© 2003 Alsey International 1 What is the Role of the HR System in the Battle for Company Profitability? Professor Zwika Segal & Dr. Yagil Weinberg

© 2003 Alsey International 1

What is the Role of the HR System in the Battle for Company Profitability?

Professor Zwika Segal & Dr. Yagil Weinberg


Origins

Koç Holdings (KH) – the largest private sector entity in Turkey

77 year-old group of 100 firms & 54,000 employees

Turnover €13.8b, subsidiaries in 21 countries

Mid ‘90s: Ali Koç returned from HBS, amid global IT boom

Led an unrelated group of Koç companies in ICT, grew it to 13

Included MSP, SI, CATV, B2B/B2C e-commerce, training

Though incoherent, ICT became a strategic priority for KH

HBS’ Porter referred Koç to Weinberg, with whom he had established the ‘Competitive Advantage of Turkey’


€ Million

2001 2002 2003

13,066

8,2019,790

33 %

19 %

0

Business Results & 2003 Targets(IAS)

Combined SalesCombined Sales


2001 2002

€ Million

-181

280

Business Results & 2003 Targets(IAS)Business Results & 2003 Targets(IAS)

Combined Profit Before TaxCombined Profit Before Tax


2001 2002 2003

53,613

43,40350,543

3,0707,140

Business Results & 2003 TargetsBusiness Results & 2003 Targets

Number of EmployeesNumber of Employees


Alsey’s model: Process of Organizational Fit to Business Strategy

I/O gapreduction

Value creation Market access

Competitordifferentiation

Competitiveorg. core

competencies

Strategicrequirements

6. Test6. Test

2. Organizational 2. Organizational

Architecture AuditArchitecture Audit

1. Individual 1. Individual Competencies Competencies

AuditAuditTechnical skills

Generic competenciesKnowledge

Experience

Core values

3. Analysis3. Analysis

I/I fitanalysis

I/O gapanalysis

4. Restructuring4. Restructuring

5. Output5. Output

Audit Benchmark Gap Reduction


Step 1 - Strategic Audit

Interviews with senior & middle management of all ICT companies:

IT an integral part of KH plans, incorporating a variety of initiatives

Strategy focused on GSM license, no reassessment when bid lost

A number of operational challenges:

Ongoing conflicts between ICT companies

Investment opportunities victim to lack of decision mechanisms

Low cross-company awareness of projects & direction

Lack of coordination between Information Systems

‘New Business Development’ group a source of conflict


Step 2: Development of Key Strategic Principles

1. Business Development in Line with Synergies

Select portfolio according to synergies leveraged & created

2. Business First, Residential Later

Given strong differences in business & consumer demand for ICT, focus initially on high-demand high-profit business sector

3. One-Stop-Shop Package

Offer full integrated basket of ICT & financial services

4. Digitalise KH

Lead & implement IT-enabled productivity improvements at KH

5. Catalyse Turkey’s IT Development

Make KH the catalyst for advancing IT across Turkey


Mapping of Existing Synergy Realisation Between KH Firms

SI

Consumerportal

Satellite

Cable

Elearning

B2B

Supermarket

ETickets

Software

ISP

Hardware

Travelagency

Access

Usage/hosting

Usage/hosting

Usage/hosting

Usage/hosting

Sales

Delivery

Whitegoods

Sales

Sales,Hosting

Bank,insurance

Usage/hosting

Applications

Hosting,call center

Uni

Cars

Training

EBookings Electronics

Sales

Usage/hosting

Promotions

Sales

Synergy Realisation Mainly Basic Sales Promotions


Mapping Potential Synergies

ASP

DistributionE-learningE-learning

Hosting,applications

E-learning

E-learning

E-learning

Access

Usage/hosting

Usage/hosting

Applications

Usage/hosting

Usage/hosting

Sales

Sales

Sales

Sales

Sales

Sales

Logistics

Logistics

Logistics

Logistics

Logistics

Sales

Sales,Hosting

Usage/hosting

Applications,credit

Hosting,call center

Credit IVR

Distribution

E-learning

E-learning

B2B knowhow

B2B knowhow

B2B knowhow

B2B knowhow

B2B knowhow, databaseB2B knowhow

Network

Pilot e-learning project

Content Portal, technology, content

E-learning technologies, content and courses

Content

NetworkAccess

Potential Synergies A Deeper Richer, Varied Network

SI

Satellite

Cable

Elearning

B2B

Supermarket

ETickets

Software

ISP

Hardware

Travelagency

Delivery

Whitegoods

Uni

Cars

Training

Electronics

Consumerportal

Bank,insurance

EBookings


Koç will become a leading ICT player in Turkey by transforming itself from a collection of separate and weak-linked activities into an integrated ICT service

provider incorporating LEC functionalities and services

Development of ITG Vision


Step 3: Organizational Audit Identifies Fit with Strategy

Cross-disciplinary mapping of the companies, across 4 pillars:

5 months, 12 experts: 160 interviews of management, 600 survey questionnaires, 85 ITG research documents, dozens of market reports, quantitative performance assessment

Processes &Procedures

OrganizationalStructure

• Work systems• Communication management• Knowledge & info management• Management styles• Decision-making process

• Organizational structure• Span of control• Hierarchical levels• Power structure• Control system• Formal/informal• Cooperation/competition

OrganizationalCulture

• Core values• Ethical code • Symbols • Rituals• Heroes • Stories• Routine• Ceremonies• Social

responsibility

IndividualCompetency

Enhancement (HR)

• Planning• Recruitment & selection• Training• HR Development • Career management• Compensation• Performance management• HR structure


E

X

P

E

C

T

E

D

CURRENT

Bryce

Example: Organizational Survey Results

Communication Management:Manager Encouragement


Organizational audit Main Results

Processes &Procedures

OrganizationalStructure

Slow decision-makingHighly centralisedStick-to-proceduresRisk-avoidanceInformation-keepingLoyalty to hierarchySlow response to change

VerticalHierarchicalManagement-orientedLack of clear communicationInflexibleResource-centralized

OrganizationalCulture

TraditionTo be OKIndividualismPresent-preservation

Unknown cultureDependenceSatisfying superiors

Peaceful human relations

Client-orientation

IndividualCompetency

Enhancement (HR)

Recruitment based on past achievementNo career planningNo horizontal mobilityStandardised training


Stage 4: Building Fit - Individual Competency Enhancement (HR)

HR expertise centre established at new ITG HQ

Use HR as a key strategic tool (Fit analysis)

Building HR system according to mission, goals & values

New career planning process within and between companies

New performance criteria (according to business plan)

Targeted employee and managerial development process

English lessons created a bi-lingual corporation

Common training programme for all ITG companies

Introduction of HR metrics

HR Now Used As Key Strategic Tool


CategorySubcategoryJob RatioProficiencyCandidateITG

profile

HR Development

Training, development & career planning

15%AdvancedAB

organizational Culture

Motivation, surveys, core

values5% Advanced A alDtC

Compensation

Compensation, bonus, benefits

20%AdvancedAA

Strategic HR Business

requirments 10% Advanced B B

Recruitment

HR planning, job analysis,

recruitment & selection

10% AdvancedA A

Performance Performance and business

appraisal 10% Advanced A A

HR Budgeting

ROI and HR metrics

10% Advanced A A

HR policies All HR functions and transactions

15% Advanced B A

HR computerized

application Intranet, ERP 5% Low D C

LanguageEnglishrequiredAdvancedAA

Example: Selection by fit analysis

Appointment of VPs using proprietary strategic fit analysis

Compensation: 100 % (weight -moderate ) Human qualities :95 % (weight - high)

Experience: 85% (weight - high) Knowledge: 90 % (weight - moderate)

Education: 85% (weight - low) Skills: 90% (weight -high)

Overall FI T: 90%


Building Fit: Organizational Matrix

New HQ management structure with VPs at heads of four new Expertise Centres (ECs)

Strategic focus on HR and corporate culture

Separate line & HQ functions

Human Resource

Executive VP

ITG President

Finance &Administration

Marketing Strategic Planning

ITG Companies

HQ

SBU

Expertise Centres (ECs)

ITG CompaniesITG

CompaniesITG CompaniesITG




Companies

Support Team

Company focus on sales & operations

Strategic support at HQ level


Building Fit: Organizational Processes

Alsey formulated 120 detailed micro-level guidelines on distribution of responsibilities, information and reporting:

Stages of major decisions

Distribution of responsibilities, information and reporting

Relationships between companies, HQ, ITG boards & fora

Work procedures, ITG meeting schedule & report templates

Shorter meetings & more concise written reports

Increased awareness of time budget management

Relative involvement of actors in decision-making

Together These Form a Comprehensive Fully Detailed Management Guide


1 Sales2 New products & services3 Second-level recruitment 4 Organizational culture 5 Marketing plan 6 Marcom 7 Compound bidding 8 Training program 9 Cross-companies’ HR mobil 10 Companies’ structure 11 Strategy formulation12 New technology13 Mergers & acquisitions14 Compensation policy15 CEO recruitment 16 ITG staffing17 Annual investments 18 Non-budgeted investments

Max involvement of companies

Max involvement of HQ

Max involvement of Koç Holdings

Organizational Processes

Example: Overview of Guidelines onRelative Involvement in Decisions


Organizational Processes

Decision/TaskResponsibilityReport toInformReceive information from

Shaping the philosophy, strategy and culture of the ITG

ITG PresidentKoc HoldingHQ, GMsEC, External Sources

Coordination with other PresidentITG PresidentKoc HoldingHQ- - -

Determine and present ITG’s goalsITG PresidentKoc HoldingVPs, GMsVPs, External Sources

Determine the annual goals and quantitative objectives of the VPs

ITG PresidentKoc HoldingVPs, GMsVPs, External Sources

Meet important customers under the request of VPs or GMs or directly

ITG PresidentKoc HoldingHQVPs

Determine the ITG PR policy and activities

ITG PresidentKoc HoldingVP marketingEC, External Sources

Represent Koc ITG to the media and on public affairs

ITG PresidentKoc HoldingVP marketingEC, External Sources

Prepare ITG’s investment plansITG PresidentKoc HoldingECEC, External Sources, GMs

Initiate mergers and acquisitions and lead the negotiation team

ITG PresidentKoc HoldingECEC, External Sources, GMs

Examples of 120 Guidelines on DistributionOf Responsibilities, Information and Reporting


Building Fit: Organizational Culture

Employee empowerment, commitment, involvement & pride

Improved work atmosphere, self-image and open climate

Increased market awareness

New welfare activities, social events, library becomes pub at 18.00

Ethical code, social responsibility initiatives

95% signed the ‘psychological contract’, committing themselves to an active part in the change process

Regular employee use of change process electronic forum


Step 5: Building Fit - Innovative Mechanisms for Involvement

Wide participation and involvement in:

CT and TFTs that managed and implemented the change process

New vision statement: ‘We will pioneer the e-transformation of our Customers, the Koç Group, Turkey, and become one of the leading Information and Communication Technology players of our region!’

Logo, jingle

Others: Mission, values, President’s speech, change process ceremonies, screen-saver jigsaw puzzle, news bulletins, dedicated intranet fora, internet radio, suggestion boxes

The Change Process Enabled Participation In Building The Corner-Stones of the Business

koc-jingle(vers1).MP3

C:\Documents and Settings\CHAYON\My Documents\My Music\Koc ITG song.MP3


Building Fit: Innovative Mechanisms for Involvement

Greater awareness and communication through intranet portal


Step 6: Monitoring Change: Organizational Culture (example)

Factors Bilkom Ultra TV KocBryce Biletix Bookin Turkey

GVZ Kangu. Kobiline Koc.Net KocSistem

Employees’ praising Information sharing Identification employees/company (values) Social climate (peer satisfaction) Cooperation within company Process/Performance fit Structure/Performance Fit Vertical communication Employees’ recognition ITG membership - Feelings Change process –Belief in success Change process- information quality Change process- utilization of information channels

Employee Survey Showed Strong Belief In Change Process, Identification With ITG & Employing Company


Monitoring Change: Performance Criteria, BSC

Company performance criteria based on financial, HR, customer and internal process factors

Financial

Hardware

Software

Services

Total Sales

Cost of Goods Sold

Gross Profit

Sales & Marketing Expenses

General & Admin Expenses

EBITDA

Depreciation

Operating Profit/loss

Finance Expenses

Taxes

Net Income

Economic Profit

Sales growth year on year

Receivables days

Human Resources

Recruitment

Jobs filled from within the company

Training

Training new employees hours

Training experienced employees hours

Culture

Number of complaints

Number of suggestions

Improvement on the Survey results

Efficiency

Sales per employee

EBITDA per employee

Customers

Customer Satisfaction

Service call response time

Vendor/partner satisfaction

Market Share

Internal Processes

Employee independence

Inventory turnover


Step 7: Impact- Best Practice Profitability Measures

$378,803

$75,302

Median Cross Industry Global Benchmark (MCIGB)

Koc ITG (before)

Revenue per Head

Income per Head

Koc (1 year after)


Impact: Best Practice Profitability Drivers

Employee turnover

34.0920.87

Stability

Top 10% HR index

Bottom 10% HR index

Koc (before)

MCIGB

Koc (1 year after)

61.5034.90

Internal recruitment


Impact: Best Practice Profitability Drivers

Competency generation and training

116.8735.02

Number of training hours for new employees (less than 1 year)

72.0013.40

Number of training hours for experienced employees

Top 10% HR index

Bottom 10% HR index

Koc (before)

MCIGB

Koc (1 year after)


Impact: Best Practice HR Structure

HR expense per head

HR Headcount Ratio

1,447$

253:1

Top 10% HR index

Bottom 10% HR index

Koc (before) Koc (after)

140:189:1

MCIGB


Key Lessons

1. Critical Role of HR

Alignment of HR system with company strategy

HR is key to flexibility, innovation, and speed to market

2. Strategic-Organizational-HR Fit

Career Development, Recruitment, Selection, Compensation, Training,

Performance Appraisal

Business Strategy

HR Strategy

HR Systems

Corporate Strategy

Performance Management

Vertical Fit

Horizontal Fit


Key Lessons

3. Constant monitoring and testing of fit

Shows progress, allows adjustment

4. Four pillars method of diagnosis, fit, operation & measurement

Provides holistic evidence about organization

5. Cross-hierarchical participation in change process

Creates buy-in and stake in process

6. Innovative communications tools

Encourage and broaden participation

7. Continuous paradigm shift throughout theprocess and its implementation


…And now Koc ITG is a reality