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The Lingo of Trade Secrets

Some HR managers may shy away from helping companies protect trade secrets because they dislike all the legal mumbo jumbo. The truth is, the area isn’t as complex as it seems. Here’s a primer to help the uninitiated unravel the jargon of proprietary property.


Confidential:
Items or information that are secret and for which access is limited to certain people within an organization. Company documents often are marked confidential to denote that they’re proprietary. However, confidential information isn’t necessarily a trade secret. To be a trade secret, it also must have value to the company’s competitors. A confidential customer list, for example, wouldn’t be protected if the company’s clients were obvious to everyone else in the industry.


Copyright:
An exclusive legal right to reproduce, publish and sell the matter and form of a literary, musical or artistic work. Some companies copyright instruction manuals and training videos.


Intellectual Property:
Ideas, processes, slogans or other intangible property that are created at an organization and give it added value or an edge over competitors. In recent years, this area has stretched. When David Letterman went to CBS from NBC, for example, NBC claimed that his “Top 10 List” and “Stupid Pet Tricks” were its intellectual property because Letterman originated the ideas while working for the network. Showing how hard these types of arrangements can be to enforce, Letterman did a Top 10 List on his first CBS broadcast.


Non-compete Agreement:
A written agreement in which an employee agrees not to compete with his or her employer by working for a competitor or becoming a competitor, usually for a specified period. These agreements often are tied to pay or severance packages.


Non-disclosure Agreement:
A written agreement in which an employee agrees to keep specific information confidential during and after his or her employment, or suffer damages as specified.


Patent:
A legal right or privilege that gives an inventor the exclusive right to make, use or sell an invention for a specified period of time. Patents can be obtained on products, but often on processes as well, such as a patented process to manufacture a new drug or a toaster.


Trade Secret:
Any formulas, ideas, customer lists, documents or knowledge that are proprietary to an organization and generally not known in the industry. A company generally must make efforts to keep this information confidential and prove that the information gives it a competitive edge.


Trademark:
A registered word or device (logo) that points to origin or ownership of merchandise to which it’s applied and gives the owner the legal right to proceeds from making or selling it. In recent years, the use of trademarks has been extended to include such things as ex-Los Angeles Lakers Coach Pat Riley’s phrase “three-peat” to denote a team winning a championship three times in a row, and the decor of a Mexican restaurant, termed “trade dress” by a court that ordered it not be copied by another chain.


Personnel Journal, June 1994, Vol. 73, No. 6, p. 100.


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HR Takes Steps To Protect Trade Secrets

When employee Eric Francis quit his job in 1990, MAI Systems paid little attention. Francis was one of several customer-service representatives at the Irvine, California-based computer company, and turnover in the department wasn’t unusual. Following an uneventful exit interview with human resources officials, Francis left to start a job with MAI rival, Peak Computer, also in Irvine.


It might have ended there. But when Francis’ new employer began taking away MAI’s business, management took notice. After some checking, MAI learned that Francis was using inside knowledge of MAI’s customer lists to make sales. Company officials also suspected he might be relying on MAI’s customer specification and repair manuals. Could he do that? Not according to the company’s legal department.


In March 1992, MAI sued Francis for theft of trade secrets. The company alleged that the ex-employee took manuals and other technical information that he knew to be proprietary. Francis claimed that the company routinely had left such information with customers and that he only was using knowledge about the industry. MAI ultimately got a temporary restraining order to stop him from selling to its clients, but only after losing 80 customers and spending thousands of dollars in legal fees. “This was clearly a violation that cost us,” says Elliott Stein, associate general counsel for MAI.


The plight of MAI isn’t an isolated incident—nor is it one confined to the computer business or other high-tech industries. In today’s hyper-competitive, copycat global economy, protecting such trade secrets as formulas, processes, customer lists, ideas developed at work and other intellectual property (see “Glossary of Terms”) has become a major concern for employers.


There are many reasons why. For one, today’s work force is mobile. On top of that, U.S. firms face increasingly competitive pressures as the recession lingers and budgets remain tight. At the same time, corporate downsizing and cutbacks of the past three years have unleashed a flock of professionals back into the job market. In many cases, experienced employees have had little choice but to go to work for a competitor or begin consulting in their field. If they haven’t been educated about what are protected trade secrets (and sometimes even if they have), it isn’t unusual to find them using proprietary knowledge or information from their former jobs. It’s hard to put something as intangible as a formula in someone’s head under lock and key. “The question is, what do you do with people who don’t spend an entire career with your company?” says Toni Simonetti, a communications manager for Detroit-based General Motors Co., a victim in the trade-secrets war. “How much of what they know is proprietary? How much of what’s in a person’s head belongs to them? I don’t think you’ll find an easy answer.”


Despite the difficulty, a growing number of employers—from hairstyling salons to manufacturing firms, stock brokerages to bakeries—are looking for new ways to protect what gives them an advantage, which is the possession and use of knowledge. Traditionally, this responsibility has fallen to corporate legal departments or outside attorneys. However, a handful of organizations have realized that safeguarding trade secrets goes beyond stopgap legal measures.


“It’s starting to be recognized as a classic HR problem,” says Mike Garelick, head of the compensation and human resources practice at consulting firm Towers Perrin in Chicago. He believes that HR managers can play a significant role in the protection of intellectual property. Why? The issue of safeguarding trade secrets is, at heart, a personnel issue, he maintains. “Competitive advantage is built around knowledge, and knowledge is generated by people. It’s important to manage not only the knowledge, but also the people who are creating it,” he says.


In many ways the role HR departments can play in a corporate campaign to eliminate trade-secret theft is similar to HR’s involvement with wrongful termination cases. Where the legal department handles an employee lawsuit and may explain the fine points of the law, HR personnel are responsible for making sure that an employer documented the reasons for firing an individual and handled the termination according to company policy.


The HR department also attempts to help create an environment in which employees feel that their work is valued and that they’re treated fairly. In the same vein, says Garelick, HR can ensure that employees are educated about what information is proprietary and that security measures are followed. HR staff also can follow up with employees who are departing to remind them of responsibilities and ensure that they aren’t taking information or property with them. Finally, HR can help set up the reward and compensation systems to give valuable employees the recognition for their achievements, reducing their need to look for this elsewhere.


Security begins with awareness.
First and foremost, HR personnel must familiarize themselves with their companies’ trade secrets: It’s hard to protect something if nobody knows it needs protecting. That sounds like a simple concept, but when it comes to trade secrets, it’s one many corporate managers don’t understand, says Alan Unikel, an employment attorney in Chicago and editor of the Intellectual Property Newsletter. “As a general rule, many companies don’t have a good idea of what their trade secrets are, and they don’t really recognize them,” he says. As a result, the security measures to make sure this sensitive information doesn’t fall into competitive hands are typically lax if they exist at all.


It doesn’t help that the law surrounding trade secrets is murky. Definitions of what constitutes a trade secret, or what an organization should be protecting, can vary by industry and company. Examples of trade secrets include everything from notes in the margin of an employee manual to a procedure for tying a fishing lure. As technology has raced ahead and the nature of production has changed, the law has been slow to catch up. Although as many as 39 states have adopted some form of the proposed Uniform Trade Secrets Act, there’s no federal law regulating what is and what isn’t protected. There are only general guidelines.


For instance, for something to be considered a trade secret, a company has to show that the information isn’t known in the industry, that the company has made efforts to keep it confidential and that the information provides the company some sort of competitive edge. “Many companies think something is a trade secret just because it’s confidential,” says Unikel. “It takes more than that.”


Once the human resources department has learned what formulas, customer lists, product specification or processes give it an edge, security measures often are obvious. Robert Naeve, an employment attorney who has worked on both sides of trade-secret cases, recommends to his clients that they limit access to proprietary material on a need-to-know basis. Customer lists or employee phone books can include dummy entries so that if they’re stolen they’ll be identifiable. Human resources personnel and other managers should set up access codes to computers and other data-storage areas so that only authorized persons can get into proprietary files. At Mead Data Corp., an information retrieval company in Dayton, Ohio, for example, employees are required to swipe badges to get into restricted areas. The HR department also has stringent policies about how to mark and distribute documents.


In some companies, formulas often are locked up, limited to one or two people and revealed on a need-to-know basis only. An example is Park City, Utah-based Mrs. Fields Inc., at which the purchasing of ingredients for the company’s cookies is handled separately and a special ingredients packet is sent mixed to stores so that no one can take the recipe.


Human resources professionals also should create policies about removing company property from the office. Upon termination, employees should be required to return all proprietary information and computer systems. Unikel recommends that a supervisor make up a list of what an employee has and then have the employee sign it indicating that he or she has returned everything.


Although these concepts sound basic, a surprising number of companies take chances in the security area, say attorneys. At MAI, for example, customer-service representatives did leave repair manuals with customers, so it was harder for the company to argue that this information was a trade secret. Naeve says that he advises many clients to make written manuals proprietary by marking them as such. “It’s a simple idea,” he says. “But you’d be amazed at the stuff that’s published that companies don’t label as confidential.”


Human nature also can have a way of working against security measures. As people get to know one another, for example, they may trade computer passwords, or let unauthorized persons have access to restricted areas. “The problem is that individual workers are just careless,” says James Lamont, a security consultant in Chicago. At one U.S. government agency in Washington, D.C., Lamont was able to get into an unauthorized room simply by fumbling around in his wallet, as if he were looking for an access card to open the door. An employee who saw him looking helpless unlocked the door with her card and motioned him in. “She obviously thought that I belonged there,” he says. “But I might have been there to steal something.”


As important as security is, it’s also important to strike a balance between security and getting the job done. Some companies that have the best intentions have defeated the purpose by having so much security that it hinders production, says Garelick. “Sometimes what companies do to handle trade secrets interferes with innovation and creativity,” he says.


This is precisely what happened at one large East Coast computer company with which Garelick worked. The company had extensive policies and procedures regarding trade secrets. Projects generally were broken up so that only one group knew one piece and another group knew another. By policy, communication between the groups was restricted. The result: The company was slow to develop products and slow to adapt and respond to changes in the market. Its financial performance suffered. “My suspicion is that this company had better breaks between organizational units than the CIA,” says Garelick. “Except it wasn’t as creative as it had been, and it was losing flexibility. They’d done such a good job at protecting their secrets that the secrets weren’t worth that much anymore.”


HR personnel can control use of legal agreements.
One security measure that’s becoming increasingly common doesn’t limit an employee’s access to information until he or she leaves the company. These are the legal agreements that some employers now are requiring new hires to sign. Typically called non-compete agreements or non-disclosure agreements, they’re essentially a written promise that an employee won’t use any proprietary information. “These are pretty standard,” says Bob Romanchek, a compensation consultant with Hewitt Associates in Lincolnshire, Illinois. “No matter how much communication and education you have [about trade secrets], having something in writing is important.”


General Motors began requiring its senior-level executives to sign these agreements shortly after the well-publicized case last June against the company’s former purchasing executive, J. Ignacio Lopez de Arriortua (aka Inaki Lopez). GM accused Lopez of taking millions of dollars worth of proprietary information—including cartons of confidential data about pricing and new product designs—to his new employer, German-based Volkswagen AG. GM also accused him of pushing up strategy meetings before he left so that he could gather even more data for the competitor. Lopez, who had been instrumental in repositioning the automaker, has denied the charges.


However the case eventually is resolved, attorneys say it could end up costing both companies a great deal of money. GM’s top managers and HR officials hope that the use of non-compete agreements will help prevent a recurrence of this kind of expensive headache.


The advantage of such agreements is that they provide a record that an employee has been told that information is a trade secret. Mead has been requiring certain employees to sign non-compete/ non-disclosure agreements for almost a decade. The basic agreements stipulate that the employee has a duty to the employer not to disclose trade secrets or something he or she learned at the company. The employee also is barred from doing work for a competitor while employed at the company, and sometimes for a period of years afterwards, according to Nancy Nash, legal counsel in human resources at Mead. The damage this would cause the firm and penalties for violating the agreement are included. Sometimes, for research-and-development staffers in particular, the company adds a third provision to the agreement, which bars an employee from taking and using any invention he or she created at the company for six months after the person leaves Mead for a competitor.


There are several drawbacks to agreements, however, as Nash and other attorneys readily acknowledge. First, courts in many states have found these agreements unenforceable. In some cases, it’s been determined that they can limit future employment of the worker. Often employees forget signing them, or don’t want to sign them because that may hurt their chances of getting another job in the industry.


Still, Naeve and other human resources experts agree that these agreements can act as a first line of defense. “They’re more of a threat than they are anything else,” he says.


Companies that require employees to sign non-compete agreements should be ready to explain the agreement to new hires. At Mead, new technical employees, engineers and other workers in development areas are given an orientation and educational program about trade secrets. The company also holds periodic legal forums to remind employees of the necessity to protect proprietary information.


Some organizations, such as Fluor Daniel Inc., an engineering and construction firm in Irvine, California, require employees to recertify and review the agreements on an annual basis as a reminder. Experts say that human resources also should follow up with employees at the time of termination to ensure that they remember signing the agreements. Talent Tree Professionals, for example, which like many temporary-help firms has been in trade-secret battles with former sales people who take customer lists with them, sends a letter to employees when they leave, reminding them of their obligations, says David Seaver, vice president of human resources at the Houston-based agency.


Mead’s HR staff gives employees copies of their agreements at the exit interviews and also makes sure that they understand their obligations regarding trade secrets. The departing workers also are asked to sign acknowledgement forms that state that they understand the terms of the original agreement and will be bound by it.


According to Nash, Mead only has had to pursue legal action and enforce a non-compete agreement once. That happened two years ago when someone attempted to use proprietary information about customers after he left. Because they had the documentation showing that the employee knew what information was protected, the company was able to get a temporary restraining order and a preliminary injunction to keep the ex-employee from using the trade secrets at his new job. “I think most people believe [the company] when they sign these agreements, and they don’t challenge them,” says Nash.


At the same time, Nash emphasizes that merely having an employee sign these agreements isn’t fail-safe. As MAI learned, a former employee still can do plenty of damage before any legal action can be taken.


Training provides understanding of trade secrets and protection devices.
The best insurance against trade-secret theft is to combine these agreements with a strong training and awareness program. Too often, says Unikel, this isn’t done. Most workers who take proprietary information do so inadvertently—the employees simply don’t understand that the information is protected. “Many times, we recommend that companies adopt policies, but they seem to get a low priority until the companies have a big suit like General Motors,” says Unikel.


Garelick agrees that this is an area in which too many organizations fall short. “What’s often clear when I go into companies is that some information may be important from a managerial point of view, but the organization hasn’t done a good job of communicating that to employees,” he says.


At one software company, for example, an employee who worked on updating products went to a trade association meeting and told extensive war stories to competitors and the press about the development process. He talked about what didn’t work and what did. “If you had wanted a detailed case study on [the company’s] process, you couldn’t have done any better,” Garelick says.


Later, the employee was reprimanded for his indiscretion. Because the company improperly explained to him about the importance of keeping trade secrets secret, however, he walked away thinking he had gotten in trouble simply for talking to the press. He had no idea that the information was part of what gave the company a competitive advantage.


For this reason, managers at Mead explain to their employees that talking about their work at seminars is dangerous. The company also maintains strict control over what employees are allowed to publish. This often is an issue because many of the organization’s researchers come from academia and are used to writing about their work. “We have to let them know that they can’t tell the world about their latest gee-whiz discovery because it’s a trade secret,” Nash says.


Conveying why trade secrets are important to the firm may be the single most important step an HR department can take, says Pat Sweeney, patent counsel for Pioneer Hi-Bred International, a Des Moines, Iowa-based biotechnology firm at which engineers seed for such plants as sorghum, sunflowers, wheat and soybeans. “If I were going to tell an HR manager what his or her role was, I would say it’s to help make employees keenly aware of the great value in trade secrets,” Sweeney says.


She should know. Two years ago, a competitor got hold of some of the company’s proprietary seed. And, although it won a $46 million settlement against the competitor, these days the organization doesn’t take any chances. Human resources managers explain to employees that their jobs are dependent on certain information remaining within the company and require them to sign non-disclosure agreements.


Also, Pioneer recently held a session for its receptionists reminding them of the importance of protecting trade secrets. The seminar, given by the company’s legal and human resources departments, covered what intellectual property is and why it’s important to the company. The reason that the company chose these employees to participate was because receptionists control the flow of people and some material in and out of the company, says Sweeney. “They could allow a non-employee into part of the system that’s sensitive, and that person could wander around at will,” she says.


According to Sweeney, the employees responded well to the seminar. One of the questions they were most curious about was how someone who was trying to appropriate information would try to do it. Pioneer was careful to be realistic in its expectations, recognizing that it was asking receptionists to be friendly and helpful and yet act as security. “That’s kind of a hard cross,” said Sweeney.


Create loyalty and retention through rewards and recognition.
Asking employees to protect a company’s trade secrets requires a payoff for them. Companies must look hard at their reward and compensation systems to see that they’re properly recognizing employees for holding up their part of the bargain. Increasingly, Garelick says, human resources personnel consult with him about such issues as how to treat, reward and retain employees—specifically because a departing worker has taken trade secrets to a new employer. “Some of the main issues surrounding trade secrets have to do with management style and management process,” he says.


Questions HR should be asking include: Are we rewarding people in a way that’s meaningful to them? Are we recognizing individual achievements? “Sometimes all it takes is a letter from the company president commending someone for a job well done to make someone feel loyalty to the company,” says John Hermann, an Irvine, California-based human resources consultant.


Often, however, it takes more than that. At Fluor, where engineers design projects, management realizes that rewarding performance goes beyond simply paying high salaries, says Mark Krause, director of human resources. “You have to build an environment in which employees clearly can see that they can have their innovativeness recognized.” For this reason, Fluor managers have instituted such forums for recognition as monthly recognition days, at which employees are verbally thanked during a department meeting; company-paid lunches; and spot-bonus programs, at which a producer is given a cash award for a particular achievement. The company also has adopted a worker-friendly atmosphere of flexible hours and generous benefits.


Creating the right environment may go beyond blanket policies for the entire company. One high-technology company with which Garelick works had one particular employee who, in addition to doing his job, was proficent with software and computers and tinkered with developing new approaches. At one point, he invented a modification to some equipment that increased productivity. To reward him, management restructured his job so that he could work on his regular duties 20 hours a week, and then they gave him a budget of $5,000 a month and told him he could spend the other 20 hours each week inventing and troubleshooting. “The company got tremendous mileage out of that,” Garelick says. “The person was motivated and did even more for the firm.”


Minnesota Mining and Manufacturing Co. (3M) is another firm that has accrued benefits from setting up alternative programs to reward and encourage innovation. At the Minneapolis-based company, known for such products as Scotch Tape™ and Post-it™ Notes, research and development employees who have ideas for new products or applications are invited to present their plans to a management committee and apply for a grant. If the projects are approved, the company gives the employees a budget and the time to work on them.


Another alternative is to give employees who work on new products stock in the company so that they may realize any gains the product brings. Employers also should look at how compensation and bonuses are structured to see that they act both as a retention device for top talent and encourage the protection of trade secrets. Romanchek of Hewitt Associates has helped several companies set up reward systems that recognize performance. Options he suggests include:


  • Offering supplemental retirement agreements that condition the payment of benefits on not competing or not revealing trade secrets. The same thing can be done with severance agreements in the event of a layoff. If an employee doesn’t comply, he or she risks forfeiting his or her benefits. Stock-option plans also can be set up this way. “Restricted stock is the traditional retention device,” says Romanchek
  • Rewards or bonuses for performance or innovation can be spread out during a longer period to give employees an incentive for staying with the company. GM, for example, spreads out bonuses over a three- to five-year period. If an executive leaves before the time is up, he or she may lose part of his or her compensation. The GM plan also is linked to stock so that the employee has a financial stake in the company’s performance. Bonuses can be linked to the protection of trade secrets just as they’re linked to management-by-objectives goals
  • Compensation need not be based solely on output. HR might set up bonus plans to recognize the fact that someone came up with 10 new ideas. Or the company might provide a researcher with additional staff to determine whether a potential product has value. “Rewards don’t have to be focused on the success of a product,” Romanchek says. “I see no reason why you couldn’t build rewards for creativity into the process. If employees are happy somewhere, they’re less likely to be lured away solely by more money.”

Programs designed to manage careers indirectly affect trade-secret spreading.
It’s just as important for employers to pay attention to career development and show employees where they can go within the company as it is to compensate them fairly. Micron Technology Inc. in Boise, Idaho, began developing a career-development program in 1991 to better retain employees in a competitive market. The company wasn’t only concerned with losing trade secrets, but also the intellectual capital its employees had built up.


The program that HR and management developed is called “Reaching High Performance.” It helps orient new hires to the company’s corporate culture. It starts with a one-day course during which the company mission is conveyed, and new employees are encouraged to contribute immediately. Subsequent installments of the 15-hour course deal with career development and help employees map out a five-year plan. It also shows them what skills they will need to reach their goals.


The response? “People love it,” says Karen Bridges, coordinator of instructional services. “I’ve had people come up to me in the hallway and say, ‘I got this promotion because of the RHP class.'”


Although protecting trade secrets wasn’t a primary goal of the program, it did increase retention, and the firm hasn’t been involved in any trade-secret disputes.


Therein lies the challenge in defining HR’s role in protecting trade secrets. It’s difficult—if not nearly impossible—to pinpoint what programs are preventing trade secrets from getting out. Fairfield, Connecticut-based General Electric Co., for example, which had a competitor steal its diamond formula, says it’s hard to isolate programs that are specifically designed to help safeguard trade secrets. “We have ethical standards and company policies that are reviewed regularly with employees,” says GE communications director Bruce Bunch. “But we don’t have a lot of new and innovative things aimed at this particular part of behavior.”


GE does have programs that allow individuals to design their own jobs and have more responsibility in decision making. The company also offers cash and other incentives for productivity. Yet, notes Bunch, if employees want to steal, it’s hard to set up any policy to prevent that.


Other HR professionals agree. However, they also emphasize that this fact shouldn’t stop employers from learning how to manage the “knowledge workers.” Although the law on what is and isn’t a trade secret still is evolving, the fact that people and the knowledge they possess are a company’s most important resource isn’t. Managers need to be taught how to handle people in flatter, leaner, more knowledge-powered organizations. And everyone is going to have to start to value intellectual capital, even if it can’t be seen on a balance sheet. That means more career development, more recognition and emphasis on what truly gives value. Happy employees are less likely to want to do a company damage.


This was illustrated in the blockbuster Jurassic Park. In the movie, a computer programmer feels he isn’t paid enough or recognized for the system he set up. So he steals the park’s trade secrets—dinosaur embryos—and sells them to a competitor. This act leads to the end of Jurassic Park and devastates the seller’s employer.


To professionals on the frontline like Pioneer’s Sweeney, it’s an apt reminder. “What’s important to remember,” she says, “is that it only takes one desensitized employee to lose a trade secret.”


Personnel Journal, June 1994, Vol. 73, No. 6, pp. 98-110.


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Assessment Center Helps Find Team-oriented Candidates

Organizations that place a high value on selecting the right people and developing them to be high performers often use assessment centers. By using these centers, employers can observe candidates in exercises or work simulations instead of only in an interview situation. While assessment centers produce positive results, most don’t evaluate a candidate’s ability to perform effectively on a team.


The assessment center at a division of Windsor Locks, Connecticut-based Hamilton Standard is an exception. Hamilton Standard Commercial Aircraft Electronics Division of United Technologies (HSCAE) manufactures environmental and jet-engine control systems for commercial aerospace applications. When Hamilton Standard was awarded a contract on the Boeing 777 in 1991, the company moved HSCAE to Colorado Springs, Colorado.


Once in Colorado Springs, an HSCAE leadership team designed a flat organization based on self-directed teams to produce the relatively low volumes of high-quality products that were necessary at the plant. To allow the teams to follow the product through all areas of production, HSCAE decided to hire and train a multifunctional work force, certified in a variety of technical, business and people skills. HSCAE created an assessment center to find these new team members.


Because of the company’s progressive job requirements and work environment, there were two critical considerations:


  1. Current team members needed to be involved in the selection process.
  2. The program needed to assess individuals’ abilities to work in teams, learn such generic work skills as hand/eye coordination, follow written instructions and learn technical skills.

To meet these requirements, the company implemented a multi-step selection program. This process begins with an information session for candidates who submit resumes to the company. Brought in groups of about 150 people for an interactive two-hour session, candidates learn about the organization’s product and HSCAE’s employee expectations. They also learn what they can expect from the organization in terms of compensation, benefits, work environment and personal-development opportunities. At the end of the session, candidates are invited to complete applications.


Preparing current team members to participate on selection teams is a crucial second step. Individuals throughout the Colorado Springs facility go through extensive training to become certified in resume and application review, telephone interviewing, technical interviewing and consensus-exercise evaluation.


The selection teams begin to apply their training with the review of applications. Candidates are screened against criteria developed by the HR department, and high-potential candidates are invited to participate in the company’s comprehensive assessment center.


The assessment-center process evaluates 65 to 70 candidates on a single Saturday. During the week prior to the Saturday session, candidates participate in two three-hour assessments. The first is a battery of tests that measure the candidate’s generic work skills. Then, candidates complete the College Placement Exam, conducted by the local community college. This is used to validate high-school training. Although these assessments help HSCAE identify strengths and weaknesses, candidates aren’t selected or rejected based on their results.


When the candidates come in on Saturday, 45 to 60 trained HSCAE employees conduct technical and general interviews and evaluate a Team Consensus Exercise, in which candidates participate during the three-hour evaluation.


In the technical interview, all candidates are presented with a flowchart of the manufacturing process, which is used to identify areas in which they could add value. Approved follow-up questions enable interviewers to assess four areas of concern: technical depth, technical breadth, ability to learn and desire to be cross-functional.


Next, the general interview evaluates a candidate’s understanding of such business issues as the material flow process, configuration management, computer, finance and human resources skills.


In the Team Consensus Exercise, candidates work in teams of six to build a model airplane. Six trained evaluators assess the candidates in these areas of team performance: participation, support of the process, interpersonal skills, quality of thought, mode of behavior and flexibility.


In each of the above three assessments, candidates are given scores, which are loaded onto a spreadsheet to help focus discussion at a wrap-up meeting, held directly after the assessment center. At this time, evaluators discuss each candidate and all hiring decisions are made by group consensus.


After almost two years, the assessment center has achieved outstanding results. Through the center, HSCAE has been able to recruit and retain a talented, cross-functional work force whose certified skills cover more than 52 areas. Further, the teams have been effective at improving customer-acceptance rates while lowering costs, making HSCAE a highly competitive supplier of aerospace electronics.


Personnel Journal, May 1994, Vol.73, No. 5, p. 92.


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1994 Service Optimas Award Profile Merck & Co.

Merck saves people’s lives. That’s one thing that can be said about the Whitehouse Station, New Jersey-based maker of prescription drugs. But that’s not all. Merck & Company Inc. is a company well respected for more than its service to the world. In fact, Fortune magazine has rated Merck number one in “America’s Most Admired Corporations” for seven years in a row. In 1993, Merck scored within the top three in seven of the eight key attributes that the publication credits as forming reputation. These were: quality of management; financial soundness; quality of products or services; ability to attract, develop and keep talented people; value as long-term investment; innovativeness; and community and environmental responsibility.


In 1993, Merck also was rated one of the 100 best companies to work for in America in the book by the same name written by Robert Levering and Milton Moskowitz. On top of that, Merck makes money. Lots of it. According to Levering and Moskowitz, only three companies in the world made more money than Merck in 1991. Last year, the corporation grossed more than $10 billion.


Despite all of this that it has going for it, Merck uses the resources of other companies to help it grow and diversify. Since 1991, Merck has formed joint ventures, both nationally and internationally, with four prominent companies that have various businesses within the pharmaceuticals industry, and with several smaller enterprises. Says Eric Marquardt, director of executive compensation at Merck: “Although each of the ventures has a different strategy and purpose, usually the reason [for forming it] is to do something more rapidly and presumably at less cost than we could do on our own.”


As separate entities, the joint ventures that Merck forms with partners have their own HR staffs. However, from the time Merck begins conversations with another company on the possibility of creating a strategic alliance, the HR staff at Merck must get involved. Merck’s HR department helps to determine staffing solutions and types of policies and procedures needed to fit best with the joint venture, as well as facilitates smooth conversations between the baby company and its parents. “It isn’t a management or administrative role,” says Marquardt. “There are legal reasons that prevent HR at the parent companies from controlling what goes on in the joint venture.” So instead, he says that Merck’s HR function serves the company’s joint ventures by being consultants.


HR turns its understanding of Merck’s goals into HR solutions.
Merck’s largest joint venture to date was the result of a pairing with Wilmington, Delaware-based E.I. DuPont De Nemours & Company Inc. At the time, DuPont had a $700 million pharmaceutical business that employed 300 scientists involved predominately in basic research. The company had some experimental compounds in which Merck could benefit. In exchange, Merck had an excellent track record in developmental research to offer: DuPont could use Merck’s expertise to bring its products through the development phase and into the marketplace. In creating Wilmington, Delaware-based The DuPont Merck Pharmaceutical Co., these two giants were able to merge their resources. Today, the entity to which they gave birth is a Fortune 500 business worth more than a billion dollars.


For HR at Merck, knowing the reasons why such joint ventures as the DuPont Merck endeavor are formed is imperative. To properly do its job in consulting the new enterprises, the HR staff at Merck has to understand the perspective of both partners, as well as the goals of each new company formed. They then must turn that understanding into HR solutions that make sense for the new business. “You can’t just give the people rote answers,” Marquardt says. “You have to start by understanding what the business is and then going back and saying what are the right answers for that particular business.”


This process starts with staffing. Usually, the initial staffing decisions are made during the formation of the joint venture. As the two partners decide what form the venture will take, they’re also deciding from where most of the initial employees will come. Says Jack Hayes, senior director of human resources at DuPont Merck: “There had been a series of negotiations prior to forming the joint venture in which the HR functions of the two parent companies were involved.”


In the case of DuPont Merck, because DuPont’s pharmaceutical business with its 300 scientists basically became the new company, the logical choice was to staff the joint venture with primarily DuPont employees. According to Hayes, of a starting work force of 3,500 people at DuPont Merck, 3,498 came from DuPont.


Although continual hiring decisions beyond the initial staffing process are made as they are in any business, by the company’s managers, HR at the parent companies consistently play a role. Some senior executive placements, for example, often are determined by the partners. If the candidate the parties choose is a Merck employee, HR’s role becomes one of career management.


Here’s why. Because the joint ventures are separate entities—companies in and of themselves—leaving Merck to join them isn’t a transfer but a termination. That means losing possibly 20 years of service and all of the benefits—retirement pay, stock options and so on—that go along with it. Very few people would make this move without some sort of incentive. So, HR at Merck must work with the joint ventures in creating packages that will attract the talent needed to the new businesses.


Recently, for example, the best candidate that the two partners identified for a senior executive division at one of Merck’s joint ventures was a Merck employee. The executive had nearly 10 years’ service with Merck. “In all likelihood, he wouldn’t have accepted the job with the joint venture if we had to terminate him from the Merck payroll and send him over there as a new employee,” Marquardt says. “So we had to work through the whole reward system and help HR at the joint venture manage his transition.”


The solution in this case was for him to remain on the Merck payroll so as to manage his retirement benefits, his equity interest and so on. “That isn’t the only solution by any stretch of the imagination,” Marquardt says. With staffing the start-up joint ventures, for example, the HR departments may develop supplemental retirement benefits or similar options for employees joining the new company to help them get over the impact of termination and rehiring. It all depends on the circumstances, however. “If your job goes to the joint venture, it may well be that you’re simply told to go,” Marquardt says.


He stresses that the most important thing to be cognizant of is that it may be difficult to recruit people from the parent company to go to the joint venture. “Because that becomes a termination, you’re not talking just about new opportunities but about impacting someone’s career earnings.” If the partners have a keen interest in getting a skill that’s in short supply into the joint venture, they may have to make some additional concessions or provide some additional benefits to overcome that problem of terminating from the parent company’s plans.


Employees who leave a parent company to work for a joint venture often also are concerned about having the opportunity to return to the parent company if the joint venture doesn’t work out, or they reach their full potential in the new organization. Marquardt says the company must take a stand on these issues, making it clear to employees whether the door swings both ways or whether their future is with the joint venture.


Joint ventures can’t just adopt their parents’ benefits and policies.
Similarly to how Merck and its partners determine staffing needs for their joint ventures, they make determinations on benefits and other HR programs and policies. “You have to start and ask the question, ‘What is it that the business is trying to accomplish?’ ” Marquardt says. “Then you have to ask, ‘How can I structure the various reward systems and other programs that are consistent with that?’ “


Hayes, who came to DuPont Merck from DuPont’s HR staff, says that the two parents begin discussing these issues before the formation of the joint venture is completed. Often, the two parties learn that the solutions that make sense for the joint venture aren’t the same ones that work for either of the parents. For example, because the joint venture may be in a different business than the parents, it won’t be able to pay the employees in the same methods as they do.


This was an issue when Merck formed Johnson & Johnson¥Merck Consumer Pharmaceuticals Co. in Europe with New Brunswick, New Jersey-based Johnson & Johnson Co. in 1989. Several factors made the joint venture—which is an over-the-counter drug business—unique from Merck. For one, the Merck corporation is organized by functional divisions. Its joint venture with Johnson & Johnson, on the other hand, is a fully integrated business, having its own manufacturing, its own research, its own sales force and so on. Also, being a start-up business that probably wouldn’t generate profits for a number of years, the joint venture’s objectives were different from those at Merck. Most fundamentally, the baby company differed from its parent because it was primarily a consumer business.


These characteristics of the business dictated what type of programs the new company could and couldn’t have. For example, because it was a start-up business, it wouldn’t have made sense to set up an incentive plan based on operating profits. In the short term, that just wasn’t pragmatic. Instead, the HR crews at Merck, Johnson & Johnson and the joint venture had to look at performance measures that would attract people who were more entrepreneurial in nature and weren’t that concerned with security.


Programs to meet these objectives weren’t characteristic of either of the parents, says Marquardt. Johnson & Johnson’s incentive plans, for example, aren’t very leveraged: They don’t offer much of an upside for going beyond objectives, nor much of a downside for falling short. Merck’s programs, on the other hand, are more highly leveraged. Although this system was closer to what an entrepreneurial environment would need, Merck also uses incentive plans that are tied to growth, operating income and revenues. These weren’t the right kinds of measures for a start-up business. So, HR’s role was to get the two partners and the people in the joint venture to agree on performance objectives and plan designs that made sense for the business, recognizing that it was different from what either of the partners usually did in their own organizations.


These types of issues didn’t surface for the DuPont Merck business. Hayes says that because the bulk of employees came from DuPont, the partners kept as many of the parent’s plans as possible. “We wanted people to feel comfortable, to have a sense of security,” says Hayes. “Some of these people had been with the company for 15 or 20 years. It seemed foreign for them not to be working for DuPont.”


The DuPont Merck company transferred workers from DuPont with their service records intact. If they had four weeks’ vacation earned, they still received it. They also kept their pension plan earnings, although the new company has its own trust fund for a very similar pension program.


DuPont Merck also stayed with Dupont’s compensation plan. Within the first year, however, the company had made revisions on how it looked at compensation and communicated it to employees. DuPont, from which most of the workers had come, is a multifunctional, multidivisional business and uses a variety of companies in various industries as comparison points for salary ranges. Although the new company retained DuPont’s compensation system administratively, it had to change its point of reference to the pharmaceutical industry. With Merck’s help in identifying companies with which to align, it now compares its salary ranges only to companies within that industry and lets its workers know how their pay rates in comparison.


Constant communication between HR staffs is vital for the joint ventures’ success.
Hayes says that the ultimate goal of both parent companies in regard to the joint ventures is to help make them successful. To achieve this goal, the HR functions at both Merck and DuPont have constant contact with the HR staffs at the joint ventures. “Both parent companies work with us on an advisory basis,” Hayes says. “We deal with HR as we move ahead in formulating.”


It’s important as well for the HR functions at the parent companies to communicate with each other consistently. They must have the same understanding of the procedures and policies for the joint ventures, and they must communicate these issues to their own firms. It wouldn’t be appropriate, for example, for Merck’s HR staff to go into Johnson & Johnson and sell an incentive program for the joint venture. That needs to be the responsibility of the HR group in the partnership.


In the case of DuPont Merck, the joint venture has a partnership board made up of three senior executives from each parent company. This board must approve such measures as long-term incentive programs and pension-plan changes. Hayes and the DuPont Merck staff work closely with HR at DuPont and Merck not only in designing these measures, but also in selling them to the board. The HR staffs at the parent companies help board members understand the costs, implications and employee-relations issues of the policies for the joint venture.


The HR professionals at the joint ventures don’t necessarily go to both parents for every issue, but rather draw on the staff functions where the strength exists. “It isn’t much different from the business itself,” says Marquardt. “The businesses are formed because each of the partners have unique strengths that, when you bring them together, create a strong business. The same can be said for the HR functions. The HR staffs at the two partners may have different strengths. If help is needed in the joint venture, it will come from the partner who has a particular strength in that area.”


For example, for its joint venture in France with Connaught Laboratories Inc., Merck’s HR staff was called on for its experience with global issues. Pasteur Meriex, Serums, et Vaccins, the company the two enterprises formed, is a vaccine business serving all of Europe. Its French parent—from which the bulk of employees came, including the human resources staff—was strictly national. The French HR staff needed guidance in managing human resources programs in a multinational environment.


Several human resources staff members from Merck’s headquarters traveled to Lyon, France, and met with the HR function at the joint venture. “Through demonstrations and discussions, we showed them how Merck manages some of its HR programs on a global basis and what we do differently in different countries,” says Marquardt. “The people in the joint venture could then design some of their own programs and learn through what we already have done. That was a case in which the service part of this was simply that the HR functions in the parent companies became a resource to the HR function in the joint venture.”


Because the role of the HR people in the parent companies is different for each joint venture, Marquardt says Merck’s HR function doesn’t have any set guidelines for handling them. It does follow certain procedures, however. There’s usually a senior person, sometimes two, who manages the relationship with the joint venture. He or she then brings in additional HR members when needed. For example, when the joint venture reaches the point at which it’s dealing with compensation issues, the senior HR person who’s managing the relationship comes to Marquardt for assistance. At no time, however, would the entire Merck HR staff’s attention be dedicated to a joint venture.


Understanding corporate cultures facilitates communications.
Because the partners have a business and financial interest in the joint ventures, there’s ongoing reporting requirements and various management reviews between the partners and the joint ventures. Therefore, it’s important that the joint ventures understand the cultures of the two partners.


The HR people in the partner organizations can speed up this understanding by helping to educate the managers in the new organization on the characteristics of the cultures. This, in turn, helps the joint ventures better interface with the parent companies.


For example, one cultural issue to which Hayes has had to adapt is differences in decision making. In a small company such as DuPont Merck, decisions are made by one or two people who quickly move things along. At the two giant parents, however, the process is more time consuming as decisions must filter through a hierarchical structure for approval. Hayes says that because he and the others at DuPont Merck understand these differences, they’ve been able to learn how to work with them.


Fortunately, Hayes says that cultures pertaining to human resources are similar for both parents as well as the baby. “DuPont values people, as does Merck,” he says. “It’s surprising how similar the cultures of the two parents are.”


The parents don’t dictate culture to the new companies: Marquardt says that experience has shown that it’s best to let the joint ventures create their own cultures independent of the two parents.


Obviously, there will be times when the cultures of all three entities clash. Merck’s partners overseas, for example, often have very different cultures from the U.S.based company, and the resulting joint ventures can have a hybrid of the two. Through communication and education, however, the partners, both nationally and internationally, not only learn to understand each other but also learn from each other. And, they teach their offsprings their combined knowledge. “We really benefit from the knowledge of the human resources departments of the parent companies,” says Hayes. “They have experience and resources in the HR arena, they know what’s current, and they can predict trends. It’s a nice position to be in.”


Merck’s HR understands the company’s business. Just as the company’s products save lives, its HR department makes life a little easier for its joint-venture counterparts.


Personnel Journal , May 1994, Vol.73, No. 5, p. 64-71.


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Team Staffing Requires New HR Role

In today’s team-based organizations, effective human resources departments are those that know when to take charge and when to let go, when to step in and when to bow out. It isn’t an easy dance to learn, particularly when HR is used to running its own show. But for team-based management to be successful, teams have to be allowed to control their destiny to the greatest extent possible. This includes giving them the authority to make staffing decisions previously handled solely by the HR department.


This doesn’t mean that HR is absolved of all responsibility related to recruitment and hiring. What it does mean, however, is that the role of HR has to change considerably.


Take C & S Wholesale Grocers Inc. in Brattleboro, Vermont, a company that has 1,600 employees, more than $1.3 billion in sales and a corner on New England’s grocery supply market. Here, the warehouse crew has worked in self-directed teams since 1989, an organizational move that’s credited with significantly boosting employee morale and with it, the company’s profit margin.


At C & S, team members are involved in all hiring decisions. HR acts only from an external recruiting standpoint. When new employees are needed, HR advertises the open positions, screens candidates, then hires and trains the new employees. Then, the HR department places these new employees on a “rookie team” and pays them a base wage. Existing teams can select members from this team of new workers.


If, instead, teams want to recruit members from other teams, they go ahead. If they want to get rid of team members who aren’t pulling their own weight, they’re empowered to do so. If they want to reassign job responsibilities, they don’t have to ask permission. Once new employees have been trained and placed on the rookie team, HR is out of the picture entirely. Why? As Mitch Davis, vice president of the company’s people affairs department, explains, “HR doesn’t know how the work gets done. Teams members do.”


Human resources professionals in companies that are just making the move to self-directed work teams can learn a lot about team staffing from organizations like C & S. For instance, HR professionals need to be involved in the recruitment and hiring process, but they also need to know when to back off and let team members take responsibility. Let’s face it: The teams ultimately have more at stake in the selection of a new employee than the HR department does. “It’s hard for HR to get out of the way and let team members make staffing decisions,” says Edward Marshall, president of the The Marshall Group in Chapel Hill, North Carolina. “The biggest challenge HR has is becoming partners with the line organization.” HR staffers must learn to act as internal consultants who offer expertise in the hiring process, but who don’t necessarily have authority over every hiring decision.


When staffing a team, the key is balance.
So what then, does the team-staffing process look like? How does staffing for teams differ from staffing for individual jobs? At the beginning of a team venture, the staffing procedure varies little from that found in traditional, non-team-based organizations. At this stage, HR needs to manage the process because there aren’t team members with whom to consult about staffing decisions. The main difference in staffing for teams is that candidates have to be screened carefully for their ability to work well with other team members (see “Selecting Good Team Members Requires Careful Job Analysis”). “For us, staffing for teams isn’t that different from staffing for other positions,” says Susan Howard, senior on-the-job training instructor with First Trust Corp. in Denver. “For team positions, however, we pay a lot more attention to candidates’ interpersonal skills.”


At Delta Dental Plan in Medford, Massachusetts, a self-directed team provides services for an insurance contract the company acquired with Massachusetts Public Employees last year. Because this contract, which involves providing dental insurance for 31,000 employees, is Delta Dental’s largest business account, it was important that the team was staffed with qualified, motivated individuals.


“HR professionals need to be involved in the recruitment process, but they also need to know when to let team members take responsibility.”


From January to July 1993, the HR department—in conjunction with the director of operations—worked to recruit employees for the new 12-member service team. In selecting team members, the company wanted a group of people whose strengths complemented each other. As Tom Raffio, senior vice president, explains, the operative word in the selection process was “balance.” This was accomplished in several ways.


First, the company used the Myers-Briggs indicator to reveal the candidates’ personality types. “We were looking for a combination of introverts and extroverts, people who reflect on things and people who close on things, and people who could process claims efficiently on a daily basis, as well as those who could keep in mind the long-term vision of the company,” Raffio explains.


Next, because not all customers of the new account were English speaking—some spoke only Spanish, some French Creole—the company wanted to balance the team with some bilingual employees.


Finally, Delta Dental believed it important to have employees on board who understood the business and the company’s culture. But because it was a new account, the company also wanted employees who brought fresh insight and perspective. For this reason, employees were recruited from both inside and outside the company.


HR managers took information about the final candidates and charted it on a hiring matrix to make sure that among them, potential team members had all the attributes identified as necessary for a successful team. The candidates’ interpersonal skills then were assessed through interviews with HR representatives and other employees and managers.


Once the team members were hired, the HR department continued its hands-on involvement by providing extensive training in such areas as corporate-culture issues, team dynamics, product knowledge and statistics.


The service team has been up and running for more than nine months, and HR has been out of the picture except for a couple of interventions related to team members’ absences or tardiness. The longer the team works together, the less likely it is that HR will get involved. What will happen when turnover occurs and a new member is needed? HR will post the job and handle initial interviewing, Raffio says, but it will be up to the team members to select the final candidate.


If HR manages recruitment, team members must be involved.
Jeanne Wilson, project manager for Development Dimensions International in Pittsburgh, believes that no matter how long a team has been working together, it remains HR’s job to advertise team positions and to prescreen candidates. “Recruiting remains HR’s responsibility, not the team’s responsibility,” she says. However, interviews should be done in partnership with existing team members or, in organizations that are new to teams, in partnership with line management.


At Libbey-Owens Ford, a glass manufacturer in Toledo, Ohio, new team members are recruited by HR using a selection process in which candidates are:


  • Brought in for an orientation to the company
  • Tested to reveal such attributes as motivation and aptitude
  • Assessed on their ability to spot defects in glass.

It isn’t until these steps have been completed and the list of candidates is narrowed down that team members get involved. At this point, they, along with representatives from HR and production, conduct small-group discussions with candidates to assess such skills as communication, cooperation and problem solving. With the list of candidates narrowed even further, interviews are conducted by team members and HR staffers. “HR manages the recruitment process,” explains Tracy Moser, HR specialist at Libbey-Owens Ford, “but production managers and team members are involved in the assessments and interviews.” Why? “We want their buy-in on the candidate, and also they often look for different characteristics than we do.”


When hiring new team members from outside the company, Libbey-Owens Ford uses a matching system in which candidates learn about each of the different teams and then indicate which team they’d like to work with by placing a marker on a job-preference poster. Then, team representatives make job offers after reviewing each candidate’s background and job preference.”We make 98% of the people happy using the matching system,” Moser explains. New employees assimilate to the team much more quickly, she adds, when they’re chosen to work on teams that interest them the most.


Wilson from DDI believes the eventual goal of team staffing is to have team members not only interview and hire new employees, but also be able to terminate low producers. How long should team members work together before they successfully can assume this accountability? “Not as long as you might think,” she says. “When I first started working with self-directed teams, I thought it would take at least a year before team members could take on the responsibility for staffing. Now I’m finding they can handle this in just six to nine months.”


At C & S Grocers, teams with openings look to other teams for potential candidates. Here, because employees are paid using a piecework compensation system, teams are competitive. Employees are compensated for every case order filled, and some top-producing teams can handle about 9,000 cases a day, which equates to approximately $20 an hour for employees.


Highly productive and thus highly compensated teams in which one member isn’t carrying his or her weight are given the authority to pass that person off to another less-productive team, picking up a more-productive employee along the way. For example, say there are eight members on a top-producing team, each earning about $20 per hour. The team tracks the number of cases handled by each member and discovers that one person is producing at a rate of only $16 per hour, which eventually could bring down wages for other members.


Because team members work together so closely, they usually will strive to help that person bring up his or her productivity. If that doesn’t work, they’ll move him or her to a team worth about $14 per hour. The $14-per-hour team will be happy to have the new member, because he or she can bring up productivity levels and potential wages for everyone on that team. The original $20 team, which now has an open position, looks to other teams for superstars who are producing at higher levels than the teams on which they’re currently members. All hiring by existing teams takes place through this internal swapping system. “It’s an open draft all the time,” Davis says. “Employees are moving up and down teams constantly.”


The cornerstone of HR’s function is training.
Some companies—especially those that have played the teamwork game for a long time—go even further in empowering employees to make hiring decisions. At Aid Association for Lutherans, a fraternal benefits society in Appleton, Wisconsin, teams recruit both internally and externally. Members are trained by HR to help them conduct effective interviews, assess a candidate’s potential and learn the legal dos and don’ts related to hiring. Otherwise, the team is responsible for all aspects of the new hire, including defining the skills needed, devising the interview questions, conducting the actual interviews, extending the job offers and training the new members.


Do team members usually agree on the best candidate? “It’s remarkable,” says Jill Murrow, service team director at AAL. “I’ve been in several new-hire situations in which team members had to choose their first, second and third choices. We’ve always agreed on which candidate was best for the job.” Teams work together so closely, she adds, that they intuitively sense who would fit in.


Another company in which teams are given great authority for hiring new members is Cummins Engine Company Inc. in Columbus, Indiana. “Teams aren’t responsible for going out on the street and recruiting people,” says Marilyn Tennell, executive director of HR. “HR handles the initial recruitment. But only team members have the expertise to decide if a candidate would be a good fit, both with regard to technical skills and personal characteristics.”


Tennell believes that the role of human resources in team-based staffing is one of providing systems, processes and procedures that help team members make good staffing choices. At Cummins, for example, HR has devised a system to help identify work flow, which helps teams determine member responsibilities. HR also has created the recruitment process to help identify potential candidates. Like AAL, the HR department at Cummins also provides team members with training to help them understand the legal requirements of interviewing, how to evaluate a candidate and how to reach a consensus on staffing decisions. “The important thing for HR to understand is that they are the supplier, and teams are the customers,” Tennell says. HR has to provide the tools necessary for the teams to do their jobs effectively, and that includes tools to help with the hiring process.


One of the most valuable tools Cummins’ HR department has developed for its teams is an assessment center. At this center, candidates go through a series of simulations that mirror job-related activities, while HR staff and existing team members evaluate their performance. “This gives candidates a clear picture of the working environment,” Tennell says, “and it gives team members a sense of how well the candidate will fit in.”


Wilson believes assessment centers can be a valuable part of the team-hiring process. Most organizations make hiring decisions based on application forms, unstructured interviews and reference checks, she explains. This format, however, doesn’t address many critical requirements for effective team membership.


“Interviews tend to work best when the applicant has had experience in the type of job for which he or she is being interviewed,” Wilson says. Unfortunately, many applicants for team positions have had no experience working in teams, so it can be difficult to estimate how effective they’ll be when placed in a team position. But assessments, which typically include two or three simulations, enable candidates to demonstrate their skills in situations similar to the team tasks they will perform on the job, such as problem solving, manufacturing and group-discussion exercises.


Team-based hiring results in tremendous benefits—and a few challenges.
In a traditional hiring situation, HR professionals recruit, screen, interview and hire new employees with little input from the candidates’ potential co-workers. HR simply introduces the new employee to the other members of the department in which he or she will be working, explains the work that person will be doing and departs. The supervisor has no loyalty to the new hire, co-workers have no reason to make sure that person fits in and the new employee is left floundering without any real allies. It’s no wonder that most turnover in organizations takes places within employees’ first six months.


When teams are involved in hiring new members, however, they have a vested interest in making sure that person is successful, explains Deborah Harrington-Mackin, president of New Directions Corporate Consulting Group in North Bennington, Vermont. “Teams spend a lot of energy on the hiring process, and they want the new person to succeed,” she says. “Their reputation is on the line, so they’ll work to find employees they know will be successful.” This means better assimilation. “You have to see it to believe it,” Wilson adds. “Teams will go to incredible lengths to make sure their chosen candidate fits in.” Quicker assimilation also means that turnover in team-based organizations tends to be a great deal lower than in organizations using more traditional hiring practices. At AAL, for example, the corporate turnover rate is only 4%.


But getting teams involved in hiring also presents challenges. “Basically, you’re taking a process normally handled by a single person and making room for several people to be involved,” Mackin says. This takes time—to train team members on the selection process, for employees to meet without work suffering, and to conduct the interviews.


Also, in a team environment, it isn’t enough to have members vote democratically on their chosen candidate; they should reach a consensus. This requires a lot of up-front work on issues related to problem solving and communication.


Still, by far the biggest challenge for HR professionals is getting out of the way and making room for involvement from team members. If HR professionals don’t take this step, they run the risk of teams bypassing their department entirely, losing their function’s valuable expertise in the process.


Personnel Journal, May 1994, Vol.73, No. 5, pp. 88-94.


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Motivating Creative Employees Calls for New Strategies

Susan Baker spends her days in a research lab, identifying molecules in the human body that are capable of fighting disease. Once the molecules are identified, she begins the laborious process of developing synthetic substitutes for those molecules that can be used in disease therapy.


As a senior research associate with Synergen, a biotechnology firm in Boulder, Colorado, it’s the science that excites her. Where she works is important, but not quite as important as the work itself. In fact, as a molecular biologist, her skills are in demand from other companies.


Baker is different from the average employee. She, along with other creative professionals such as engineers, software developers and researchers, are what IBM founder Thomas Watson calls “wild ducks.” Wild ducks aren’t motivated by such traditional incentives as title and promotion. They seek creativity, the freedom to innovate and recognition for their scientific breakthroughs. Furthermore, they’re apt to be more committed to their discipline than to any particular firm. Given the right enticement, wild ducks will fly to other companies, taking their talents with them and leaving half-completed research projects behind.


To recruit and retain technical employees, companies increasingly are reviewing the way they reward and recognize them. Some organizations are developing royalty compensation plans, whereby key research and development personnel are given the right to participate in the commercial success of the products they create. By sharing a percentage of profits with key contributors, these companies are hoping to jump-start the creativity and productivity needed for successful product commercialization.


Royalty compensation gives monetary feedback on employees’ success.
For decades, U.S. companies—leaders in inventing new technologies—have had trouble in the commercialization of their inventions, in finding ways to use them in products that are useful in the marketplace. David Balkin, assistant professor of business administration at the University of Colorado, says that one reason U.S. employers have done such a poor job in product commercialization is that technical employees often feel their contributions aren’t adequately rewarded. “A research scientist for a large pharmaceutical corporation develops and patents a successful new drug that produces $100 million in revenue its first year on the market,” he explains. “The executives of the division receive large cash bonuses, and the salespeople enjoy windfall commissions from the strong demand for the new product—but the scientist receives only a $500 honorarium for developing the drug.”


“Royalty payments are definitely on the upswing. We’re starting to feel the success of this program.”
Carol Dudick,
Battelle Laboratory


Since the 1950s, both Japan and Germany have recognized that employee-inventors should be compensated based on the value of their inventions. But U.S. policy has remained heavily focused on creating new technologies, devoting relatively little attention to adopting and applying them. In the public sector, this began to change in 1986, when the Federal Technology Transfer Act mandated that employee-inventors working in federally funded research laboratories be granted a royalty of at least 15% of any licensing income the laboratory receives. “It is estimated that more than 100,000 scientists and engineers—one-sixth of the total in the United States—are involved in such research,” says John McMillan, managing director of Houston-based William M. Mercer, Inc.


At Battelle Pacific Northwest Laboratory in Richland, Washington, a royalty compensation program has been in place since 1989 for employees involved in both government-sponsored research and private research projects. The program was developed partly in response to the Congressional mandate, but also because managers wanted to incent staff members to work harder at transferring technology to private clients. When Battelle’s researchers develop technologies that are licensed for use by private industry, the organization receives licensing fees for that technology, as well as royalties on any products manufactured using the technology. Carol Dudick, manager of technology commercialization, says that key researchers are entitled to share a pool of funds worth 10% of gross royalties or other proceeds derived from licenses and sales of intellectual property.


In the last three years, Battelle has paid approximately $200,000 to key contributors through its royalty program, but Dudick says that payouts in the first six months of 1993 equaled payouts in all of 1992. “Royalty payments are definitely on the upswing,” she says. “We’re starting to feel the success of this program.”


Another government contractor, SRI International in Menlo Park, California, has had a royalty plan since 1978, long before such plans were required legally. Here, scientists share a pool of funds worth 25% of license and royalty fees. Because of the long research time needed to come up with commercially useful technology, only about 5% to 10% of SRI researchers ever have received royalties. When they do, however, payments can be enormous, as was the case with one scientist who developed software to enhance ultrasound imaging. He’s earned more than a million dollars, and the checks keep coming.


Other compensation plans are more common—and less effective.
Despite the enormous potential of royalty compensation, only about 7% of companies currently offer such project-oriented incentives, according to a 1992 survey by William M. Mercer. “In this country, the first thing a new engineer or programmer is presented with is a document in which the engineer agrees, ‘I am an employee of the corporation and anything I develop while employed here belongs to the company,’ ” says McMillan. “This illustrates the way American corporations think and the way technical employees have been taught to think. It’s appropriate that the company owns the invention because the company provides the salary and covers research costs, but this concept has gone too far. It’d be in the company’s best interest to provide an incentive based on what the individual actually comes up with.”


Currently, companies are more likely to recognize technical contributors with financial bonuses based on a percentage of the inventor’s salary. According to a survey by the Hay Group, a management-consulting firm, 76% of high-tech companies have some kind of special pay policy for key technical people, including bonuses that can be quite substantial.


At Dallas-based Texas Instruments, an inventor can receive up to $175,000 in bonuses for a single patent, although these large awards are extremely rare. Monsanto Corporate Research in St. Louis awards employees $50,000 for significant “lifetime” achievements. And IBM gives Outstanding Innovation Awards for important inventions or scientific discoveries. Ranging from $2,500 to $25,000, about 40 of these awards are given each year.


So does this type of profit sharing accomplish the same thing as royalty compensation? Some plans may, but for the most part, McMillan is doubtful. “Most company bonus plans are set up on the basis of profitability, and company profits today reflect products that were developed years ago. This doesn’t reflect the efforts of R & D people who are working there today.” And what about variable pay plans, where team members receive a bonus based on their department’s financial performance? Hoyt Doyel, principal of Effective Compensation Inc. in Lakewood, Colorado, says that these are too small to significantly incent technical employees: “The 3% and 4% variable pay programs just aren’t effective.”


McMillan supports royalty compensation programs, despite their limited rate of use so far. “The reason they are not more widely used is that there are a lot of other issues [these programs] get saddled with,” he says. Among the questions employers must answer are: What are we trying to incent? What percentage of profits should be returned to employees? How do we determine who’s eligible? And what kind of message will this send to employees who don’t receive royalties? Yet, McMillan says, “the advantages far outweigh the disadvantages.”


Royalty compensation encourages marketplace sensibility and engages talent.
Because technical employees are hired more for their creativity and specialized knowledge than their business acumen, in the heat of discovery, they may sometimes forget the bottom line. “One of the big problems in research, engineering and software development is the fact these employees want to be very professional and create the most perfect product or system technically possible, whether or not that is what the market wants,” McMillan says. “But by basing the incentive not on an invention’s technical elegance, but on its commercial acceptance, you get the developer to focus on what the customer really wants.”


McMillan adds that because employees see no royalty checks until products actually are sold, they’re that much more likely to try to get the product out the door quickly. “This way, you have engineers and developers aligned with management’s time schedule and agenda,” he says.


SRI’s Dan Morris, director of technology marketing, agrees that royalties can give a tremendous boost to the work flow. “The royalty program plays a significant role in incenting productivity,” he says.


“By basing the incentive not on an invention’s technical elegance, but on its commerciality, you get the developer to focus on what the customer wants.”
John D. McMillan,
William M. Mercer, Inc.


BMC Software in Sugar Land, Texas, has found its royalty compensation plan so successful in incenting product development that it won’t even talk about the program publicly anymore. Two years ago, the firm stated in its annual report that it had paid $4.9 million in royalty compensation and that some individual programmers were earning more than $1 million per year because the products they developed were so profitable. “We view compensation as an important part of our success,” explained a company spokesperson, “but we’d rather not do interviews on this subject. It’s very sensitive.” Put another way, BMC’s royalty plan has become a competitive trade secret.


Other companies have found royalties an effective way to encourage company loyalty among fickle technical employees. Micrografx, a Richardson, Texas-based software company, sets aside 2% of gross revenues for employee royalty payments, explains Ed Morgan, vice president of human resources. However, these payments stop if an employee takes a job with another firm. What’s Micrografx’ turnover rate? “Very, very low,” Morgan says.


Support royalty compensation with appreciation and room to explore.
Although royalty compensation is a big aid in attracting and retaining creative professionals, HR managers at organizations that provide such royalties are quick to emphasize that it isn’t just money that gets technical people excited about their projects, as exciting as money can be. Recognition programs and an atmosphere conducive to creativity are also important.


At Battelle, for instance, a lot of value is placed on recognizing employees at its annual black-tie gala. Here, employees who’ve acquired patents, copyrights or awards from the Federal Laboratory Consortium are recognized by the organization. “It’s a prestigious event, with videos highlighting the work of the award winners,” Dudick explains. “It takes a lot of pats on the back to get a commercial license agreement. This is one of them.”


Morris agrees that recognition is important for technical personnel. “Most scientists are driven by their need to discover and then get praise and recognition for those discoveries,” he says. But at SRI, Morris adds that the atmosphere and culture of the organization itself goes a long way toward incenting productivity. “Ours is a campus-like atmosphere in which scientists can explore whatever science interests them, provided they’re seeking useful applications for that science. We give them lots of freedom.”


Another way to keep technical people motivated is by giving them the technology and resources needed to perform cutting-edge research. Somebody once said that pilot Chuck Yeager stayed in the Air Force because he loved to fly experimental new aircraft but couldn’t afford to buy his own. Many technical employees feel the same way about research technology.


At SRI, for instance, 35% of funds from license and royalty fees goes to the department where the technology originated. This money often is used to buy additional laboratory equipment, something that many technical employees consider to be as much a reward as money.


“You can attract these people just by promising to fund one of their pet projects,” says Terrence Brown, assistant vice president of Compensation Resource Group Inc. in Pasadena, California. “Give them the toys they need to continue the projects they’re interested in.”


Monsanto realizes the motivational value of new lab equipment, but the organization doesn’t invest in these resources for just anybody, explains Denise Cooper, manager of HR. “They have to prove themselves before we outfit them with toys,” she says. “We don’t communicate this as an official form of recognition, but in an underground way, employees regard this as a reward for good work.”


Such companies as 3M, based in St. Paul, Minnesota, and Eastman Kodak in Rochester, New York, take this idea a step further, setting up innovation banks to fund special projects. Balkin says: “This not only allows a large venture to be supported inside the company as a separate business, but it also permits scientists and engineers to obtain resources that otherwise would find no place in a line manager’s budget.”


Another way to recognize technical excellence is through the creation of career paths tailored to these workers. In the past, for technical employees to advance in an organization, they had to leave their jobs in the laboratory and move into managerial positions for which they may not have been suited. While chasing paper and managing subordinates, their creative talents atrophied or became outdated. With technical career paths, however, employees can advance while remaining in a technical capacity. Ultimately, this is much more beneficial to the employee and the organization.


A recent survey conducted by Training and Development Magazine revealed that effective dual career paths are those that consistently reward technical workers with status, salaries and incentives that compare favorably with those enjoyed by managers. Furthermore, technical-career-path systems thrive in organizations that are committed to helping technical people assess their interests, preferences and strengths so that they can make informed career choices.


Microsoft in Redland, Washington, is among the many large research-dependent organizations that have implemented technical career paths. As Tom Corbett, a developer with 10 years’ experience at Microsoft, explains, “There’s never been any motivation for me to go into management because of better compensation or more influence.” The high regard Microsoft has for its developers is one of the main reasons the company is at the top of the software industry in the United States.


So when it comes right down to it, it isn’t just money that motivates technical employees. It’s recognizing their needs and their need for recognition. Still, there is a place for royalty compensation. “Where these plans are used, they work very, very well,” McMillan says. In terms of recruitment, productivity, product commercialization and employee retention, the royalty system can be a strategic tool in developing the type of technical employees that U.S. businesses need in today’s marketplace.


Says Doyel, “I look at what gets people excited in this country and it’s lotteries—the $86 million kind of thing. For compensation to get people excited and willing to work hard, there has to be some real potential for earnings. Royalty programs are the closest thing we have to lotteries.”


Personnel Journal, May 1994, Vol.73, No. 5, pp. 103-106


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Program Challenges Top Executives

They were sinking. Even though they weren’t far from dry land, it was obvious that the barrels that kept their makeshift raft afloat were coming untied—and the raft was falling apart. To reach their destination, they knew that they all needed to work together.


But this wasn’t a crew with much rafting experience. Rather, it was a group of executives from Miami-based Knight-Ridder, Inc., racing across a swamp in the Florida Keys. The hands-on outdoor experience was helping to create a team environment and establish trust among participants for the remainder of Knight-Ridder’s four-week Executive Leadership Program.


Companies across the United States are implementing programs to empower employees at all levels of the organization. But Knight-Ridder’s program is different. Now in its sixth year, the Executive Leadership Program is designed specifically for the company’s top 150 to 175 managers and executives. By broadening and elevating their executive perspective, the Knight-Ridder program helps participants both to focus on the strategic goals of the organization and to prepare for corporate change.


In 1988, CEO Jim Batten recognized two issues that would impact the company’s future dramatically. First, when Batten and Knight-Ridder President Tony Ridder reviewed their HR planning strategy, they realized that during the next several years there would be more senior-level vacancies than there were individuals prepared to fill them. If Knight-Ridder didn’t aggressively develop its key people, it wouldn’t have the required leadership to navigate the business into the mid-’90s.


Also, Knight-Ridder’s market was evolving. As a global communications company, Knight-Ridder is engaged in newspaper publishing, business-news and -information services, newsprint manufacturing and cable television. With rumors circulating of the Information Superhighway and online services, Batten knew that the corporation’s future success rested on its ability to adapt to the changes.


Batten and Ridder already had taken some preliminary steps toward altering the corporation’s business strategy. For example, they sold Knight-Ridder’s eight affiliate television stations, allowing them to purchase an online, user-subscribed data base, which wasn’t dependent upon advertising revenue. But these preliminary changes weren’t enough. Batten and Ridder felt that the company’s top executives needed to fully understand and appreciate the changes taking place in the external environment. To best steer the organization through the transition, they decided to offer an executive-education program.


Internal program meets company’s needs.
Once Batten and Ridder determined the need for executive education, they could’ve sent the company’s high-potential employees to university courses for executive development. Instead, they gave Rob Reed, Knight-Ridder’s director of training and development, the charter to create a program that would best meet the company’s needs. Reed led the way in developing a customized internal program for the corporation’s high-potential editorial and business personnel. Reed says that his decision to make the program internal was based on two primary concerns. First, the university programs that offered what Knight-Ridder needed cost around $4,000 weekly per employee and usually lasted five to six weeks. Knight-Ridder was interested in taking a less expensive approach. More importantly, the corporation didn’t want employees studying what was happening at other companies when they could, through an internal program, focus on critical strategic issues affecting Knight-Ridder itself. “We wanted employees to focus on our history, our culture and our values,” Reed says.


Although executive education was an exciting new initiative at Knight-Ridder, the company already had established training as part of its corporate culture. Hundreds of employees in lower levels of the organization were attending multi-day developmental programs each year at the Knight-Ridder Institute of Training in Miami. Likewise, at 30 of Knight-Ridder’s companies in North America and Europe, corporate-trained line managers and human resources professionals conducted skill-building programs in marketing, sales, journalism and production techniques. “There has been and will continue to be a culture centered around learning,” Reed says.


The program’s goal is to broaden perspectives.
Reed’s first step was to find someone to assist him in the design and creation of the program. After much research, he commissioned Executive KnowledgeWorks, a consulting firm based in Chicago that specializes in the design, development and implementation of executive-education programs.


Before it was possible to begin planning the specifics, however, Knight-Ridder needed to further refine the critical business issues defined by the CEO. To accomplish this, Reed and the consultants held informational interviews with corporate officers and potential program participants. The issues identified were:


  • Knight-Ridder’s customers were changing, and their needs were shifting. For example, people had less time to read newspapers, and they were looking for other sources of information
  • As a new class of competitors was surfacing, such as online services, the industry was transforming
  • Changes in technology were accelerating the rate of change in the industry
  • There was an underlying, yet powerful, perceived conflict between achieving journalistic excellence and maximizing shareholder value.

Knight-Ridder determined that it needed to strengthen the executive perspective of current and future organizational leaders to address these issues. Before the late ’80s, Reed says that employees were single-focused and saw departments as competitors for the same scarce resources. Knight-Ridder wanted to change that attitude. “We needed our executives to be able to look out over time, over divisions and over issues to embrace the whole organization,” Reed says. This became the primary goal of the educational effort.


With the help of Executive KnowledgeWorks, Reed created a four-week program to accomplish this goal. Because Knight-Ridder had found classroom learning to be a successful training method in the past, the bulk of the program is what Reed calls “traditional,” incorporating lectures, case work and a variety of interactive discussions. “It’s fundamental, cognitive, intellectual pursuit in which a group of people sit down and explore ideas, learn new concepts and apply what they learn to their own situations,” Reed says.


To provide the most successful learning environment possible, Knight-Ridder selected its speakers and lecturers carefully. For each program, consultants from Executive KnowledgeWorks searched its nationwide network for appropriate experts. In general, they were looking for three qualities in each speaker:


  1. They needed to be experts in their areas.
  2. They had to be flexible to Knight-Ridder’s program and create the material specifically for the company.
  3. They needed to be strong discussion facilitators and demand participation from the program class members.

The consultants supplied Reed with in-depth information on four or five candidates. From these, Reed narrowed the selection to three and then interviewed each on the telephone.


Knight-Ridder paid the final two candidates to prepare a dry run of their seminars, which they presented in front of a representative group of 12 to 15 executives. Finally, a speaker was selected—but even then, Reed often asked for a few changes in the presentation to better meet the company’s needs.


Knight-Ridder followed these steps in selecting every speaker. The process for each one took approximately two to three months, but Reed says that it was worth it: “When we were done, we had speakers who knew more about our organization and more about the quality of our people.”


Since 1988, more than 30 executives have participated in the experience each year. Each class, as the company calls the participant group for each annual session, is selected through Management Development Reviews. Reed says that these reviews (which are similar to management audits that support traditional succession planning) help the corporation identify potential leaders through a written and verbal review process. “Through these reviews, which are conducted at each individual company by corporate and local officers and HR people, we find people who are at the right stage in their careers to be part of the Executive Leadership Program,” Reed says.


Knight-Ridder tries to include executives from a variety of functional areas in each class. Diversity is also a concern: Reed’s goal for the program is that each class include at least 10 women and five people from minority groups. “If we hadn’t been aggressive as an organization in developing a diverse bench strength, it’s possible that we could have ended up with a group of powerful white guys at the upper levels,” he says. That hasn’t happened, and so far, the company has met Reed’s goal with each class.


The program focuses on change.
Knight-Ridder sets the stage for the classroom experience by sending participants to a two-day Outward Bound session in the Florida Keys. In addition to building and racing rafts, the executives participate in other teamwork and leadership initiatives, such as manuveuring in teams through an obstacle course. Reed says that these outdoor, hands-on activities unify the class members so that they are better able to deal with actual issues during the rest of the program. This is especially important at Knight-Ridder, where participants come from large and small newspapers and information companies throughout the corporation. “It acts as a sort of leveling experience,” Reed says. “By the time they finish those two days, the participants clearly have a different sense of one another.”


On the third day, the class goes back to Miami for a welcome by Batten. At this meeting, Batten explains the guidelines for participants, which include:


  • Thinking independently. The company doesn’t encourage the participants to become “corporate clones”
  • Asking questions and learning all that they can from the experience
  • Putting the organization behind them for the duration of the program and investing the time in themselves.

Batten also iterates the program’s purpose: “Upon completion of the program, challenge us and help us think about the direction of the company.”


For the rest of the first week, the class members attend interactive sessions that focus on Knight-Ridder’s traditional and emerging values in the context of current and anticipated external pressures. Speakers share insight on such topics as how changes in societal values affect the organization and the relationship between technological changes and society’s changing values. In addition, the participants are forced to examine their own leadership styles through a 360-degree review completed before the program by nine colleagues. The start of each day, as well as the last half-day of each week, is reserved for a debriefing facilitated by Executive Knowledge Works’ President Tony Fresina. “If there’s an idea that came up that didn’t get treated richly enough, or somebody has evaded an issue the day before, he’ll bring it up,” Reed says.


He adds that he wants the executives to leave the first week with their heads swimming. “We want them to be so dissatisfied by what they don’t know yet that they can’t look with comfort at their environment in the same way as before,” he says.


For the second week, the participants journey to Johnson Space Center in Houston to study NASA. Reed says that Knight-Ridder isn’t using NASA as an example, but rather using it as a mirror to examine how another organization, also driven by values, has managed technological and societal changes. “The people who started NASA were driven by the strategic mission of putting [people] into space,” he says. “Even today, they’re so focused and single-minded, they remind us a lot of newspaper people.” To provide insight to the organization, five or six NASA staff members, including astronauts, ground controllers and technicians, join the group for the full week. A tour of Johnson Space Center and small-group discussions with the divisional directors also facilitate learning. In addition to this living case study, leading experts provide conceptual models and guide participants through an exploration of major sources of, and responses to, global, industry and organizational change. Participants examine how organizations’ responses to the societal and industrial forces of change determine failure or continued success.


During the third week, participants examine how Knight-Ridder most effectively can leverage its internal capabilities—marketing, finance and human resources—to create a competitive advantage. Leading content experts hired by Reed facilitate the examination, which includes a session on how Knight-Ridder is perceived on Wall Street. This week’s program is held at a different location each year. The goal is to take participants away from their usual business environments so they can look at issues from a different perspective. Last year, they went to a conference center outside of Washington, D.C. “By changing locations, people more easily adjust to a different mindset,” Reed says. By the end of the content-driven week, he says that participants have a clearer sense of what constitutes a sustainable competitive advantage.


By the final week, participants have spent 22 days together exploring values, change and the strategic deployment of Knight-Ridder’s resources. To put their experience to the test, they spend two days working on a custom-made, case-driven computer simulation of a media marketplace. The program requires the executives, working in teams of five, to take on the role of CEO. The team members begin by establishing a strategic mission for their media properties, then they collaboratively make decisions when the computer presents them with situations. For example, they may be asked if they want to purchase a media product; their decision should rest on what they have established as their strategic mission. As in actual business, their decisions affect future options. “The situations test their values, their learning and their ability to respond to ambiguity,” Reed says. He adds that the program also brings out their competitiveness: “While the simulation isn’t intended to be competitive, it takes about 15 minutes before they’re looking over their shoulders wondering how the other teams are doing.”


To end the program, the participants spend one full day with the company’s top three executives—Batten, Ridder and Jack Fontaine, executive vice president responsible for Knight-Ridder’s Business Information Services division. Through open, informal discussion, everyone exchanges ideas and examines vulnerabilities and opportunities that could drive Knight-Ridder’s future. Angus Robertson, a participant in last year’s class, says that because the CEO gives participants support from day one, they know that their recommendations are valued. “When we started the program, Batten told us, ‘You are the future of the company. My charge to you is when we get back together on the last day, tell me and the other top officers what we need to do and not do.’ That was our mission,” says Robertson, executive editor of Washington, D.C.-based Knight-Ridder Financial News.


Top management continues to support the program, despite its costs.
Reed says that the entire program—including transportation and setup—costs approximately $14,000 per participant for four weeks, or $3,500 a week. When Knight-Ridder began this executive education, the newspaper industry was thriving. Just one year later, however, the retail industry began re-structuring, centralizing and slimming down radically. As a result, retailers purchased less advertising space, causing the newspaper industry and its related businesses to suffer.


Despite this down economy, senior management continues to invest in the Executive Leadership Program. Why? The answer lies in the program’s impact on the organization and on the executives who participate.


The program isn’t supposed to provide answers or teach new skills. Instead, it focuses the organization on critical issues, provides multiple perspectives on those issues, gives participants opportunities to process the information as a group and enables the group to make its own recommendations on how to lead Knight-Ridder into the 21st century.


Reed says that top management credits the program with examining—and even driving—Knight-Ridder’s key business issues. As Batten and Ridder search for new revenue sources, the Executive Leadership Program helps focus, align and mobilize the company around core issues. “The result is an invaluable partnership between key executives and senior officers that allows Knight-Ridder to more intensely embrace change,” Reed says.


Initially, the partnership took the form of a corporate task force, made up of former participants, that focused on strategic issues and examined changes in readers, markets and technologies. Since that time, the task force has evolved to different groups and studies that continue to examine the changing information marketplace. “It was the beginning of looking strong and hard into the future and facing change,” Reed says.


The Knight-Ridder Executive Leadership Program also benefits individuals. In the past six years, 80% of the company’s officers and 90% of the publishers and presidents have attended the program. Before participating in the educational effort, most executives tend to have one of two interests: journalistic excellence or business accountability. The program broadens these biases and, more importantly, develops in executives a new, shared perspective. “We have a tendency within the news industry to feel that we’re different from other types of businesses. But when you look at it from an elevated perspective, you see that although there are some unique aspects to our business, we’re operating in the same environment as other businesses,” says Robertson. He says that this new perspective helps executives realize for themselves the consequences of not adjusting to organizational, industry and global change. This also helps individuals realize that they’re responsible for the organization’s success.


This realization helps executives lead Knight-Ridder into new ventures and alliances. For example, the corporation recently created an alliance with Wilmington, Delaware-based Bell Atlantic, one of the most profitable regional Bell operating systems in the United States—a company that’s five times larger than Knight-Ridder. “We started out by telling our executives, ‘Folks, there are non-traditional competitors out there of which we need to be aware,’ ” Reed says. “We’ve gone from just identifying them to joining with them.” In addition, the company has created a design-research lab, located in Boulder, Colorado, which partners with Silicon Valley hardware and software companies to design new ways of distributing news. One project in the works consists of a portable media device the size of a legal pad. By touching the screen, users could access any page of the newspaper.


The individuals within Knight-Ridder who develop these types of initiatives need support for their ideas. Reed says that more often than not, that support comes from people who’ve been through the program and have studied the implications of change. He says: “Now we’re equipped for understanding more clearly what impacts Knight-Ridder’s world and for creating a greater range of business responses to our challenges.”


Personnel Journal, May 1994, Vol.73, No. 5, pp. 54-62.


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Army Centralizes Outplacement

The new world order following the collapse of the former Soviet Union has led to wrenching changes in career plans for thousands in the U.S. Army.


Those who had banked on a lifetime Army career suddenly found their plans eclipsed as they were forced to look for employment in one of the toughest job markets in years.


In 1992, more than 170,000 people left the Army. As many as one-third of the Desert Stormera Army personnel will be affected by forced reductions before the downsizing is complete. The planned reductions through 1997 will decrease the Army to a size of about 495,000 soldiers, reduced from 710,000 at the end of 1991. To meet this challenge, the Army has developed the most advanced and comprehensive outplacement program to date within the U.S. military. Its efforts have included establishing 55 job-assistance centers worldwide, a qualified pool of 286 job counselors and a computer data base linked to more than 11,000 U.S. national employers. And as businesses face the reality of a widening skills gap in the existing U.S. work force, one immediate and cost-effective option is for human resources personnel to seek Army alumni and the the experiences they bring to the workplace.


As the size of the “peace reduction” became apparent in the early 1990s, the Army realized that it needed a central organization to handle the massive task it faced. Through the U.S. Total Army Personnel Command (PERSCOM), which handles the Army’s HR functions, the Army leadership created the Army Career and Alumni Program (ACAP). ACAP initially was organized as a pilot program in the fall of 1990 with two component parts: a government-employee-operated Transition Assistance Office (TAO) that coordinates onpost services related to the transition and a contractor-operated Job Assistance Center (JAC).


The TAO serves as the initial point of contact for those leaving the military. Ideally, the first counseling session is scheduled 180 days prior to departure and culminates in the development of an Individual Transition Plan (ITP). Typically, the ITP schedules the applicant for legal and financial counseling, educational benefits and testing assistance and reserve recruiting consultation. The career part of the program includes a healthy dose of counseling to ensure that eligible careerists are given every opportunity to re-enlist.


The Job Assistance Center provides a full range of outplacement counseling services similar to those found in private industry. Experienced counselors with master’s degrees operate the JAC and provide training and one-on-one counseling to assist individuals in developing job-search strategies. The goal is to maximize the skills acquired in the military and use them to launch a second career.


In 1993, the ACAP served more than 247,000 new and repeat clients at 62 ACAP sites on military posts worldwide.


Pauline Botelho, director of the Army’s ACAP program, explains: “Before ACAP, we had an orchestra of service providers: education, community and family support, civilian personnel offices, Veterans Affairs, state employment agencies, health-care providers, chaplains, the Judge Advocate General (legal counsel) and more. Our problem was that although each of these musicians played fine music, it couldn’t always be heard or appreciated. There was no conductor. ACAP helps orchestrate it all.”


JACs serve as the ACAP’s right hand.
Serving more than 8,000 clients per month at 55 of the 62 ACAP sites, the program demonstrates that “the Army takes care of its own,” says Brigadier General Patricia Hickerson, the adjutant general of the Army.


The outplacement program, which is run by Resource Consultants, Inc. (RCI) of Vienna, Virginia, provides seminars, workshops and individual training to translate military training into marketable skills for the private sector. It does that by motivating and equipping soldiers, family members and Army civilian employees with the necessary job-search tools. Also provided in the services are assistance with resumes and cover letters and access to the Army Employer and Alumni Network—the computerized data base of more than 11,000 employers who are committed to placing former Army personnel. Each JAC is equipped with the staff and resources to provide a comprehensive package of job assistance, including a resource center and library where individuals can focus on career planning.


Given the nature of today’s working world, “JAC clients, both military and civilian, may well face a lifetime of career and job transitions that go beyond the drawdown,” says Thomas Hale, RCI’s program director for JAC. Accordingly, the JAC philosophy is built on the principle of empowerment. “Clients are given the information, skills and guidance necessary to succeed in today’s job market. They’re encouraged to assume responsibility for this and all future job searches.”


RCI also responded to the Army requirement for technology in the outplacement process by creating a customized system for use in the pilot phase of the project. The pilot phase ran at seven ACAP sites for approximately a year until the full program of 55 centers was established in late 1991. The first pilot center was operating two months after RCI was awarded the contract. Because of the large scale of the post-Desert Storm downsizing, the full program was set up and staffed on a very fast track. Within 90 days of the contract award, the additional JACs were established around the world. That meant physically setting up the centers; purchasing and shipping furniture; purchasing, shipping and installing the computers and networks; and recruiting and hiring qualified outplacement counselors who could be trained to handle the special challenges inherent in the clients’ range of skills and experience. Today, the 286 JAC contracted field staff are placed throughout the continental United States, Hawaii, Alaska, Europe, Central America and the Far East.


JAC programs include individualized plans that are developed to meet each client’s skills, financial needs and other personal considerations.


“JAC clients, both military and civilian, may well face a lifetime of career and job transitions that go beyond the drawdown.”


Clients also can attend a three-day Department of Labor-operated Transition Assistance Program (TAP) workshop or either a three-hour seminar or a six-hour workshop operated by JAC staff. Both workshops use similar materials and strategies. Experienced counselors review the clients’ worksheets and help them define their job objectives as well as prepare resumes and cover letters for networking and interviews. Individual counseling prepares clients for use of JAC resources, which include a job-assistance library and information bulletin board, automated resume and cover-letter writer, word processor, and automated Army Employer Alumni Network (AEAN) data base.


According to a preliminary survey conducted by ACAP among former clients, full outplacement services have aided employment success and salaries better than partial service. Those who received full services and were in the job market were more likely to be employed full time than those receiving only group training. There also was a significant difference in annual salary ($2,457) between employees who received full services and those who received only group training.


The military partners with the private sector.
The Army and employers across the United States have forged a unique, precedent-setting partnership in the JAC program. For years, many companies from the private sector approached the Army for employee candidates because they viewed soldiers as physically fit, highly skilled, disciplined, reliable and flexible in a variety of situations. They also are viewed as possessing strong leadership and management skills. But until ACAP, there was no formal Army-business connection, no systematic communication mechanism and no job-counseling program. Today, the network is based on the concept of mutual benefits: Army alumni benefit because employers are receptive to them; employers benefit from access to a pool of skilled workers. The data base contains names of national and local employers that have been recruited into the JAC system.


The Army’s covenant with the business community is reflected in the large number of employers who are committed to considering veterans. In addition to the national employers, there are more than 4,000 local employers representing a cross section of occupations—from truck driving to urban planning. Many of the Army’s business contacts have been established through job fairs, professional conferences and employer advertisements in military publications. About 300 to 400 businesses per month sign on with the employer-alumni network, and each employer is cross-referenced by occupation and geographic location. This powerful tool allows clients to identify quickly the most likely targets to pursue.


Other job-bank networks exist, but JAC’s uniqueness is its state-of-the-art computer-counseling interface, says Hale. In the program there is an interconnection between services: The computer works best with counselors; counselors work best with the computer. Hale compares using the network to going to the bank: You work with a bank teller—the counselor—to get your money out of the bank—the data base. The computer-counselor interface goes beyond workshops into one-on-one counseling to focus on realistic objectives. The custom-designed, automated system integrates client services, scheduling, counseling support and administration. Clients even have access to an automated resume writer designed specifically for Army personnel, Army civilians and family members. It produces laser-quality resumes. Cover-letter software is available that complements the resume software and interacts with the AEAN data base.


This user-friendly program draws on exercises from seminars and workshops, using the same key words and answers. Participants can use those worksheets while working on the computer, filling in fields that will generate the resumes and cover letters. On the AEAN, a client can produce a cover letter addressed to any listed employer by pushing one button.


In 1993, nearly 114,000 active, civilian and family members were registered as first-time clients through JAC centers. Botelho cited a staff sergeant from an ACAP site in the Midwest who was hired by the state of Wisconsin Department of Highways as a budget analyst. He credited the JAC staff assistance, especially the interview coaching, for his success in landing the job. Said another client from St. Louis: “I feel more relaxed and have a better sense of direction. Now I know there is a systematic approach to employment.” Hale adds to the praises, noting that enlisted alumni are starting in the civilian job market two to three levels above their high-school classmates. “That’s a real jumpstart in their new careers,” he says.


In order to further the success of the program, the Army encourages the private sector to visit JAC sites, participate in job fairs, conduct on-site training in mock interviews, critique resumes, respond to the AEAN newsletter and post immediate job openings. Moreover, even though the military is downsizing, there still is a need for specialized recruits. Since human resources professionals interview hundreds of job applicants who may be unqualified for vacant positions due to a lack of skills, they can suggest military service as one option for further training.


The program sets up a triple-win situation.
Everyone benefits: Individuals who are leaving the service are on the road toward obtaining a job; U.S. taxpayers ultimately will pay less in unemployment funds; and the Army is actually “sending people away happy.”


In 1992, the Department of Defense Conversion Commission had published the following recommendation: “Successful transition-assistance programs should be made permanent. Even though the number of people leaving active duty each year is expected to decline through the 1990s, current projections indicate that about 230,000 military personnel will continue to be separated annually even after the forced reductions are completed. These individuals, too, will need employment assistance. The Department of Defense has an obligation to help its departing members return to the civilian work force on separation, regardless of whether the armed forces are growing or shrinking.”


(Those interested in joining ACAP may call PERSCOM at 1-800-445-2049, extension 11 or 1-703-893-2403. Send fax requests to 1-703-356-7183.)


Personnel Journal, May 1994, Vol.73, No. 5, pp. 115-118.


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Fiat Revs Up the Engines of Change

In 1990, management at the Fiat Group—Italy’s largest private employer—responded to today’s business challenges by reevaluating our structure. After taking a hard look at ourselves, we embarked on a long journey of organizational development focused on delegation of authority, management training and an improved focus on customers. In short, we decided that to remain competitive we must do what we do both better and at a lower cost.


That such changes might be necessary at Fiat isn’t surprising; it’s a well-established company that has been adapting to changing business conditions since 1899. Once strictly an automobile manufacturer in Italy, Fiat now operates in 65 countries and is involved in 15 distinct lines of business that range from automotive components to chemical-fiber bioengineering. In such a complex organization, change is inevitable; the challenge is managing it.


For us, the process began by renewing our commitment to customer satisfaction. Our definition of customers included both final customers (buyers, who are the impartial judges of Fiat’s ability to meet their requirements) and internal customers (whom we believe we must treat as a supplier treats its customers).


Within this framework, structure exists not so much to chart decision making and paper flow, but instead to map professional skills, techniques and tools. Managers serve then not to direct, but to link various groups—storehouses if you will—that offer particular skills. We are committed to creating an environment that ensures cooperation, whether through formal committees or ad hoc work groups. Working sessions, therefore, include the people who have the most to contribute, regardless of their position. Individuals with specific skills support those responsible for implementation. To achieve their goals, the work groups and committees must make decisions and take appropriate responsibility.


Still, employees within the group must make decisions within context. For us, the work began with the supposition that delegating authority works best when it’s limited to a specific responsibility and task. This demands a consensus: The person who delegates authority and the person who receives it must jointly define the scope of the autonomy that is being granted. The rules must be accompanied by knowledge, so that employees can solve their particular problems, taking into account the company’s customers and competitors. Employees then consult higher levels of authority only in exceptional situations.


The final product then is the responsibility of an individual who has the organizational authority, skill and information to achieve the best quality, cost and improvements. This view is based on what we call the learning organization, in which employees learn from their successes and mistakes.


Managers still have a role to play.
This redefinition of the employees’ role does not mean that the role of managers has become less important. On the contrary, a lean organization accentuates the value of each level. We’ve assessed the value of managers by considering a combination of skills and lead ership, including the ability to:


  • Identify and prevent problems. This means knowing how to set priorities and making sure that they’re observed
  • Encourage and promote the new ideas created within their jurisdiction, reinforcing them with their authority and expertise
  • Provide the framework for solutions. This includes clarifying objectives and tasks, guiding activities and evaluating improvements
  • Transmit values and knowledge, which means facilitating the learning process, stimulating professional development and being accountable for results to associates and superiors
  • Keep their system open to other entities and functions, balancing the drive to achieve short- and long-term objectives.

This is a challenging assignment, entailing broad responsibility and seasoned professional skills, which cannot be drawn from any other source. We feel the people who have such knowledge should be given sufficient time to use their professional and managerial skills. For this reason, we keep managers in the same jobs for at least three years, so that they can develop their expertise.


Simply serving time in a job, however, is not enough. Accordingly, training reinforces our goals. For example, all of the Group’s senior managers participated in leadership courses developed by ISVOR, a management training center of Fiat Group. Two modules were set up and lasted about four weeks. The modules addressed such topics as self-evaluation and evaluation by associates. The need for individual training went hand in hand with the need to develop human resources principles of organization.


This training, incidentally, represents a key role for the human resources function: Fiat executives knew from the start that any new management culture couldn’t be created without the help of HR. The human resources professionals each worked with a mixed team of in-house and outside professionals, including Professor Bernard M. Bass of Binghampton University in New York, to support the organizational development.


Structure must be addressed.
Several factors also have prompted us to look at staffing structure. At one level, we want to reinforce the new role of managers by eliminating those positions that only rubberstamp decisions. Earlier this year in Italy the Group negotiated an agreement with unions to downsize through layoffs, early retirements and special part-time contracts affecting more than 15,000 workers in the automobile sector and corporate headquarters.


The downsizing, however, is only one component of a larger strategy of reconsidering structure within the context of our priorities. For example, we looked at the number of layers in the company—from the CEO to the blue-collar workers on the assembly line—and then examined the numbers of positions reporting to one manager or one executive. Our ideal is to have a flat and wide unit, in which fewer managers are responsible for greater numbers of units or positions. However, most of our manufacturing firms still have too many unnecessary levels. This is true whether the companies are located in Italy, continental Europe or the United States, which confirms a homogeneous industrial culture.


In looking at our structure, we’ve observed several truisms. Among them:


  • The ratio of managers to specialists is extremely high. This situation is due in part to the former practice of rewarding employees by moving them to a higher level in the hierarchy, regardless of organizational requirements
  • Where there’s a substantial concentration of managers, there’s also a narrow span of control.

However, thinking based on predetermined models accomplishes little. We must remember that numbers aren’t a standard and should certainly not be allowed to become a fashion. Each manager must discover and define what short and lean means within his or her environment.


“Individual training reinforces our business goals. It goes hand in hand with the need to develop human resources principles of organization.”


A summary of the review of Fiat’s structures, issued in December 1992 after the assessment had been completed, reported 344 ongoing organizational worksites within the Group. Forty percent of them were redesigning structures to leaner organizational units, and 60% were developing a more effective organization and a new modus operandi.


People have one of two reactions to change.
During our organizational development, we’ve seen that there are two types of individual reactions to change. The first type are philosophically motivated to change. They know how to follow policies and set corresponding objectives. They take a positive attitude toward others and delegate responsibilities. Within the company, they are those who understand their environment, yet set aside their practical experience if a new operation model can be effective. Those individuals know how to take risks, are not concerned (for several reasons) about their personal future and know how to handle the resistance to change.


The people in this category have frequent contact with the outside world and more opportunities to make comparisons. They also see the big picture because their vision is shaped by their personal attributes or the types of jobs they perform. They are the potential engines of change who must be rewarded and granted authority.


“Individuals who are motivated to change understand their environments, yet set aside their practical experience if a new operational model can be effective.”


The second type are those people who don’t see the need for ongoing change. Although some of these people may be successful, they don’t want to—or don’t know how to—take risks. They’ve become wedded to an existing situation and haven’t had an opportunity to consider the merit of change. They’re the ones who give outdated answers, because they’ve been successful in the past. They’re psychologically inclined to make a change only after it’s been tested. They’re procedure-oriented.


We also should take into account large organizations, which have always discouraged deviation, even when it’s functional.


Nature does not proceed by leaps and bounds. We’ve learned that corporate change doesn’t happen quickly, either. Even under an unstable economic market, it takes time to forge change.


The challenge we must meet today is, on the one hand, to take action, but not to do it in an authoritarian fashion. If we intend to introduce a model based on individual responsibility (delegation of authority, self-regulation, personal contribution), we can’t contradict ourselves if the initiative is to have any credibility. Employees must be given the conditions for participation, but the model is largely self-generating.


Fiat’s Melfi plant is a laboratory for change.
Nowhere are all the elements of our change process more apparent than at the Melfi auto plant. Fiat opened the plant earlier this year to manufacture the Punto, the company’s best-selling compact car in Europe.


Although there are management levels, the Melfi auto plant operates using an entirely different organizational concept than Fiat’s previous and more traditional models. In fact, to encourage more day-to-day interaction between the managers and workers, there isn’t a separate building for central staff. Also, the auto plant’s suppliers are located next door.


Most decisions are made by work teams composed of line workers and team leaders. Managers—all of whom are in their 20s and 30s—make up 19% of a total of 4,000 employees. Melfi expects to hire another 3,000 workers within the next two years.


“At Fiat’s Melfi plant, which opened earlier this year, most decisions are made by work teams composed of line workers and team leaders.”


Classroom instruction at ISVOR-Fiat in Turin constituted 40% of the training time for those at Melfi; the remaining 60% was lab work nearby the Melfi plant. Additional instruction was provided at Fiat Auto’s Mirafiori and Rivalta plants in the outskirts of Turin, and at the Cassino and Pomigliano d’Arco plants. The basic classes included industrial education and organization, organizational logic, and basic and specialized technical knowledge. The classes have been followed by hands-on production activities.


The Melfi plant is estimated to produce two cars per minute (1,600 units per day), three shifts a day, six days per week when fully geared up. Ultimately, Melfi’s organizational development will be measured by the reduction of layers, quality in proposals and decision making, and production capacity. Much the same can be said of Fiat itself.


Personnel Journal, May 1994, Vol.73, No. 5, pp. 107-113.


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Work_Family’s Failing Grade Why Today’s Initiatives Aren’t Enough

The workplace of the 1990s is a paradox. Cellular phones, portable faxes and pocket-sized computers with wireless modems allow us to work in offices without walls. We fax documents and pick up messages anytime, anywhere. Videoconferencing is commonplace. Virtual offices and universal information access are just an eyeblink away.


But, while that whiz-bang technology hurtles us forward, work/family issues are in a 1980s time warp. At the same time that technology frees us to have greater flexibility and autonomy, when it comes to work/family balance, corporate cultures are largely inflexible.


Sure, there are a lot of new programs, encouraging our experts. Indeed, a handful of visionaries and innovative organizations are setting standards. But systemic change is as rare as an office without computers. Managers still guard employees who are tethered to their desks from nine to five. Millions of employees still break into a sweat when their children have a fever or school is closed because of snow. People still prefer to say they have car trouble rather than child-care problems. Workers still get little support in caring for their elderly parents, school-age children or teens. People don’t believe they can take leave or use flex time without jeopardizing their careers.


Personnel Journal wondered why. We asked: Just how far has corporate America come with regard to work/family issues? Which programs are of greatest value to employees? Which ones benefit companies? How frequently do businesses use specific work/family strategies? What are the obstacles?


We wanted to know if American business is at a crossroads, as some experts suggest. What is the business case for recognizing the impact of personal lives in the workplace? Can organizations empower employees for the benefit of work-related activities and not expect them to want greater personal freedom and autonomy? What responsibilities fall to employees and to the public sector? Are organizations on the cusp of quantum change? Indeed, is human resources even asking the right questions?


To answer some of these questions, Personnel Journal formed a Work/ Family Advisory Board of 13 acknowledged experts, including HR professionals, academics and consultants (see “Who’s Who on Personnel Journal’s Work/Family Advisory Board”). We also spoke with politicians and industry analysts. We developed a report card and asked each expert to grade corporate America—A through F—on a variety of work/family initiatives. The experts graded each initiative on its value to the company and to the employee, and then they graded the frequency with which these options are used.


We compiled their grades and translated them into averages. We then gave them a chance to explain their assessments and speak out on issues. Their scores and ideas serve to benchmark what’s working and what isn’t. The report card serves as a tool to stimulate discussion, and by its very nature is subjective (see, “The Value of Most Programs Far Exceeds Their Use”).


Our initial goal in creating the report card was to determine which programs work best, both in terms of employee satisfaction and return on investment. Our naive theory was that some program or programs work best, and that it would be useful to the HR community to identify them. In fact, experts suggest that some programs do work better than others and many programs have critical value.


Ultimately, however, it doesn’t matter as much as we thought it would. Instead, the process of researching this story led to some surprising discoveries. We learned that our initial question, although not wrong, was incomplete. In the interviews that explored the grades that were assigned on the report card, we learned that the prevailing strategy—imposing new programs on old systems—never will be wholly successful. Indeed, the experts suggest that nothing less than a fearless examination of fundamental corporate values—and the societal values they reflect—is called for.


That assertion is unsettling, dramatic and ahead of its time. Some will find it outrageous. Yet the wisdom offered by our panel of experts is hard to ignore. It simply makes sense that if the ways in which employees work—and the very work that employees do—are changing, and families are changing, then the ways in which employees manage their family and life commitments also are changing.


Clearly, then, any meaningful understanding of the issue begins with an understanding of the work force.


Today’s work force requires synchronicity between home- and job-life.
According to New York City-based Catalyst, females make up 45.6% of the working population, and one of the fastest-growing segments of the work force is women who have young children. In fact, 40% of all women in the labor force have children under 18. Looking at it another way, of women who have children younger than 18 years old, 67.2% hold jobs. This is up 20% since 1975. On top of that, the percentage of men who have wives in the workplace has increased dramatically, and single fathers now are among one of the fastest-growing segments of the work force.


At the same time, the population is aging. The Boston-based consulting firm Work/Family Directions Inc. indicates that 16% of workers have elder-care responsibilities, and that figure will escalate during the next three to four years.


The data point to the perennial challenge: A changing work force means organizations must help people manage their multiple responsibilities. But numbers don’t illustrate the urgency. They don’t show the frantic early-morning rush as parents whisk kids out of bed, feed them, and drop them off at school, all the while worrying that a tardy child will make them late for work. Statistics don’t show the split-second timing that workers live with daily—the knotting stomachs from traffic jams that mean their child will be the last one picked up at day care. They don’t depict mothers and fathers who fidget in late afternoon meetings because they can’t get to a phone to be sure their school-age child arrived safely at home, or the ones who lie to their supervisors because the babysitter is late.


“The work/family field is expanding. Programs are taking on a broader focus because companies recognize that these issues go beyond preschoolers.”
Michael Wheeler,
The Conference Board


Data can’t capture the angst of worrying about an elderly relative, of agonizing over mounds of indecipherable paperwork to receive scant elder-care assistance. Figures don’t portray the anxiety employees encounter in daily conflict between their work and family responsibilities.


The numbers aren’t percentages; they’re human beings. And, as companies search for ways to attract and retain good employees—productive human beings—they must address their concerns.


What’s being done?
As the report card suggests, progressive companies already have begun addressing these issues by implementing programs. Their actions have propelled work/family issues into the mainstream agenda, making them legitimate business concerns. Dependent-care benefits are standard now at many companies, and flexibility policies have grown—most dramatically within the last five years—even as business suffered a downturn. In fact, recent years have shown that family-friendly policies increase during downsizings, mergers and acquisitions.


Ellen Galinsky, co-president of New York City-based Families and Work Institute and a foremost authority in the field, says: “If you think back 10 years ago, it’s amazing that anything is happening because there was such a staunch conviction that family problems should be left at home.”


All you have to do is look at the Corporate Reference Guide to Work/Family Programs by Galinsky and colleagues Dana Friedman and Carol Hernandez to know something is happening. The 1991 study, sponsored by Families and Work Institute, surveyed 188 of the largest companies in 30 industries from aerospace to utilities. In the study, almost all major businesses acknowledge that employees need help to balance work and family responsibilities. Of these companies, 100% offer maternity leave, 88% offer part-time work (70% have written policies), 77% offer flextime (most with a band of one to two hours), 48% have job-sharing arrangements (although formal policies are rare) and 68% said they’re developing or seriously considering new programs.


In addition, an estimated 5,600 employers provide child-care support, and 300 of these provide elder-care support, according to the study. Based on the study’s results, quality child care—not just any child care—is on the agenda.


“These kinds of solutions do matter,” acknowledges Galinsky. “For example, people who have more child-care breakdowns are more stressed; those who pay a higher proportion of their family income for child care have more conflict.”


Just look at the statistics: Twenty-five percent of employees who have children under age 12 experience child-care breakdowns two to five times every three months. This translates into higher absenteeism, tardiness and lower concentration. In fact, according to a survey for Fortune magazine by Galinsky and Diane Hughes, the average worker loses between seven and nine work days a year; approximately half of these absences may be due to family problems. Presumably if companies have more programs that meet the needs of workers and lessen their stress, these drops in productivity will diminish as well.


Work/family initiatives address business as well as employee needs.
Leading advocates know that demonstrating a strong business case for work/family initiatives means forward momentum. Research by Work/Family Directions asserts that spending $1 on family-resource programs yields more than $2 in direct-cost savings. Catalyst’s Marcia Brumit Kropf confirms this. “We found such a direct connection between retaining experienced women and offering reduced-work arrangements that it’s very important for companies to think about,” says Brumit Kropf, who is vice president of research and advisory services.


To establish such facts, some leading companies are participating in research themselves. Thirty percent of the companies making up The Conference Board’s Work and Family Research and Advisory Panel have evaluated their programs to measure the impact on retention of valuable employees, improved productivity, reduced employee stress and increased employee effectiveness. Some of these companies—especially the large companies—have discovered advantages and have responded. In fact, nearly 90% say they’ve increased or improved programs since 1991.


A good example is New Brunswick, New Jersey-based Johnson & Johnson Co., manufacturer of health-care products and an acknowledged leader in advancing the work/family agenda. The company’s Balancing Work and Family Program consists of a range of 11 programs, including: child- and elder-care resource-and-referral, on-site child-development centers, flexible work schedules and paid time off for short-term emergency care. More significantly, company management devotes resources to teach its family-friendly philosophy to managers and supervisors.


Evaluations in 1990 and 1992 by the company revealed that training and adapting corporate culture makes a big difference. During a financially tough period for Johnson & Johnson—when people were working longer hours and jobs were more demanding because of the economy—employees were more likely to say that company culture and their individual supervisors were understanding of competing needs of their job and family life. People indicated that they felt supervisors were responsive to those issues and supported flexible time arrangements and leave policies. In the 1992 study, 53% indicated that they believed work/family policies improved the day-to-day work environment and that their jobs interfered less with family life. Employees were more loyal to the company, were more satisfied with their jobs, and overall, were less stressed. Furthermore, the programs were important in their decision to stay at Johnson & Johnson.


Marriott International, based in Washington, D.C., is another organization that evaluates work/family issues in a business perspective. The giant in the hospitality industry began implementing core companywide work/family solutions approximately five years ago. Moreover, Marriott’s focus remains unique: delivering services to lower-income workers. The company is creating new alternatives for these employees. “One of the most important things we’ve learned is the complexities that exist in the lives of our field population,” says Donna Klein, director of work/life programs. “Most of the work/family solutions are focused at a fairly sophisticated population in terms of education and ability to pay. Those solutions break down as family income decreases.”


The business case for these field workers is somewhat different from that for higher wage earners. Certainly recruiting and retention is important, but it isn’t as costly as it would be to recruit and retain an engineer. The cost justification is customer service. Corporate staff at headquarters doesn’t directly deliver quality; the people who work in the hotels and restaurants do.


Tackling a new population of workers brings new complications. “It’s different when you’re asking people to pay for child care and it means choosing between putting food on the table and caring for their children,” says Klein. “The most valuable services for these employees are the ones in the community.”


But, to help link employees to community services is an overwhelming task. Each community is different, employees tend to move around, and language is a factor. “This is a whole new realm of work/life issues,” says Klein. “We’re just starting to figure it out. But, certainly, the way we’ve done business in the past needs to be radically changed.”


Businesses need healthy communities to thrive.
Most often, large companies such as Marriott lead the way in developing work/family policies. This doesn’t have to be the case, however. Researchers from the University of Chicago’s School of Social Service Administration and its Graduate School of Business studied Fel-Pro, Inc., an Illinois-based manufacturer of automotive-sealing products. The company only has approximately 2,000 employees, but provides myriad life-cycle benefits, including on-site child care, summer day camp and college scholarships for employees’ children. (Cost of a work/family benefits package at Fel-Pro is $700 per employee per year.)


“If you think back 10 years ago, it’s amazing that anything is happening. There was such a staunch conviction that family problems should be left at home.
—Ellen Galinsky
Families and Work Institute


Researchers wanted to know if family-responsive policies had any effect on important, non-traditional aspects of performance, such as voluntary behaviors that show initiative and willingness to participate in organizational change. The study verified that employees who use work/family programs have the highest job-performance evaluations—traditional and non-traditional—and the highest commitment to the company. They are good citizens at work who help out co-workers and supervisors and volunteer for activities. The more workers use Fel Pro’s benefits, the more they participate in changes taking place at the company, and the more they support company efforts towards total quality improvement. More importantly, 92% say they appreciate the benefits, recognizing that they make it easier to balance their work and personal lives.


“We characterized it as a culture of mutual commitment between employee and employer. That’s how it’s translated into work performance,” says Susan J. Lambert, principal investigator. The research demonstrates that Fel-Pro’s family-responsive policies send a message about the kind of company it is: Show that people are valued, and in turn people respond, she says.


Lambert says that the programs positively affect work performance, flexibility and openness to organizational change. “All day long, workers make decisions about whether they’re going to go that extra step, whether they’re going to put in that extra effort for a customer,” she says. “[Having the programs] affects how they’ll respond to total quality management, participation in quality circles and submission of suggestions. All that is voluntary.”


As with Fel-Pro, most companies start work/family programs in direct response to an emerging business need. Michael Wheeler of the Conference Board has seen improvement in this area during the last five years. “The work-and-family field is expanding. Programs are taking on a broader focus because companies recognize that these issues go beyond preschoolers. They include elder care, school-age child care and flexibility.”


These are important areas to explore. For instance, there are more than 20 million children between 10 and 15 years old who are woefully underserved. School-age child care is just beginning to be a visible problem. A recent Conference Board survey showed that child care for school-age children is a growing concern for corporate leaders. It may be in the experimental stage, but at least 80% say that the business case for taking care of this need is as compelling as it is for preschool care.


“We’re starting to make headway in child care and elder care. These aren’t perceived as women’s issues anymore,” says Karen Leibold, director of Work/ Family Programs at Cambridge, Massachusetts-based The Stride Rite Corp. She should know. Her company is one of a handful that operate intergenerational centers for seniors and children. The Intergenerational Day Care Center provides 79 day-care slots for children 15 months old to 6 years old and people older than 60; half of the spaces are reserved for low-income elders and children.


But, she adds, “We’re at a crossroads as to how we’re going to respond [to the increasing family needs of workers.] It isn’t even in the hands of individual companies anymore. It’s going to take a national effort.”


Some of that effort is beginning. Collaboration among businesses, non-profit organizations and community agencies is a future trend. Witness the American Business Collaboration for Quality Dependent Care, a turning point in collaboration that brings together 137 organizations and funds them with $26.3 million. The partnership will increase quality and supply of infant-, child-, and elder-care services in 25 states. The catalyst was Armonk, New York-based International Business Machines Corp. in consultation with Work/Family Directions. Other leaders of the group include Allstate Insurance Co., American Express Co., Amoco Corp., AT&T Co., Eastman Kodak Co, Exxon Corp., Johnson & Johnson, Motorola Inc., Travelers Cos. and Xerox Corp. Even some very small companies participate. Scitor Corp., a Silicon Valley software company, for example, has only 180 employees.


The partnership is a huge move forward. It creates a community response. After its first year, the impact was immense. The project funded 153 school-age child-care programs, 22 projects for the elderly and 110 programs for infants, toddlers and preschoolers.


“This kind of leadership should be applauded,” says Ellen Gannett, the associate director of the School-age Child-care Project at the Wellesley College Center for Research on Women in Wellesley, Massachusetts. “It’s visionary. Although research may not be able to quantify these programs as an effort-equals-output one-to-one correlation, these aren’t altruistic efforts; they’re business issues.”


Gannett says it goes far beyond employee productivity. “A community that’s healthy, where families and children—and employees—are thriving because they feel aided by services, supports business. Where there’s violence, poor education, fear and a sense of helplessness, businesses don’t do well. Healthy communities are where businesses thrive.”


What are the barriers?
If work/ family initiatives improve employee morale, productivity, retention and recruitment, alternatives to help people cope with their multiple roles should be as common—and handy—as cellular phones. Programs should exist for all ages and for people at all income brackets. They should be available in small companies as well as large. But this isn’t so.


And why not? Some companies cite cost as a factor, rationalizing that programs are just too expensive to implement and maintain. But it’s more than cost: It’s culture.


Says Representative Patricia Schroeder (D-Colorado): “There’s an attitude in this country that you shouldn’t have children unless you can afford them; that there should be someone staying home full time to care for them. If you don’t have that [care], then you aren’t supposed to have [children].”


Part of the reason that this attitude prevails, Schroeder says, is because most CEOs and decision makers still have traditional families. “It’s hard to understand these issues if you’ve had a wife in the traditional sense to handle these problems. When [the executives] hear ‘child care,’ they think ‘babysitting.’ It isn’t the same urgency.”


Unfortunately, this parochial attitude is ingrained in our culture. “It’s a deeply held belief that responding to family issues is inconsistent with business results,” says Fran Sussner Rodgers, founder and CEO of Work/Family Directions. “That’s despite the fact that research shows it to be either positive or neutral in terms of business strategy. It’s culturally rooted. We’ve gone about as far as we can go without getting more jugular; without examining our attitudes.”


That examination must begin with a hard look at the gap between the policies and theories and the actual practice. For example, business is exceedingly resistant when it comes to flexibility. Witness a 1993 Work/Family Directions study of 80 top U.S. corporations, employing 2.4 million workers. Although 85% of these companies say they offer flexible work programs, fewer than 2% of employees use telecommuting, job sharing and part-time schedules, and only 24% use flextime. Furthermore, only half of the companies have written policies regarding their flexible work options, and even then, most policies are subject to the discretion of managers.


One essential flaw in the system is the concept of face time: the antiquated notion that productivity and loyalty can be measured by how many hours a day you work at the office. “It’s almost unconscious how people are evaluated,” says Rodgers. “It goes beyond face time. It’s the way people are thought about in terms of ambition and how they’ll be developed in the future.” Appraisal systems, compensation systems and career-management systems all reinforce the old attitudes.


One would think that if companies offer flexible work arrangements and family supports (such as leave) to help employees cope during difficult phases of their lives, people would take advantage of them. However, the system puts pressure on high performers because everyone knows they run the risk of being seen as not serious. As a result, they either don’t take advantage of work/family supports or they’re never developed fully and may eventually leave the company.


“It’s a deeply held belief that responding to family issues is inconsistent with business results. We’ve done as much as we can without examining our attitudes.”
—Fran Sussner Rodgers,
Work/Family Directions Inc.


This comes out in palpable frustration from employees who want to contribute more at work but can’t because they need help with their dependent care. They need more flexibility and control over the hours and conditions of work, and they need a corporate culture in which they aren’t punished because they have families.


Data on flexibility are so clear that it’s astounding that it isn’t the accepted mode of doing business. Consider Charlotte, North Carolina-based NationsBank’s pilot program launched in 1987 for professionals who wanted to work part time. It was so successful that the next year, the company extended the program throughout the company, renaming part-time to SelectTime. The program retained valuable employees. Two-thirds of the associates said they would have left the bank rather than continue full time, and 70% of them have been at the bank for at least five years. Nearly everyone interviewed reported that the program reduces stress; most associates and their managers stated that they were more efficient and effective than when they worked full time because they were more focused and spent less time on non-work activities.


Although a recent Catalyst study found flexible work arrangements more common and more formalized than they were in 1989, many companies still don’t offer flexible work arrangements at all. Brumit Kropf will tell you that most often effective alternatives depend on a supportive manager. “People are aware of these issues, but they don’t know how to [carry them out],” she says. “They come up against barriers within the structure of the organization that keep them from implementing these things.”


For example, a firm driven on billable hours poses tremendous problems. If the company uses a head-count system instead of a full-time equivalent system, managers look less productive to leadership if they have part-timers. Another culprit? Payroll systems that automatically trigger overtime pay if someone works more than eight hours in one day. In that scenario, an employee and supervisor may agree on a flexible schedule, but can’t work within the system.


Training is imperative for both managers and employees.
Organizational structures aren’t the only obstacles, however. More often, people are. For example, managers aren’t trained to work within flexible arrangements. Neither are workers. Take a look at telecommuting. It’s a classic conflict of reality butting up against tradition. People often are more productive at home than in the office. They have fewer interruptions from co-workers and the freedom to work when energy is highest. However, because most organizations don’t judge employees on performance, traditional underlying fears prevail. Managers wonder how to be sure employees are working if they can’t see them.


“It’s difficult for managers to readjust; to deal with employees who come and go at different times, who might be working at home for some of the time,” says Brumit Kropf. “They have to re-think how to monitor work progress. It isn’t just related to hours in the office. They have to rethink how they share information, how they arrange meetings, how work flows.”


Other real-life questions present themselves, too. How do managers help develop teams at the same time that part of the work force is off site? How do they replicate the casual information exchange over the water cooler? How do they keep people in the loop when they’re out of sight?


It comes back to fundamental change. Flexible work hours have been around for a long time, but traditionally have been used only on a special-case basis. Flexibility has been handed out to the privileged few, to the best people as a perk. That’s different from allowing an entire department flexibility. Moving from an informal to a formal policy causes a lot of anxiety.


“There are still lots of misconceptions about the effectiveness of working at home,” says Karol Rose, principal for Work/Family at Fort Lee, New Jersey-based Kwasha Lipton and author of Work & Family: Program Models and Policies. “Another misconception is that people think they can handle child care while they work at home. They can’t.”


She says that what people really need to deal with is gaining control over their lives. If flexible hours give people control to work in synch with their biological clocks, they accomplish more; if they work better when there aren’t so many distractions, they get more done. Flexibility gives people a sense of control and autonomy.


Rose cautions that workers need to be taught to use flex hours successfully. They need to think through the problems that might arise, how they’re going to organize themselves and where they will work. It requires different discipline. “You’re talking about real culture change when you talk about how work gets done and where people are,” she says. “The programmatic things don’t shake up an organization in the same ways as having people work at home. Flexibility gets at the essence of what the workplace is about,” she says.


Managers already have become more sophisticated, says Barney Olmsted, co-director of San Francisco-based New Ways to Work. She believes they have a greater understanding of the issues because she has seen tremendous strides in the last five years—an acceptance that employees can’t just leave family issues behind when they walk into work. But, she also sees much resistance to flexible work arrangements. “These issues aren’t programmatic; they’re essential to the culture. Programs begin to change the culture, but they aren’t a culture change by themselves. Programs reach only so deep. Flexibility is the next step.”


Olmsted doesn’t see this as strictly a work/family issue, but instead a labor-allocation issue. Work/family is one realm that’s pushing it, but global economics is pushing it as well. Flexible work arrangements mean the ability to reallocate hours of labor without hire/fire ramifications.


Like it or not, it’s probable that flexible work arrangements will be imperative in the future. “Once you celebrate individuals and empower them, rigidity doesn’t fit anymore,” says Susan Seitel, president of Work and Family Connections, a Minnetonka, Minnesota-based consulting firm that publishes Work and Family Newsbrief. “Employees will have to take responsibility, too. They need to be honest about their needs, to assess what home-life problems may arise. They need to stop gossiping and start approaching their supervisors with these issues as they do in other business interactions.”


Everyone has a stake in creating change, says Olmsted. “It starts off with a few true believers who test it out and get data. Then a few more follow. It’s an attitudinal process. It has to get into people’s accepted way of doing things.”


What’s at stake?
The accepted way of doing things—and of thinking about things—must change if we’re to forge ahead. For example, “The numbers look better if you look at the fortunate 500,” says Elizabeth Hirschhorn from the Center on Work and Family at Boston University. But smaller companies are far behind. “Direct services and programs still haven’t penetrated the majority of employers.” Hirschhorn’s words take on deep meaning when you consider that the Small Business Administration says that small businesses employ more than half of all workers in the private sector.


Every segment of society therefore must address the challenges of balancing work and family issues. We must view business’s role in the community, and look at the actual jobs people do and how they spend their time at work. For instance, Galinsky hopes future visionaries will look at what happens at the workplace all day—the negative spillover to home-life. She’s begun to examine the work environment and its effects on family life, child development and marriage.


Some experts say we need to evaluate not only the way people work but the amount of time people work. “The number of working hours has reached a limit that people are finding untenable,” says Juliet B. Schor, Harvard University professor and author of The Overworked American. “People are moving more in the direction of preferring time over money.” If they’re given these options without career suicide, they’ll take time.


Schor believes that family-supportive programs are helpful, but don’t get at underlying core issues, such as the importance of family and non-work relationships. She echoes others when she asks if people really prefer to send their children sick to day-care programs, for example, rather than have the possibility of tending to their ill children themselves.


Although each expert has a different perspective, they agree that the work/ family field remains fragmented. Corporate America is still reacting in a piecemeal way when there’s a crucial need for integration. Everything—policies, programs, benefits, communications and training—should fit together.


“In this country, we’re off the charts in everything you don’t want. We have the highest divorce rate, alcoholism, drug abuse, domestic violence,” says Representative Schroeder. “A lot of it is because of the stress we put on families. It costs a lot in the workplace—in days off and health-care costs. People can’t be efficient workers if all this is going on around them.” Just look at these numbers. Whitehouse Station, New Jersey-based Merck & Company Inc. estimates that losing one exempt employee costs approximately 1.5 times the individual’s salary; nonexempt about .75 times. The average adjustment period for a new employee is approximately 12.5 months. In addition, Corning, New York-based Corning Inc. estimates that it saves $2 million a year through increased employee retention attributable to career and family initiatives.


Clearly, corporate America is at a crossroads. We need to look at work/ family issues as reciprocal, allowing individuals to be clear about personal commitments and giving business tools to get the job done in a way that makes sense.


We need to train managers in new ways to work with employees, to train employees so they have the tools to take responsibility to get work done in new ways. We need to invest in the technology that allows people to work in different ways. And we need to provide more basic support of people throughout their life transitions, regardless of their status as white- or blue-collar workers. The public sector must get involved and help the private sector support people.


Until attitudes change and family-responsive practices are accepted as part of the way business is done, they’ll continue to be treated as a marginal issue. Once they’re totally accepted, many things will change. Flexibility will be mainstream, there will be more money from the private and public sectors for dependent-care resources, and people will be able to move up in the organization unencumbered by old ways of thinking. They’ll be able to give their best to their employer regardless of their family status.


“There’s no way to overstate how challenging it is,” says Klein. “When something is as complex as how to blend and manage work-life and community-life into one workable existence, you’re talking about every segment of society. We can’t look back in history to see how it was done. We’re still just inventing.”


Personnel Journal, May 1994, Vol.73, No. 5, pp. 72-87.