HR Proves Its Value

Undoubtedly, there are companies where regional management might gripe at having to implement initiatives flung down from corporate headquarters. But SYSCO — the largest food-services company in North America, with $22 billion in annual revenues — isn’t one of them. One reason is simple: regional executives such as Hope are free to accept or reject the programs pitched by the Virtual Resource Center. The three-year-old program uses a “market-driven” approach to HR, in which SYSCO’s corporate HR professionals have to convince regional subsidiaries to “buy” its initiatives — and to pay for them.

“We get to choose what we think will help us,” Hope says. All the same, he and other regional managers — as well as SYSCO’s top management — are enthusiastic about the results that the Virtual Resource Center’s unorthodox approach has produced. Since the center’s inception in 1998, for example, SYSCO has experienced a 30 percent reduction in workers’ compensation claims — a $10 million annual savings, the company estimates. It also reports a 20 percent improvement in the retention rate for tough-to-keep night warehouse employees, at an estimated yearly cost-savings of about $15 million.

Corporate management is also impressed by HR’s contribution to bottom-line performance at SYSCO, which in its most recent quarter posted a 6 percent increase in sales and a 14 percent increase in earnings per share over the previous year, despite a faltering economy. “I really feel like HR has helped our profits,” says SYSCO president and chief operating officer Richard Schnieders.

SYSCO isn’t the kind of business that would lend itself to a conventional top-down approach to HR. The company’s 43,000 employees work to supply food and other products to more than 370,000 establishments, ranging from fancy restaurants and posh hotels to corner delis and hospital cafeterias. In addition to selling food and beverages, the firm supplies items such as napkins and kitchen equipment, and provides consulting advice about menus and food safety issues. SYSCO is able to serve the diverse needs of its vast clientele by allowing the regional managements of its more than 120 far-flung business units to operate with a high degree of autonomy.

Over the years, the HR department at SYSCO’s Houston headquarters has developed an approach that mimics the corporate culture. Corporate HR functions as an entrepreneurial entity, with the regional SYSCO subsidiaries acting as its customers. HR has to sell every initiative it develops to the regional companies, which generally are free to accept a particular program — and fund it out of their own regional budgets — or reject it.

The system puts pressure on corporate HR to figure out which programs and services the subsidiaries really need, and to demonstrate how those initiatives will affect the subsidiaries’ bottom line. That may sound like a tough sale, but SYSCO’s HR team has become adept at closing the deal, by providing information that shows how its programs can enhance a regional subsidiary’s bottom line. They make innovative use of work-climate surveys, correlating the findings to data on customer satisfaction and business performance. And they’ve developed a company-wide intranet database that enables the subsidiaries’ executives to see which HR programs are achieving results at other company facilities.

“SYSCO has taken a very traditional approach to HR and turned it absolutely upside down,” says Patrick Wright, director at the Center for Advanced HR Studies at Cornell University, which has assisted SYSCO as a consultant. With the creation of the Virtual Resource Center, the business has achieved demonstrable results. Workforce congratulates SYSCO on its HR accomplishments, and recognizes the company as this year’s Optimas Award winner for General Excellence.

Creating and selling an HR “brand”
SYSCO’s corporate and regional HR group has evolved into a collaborative, innovative team. For most of the company’s 30-year history, it wasn’t so innovative. But as the company grew, its thinking about corporate HR did too. SYSCO wanted to provide services to its employees and help them improve their performance. But the company didn’t want to force them on the local subsidiaries, whose managements traditionally had been free to run things as they saw fit. That independence, after all, had been a crucial element of SYSCO’s success at serving markets large and small across the continent.

The company brought in Ken Carrig, a former HR executive for Continental Airlines and PepsiCo, to oversee the delicate task of creating a new corporate HR program. “Early on, I sat down with [SYSCO founder] John Baugh, to learn his thoughts and values,” Carrig recalls. “I followed up with a meeting with our current executive team. From those conversations, it was obvious to me that the SYSCO culture was intensely entrepreneurial, and that HR had to find a way to complement that.”

As a result of those discussions, Carrig and SYSCO created the Virtual Resource Center concept. Instead of replacing the regional units’ existing HR practices, corporate HR teamed up with regional HR to provide them with additional tools and resources. Management at the subsidiaries would be free to choose which services and programs they wanted. And since the funding for those initiatives came out of their own budgets, they also got to decide whether they wanted to purchase services from corporate headquarters or hire an outside vendor.

Since the Virtual Resource Center had to depend on financing from the SYSCO subsidiaries to fund its programs, Carrig and his staff were forced to pay very close attention to regional needs.

“I have to say to our president, ‘This program will cost us $50,000, and I can get 10 companies to kick in $5,000,’” he says.

Had SYSCO corporate tried to dictate its HR programs, Wright says, it wouldn’t have worked. “You’d have a lot of defensive reactions from the regional companies, because they’re not getting dictates in other areas,” he says. “Instead, Ken Carrig and his team have done a good job of developing relationships and credibility. Corporate works with them as a consultant, not as a director.”

When executives of several SYSCO subsidiaries came to Carrig early on for help with a pressing problem — staff retention — he was eager to find a way to help. “We discovered that we didn’t have any systematic tools to address the problem, to get a handle on what was good and what was not so good about our operations.” That got Carrig thinking. And that’s when he and Susan Billiot, assistant vice president of HR, went to Wright for help in designing a new survey program.

Innovative use of surveys
Companies have conducted workplace-climate surveys for decades, but Carrig and SYSCO wanted to go beyond what others had done. Sears, for example, already had shown that positive employee attitudes had a good effect on customer satisfaction, and that a combination of the two improved a company’s profits. Carrig wanted to gather that kind of data, too, but he wanted to keep compiling it over time, and to study the impact of specific management practices at SYSCO companies.

“This is a step up from the classic Sears Employee-Customer-Profit-Chain model,” Wright says. “That approach tells you the consequences of employee attitudes. The SYSCO model, hopefully, can tell you how to fix them.”

When Carrig presented the new survey concept to a conference of regional executives, he was so confident of the initiative’s promise that he offered the subsidiaries a money-back guarantee if they weren’t satisfied. Fifty percent of the regional companies agreed to participate in the first year. In the past three years, more than 90 percent have signed on.

The wealth of data has helped SYSCO make useful discoveries. Corporate HR learned, for example, that one of the key discontents of delivery associates was the way their compensation was determined. “Generally, the only way they could make more money was to work overtime, or to stall so that they would be away from the warehouse longer,” Carrig says. But HR also noticed that a few companies got higher quality-of-life scores from their drivers than the others did. They investigated further and found that those companies were paying activity-based compensation, which augmented a base pay rate with incentives for drivers who made more deliveries and fewer mistakes, and maintained good safety records.

“Once we figured out what they were doing, we developed a compensation program around that concept and made it available to all of our companies.” As a result, the retention rate for drivers jumped 8 percent. “We’ve found that it wasn’t a fluke,” Carrig explains. “Every company that went on ABC [activity-based compensation] the first year has had significantly higher satisfaction.” Delivery expenses also dropped, and customer-satisfaction levels improved.

Sharing information online
To help SYSCO companies use the data, corporate HR developed powerful analytical tools and made them available on the corporate intranet. The Innovation Key Metrics Benchmark System gives regional executives scorecards showing their companies’ performance compared to that of others in SYSCO’s realm.

Even more innovative is the Shared Practices Portal, a database that enables executives to find subsidiaries of similar size that are strong performers in particular areas so that they can learn about the practices that make them successful.

“For example, if you’re not in the 50th percentile in a particular performance area, we give you a message that says, ‘You may want to actually call this company and/or do a site visit,’” Carrig says. “Or we may alert you that your company has enough other things happening that fixing this particular factor may not be enough to improve performance.”

The portal also helps a regional executive to find a higher-performing SYSCO subsidiary that would make an appropriate model. Instead of emulating a company that’s been operating consistently well for 15 years, Carrig says, subsidiaries are likely to get more benefit from studying a company that’s gone from the bottom to the top 25 percent in a short time.

One of the benefits of SYSCO’s entrepreneurial, data-driven approach to HR is that the company’s regional HR professionals can see more definitively which initiatives work and which ones don’t, and why. That enables them to tinker with the system and subtly improve it over time. The need to continually sell its initiatives keeps corporate HR on its toes.

“We’ve got plenty of room to grow,” Carrig says. And that’s good. By its very nature, SYSCO acquires businesses and spins off new regional companies from existing ones all the time. As the corporation continues to evolve and change, the services offered by the Virtual Human Resource Center are bound to be in even greater demand.