McGraw-Hill
HR Management
HR in Alignment: The Link to Business Results at Sysco Food Services (SHRM Foundation)
The SHRM Foundation presents HR in Alignment, hosted by Wayne Cascio.
What we’ve become is an evolutionary company in which there’s just thousands and thousands of innovations that get made every year, and the reason they get made is because of the autonomous nature of our companies.
Our culture here is very performancebased. Having a relatively lowmargin business, it’s very important to tie performance to compensation, and I think Sysco has done a great job of that.
One of the key things we did about five years ago was recognize that we had to have a better understanding of how our operating units were working, and so we put together four key metrics — the customer, operations, human capital, and financial.
HR has to be a strategic partner in business. They cannot be just, you know, on the side sort of taking notes. They have to be right there in the — in the development and the formulation of the strategy itself.
Hi, I’m Wayne Cascio. For some time now, research has shown that it is important to tie HR strategy to the overall strategy of an organization. When we use the term “strategy,” we’re asking how firms compete for business in the marketplace, for example, through innovation, customer satisfaction, cost leadership, or speed. A number of successful companies do this quite well. One such company is Sysco Corporation, headquartered here in Houston, Texas. Sysco is the number one food service marketer and distributor in North America.
Sysco is an entrepreneurial business with 148 separate operating companies, each with its own executive structure.
With revenues exceeding $26 billion and employing nearly 48,000 people, Sysco serves nearly half a million customers with 300,000 different products. Sysco is special, because it excels both in innovation and in the execution of a well developed strategy. To understand better how Sysco’s strategy works, consider this overarching framework. Note how planning proceeds top down and execution proceeds bottom up. Let’s start with the fundamental question, how do we compete? The best person to answer that question is the chief executive officer of an organization. The next question is what must we execute well? What kinds of internal and external processes have to be in place for us to succeed? Since the chief operating officer is responsible for overall execution, he or she is in an excellent positionto address that issue. Below the COO, line managers who have direct contact with customers are most likely to know what the organization must do to delight its internal and external customers. That in turn comprises high performance. In order to manage and motivate employees to strive for high performance, certain competencies, incentives, and work practices must be in place. The chief HR officer is responsible for helping line managers to identify and implement those competencies, incentives, and work practices. Execution proceeds bottom up as competencies, incentives, and work practices inspire high performance, which delights internal and external customers. This in turn means that business processes are being executed efficiently, enabling the organization to compete successfully for business in the marketplace. Note that to be most useful, HR metrics should reflect the key drivers of individual, team, and organizational performance. When they do, the organization is measuring what really matters. We asked Mr.Rick Schnieders, Chair and CEO of Sysco Corporation, how the company competes for business.
Efficiency is important to us, but it’s not what the business is built on. It’s built on differentiation, and so to the extent that we can — we can work with our customer base and keep it in mind ourselves to focus on differentiation, working with the customer in their business, helping them succeed, you know, we win. Of course, it’s to make sure that we have a coherent strategy, and that’s not something that’s cast in stone. It has to be worked and reworked and constantly updated. So to the extent that we have sort of locked down a strategy, then, again, we can communicate that kind of backwards and forward within the organization, making sure that we have the right kind of understanding. It’s a well thoughtout process, and to those that embrace it, it really is helpful, I think, as they come in each day, sit down at their desk or at whatever work they’re doing. They have a pretty clear understanding of what they’re going to do and how those activities, their activities, tie back to the total strategy of the company.
Now that we understand Sysco’s business strategy, let’s listen to Mr. Tom Langford, President and COO, as he describes the processes that Sysco must be able to execute in order to be successful.
Well, let me give you an example first. We ship about four million cases a day. Eightyfive percent of those cases that are going to be shipped tomorrow, we don’t even have the order for it yet. That’ll be in our computer system by 5:00, 5:30 tonight, so, in essence, what’s that, 15percent, only 600,000 of the four million cases are inhouse right now. We process — the computer processes — sets up routing and all that, and then the trucks are loaded in the middle of the night, and typically our companies start delivering as far as 150 miles away at 5:00 tomorrow morning. And so the dedication to process that that forces on us is incredible, and so in order to make that happen, our enterprisewide system that we finished in 1999 continues day after day to pay us benefits in the control that that gives us and the transparency in which we’re able to look across the corporation, look at our operating companies and how they operate. Well, we talk about being an evolutionary company and certainly from a sales standpoint, we’ve continued to be evolutionary. I think we’re trying to speed that evolution up a little bit with a sales force transformation. A term that I’ve liked to use recently is how do we turn ourselves from being a great vendor to our customers into being more of a partner, in which we sit down with customers and help them analyze their business and bring to bear some of the learnings that we’ve been able to learn all across North American with our 13,000 people that are involved in the — in the whole customer relationship, both our marketing associates and the specialists and sales management that surrounds them?
And you’re really managing knowledge there.
Absolutely.
And transforming best practices.
Yeah. This is a knowledge business. It’s a knowledge business and a people business. Food is actually a sideline to all of that.
Execution is critical to a successful strategy, and it’s all about satisfying the customer. Let’s listen to some of Sysco’s leaders and managers to see how they delight their internal and external customers.
We work to provide all of our marketing associates with laptops so that when they go into a restaurant and they’re talking to our customer, if they want to talk about a cut steak program, they don’t just have to describe to the chef what they’re talking about. They can pull up a module right there and let the chef see what the product looks like, how it would be used, and that also helps to educate our marketing associates, because their area of expertise may not be cut steak, but we provide them with this material so that when they go in and talk to the chef, who is the expert on that, they’re comfortable that they have the tools to do that.
Part of our existence in the finance treasury department is to support our operating companies in allowing them to have the best facilities possible, the best trucks possible, so it’s our job to be able to look for the type of financing to provide to our operating companies to continue to grow their businesses.
Again, at Sysco, we have a very autonomous culture, so this is particularly challenging, because the presidents are accustomed to running things the way they want to run things. It’s their business, they run it as they see fit, so we really come in and try to provide ideas and suggestions and paint a picture of what the new work will look like and what that will mean in terms of job descriptions, organizational changes.
You know, we’re blessed with a lot of great customers, but one that always comes to mind for me, first because I enjoy going there to eat but also because they’re close to our corporate office, is the Rotisserie for Beef and Bird, and the chef/owner is Joe Menke, who’s been a great customer of the Sysco operation here in Houston for probably 20 years.
I see Sysco definitely as a partner, because, of course, they are our suppliers of the regular food, the eggs and the chickens and the flour and the sugar and the butter and the milk, but then when you’re a highend restaurant like us, then you have menu requests, like somebody may say, “Well, can I have a nice — some beluga caviar and some nice blinis as well?” I call up Sysco, I get my caviar. Somebody else may have a request and say, “Well, I just came from Europe, and I found this wonderful Bel Paese cheese. Can I get some Bel Paese cheese?” I call up Sysco; I get my cheese. And also, I just built — about two years ago, I built another restaurant. It’s called Bistro Le Cep, and it’s a small little French bistro, and I installed a $100,000 kitchen, entirely built by Sysco. It’s wonderful.
We’ve brought to our operating companies for our sales force to sell to their customers is thirdparty financing. Restaurants have a very hard time financing themselves, and so we’ve gone out and put together something like 160 potential financers to be able to provide loans to our customers, so this is a way that we help support our marketing strategies and give our salespeople something additional to sell to our customers.
In order to delight their internal and external customers, Sysco employees at all levels must have the kinds of competencies, incentives, and work practices that will support high performance.
We have a variety of different things that we focus on to tie in the performance of our employees to the overall corporate mission, and part of that, we’ve put together, even through a formal performance management system, coaching and maximizing performance, and that’s where you take the goals for a fiscal year all the way from the chairman of the company, you cascade that down to the next level to those executive vice presidents, then to the senior vice presidents, and we’re taking it all the way through to the front line associates so that no matter what your job is at Sysco, you understand how that contributes to what the company’s trying to achieve overall.
We make sure that the metrics or the operational metrics that we put in place have a connection to the incentives and compensation for the people who will be operating the — doing the new work and operating the new processes.
Activitybased compensation is used primarily in our driver and warehouse work groups, and it is pay that is based upon the performance and productivity levels, linked to the activities that really drive performance in that particular position. For example, a driver’s activitybased pay will generally — it can have a number of elements, depending on the type of route or work that’s done by that transportation group.
So the more pounds they deliver to a customer and the more miles they drive, the greater their compensation?
Right. Drivers especially have a very good concept of managing their own business. A driver who can manage his workload very efficiently is going to find that his hourly rate of pay is much greater than someone who really hasn’t learned how to manage all of the things that can take place during his particular route. One of the things we have seen in the work climate surveys is we get much more positive results in driver groups that have had ABC pay implemented in the rewards and recognition category of the survey.
I think it’s great the way we’re paid. I’ve never worked on the hour since I was 17 but maybe three months, and I’m always out there hustling. I could never see me trying to drag my feet and drag that job out, okay? The more I hustle, the more money I make.
Every Friday, especially during the summers, I drag race, so we race on Friday nights. The gates open at 5:00. I know that if I go in and get my groceries off and get back by 12:00 or 1:00, I’ve got the afternoon to play, or suppose I’m going somewhere with the family, I can get on in and my money’s there. I’ve been paid.
From the very beginning, we’ve had compensation plans for our presidents and executive vice presidents of our operating companies that provide a percentage of incentive compensation to those people as well as to corporate officers that ties them to Sysco’s success and aligns their interest with shareholders. So the incentive bonus for the EVPs and presidents of the operating companies and the corporate office have that component. Sysco has a broader based stock plan also that goes all the way through the corporation.
Ken Carrig, Sysco’s Senior Vice President and Chief Administrative Officer, is responsible for ensuring that Sysco’s HR strategy is aligned with its overall business strategy. Sysco was a pioneer in the use of HR metrics to assess the key drivers of individual team and organizational performance.
What measures do you use to determine if HR is contributing to the execution of business strategy?
One of the key things we did about five years ago was recognize that we had to have a better understanding of how our operating units were working, and so we put together four key metrics — the customer, operations, human capital, and financial. And in the human capital side, we actually [unintelligible] three key dimensions.The first dimension is work climate or satisfaction level, which is very important in that if you have employees that are committed and satisfied, they should be, but not always, more productive and building greater capability. So we also look at how many employees per 100,000 cases that we sell, is another human capital metric, which gives us how our climate’s doing. And then if our employees per 100,000 cases are at a high standard, then we look at are we retaining those people in warehouse, sales, finance, and administration — each function as well as in aggregate. And those are the three major dimensions. We do the same exact thing in the financial side, in the operations side, and in the customer side so that there’s a bundle or a pattern of metrics that we’re able to see how well we’re doing and predict to some degree how well we’re going to do in the future.
You mentioned retention. To what extent is the cost of turnover important to Sysco?
For us, it’s critical. Seventyfive percent of Sysco’s costs are peoplerelated expenses, and for us, what that means is about $3 billion of expenses, and so when we can move retention of our marketing associates, which we have about 10,000 marketing associates — if we can move that retention rate from 70 percent to 80 percent, for us that means approximately — and with 10,000 marketing associates, that’s approximately $50,000 per marketing associate. It turns out to be over $70 million of savings per year. Since 1998, we’ve moved our marketing associate retention from 70 percent to 82 percent. Our delivery — delivery associates, which are a very critical success to Sysco, because they know the customers, they’re the ones that the customers rely on for getting their groceries to them on time and in the condition that they expected, and in order to get them on time, you need to have the same person going to the same customer on a regular basis. For us, we were able to move our delivery associates for about — from about 65percent retention rate in 1998 to 85 percent, and we’ve costed out the training and hiring loss for delivery associated to be about $35,000. So, again, almost another $50 million in savings when we’ve made that kind of contribution, which for Sysco investors, that’s about — every $5million is a penny per share, so there’s 10 cents right there.
How do you track the extent to which HR strategy is aligned with Sysco’s business strategy?
Of those key metrics that we have, there is a direct correlation with companies that have high work climate, high productivity, and high retention, that they have high pretax earnings and they have low operating expenses. So we’ve been able to not only determine what practices and processes are helping to drive the human capital indices but how those, in fact, influence over time the financial metrics.
Can you tell us a little bit about how these measures have evolved to the point where they are today?
What we did — again, starting in 1998, we rolled out and marketed to the operating centers the work climate survey, which prior to that time, most of the operating centers at Sysco did not conduct a work climate survey. So we worked with them to develop a work climate assessment that focused on leadership support, frontline supervisor, rewards, quality of life, engagement, diversity, and then customer focus. And we take a look at those practices and get feedback from the associates and employees how well that management team and that leadership team are doing in that area.