Harvard Business Review

IBM Focuses HR on Change


Posted on Harvard Business Review: January 10, 2012 10:19 AM

It’s rare to find a corporate human resources function that accelerates change by actively finding ways to help drive new strategies. Most HR groups sit back and wait for requests from the business for administrative people transactions. In their role of stewards of policy compliance, they can tend to be a brake on change.

But not at IBM. Its HR function has been instrumental in the $100 billion company’s metamorphosis from a floundering computer manufacturer in the 1990s to a prosperous software and consulting services company today. HR has helped the organization absorb more than 125 acquisitions since 2000, and integrate globally, saving $6 billion since 2005.

When Randy MacDonald arrived at IBM in 2000 as senior vice president of HR, he felt the function was too focused on administration. “I have a fundamental belief that it’s important to decide what is core and non-core,” he told me recently. “Administrative responsibilities, such as getting paychecks out on time, are not core. Attracting, retaining, and motivating employees are all core. In HR, we need to focus on what is important and get out in front of issues—not just be reactive. HR should look at the direction of the company and say, ‘We need to be here right along with the business.’ ”

Over the last decade, HR at IBM took a number of steps to help drive operational improvement:

Delivered the new skills IBM needed at the front lines. HR reinvented the way it trained and developed talent. We know, for example, that developing leaders is essential. But in a world in which bringing managers in every year for a week of offsite training is so 1960s, how do you make the leadership development process relevant to the global economy? Randy MacDonald: “We observed that 80% of leadership development is based on work experience. We looked to see what we could do to create a work-related development opportunity. In growth markets like Kenya and Malaysia, people needed to develop marketing and innovation skills. In developed countries, such as France and the U.K., people already had that experience. We came up with ‘Global Enablement Teams‘: we took the top people in mature markets and assigned them to help and mentor people in the growth markets. Growth market leaders learn from major markets, and equally important, vice versa.”

Fostered global teamwork. Prior to 2002, when Sam Palmisano became CEO, IBM had a series of feuding fiefdoms—170 country units—each with its own policies, procedures, and processes. Randy MacDonald: “Over the past decade we moved from a multinational organization to a globally integrated enterprise with global standard processes. For example, I have taken 8,000 HR software applications (largely focused on the HR needs of individual IBM country units) down to under 1,000. There was lots of resistance. Another example: In the U.S., ‘diversity’ tends to be programs and policies around ethnic identity and gender. In China, or Brazil, diversity is defined differently. We’re starting to expand ‘diversity’ to also mean ‘inclusion’—helping people work together.”

Created a results-focused culture. During IBM’s days of malaise, buck-passing had become an art form. As former IBM CEO Lou Gerstner said, “Instead of grabbing available resources and authority, they waited for the boss to tell them what do; they delegated up.” HR can play a lynchpin role in building a performance culture: defining, collecting and analyzing data to understand whether employees are meeting their personal goals. This is about using the technology of “business analytics” within the workforce, bringing vital statistics to the art of performance reviews. Says MacDonald: “The core of a performance-based culture is more use of analytics. We needed to start in HR by becoming more analytical, using data, defining cause-and-effect relationships, and tying HR activities to business results.”

HR’s focus at IBM today is on finding and developing more innovative employees, in concert with IBM’s strategy of a “smarter planet“—improving the world through “green tech,” “smart grids,” water management systems, and so forth.

“We link our external branding to our internal brand,” MacDonald explains. “Our ‘Smarter Planet’ campaign is enormously attractive. In fact, we hire nine out of ten people we go after because they are excited by the possibilities of improving how the world works. Another ripe area for innovation is knowledge management and the impact of social media. For example, one of the reasons we can recruit much more rapidly these days is through the use of social media.” IBM encourages employees to use social media—a far cry from the day when no one could communicate externally without prior approval. (IBM has instituted social media guidelines to help employees understand best practices when they blog, Tweet, and the like.)

If few HR organizations take a proactive role in operational improvement, what is different about IBM?

I see two key characteristics: dissatisfaction with the status quo, and managing for the long term. Here’s how Randy MacDonald explains it: “It’s built into IBM that once we attain a level of performance, we raise the bar.” IBM is also different because it hires and develops people for the long term at all levels—not just for today’s job openings and not just senior management. As Sam Palmisano said, “To develop talent that can lead the enterprise generation after generation takes money, time and patience. And this is not just about people at the top—it’s about developing future leaders broadly and deeply throughout the organization.”

In my next post, I’ll look at other characteristics of HR organizations that get in front of change.

Question: Have you seen HR functions that shifted their focus from administration to supporting operational change?

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Copyright © 2012 Harvard Business School Publishing. All rights reserved. Harvard Business Publishing is an affiliate of Harvard Business School.

Brad Power is a consultant and researcher in process innovation. His current research is on sustaining attention to process management. He is currently conducting research with the Lean Enterprise Institute.

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