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other mistakes. SAP is providing these transcripts, so you can read the presentation in its original form. SAPPHIRE 2009 Orlando From Competency Chaos to Talent Management Value Realization Susie Krupa: Good afternoon everyone and thank you for joining our session. My name is Susie Krupa and I'm the Industry Practice Lead at SAP in North America for the Professional Services Industry. Today, I have the pleasure of introducing Paul Storfer. He's the Director of PDI Ninth House. He brings to us his expertise in competency and technology integration and is also is a Board Member of the HR-XML Consortium. Today, Paul is going to share with us the guide to implementing competencies in SAP. Paul? Paul Storfer: Thank you, Susie. Good afternoon everybody, thank you all for showing up, particularly after lunch and in such a wonderful exciting topic as competencies. I hope I can keep you interested in some of the issues. What I'd love to do today is talk a little bit about some of the competency activities. I don't know how many of you-- maybe I should just take a quick check. How many of you have been working with competencies in SAP? How many of you are having fun? Okay, so that's a very quick poll answer. It looked like about half the people were working with competencies, and I didn't see any hands going up for people saying they're having fun working with it. So the first part on our agenda we'll talk a little bit about competencies and some of the competency problems. What are the causes of it, and then really go to the other side which is okay what do we do to try and help to try and deal with those competency issues? How do we straighten them out? How do we think about organizing competencies? How do we make them work? Because competencies are really the foundation of human capital management within SAP. So, we'll show you a little bit about how we're doing it, a couple of case studies, case Studies specifically in measuring the success of a competency implementation. Tell you a little bit about what we're doing. PDI Ninth House is a Global Professional Services Firm, and we are actually SAP users. SAP is also one of our customers, so we work in both ways. We're a partner with SAP. SAP is a customer uses our competency content, and we use SAP internally to manage our business. And then we'll give you some pointers about how to move forward and talk a little bit about some of the things. I'd also like this to be interactive, if we can, so if you have some questions, please don't hesitate, raise your hand in the middle. I'll repeat the question so everybody can hear it, but I'd love to be able to answer and respond to that and be able to help out with some of the competency issues. So competencies, why do we even bother? Well there's a very good reason why we bother with competencies. If you take a look at it, organizations that use competencies four times more likely to have a high performance driven culture. Four times. This data is absolutely critical when you begin to think about why is it worth spending the time and spending the effort. What are you really going to get out of Human Capital Management if you don't begin to use competencies. However, this is what I run into all the time. We tried it. We tried competencies, tried them here, didn't work, too complicated, or they're actually sitting out on the shelf. So the real key is how do we try and deal with competencies? The big causes, the underlying basis of competencies are first of all, a lack of stakeholder buy-in. You don't get people in the organization buying if they don't start working with it. They say oh well that's just what HR puts in. It's an HR fad. We're going to do our thing. So part of what we try to do when we do a competency implementation is think about how do we get people in the organization to begin to use it? How do we start to change people's behavior by getting them to adopt and really work with the competency content? Second issue is models exist, but they're not linked to the critical processes. Got a competency model but we do our performance management over here and it's not tied to it. Or when we actually go out and hire people, we don't hire them based on the competencies they're going to be working under in the process. What does that do? It totally removes the reason for people to begin to use competencies. The real basis of competencies is they are the language that underlie all of the talent management processes.

And if you don't begin to use them in all of your processes and figure out how to integrate them in those processes, you're not going to be successful and you're not going to be able to leverage the full value of SAP Human Capital Management. The third piece or the third factor is that they're not connected to the business drivers. That's a real problem, because then as people begin to get in and use the competencies, they say well this doesn't help support what I'm doing on a day to day bases. And it gets shoved away onto the shelf. So very important that you tie it to the business drivers, what's going to make you successful. And finally, the biggest problem that we run into is lack of a plan of how you're actually going to execute against them. How are you going to make those competencies work? There's one more problem that I want to list, and this is a problem here to fore that people really haven't talked too much about because as they start with competencies they figure it's a real success if everybody uses them. But they don't think about what happens if everybody uses them and uses them in a slightly different way or starts to modify them to fit their own needs. So what happens if you begin to build your competency content and oh the engineering group wants to tweak it a little bit over here and they want to do something there, and you know what IT's got their own set of competencies and they need to redefine this thing so strategy for them really is an IT type of a strategy. Well, then finance has got its own set of competencies that they begin to work with. What happens when that begins is you get almost a Tower of Babul, different definitions for the same things. And that's a condition that I call competency chaos. What it does is it creates a lack of alignment within the organization with everybody using different language to mean the same thing and then nobody knows what everybody else is saying. It's literally as if you're speaking different languages. What does that do when you put it into SAP? When you put it into SAP, that means that nobody can get into it and work with it. So let me give you an example of competency chaos. This is actually a current example, a project we are-- with a firm with whom we're currently working. This is a very significant size organization. They are beginning their SAP implementation. They put into their competencies skills and qualifications catalogue all of their job description statements. They started with 7,308 qualifications in the skills and qualifications catalogue. Let me just stop there for a second. Think about that, 7,308 skills and qualifications in the skills and qualifications catalogue. Now, how did they organize them? Well, of course, it was very simple. They just numbered them from one to 7,308. Now, you want to try and penetrate that, so let's say you want to build a profile. How do you sort through that to build a profile? We came in and tried to work with them, and we took a file out and we said, let's try to look at it alphabetically. The first something close to 600 that I went through personally started with ability to communicate orally and in writing in order to fill in the blank. Now, you tell me how you're going to be able to assemble that to sort through all of that and build it into a profile that's going to do you any good when you put it into SAP. So what do we have with this particular situation? Well, the first thing we did and I can give you literally these are current statistics. We had to break apart all of those statements because the ability to communicate orally, oral communication, and in writing written communication, in order to and then each one of those had one, two, three, or four, those 7,308 qualifications became 44,500 individual statements when we broke them apart. When we re-combined them back together and then did competencies definitions for them, guess what, it's under 700. Now, 700 is still a pretty hefty number and that's primarily because they're using technical, functional competencies. But 700 is an awful lot less than 44,500 or 7,308. It's now provided in a qualifications catalogue taxonomy that you can go through that looks at skills, technical skills, knowledge, behaviors, and then in those sub-categories to be able to work with them. So let's talk a little bit about how we get this right from the start. What's a competency strategy look like? First thing is I just want to make sure we're all clear about what a good competency is. Because as I said, you get a Tower of Babel if you don't begin to define these things and make sure that you have common understanding. So we use three separate pieces for looking at competencies. The first is what is it? Competencies have three main traits, A, you can identify them. They are discreet things that you can look at and you can work with. Second, you can observe them. If you can't observe them by watching someone's behavior, what good is it going to be for you? And third, they are measurable. You need to

be able to measure a competency otherwise it's not worth doing. Now the implication is something that is identifiable, observable, and measurable, the implication is that it's not unique to any individual, because the reason you want to measure it is to so that you can use it to compare from one person to another to show how one person differentiates from another person. The second section of this is they're related to behaviors, behaviors that an individual possesses and exhibits that can differentiate them from one to the other and that that trait is causally related to and most important to predictive of success in one or more duties on a job. So it's not a personality trait. Personality traits may effect your performance but they tend to be fairly unique. What you want to look at is what is the aspect, what's the capability that you can use to differentiate person A from person B. They also have to be discreet enough that you can understand that everybody would have the same definition. So if I were to look around the group here and say how do you define communication skills? How many different definitions do you think we'd get? Probably involve listening, it might involve oral communication, maybe written communications, maybe presentation skills. Lots of different aspects, so communication skills is not a competency, it's actually a group of a whole bunch of different competencies. What you need to do when you look at competency is to say what's a unique thing that I can look at that everybody will have the same definition for. And begin to work with it. Now competency should not be mixed up with behaviors, because behaviors are the things that we observe as we been to evaluate or assess somebody against competencies. Here of a couple, just so you see, a couple of behaviors so in plans effectively you can see a couple of behaviors there. How do we use behaviors? Behaviors inform interview questions, because we interview about how people begin to work with competencies. There the things that describe how someone evidences a competency and in the case of PDI, we use the behaviors to define how someone works with a competency at a different level in the organization. For example, if we have a competency like strategic thinking, if I'm a mid level leader in the organization, strategic thinking may be using the strategy in my daily activities. If I'm a Senior Executive, strategic thinking may be shaping the strategy. If I'm and individual contributor at a front line level in the organization, it may be just understanding the strategy. Same competency, but different behaviors. And the behaviors are the things that make the competency relatable to somebody at a particular level in the organization. So let's talk a little bit about competency profiles, because this is really the basis of how you begin to use competencies within SAP. Now most of the organizations we work with-- and I'll sort of give you some steps-- most of the organizations we work with start out with a set of core competencies. Typically, these are mission, vision, value type statements, what does everybody in the organization need to have, step one. What's you'll find is you start to work with these is they'll work for a little while and sort of set a tone and a culture, but when you get beyond the core competencies or you start getting in and working with them, people say I need something that is a little more differentiated for me, something that really makes sense for me. So we then go in and build level or roll base competencies. How are these competencies in many cases the same traits different depending on what level you go to? Are they the same at a first line leader as a mid-level leader. If you look at what the literature says, [Ron Suron] in particular, you see the leadership pipeline that certain traits that you exhibit at one level in fact become derailers at a different level. So you really need to define how you work from level to level and what the behaviors are and how you need to change as you go through the organization. This is frequently a good weight point for most folks as they start to build competency models. You'll actually get somewhere between 75% and 80% of the affective use of competencies just by stopping at this place. However, it is likely particularly in the technical sides of the organizations, that those folks will want to push you a little bit further and that's in the building of technical or functional competencies. Now just as your level bases competencies cut across horizontally, your technical, functional cut vertically. So if we go back and we think of just the levels, what this defines is what are the same traits that everybody at this level has? If youre a vice president of IT, or a vice president of HR, youre a vice president. You have certain managerial responsibilities you control certain amounts of budget, certain discretionary decision that you make, so that defines what your sphere is. It also defines expectations of others towards you. When you work with functional competencies, functional competencies define all of the things that everybody shares within a vertical function. So for example, in finance, you probably want

some good attention to detail. In IT, you probably need some good investigative thinking because you're going to be thinking about how to solve problems and pull them apart and dissect them. But in addition to the functional competencies, there's another type that frequently gets confused here and that's what we call technical competencies. And the technical competencies are those very specific technical traits that you need to do to get a job done. So for example, in IT a technical competency might be the ability to program in Java. One way you can tell the difference between the functional competencies and the technical is the proficiency scale that you would use. If you're looking at behavioral competencies or functional competencies, they're typically done on your experience not on your expertise. I don't know many people that would say, I'm an expert in initiative, but there's lots of people that say I'm an expert in Java Programming. So the proficiency scale in technical competencies tends to be expertise related, and the proficiency scale in behavioral competencies or functional competencies tends be based on your capabilities and where you work. Now once you've built all your competency pieces, you assemble them all together into position or job profiles. So a position, let's say a senior executive in the sales area, would include the senior executive competencies, the sales competencies, all added together with the core to be a position or roll base competency and that's your profile. All of the competencies exist in the skills and qualifications catalogue but the profiles are in the profile area and that is what you integrate with in SAP. Any questions just so we stop at this place before we more on. No? Good. So let's talk a little bit about competency strategy. What are the essential elements that you need to really build and to implement competencies effectively in your organization. We've actually broken it down into eight critical steps. The first is a common understanding. Give you a quick story, the last time I was actually an SAP client, an oil and gas company, and I was working with their IT Department. And they called us in and they said we want technical, functional competencies so we can build a career path for all of our IT folks. They need to understand how they can move through the different streams within IT. And I sat down with the CIO and all of the executive leadership in the IT organization, and I said let's talk about competencies and what they're about. And the head of IT turned to me and said, you mean to tell me that we're not going to actually do the model this afternoon? And I said well, you could do that but that's not going to give you what you're looking for, because I guarantee you if we go around this room we're going to find a bunch of people with a bunch of different understandings. And we went through an afternoon's discussion with the senior IT team, and low and behold we had some very clear differences of opinion. I'll give you a good example. We talked about how they would roll out the competencies, and we said what's the culture that you want to create? And they said what do you mean. I said well let me give you an idea of sort of two ends of the spectrum. Do you want to be a high performance organization or do you want to be an employer of choice? And their response was of course we want to be both. Makes sense, but tell me a little bit. If you have to be one or the other if that's the continuum, where do you want to fall? They said well, what do you mean? Let's take a look at two examples, high performance organization, GE. GE is all about let's perform, let's compete, internally and externally. Right? Everybody know about GE; 20, 70, 10, top 20 moves up, 70% stays, bottom 10% gets fired. Goes on every year to be able to keep the performance up. What's that culture you think fell like? Pretty competitive, right? When people start to work with their competencies, do you think they're going to want to admit that they have any gaps? Right? They want to be absolutely certain that they don't show any gaps or any deficiencies, because then they won't be a high performer. Let's look at the other side of the spectrum. How about a company like Google, right? Google's an employer of choice, everybody wants to work for Google; lots of great employee benefits, all about development. We want to help you learn and reach your full potential. Well let's think about that for a second. If you have a competency model in Google, don't you want to volunteer all the places so you can go and learn? That's really leveraging all that they're giving you. Anyone want to say that GE performs any better than Google? Right? Both very good high performing organizations, but think of the differences in culture. That's all about the competency implementation. That's what creating a common

understanding does in an organization, because senior management can literally and intentionally determine how the competency should be used. Second step is to define a leadership brand. What do I mean by this? Well, in order-- marketing and advertising theory will tell you that in order to understand or to remember and recall something, you have to be exposed to it a bunch of times. I think the actual number is somewhere between nine and twelve times you have to be exposed to something before you have unprompted recall. So if you want to get people to remember the competencies, they have to have read them or to have encountered them or to have thought about them nine to twelve times. Have any of you read your competencies models nine to twelve times? I haven't, and I write them. Not something that people are going to remember, so we create visual iconography tied to our competencies, and we can repeat the icons, the images, over and over again so that people can begin to think about them or get reminded of them because they see that image. I'll be happy to share with you some of the icons that we've put together, but part of what you need to do is create icons that fit for you that fit in your culture in your environment, because that's the way of reminding people about it. Create a leadership brand and make sure everybody knows that brand. It's about marketing your competency implementation. Thirdly, create a master competency calendar. What that means is when are you rolling them out, into what processes? Think about performance management. You have to introduce your competencies a year before you start to assess people on it, certainly at least six months before you're going to do that. So there are certainly at least two maybe three dates on the calendar. Maybe there's introduction date of the competencies, a midyear check in, and end of the year performance appraisal. When did they get rolled into development? How are you going to use them in your selection processes? You need to think about and lay all of these out on a calendar, so you begin to think about how all the competencies are going to be rolled out and what the message is to people as you work with them. Fourth is look at the business processes. Competencies are really the language of all your business processes so the piece that ties them all together. So if you don't know and think about how you're going to be using them in each of the processes, you are going to short cut yourself. For example, when you go in performance appraisal what kind of scale are you going to use? Three point scale, five point scale, seven, ten? What does that mean along that scale? Lots of decisions to be made as you work through the processes and where the competencies come in. Take another example in performance management, are you going to have a manager appraisal only? Are you going to have a self appraisal that gets turned into the manager and they take a look at it? How are you going to use it? Are the competencies again from a cultural standpoint going to be used for development or are they going to be used merely for an appraisal process? Are you looking at the what, the goals, as well as the how, the competencies, and balancing them, and is that 50/50, or is it 70/30 or 30/70? A lot of decisions to be made as part of business processes. But if you think them through the first time, you won't have to come back and do them over again. Then let's take a look at a technology integration plan. How are you going to get these things into the technology? How are people going to interact and work with them? You need to think about how they're displayed, how they're worked with. In the case I gave you before, there was absolutely no thought about how the scales and qualifications catalogue was going to be used, until it was fully populated, and we're now going back and cleaning that up. That's not what you want to do. You want to think about it and how you're going to deploy it. And if there are processes that you are doing outside of SAP to compliment some of SAP's functionality, how are you going to make sure that you don't have different versions of the same content in two different places? Next is institute a governance plan. I know when I ask the question of how many people were having fun working with competencies, I didn't get any hands up. But unfortunately, putting the competencies in is really not the end of the process. It's really the beginning. A good competency model needs to reflect your business strategy. And since your business strategy is not going to be stagnant, your competency model can't be stagnate. You need to think about who can make what kind of changes and how often

your going to visit and reflect your competency model, because it needs to be living and breathing just like your organization strategy. Then there's the roll out. Let's roll it out and let's get the competencies in everybody's hands and then let's monitor whether or not people are actually reading them. If they're sitting on the shelf, what are we going to do to try and make sure the people engage? You can really do great engagement surveys when you bring out when you roll out competencies, and you'll find more and more that will begin to tell you whether or not people are actually starting to use and align the competencies. And if you want the benefit, you need the engagement. And finally, let's really measure it. Let's see what's happening to the business and look at the business impact. Let me show you a case study of an organization where we've rolled out competencies and what we get from what I call a business impact analysis. This particular case is a large software company, that was actually formed as a merger of two organizations so they werent quite sure what the culture was going be at the resulting organization. And the team, the executive team was pretty new. And they were using a platform, they were having a lot of trouble doing their performance management in one of the organizations. The other one wasn't doing it very well, weren't sure what they were going to do. So what did the end result look like after the implementation? First, by working with them and designing their process, we reduced their form completion time by two thirds from 120 minutes down to 40 minutes, pretty significant time savings if youre a manager having to do a bunch of different performance appraisals. But that's merely dealing in efficiency. Let's look at what really has an impact in effectiveness. By looking at and identifying the impact of the competencies, we were able to completely change their recruitment and their selection processes, because we were able to identify a single competency and yet even below that a single behavior that translated to the high performance in this particular critical position. And the impact was, we actually linked it to revenue and we increased average revenue per individual, per consultant, $50,000 per year, per consultant. One competency did that. Let's show you some of the data. So here you see A, B, and C players. This was actually as I said a consulting position within the software company. This was the person who helps with the software implementation. Now what's a good correlation to how they do? Well, it's utilization revenue. How much are they being hired? How much work are they doing? What are they generating from revenue? And what you see here are C, B, and A players and the average revenue per year generated by each. So then we went back through and we correlated that to the competencies and here are a list of the competencies. Now as you look at these, you can see the bottom set relatively low correlation, A, B, and C. What that means is these are table stakes. You've got to have these things, but this doesn't differentiate you whether youre a high performer or an average performer. But when you get up top you can see in fact a pretty high correlation and one that really jumped out at us which is improved processes, big jump. So we decided to go a little bit deeper on that. We actually looked at the behaviors on that particular situation, and there were four behaviors that we examined. And of the four, one behavior jumped out at us with a 55% correlation. So 55% correlation to high performance, the fact that the consultants can address process breakdowns with speed and thoroughness. That generated the difference between a C player and A player in the consulting population. And in the numbers that I showed you before, that amount is almost $60,000 per year. What do you think? Is that worth it? Worth it to change your processes and do that? Pretty significant. So let me take a step back because it's important as we begin to look at all of these to see what an organization a smaller organization is doing because that's one of the things that we focus in on. So PDI Ninth House, what are we doing as an SAP customer? Well PDI is a Global Professional Services Firm. Ninth House is a blended learning provider. Ninth House is based in San Francisco, doing multi-media presentations, multi-media development content, working with folks like Peter Senge and Ken Blanchard to deliver a blended learning experience to their clients. PDI, we're about 700 people, 250 of the 700 at PDI are PhD Psychologist. The cultures are totally different. So after our acquisition, PDI's acquisition of Ninth House last fall, what did we have to do? Well, we had to define an intentional culture. What's the culture going to look like that takes the best out of Ninth House and puts it together with the best in PDI? The way we have done that is to begin and we are literally in the process right now of taking Ninth House competencies for what they had, which was really a changed management expertise, and PDI

competencies, which are all about the research, bringing them together and blending the company through using the skills and qualifications catalogue in SAP. And the result, and it was just announced last week, is a new company joined together, PDI Ninth House Global Leadership Solutions. So what do we do from here? What's the prescription? How do you begin to work with all of this? First thing is be intentional about what you're going to do with you competencies. Put together a strategy. I gave you eight different pieces of a strategy. Think about how those work in your organization and how you want to work with them. Have a single competency foundation, a single skills and qualifications catalogue so that different people aren't saying the same thing in different ways across the organization. Create a plan. Know that it's going to change, but if you have the plan your able to work with it. Now just before we get to the questions, one other thing I wanted to mention to you and to offer to you. As part of our partnership with SAP, PDI has created and begun to offer a starter kit for competencies, both competencies and a starter taxonomy for skills and qualifications catalogue within SAP. In the new release Ep 4, you'll be able to include all the behaviors with that as well, and that's available through a portal in working with PDI and SAP. That is 100% free. We want to start people off with the right framework, because we feel if you have the right framework in place and you start to work with it, then you'll want to come back to us and see the added value. And SAP feels that if you begin to work with the right framework, you'll begin to see the value of the skills and qualifications catalogue and profile management. If you're interested at the end of the presentation, I have a fax sheet for you. You can take that back and explore that and see if that's something that will be of interest to you and available. And I would certainly be very happy to answer any questions you might have. I'll also offer to you and you'll see up here a listing for a white paper which is really on the same sets of topics that we've been talking about but goes into greater depth. And I'm happy to share that with you. That, again, is free of charge. If you have any questions, I'll be happy to answer them, and thank you very much for your time and your attention. Any questions? Anything I can help with? I think we've got some people with microphones to help out. Okay? Then thank you very much. Appreciate your time, and if there's anything we can do to help, just let us know. Susie Krupa: Thank you, Paul.