The Toughest HR Job in America

The real innovations in HR today are coming from companies caught in the most difficult industries, where adversity is the mother of invention.

Peter Perez is working under a time-sensitive mandate to reinvent corporate culture, jump-start employee engagement, create a new communications program, overhaul the performance management system, collapse 50 pay plans into one and meet insane goals for internal promotions. He needs to do all this while he manages 26,500 workers—half of whom are unionized—spread over 100 plants in an industry that is under attack from all sides.

Perez is executive vice president of human resources at ConAgra Foods Inc., where a revolution is under way.

“With all the chaos in the corporate world and all the chaos here, my biggest focus has to be to stay on top of the business and not get lost in the HR agenda,” he says. “I have to stay focused on driving results this quarter, this year.”

By almost any measure, he has succeeded. Employee engagement, retention and internal promotion metrics show remarkable results, and ConAgra’s financial performance is stellar despite two costly product recalls, soaring grain and fuel prices and exposure to the long list of corporate challenges that have rocked profitability for U.S. companies during the past year.

Omaha, Nebraska-based ConAgra reported $12 billion in revenue for fiscal 2007. More than half came from the company’s consumer foods segment, which includes such brands as Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hunt’s, Libby’s and La Choy. The ConAgra workforce is an awkward mix of 20,000 hourly production workers—mostly unskilled operatives—and 6,500 salaried, professional and managerial employees located in the major hubs.

ConAgra is the fifth-largest company in the U.S. food manufacturing industry, which pumps out a half-trillion dollars a year in products and employs 1.4 million workers. Producers are reeling from food safety problems, consumer lawsuits, constant regulatory changes, trade restrictions, shifting workforce demographics, high workplace injury rates, labor strife, animal rights protests and increasingly demanding buyers.

This dark constellation of business pressures forms the backdrop for the industry’s workforce management executives who, like Perez, must squarely address basic plant operations and cost issues with one hand and unleash performance management and employee engagement innovations with the other. Three-fourths of the industry’s workforce consists of relatively unskilled production workers from diverse racial and ethnic backgrounds, some unionized and some not.

The business press may love Google and Yahoo for their innovative stock plans and perks like concierge services, but the fact remains that HR executives in the food industries manage more workers than all the high-tech industries combined, and they work with a much fuller range of HR issues than their counterparts in the relatively soft world of ISPs, portals and programming. Up and down the industrial food chain, from the meat and poultry producers to the food manufacturers to the retail food stores, best practices are emerging from tough places.

New operating principles
ConAgra has seen its share of the challenges that make workforce management and innovation particularly difficult. Just a few months after Perez joined the company in 2003, a production line worker shot and killed six co-workers at a ConAgra plant. As the company moved into restructuring, thousands of employees lost their jobs. Labor relations have been rocky, and salmonella poisoning outbreaks have sliced millions from the bottom line. Ongoing plant closings and safety issues continue to generate workplace tensions.

In 2005, ConAgra was staring at a stagnant top line, weak margins and unacceptable return on invested capital from an unwieldy portfolio of 50 operating companies with no coherent discipline. The board brought in a new CEO with a mandate to reinvent the company. Today, Perez is one of only two top corporate leaders who predate the 2005 shake-up. He holds an MBA from Northwestern University’s Kellogg School of Management, and like ConAgra’s new CEO, CFO and the executive vice president for research, he pulled a stint at Pepsi earlier in his career.

The mandate for change required a fundamental upending of the company. “We needed to switch from an 80 percent commodities and 20 percent branded foods split to the opposite,” Perez says. “And we had to move from being a big holding company of 50 independent operating units to one entity that could leverage scale.”

In fiscal 2006, the company implemented a restructuring plan with completion set for the end of fiscal 2008. The goals include stripping out $100 million in annual costs. “We are integrating all the units in one big bang,” Perez says. “This requires massive innovation to drive higher margin growth. It is an unbelievably huge undertaking.”

The mandate generated what the company refers to as six “must do’s.” The first five focus on optimizing the portfolio, innovating for sustainable growth, improving the cost structure and margins and meeting customer expectations. But the sixth is a clear directive for the HR function: “Nourish our people to build an inclusive and winning culture.”

The new culture is built on three operating principles: simplicity, collaboration and accountability. “These are not just bookmarks that look nice,” Perez says. “They are driving principles.” The three new operating principles now determine HR strategy.

Simplicity required divesting acquisitions that were never fully integrated, including ConAgra’s troublesome meats, seafood and cheese processing units. This set off massive headcount reductions. The simplicity imperative also arose from customer demands. “Customers like Wal-Mart want one face,” Perez says. Wal-Mart, now universally acknowledged as one of the most demanding buyers in the world, represented 13 percent of ConAgra’s net sales in fiscal 2007.

The collaboration principle calls for alignment toward the same objectives throughout the company with a decisive focus on higher-margin brands. “The collaboration element is the most important and the toughest to implement,” Perez says. “We had to force the independent operating companies to get on the same page with everything from procurement to pay plans. We have labeled this internally as the ‘one ConAgra approach.’ ”

In addition, the company moved to enterprise-wide standards for all functions, including HR. The shift to one coherent organization with unified functions underscored the need for a new culture. “We had to move from many cultures, with very low employee engagement and communication, and low development of our people, to one culture,” Perez says. “And we needed all units working together toward the hierarchy of brands instead of each unit working only for its own products.”

The new approach also meant moving from 50 separate incentive plans based on each operating unit’s results to one plan with payouts determined by ConAgra’s companywide performance. “Now everyone lives or dies by one plan,” Perez says. In addition, all salaried employees have the new operating principles built into their performance goals. ConAgra instituted a much more aggressive pay-for-performance plan to reinforce the change, with rewards based on cost savings and top-line growth objectives.

“We also initiated a massive marketing and communications program to change the hearts and minds of more than 20,000 people,” Perez says. Ongoing employee communications now range from frequent town hall meetings to a new onboarding program. In 2007, ConAgra launched its first “People Annual Report,” which documents progress toward key goals. The report includes metrics for employee engagement, internal and external hires, retention and diversity.

Driving engagement
The accountability principle holds employees responsible for two behaviors: pushing for decisions and speaking up about problems, with a clear focus on attacking costs and boosting plant efficiency. Its success relies heavily on production employees identifying better production methods.

The framework for the accountability principle is the new ConAgra Performance System, based on Toyota’s hugely successful production management process. The ConAgra Performance System is designed to increase operational efficiencies and employee engagement. The new system is now being introduced across all ConAgra plants. “It speeds up the lines and takes out downtime,” Perez notes.

“This is a dramatically different approach for us. Before the change, there was no engagement or communication. CPS is critical. It provides an opportunity for two-way communications.” ConAgra is also issuing a monthly report that plant managers give to hourly workers to keep them fully abreast of conditions in the industry and the company.

Buy-in from production workers is essential, and the payoff for them centers on improvements in working conditions and job security. According to Perez, the response to the performance system has been overwhelmingly positive. “Production workers watched for years while we did stupid things,” he says. “They were tremendously frustrated. If you are on a plant floor and the plant does not work well, your job is more painful.” ConAgra also focused on building support across shifts to end the problem of one shift dumping work and unresolved issues onto the next.

In fiscal 2007, the ConAgra Performance System initiative boosted engagement and accountability and raised plant equipment effectiveness by 4.4 percent, generating $30 million in savings. “The bottom line for production workers is that the better their plant runs, the more secure their jobs will be and the more they can make decisions and drive results,” Perez says.

In a number of plants, ConAgra uses a gainsharing plan—pay incentives for boosting performance and reducing costs—and it is now introducing it across additional plants to make gainsharing universal. “Gainsharing allows us to tie the individual’s performance to the company’s performance,” Perez notes.

ConAgra also adopted GE’s groundbreaking Work-Out system, which involves every employee in efforts to raise productivity and eliminate waste, as a new “Road­map” program for the salaried workforce, with a decisive focus on process improvements and cost reductions.

Perez is also managing new mandates for organizational development and talent management. “Culture is big, but talent and organization structure are huge,” he says. “Turnover was high and we constantly had to go outside for hires. It was a horrible situation. You can’t sustain a company on that basis.”

To reverse this trend, ConAgra now focuses explicitly on bringing in top talent that can be promoted. The company also built an organizational development program from scratch to boost promotion from within. “It is completely essential that employees know that they can build their careers at ConAgra,” Perez says.

The company is now at 60 percent internal promotions. The three-year interim goal for internal promotions is 70 percent, and the company is ultimately looking for 85 percent to 90 percent.

Senior leadership reviews human capital metrics quarterly, including the ratio of internal to external hires, diversity hires and promotions, and retention. ConAgra uses a five-point performance management scale. If an employee with a rating in the top three leaves, ConAgra counts the quit as “regret” turnover. The goal for regret turnover is no more than 5 percent.

The top management team also looks carefully at survey results for employee engagement, which measure the company’s status as a preferred employer and whether employees are willing to recommend it as a place to work. Baselines established at the beginning of the process measure improvements. “There was so much improvement in the engagement measures over the past year that our consultants asked us to double-check the numbers,” Perez reports.

In the middle of all this change, Perez must still devote considerable time to plant safety, where the company has made dramatic improvements. Food safety and quality issues also spill over into workforce management. “We have to keep workers focused on this,” Perez says.

He also invests time in labor relations. “We have to maintain good relations with the unions and keep our nonunion shops nonunion. Also, all across the lower end of the organization, there is a lot of pressure around retention, and we have to deal with this.” Five thousand of the company’s 13,000 unionized workers are covered under contracts that expire in fiscal 2008.

May 2007 marked the end of the company’s first full year as the new ConAgra Foods, fully focused on higher margins and cost improvements. Fiscal 2007 total shareholder returns hit 16.3 percent, up from a dismal -10.7 percent in 2006. The company increased its projected annual earnings growth to 8 percent to 10 percent for fiscal years 2008-2010.

The percentage of employees reporting that they are proud to work at ConAgra rose 14 percentage points in one year to 79 percent, well above the 75 percent benchmark for high-performing companies. The percentage expressing confidence in the company’s leadership rose 40 points to 73 percent, substantially greater than the 62 percent high-performing benchmark.

“For me, it’s been a huge challenge to stay on top of our HR initiatives while maintaining all the traditional HR functions, including labor relations, HRIS and benefits,” Perez says. Still, the heavy lifting has not detracted from successful innovation. As the U.S. economy heads south and more companies slip into hard times, ConAgra’s experience may prove instructive.

Workforce Management, February 18, 2008, p. 1, 18-25 — Subscribe Now!