Verizon Communications Gets Human Resources On Track with a Balanced Scorecard Approach
Emerging from a recent merger and industry deregulation, and entering a time of increased competition, Verizon Communications needed to prepare for aggressive customer acquisition if it was to survive the telecomm wars. The company decided to take a hard look at human resources, a department that was not historically linked to profitability in any way, and create profit-linked goals and accountability to guide their activities.
In 1997, the merger between Bell Atlantic and GTE was named Verizon Communications. The newly merged company was the largest local phone company in the U.S. and the largest wireless phone company, with about 260,000 staff in its employ. The company managed 63 million local-access lines and 27 million local and five million long-distance customers generating annual revenues of approximately $60 billion, with room for considerable growth in the long-distance market once they were approved for expansion in this area. Verizon Communications offered voice, data and wireless services as well as published print and electronic directories.
When the Telecommunications Act of 1996 created new and significant challenges for Verizon Communications, the company needed to cope with the new competitive landscape created by deregulation. Suddenly, telephone, cable and Internet providers were vying for the same customers, and in an effort to achieve economies of scale, many began offering consolidated services, including local, long-distance, wireless, video and Internet. Deregulation incurred a wave of consolidations, of which Verizon was just one, with more than $10 billion in worldwide telecommunications industry acquisitions and mergers.
Verizon needed to be ready to build its long-distance customer base as soon as it received regulatory clearance, and also needed to aggressively seek to increase its overall revenue base.
At the same time, they were dealing with high employee turnover rates of 20 to 25% per year. This problem compounded by record lows in unemployment rates. Customer service was suffering and smaller, newer telecommunication companies were using better service to lure customers away. Deciding that improved, consistent customer service was integral to customer retention, Verizon chose to focus on their human resources department.
The human resources department had historically not operated under specific performance metrics. As a non-revenue-producing department, human resources employees were generally written off as costs. Verizon decided to break with tradition and link human resources activities to productivity, product cycle times, sales and other metrics to determine how these activities affected overall business goals.
Because the Balanced Scorecard approach puts the focus on measurable performance, and on bringing all business functions into alignment, it was the perfect choice for Verizon’s objectives. Human resources needed to determine department goals that supported and could be measured against Verizon’s overall corporate strategy: “To profitably offer an complete bundle of high-growth telecommunications services.”
The human resources leadership team came up with five strategic directions:
- Talent: enlarge talent pool, invest in professional development, ensure workplace diversity
- Leadership: find ways of identifying high-potential employees and grooming them for leadership roles
- Customer Service and Support: determine retention issues, promote HR-related products and services available to employees, support employee engagement
- Organizational integration: create better information-sharing systems between business units and with the unions
- Human resources capability: build human resources capacity by rotating key talent, creating a measurement system that highlights dept achievements and invest in tech solutions
Next, the team created a measurement model to support these strategic directions. They started by asking company presidents in each business area what their human resource-related questions and concerns were, and developed 118 performance measures, organized into four perspectives (strategic, customer, operations, financial) that answered these questions.
They assigned targets for each of these perspectives, with one-quarter of these targets being taken from benchmark data for the telecommunications industry, and the remaining targets being based on a projection of internal data against which they could measure their actual performance.
To communicate their Balanced Scorecard results throughout the organization, they usedPbViews software. This enabled them to report, online, the quarterly Scorecard results. It also allowed them to show how the results cascaded through all levels of the organization, including a color-coding system that allowed them to visually identify problem areas at a glance.
Online video and audio resources to train employees to use Scorecard data were also made available online.
Because both the measurement systems and the targets were new, a period of adjustment took place. After six months, the Balanced Scorecard targets and measurement protocols were adjusted and refined, and also changed as needed to reflect changing organizational goals. Most importantly, compensation throughout the department was now linked to these targets.
The Balanced Scorecard approach achieved significant results within the organization, both in terms of targets reached and in terms of effecting a change in mindset throughout the human resources department.
One of the main targets set was to reduce call center employee turnover. The Balanced Scorecard gave the human resources department the tools to determine what issues were causing employee dissatisfaction and helped them rectify the problem. They ultimately achieved a reduction of 1%, which represented a savings to the organization of $23.6 million. The Balanced Scorecard not only enabled them to set targets, but also gave them the tools to measure their performance and express improvements in actual cost savings.
Not only did the Balanced Scorecard help human resources to set and achieve specific targets, it allowed them to reframe themselves as a profit-conscious department. From being a largely unaccountable part of the organization, they now feel as though they are driven by, and responsible to, Verizon’s overall corporate strategy.
Trademarks mentioned in this article belongs to the respective owners.