Aligning HR to the CEO growth agenda.

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Throughout much of the 1990s and early 2000s, CEOs were rewarded for cost reduction end cost containment. To compete in the global arena, Boards demanded dramatic improvement in efficiencies. Companies such as General Electric, Motorola, and Allied Signal fueled the trend by reporting 10 times or higher ROIs from their Six Sigma programs. With a clear focus on the bottom line and tantalizing ROIs, companies invested heavily to get lean, outsource nonstrategic work, improve quality, and introduce better products.

The new CEO agenda, while not losing sight has shifted to the top line. Covering the views of 658 CEOs from more than 40 countries, the 2006 Conference Board's Sixth Annual Survey (1) found that:

* In the United States, the top future challenges will be how to sustain and generate steady top-line growth. Profitable growth and product innovation were also high up on the list.

* CEOs based in Europe are most concerned with speed, flexibility, and adaptability to change, followed by profit growth and sustained and steady top-line growth.

* Spurring company growth has become a major CEO concern in Mexico and South America.

* CEOs of Asian companies are more concerned with stimulating innovation, acquiring top talent, and other people issues. Half of CEOs in Asia report that inspiring innovation is their greatest concern.

HR demonstrated in the earlier period that it can be a strategic player in efficiency initiatives by sourcing work and talent for better leverage, outsourcing routine work, and moving some talent costs from fixed to variable. For HR to remain a strategic partner in the new, growth-driven future, it must answer the call to support and systemize innovations that achieve the growth goals now topping the corporate agenda.

This next phase requires significant retooling, according to the HRPS/i4cp 2007 survey "HR's Role in the CEO Growth Agenda." This retooling and reinvention must come most dramatically in the areas of leadership development and organization design. (2) The survey highlighted several issues of concern to most HR leaders, including:

* Helping leaders to frame the growth challenge for the organization.

* Developing new learning programs that lead to clarity of roles and responsibilities in managing growth and new executive team behaviors; and

* Designing and staffing the growth-related organization.

The Growth Gap

Growth, in many ways, is its own reward: Growth attracts talent, creates the capital to grow faster, and can transform the market valuation of a company. Yet many companies have a significant enterprise growth gap: the difference between the sum of the forecasted business units' growth goals and the overall enterprise target. In other words, it is the difference between what the core businesses can deliver and the expectations of the CEO and top management team. This is generally described as a financial shortfall, but the root cause is a gap in the enterprise's capabilities and processes to identify and exploit new opportunities beyond the reach of the core businesses. For example, in a $10B multi-business chemical company, its core businesses were able to generate 5 percent growth though current know-how, but the board of directors and CEO desired 10 percent growth in order to increase stock price and market capitalization. The size and reach of generating new businesses to close the $500M revenue gap made it the prime responsibility of the CEO and Executive Team to create new families of products and services.

Almost 60 percent of respondents to the HRPS/i4cp survey list the primary objective for their organization as organic growth (28.2% say this will come through new product and service platforms). Yet most companies believe and act as if this will be achieved by doing better at and more of the same things. Oyster International research has found, however, that good strategy, understanding of markets and technologies, and analytical support will not insure that the growth gap will be closed. Instead, the most significant elements of success are found in the answers to the following questions:

1. Is there an enterprise growth gap?

2. Is the leadership team unified around growth goals and the path to them?

3. Is the organization designed to achieve the growth that has been identified?

4. Is the source of growth clear?

5. Can the innovation process deliver new businesses that will achieve the growth goals?

HR will be aligned closely to the CEO growth agenda only when it is actively involved in driving the organization to "yes" answers for these questions. This will require HR to adapt by adding the development of leaders who can identify and execute new ideas in new spaces and the realignment of the organization systems and structures for growth to its strategic competencies. The rest of our article details how HR can make these required and rather dramatic changes so it becomes a full partner in creating new, substantial growth.

Closing the Growth Gap

After studying 24 high growth companies such as Procter & Gamble, UPS, and Medtronic, Oyster International identified two major success factors in closing the growth gap. (3) First, these companies were successful in creating New Growth Platforms (NGP): material new families of products and services typically outside the reach of the current businesses. Opportunities lay within domains at the intersection of technology, trends, and customer dynamics. Explorations into these domains are guided by the company's core capabilities. Unlike new products, NGPs are the kernels to create new strategic opportunities that leverage company size and position. (See Exhibit 1 for examples of NGPs.)

Second, the companies exhibited a common set of characteristics in innovation, leadership, and organization design to sustain the flow of NGPs. These characteristics include:

1. A credible chief growth officer is in charge of a new unit;

2. A recognition that the team is more important than the idea;

3. NGP units are independent units and with strong interdependencies to the core businesses; and

4. The process for screening, selecting, and building NGPs is disciplined, systematic, and repeatable.

Herein lies the opportunity for HR to be a player in the company growth agenda and not just sit on the sidelines. HR can help design and build a more agile organization capable of identifying, designing, and iterating a pipeline of NGPs. In other words, HR can help create a culture and organization that is innovative and highly disciplined.

Before turning to HR's role in innovation, leadership, and organization design within the context of NGPs and cultural change, we need to explore the fundamental difference between core business growth and new growth platforms.

Core Business Versus NGP Growth

Many high growth companies have discovered that NGP processes and leadership work on NGPs are fundamentally different than in the core business (see Exhibit 2). Core business growth typically demands skilled operators who are aligned around strategy and are accountable for a share of market growth and cost containment. Their horizons are the next quarter and next budget cycle. Key attributes of good operators include:

1. A good knowledge of current markets and key customers;

2. A highly analytical nature;

3. Ability to run lean operations;

4. Experience in product enhancements and product cost reductions; and

5. Ability to expand into new geographical areas.

NGPs, on the other hand, demand a different breed of leader--a business builder. Leaders here must be constructively dissatisfied; they turn things on their sides and see how things could work in a whole different way. Their horizon for building NGPs is the next three to four years. They rely on insight and intuition, not just the numbers. They see things others do not see and make connections others cannot make. Their passion is identifying and executing growth platforms--families of products and services in new spaces. Key attributes here are:

1. An agile mind;

2. Curiosity;

3. Willingness to immerse oneself in the customers' (or potential customers) worlds;

4. Experimentation; and

5. A greater sense of urgency and risk taking.

If the company cannot meet its growth goals through product enhancements, geographical adjacencies, or other core business growth strategies, it must move to NGP as a source of growth. Yet as the HRPS/i4cp survey points out, there is little experience in HR or the leadership ranks to navigate in these new spaces. For companies with an enterprise growth gap, there are many adaptive challenges for HR. Adaptive challenges arise when there is limited experience in thinking through new problems that often challenge deeply held beliefs. (4)

Innovation and HR's Role

There are three readily identifiable forms of innovation:

1. Process innovation is the sweet spot of business process management and Six Sigma professionals. Process innovation is concerned with efficiencies and agility in the current businesses. In recent times, HR helped to create high performing organizations by investing in people and training for process improvement, and realigning systems and processes to reward process innovation, elimination of variances, and reduction of time and waste throughout the entire supply chain. This work improved efficiency, responsiveness, quality, and bottom-line performance (earnings growth).