Maryland, the National Imagery and Mapping Agency carries out a mission that, although seemingly mundane, is vital to national security: it creates maps. Not just ordinary maps. The organization’s 8,000-member workforce of scientists, engineers, and technicians peruse a mountain of data—photographs from spy satellites and aircraft, intelligence reports, and other sources—and boil it down to create up-to-date digitized maps for the U.S. military, the CIA, and the highest-level policymakers.


NIMA’s photographic and data-analysis expertise creates what an agency official once described as a “God’s-eye view” of the world as events unfold. Much of that work is a closely guarded secret, but in recent years, the agency has conducted other projects, ranging from tracing the spread of oil from a leaking tanker off the Galapagos Islands to helping NASA search the surface of Mars for a lost space probe. In the 1990s, the agency’s maps guided air strikes against Iraq and Serbia. More recently, it assisted U.S. pilots in their attack on Al-Qaeda lairs in Afghanistan. NIMA also helped to protect the 2002 Winter Olympics in Salt Lake City against terrorist attacks by producing satellite-photo maps of the stadium site. Security officials used the information to plan street closings and secure travel routes.


To create an agency capable of performing such sensitive duties, Congress in 1996 merged five entire separate intelligence agencies and pieces of four others. As complex and technically demanding as the new agency’s mission was, from an HR standpoint the more daunting challenge was bringing together formerly independent organizations with diverse management styles, personnel practices, and types of employees. The task was to find a way to fashion a system that allowed all of the disparate parts to work together as one smooth-running machine.


    The HR team had to convince the managers and staff members to accept the new work culture, even though it meant adjusting to new practices. And because the work assigned to NIMA might shift abruptly in an international crisis, the new HR system had to be flexible enough to provide employees with services and support to cope with the unexpected.


HR figured out how to get the agency’s diverse management and workforce to embrace the new system.

In 1998, after nearly two years of development, HR leaders began implementing a revolutionary new system. They scrapped traditional government-style longevity pay, replaced it with a performance-pay plan, and introduced an evaluation system that shifted emphasis from an employee’s job description to the person’s role in achieving strategic missions. They developed new tools to analyze and classify the workforce, enabling NIMA to shift its skill base toward performance of core tasks and away from support functions that could be more cost-effectively outsourced. Just as important, HR figured out how to get the agency’s diverse management and workforce to embrace the new system, in large part by inviting the stakeholders to participate in its design and advise on how to fix its imperfections.


The results have been impressive. Last year, an outside review board appointed by Congress gave NIMA’s new HR system a glowing review. The system, the report states, “moves away from what some have considered the overly paternal civil-service model, and toward heightened individual accountability for one’s performance and one’s career development.” The National Academy of Public Administration, another independent evaluator, cited NIMA’s system as a “best practice” for other agencies to emulate. And the system has had a tangible impact on the organization’s ability to perform sensitive missions.


    Its adroit analysis of occupational needs has enabled the agency to reduce its support staff from 43 percent of the workforce in 1998 to 38 percent today, with a corresponding increase in the number of staffers in core occupations. And after the September 11 attacks, the system’s flexibility allowed NIMA to quickly reorganize and shift resources to fight the new war on terrorism.


For these achievements, NIMA receives the Workforce Optimas Award for managing change.


Integrating a diverse workforce by creating a new system
The agency’s HR leaders admit that their system had a long, difficult birth. In the year before NIMA’s debut, administrators of the various agencies that it would absorb engaged in a heated debate about what sort of culture the new organization would have. “I couldn’t get anybody to agree on anything,” says Pam Brunger, NIMA’s director of HR. “They all had their own systems that they were used to, and if we tried to incorporate something from one of the predecessor organizations, the others wouldn’t agree to it. They weren’t even speaking the same language.”


Eventually it dawned on the HR team that the stalemate actually presented a novel opportunity to fashion a totally new system. Toward that end, the HR team had one extremely useful advantage. Congress recognized the difficulty of creating a new intelligence agency from military and non-military components, and had exempted NIMA from many of the rules that generally govern hiring, pay, promotion, and other HR practices at federal agencies.


    “We had this enormous flexibility,” Brunger says. “If we wanted, we could create something specially suited to our mission, without worrying about the usual constraints.” Rather than rush to cobble together a new system, HR convinced NIMA’s management to temporarily adopt the HR practices of the Defense Mapping Agency, the largest piece of the new agency, while a new plan was being developed. Then Brunger and her colleagues went to work. It was a process that would take most of the next two years.


Since intra-agency politics preclude simply modeling the practices of NIMA’s predecessor agencies, the HR team amassed information and ideas from a variety of sources. An outside contractor was hired to do a study benchmarking best HR practices in a variety of federal and state agencies. In addition, HR conducted focus interviews with NIMA’s new employees to get a better feel for their backgrounds and needs. Finally, HR established a project steering team, composed of 20 employees from various parts of the new agency.


    “We took them off-site several times, for a total of five days, so we could get a more free-ranging discussion going,” Brunger says. “We gave them the material from the research about what other organizations were doing, and the [internal] interviews, and just hashed it all over. What did they want from an HR system? What sort of environment did we need to create, to succeed at the agency’s mission?”


Gradually, that process came up with a set of values that were considered an essential part of NIMA’s work culture. For one thing, the organization had to be nimble. It had to mobilize its talent and form teams quickly to be able to deal with unexpected situations overseas, and then just as deftly move people back into other post-crisis roles. At the same time, in order for the new organization to achieve cohesiveness, it had to be fair and consistent in pay and promotions for employees with a wide variety of backgrounds and skills. And since the nation depended on it to be a high-performing organization, NIMA had to develop a system that promoted both excellence and continual acquisition of new skills.


One critical building block would be a performance-based pay system, the HR team decided. In an environment accustomed to pay based on seniority and job rank, that innovation presented a tricky problem. Budgetary constraints made it even tougher. “We looked at other agencies that had experimented with performance pay, and their costs went way up,” Brunger says. “We couldn’t afford to have that happen.”


To control expenses, HR came up with an ingenious solution. NIMA replaced the government’s standard 15-grade system with just five broad grades for base salary. Longevity was completely eliminated. Additionally, HR grouped employees into pay pools. The managers who supervised employees in each pool were given money that they could distribute among employees according to performance and the value of their contribution to the agency’s missions. “The manager has only so much of a performance allocation, so if employee A gets a certain amount, someone else has to get less,” Brunger says. HR created a standardized spreadsheet to help managers calculate the distribution and ensure that it accurately reflected the performance and mission-value criteria.


The agency developed a similar mission-oriented approach to recruiting, training, and promotions. The first step was to come up with a tool for understanding the work that NIMA had to perform to achieve its missions. HR studied its workforce and missions, and then developed a new occupational structure in which more than 600 position titles were consolidated into 24 basic occupations.


    From there, it identified the tasks that each occupation performed and what skills and knowledge were required. For each occupation, HR set up an occupation council, composed of experienced workers in that field, so that it could continue to gather information and keep skill levels and staffing relevant to NIMA’s present and future needs. HR uses that input, along with analysis of the agency’s strategic goals, to create an annual plan for workforce development, including the number of promotions needed.


To actually determine who is promoted, HR doesn’t use the typical ranking-by-position system often used in government. Instead of simply moving employees up through a hierarchy of positions, HR set up boards that evaluated how well an employee’s particular skill sets and performance in achieving missions fit the agency’s needs for a particular higher position. To encourage employees to develop in a way that would advance both their careers and the agency’s missions, HR had the occupation councils develop guides that sketch out possible career paths within NIMA and what sort of skill acquisition and performance might be needed to pursue them.


The intensive analysis of the workforce also helped HR to make the agency leaner and more efficient. By identifying precisely which skills were needed to achieve the agency’s missions, HR conversely was able to identify which positions or skills provided support.


Giving the workforce a role in creating the system
    Even the most innovative system might have failed if HR hadn’t managed to get the agency’s diverse workforce to unify and rally behind it. It was a task that, in some ways, demanded even more ingenuity. “We were pulling in people from agency cultures that had very, very different ways of dealing with people,” says Roberta Lenczowski, NIMA’s technical director. “We had people from CIA, for example, where a career panel looks at employees’ credentials to determine their promotability. Other people came from the Department of Defense, where vacancies are advertised so you can apply for them. There’s a lot of anxiety and uncertainty when you’re thrust into a totally new situation. But what we wanted to do was get them all to come together and develop a NIMA identity.”



HR decided that the best way to get employees to buy into the new system was to give them a role in creating it. The 20-person council that provided initial advice was just a start. Once the parts of its plan started to take shape, HR recruited 100 additional managers and staffers to participate in eight design teams, charged with developing details of the new HR policies. As each piece of the policy was rolled out, HR recruited still more employees to participate in implementation teams that monitored the success of the policy and further refined it if necessary.


    Each of these teams included an HR professional, but that representative was supposed to remain in the background as much as possible. “We wanted people to feel that they, not HR, owned the new culture,” Brunger says. “We even made a joke of it, saying things like ‘HR is too important to leave up to the office of human resources.’ We wanted people to feel accountability at all levels of the organization.”


Edward J. Obloy, director of the agency’s Office of General Counsel, was one of those who participated in the process. “I told people, ‘Remember all the things you used to complain about?’ Now you have the opportunity to fix all of that. We don’t have any constraints here. Let’s create a better place to work.’ ”


To give more weight to workforce input, HR deployed the various parts of the program gradually. “We decided that we were going to build pieces, test them, implement them, and then step back again and evaluate how well they were working,” says HR program manager Jeri Buchholz. “We weren’t going to wait until something was perfect before we deployed it. But by the same token, we were prepared to adjust things to fit what people told us they needed.”


Flexibility to cope with global crises
September 11 provided a particularly telling test of how well NIMA’s three-year-old system could adjust and respond to sudden stress. Two days after the terrorist attacks, the new director, retired Air Force General James R. Clapper Jr., took over the helm. He immediately ordered a reorganization of the agency to better assist the war against terrorism. Additionally, the agency’s analysts had to learn new skills, in order to create maps for countering a threat that was very different from the sort of adversaries NIMA had helped monitor in the past.


    Under Clapper’s direction, NIMA began to reorganize its talent around the new needs of its intelligence agency and military customers, rather than production of its existing line of map products. For HR, that meant further tinkering with its occupational classifications and skill requirements. “One thing that’s good about our new system is that it allows us to do that,” Brunger says. “We can create a new occupation without struggling to fit it into an OPM [federal Office of Personnel Management] classification.”


Despite the new Afghanistan-related workload, NIMA’s system proved to be resilient in the face of a crisis, and the agency’s managers were able to complete their performance evaluations by the end of December, on schedule. “It would have been easy for them to say, ‘I don’t have time to do this,’ since they already were working around the clock,” Brunger says. “But nobody did. We didn’t get any complaints. I think that shows that people really believe that the HR system works, and is important to them.”


Workforce, August 2002, pp. 46-52 — Subscribe Now!