Feature

posted 9 Aug 2001 in Volume 5 Issue 1

Strategic competence development

A key to managing knowledge at Skandia

Companies are becoming more concerned with linking investments in knowledge acquisition to corporate goals and this is especially true when the investments are made in employee development and training. Scott Hawkins describes how Skandia has strategically integrated employee learning into the company’s long-term innovation and sustainable growth plans.

For most of its 145-year existence Skandia was a traditional life company. From its Swedish base it developed and administered guaranteed life and property and casualty insurance products sold by its captive sales force. The company managed all the assets generated from these sales. But starting in the late 1970s the company began to change its focus and mission.

Based on an analysis of emerging demographic and political trends Skandia began to realise that the ‘baby-boom’ generation would have a great demand for long-term savings products geared towards their retirement. Skandia responded to these trends by changing its product mix to reflect the new consumer demand for investment products.

A key business innovation developed by Skandia delivered these products in a new way. This model exploded the traditional insurance supply chain. Instead of developing products owning distribution and asset management Skandia focused only on product development. This led to Skandia becoming one of the first financial service companies to become a ‘virtual’ organisation.

These changes placed Skandia at the forefront of the insurance and financial service industries. The 2000 Global Fortune 500 ranked Skandia as the world’s tenth largest insurance company with assets under management valued at 992bn Swedish Kroner (SEK). From its initial base in Scandinavia the company now operates with more than 7 000 employees in more than 20 countries.

Within a virtual company such as Skandia success is determined by how well relationships are managed. In the short term if the virtual company fails at successfully managing its upstream and downstream relationships the supply chain can break down leading to the business model’s collapse. In the long run relationships that fail to generate mutually beneficial innovations slowly become commodity businesses competing on price.

Relationships while aided by technology are interactions between people. But the difficulty in managing relationships is that they are intangible. A person can’t find a warehouse full of relationships or accurately measure the input and output of a relationship management process. Yet these intangible relationships determine long-term sustainable success for any virtual company. And for Skandia a company with a long-term perspective this meant focusing on its intangible assets.

This in turn led Skandia into its pioneering work on intellectual capital. This work identified the company’s chief intangible assets: its customers employees and processes. Skandia communicated its efforts at improving its management of these key intangible assets to the world through its supplements to the annual report.

Competing on competence

The competitive challenge Skandia faces is common to many knowledge intensive companies. Skandia’s innovative business model and products do not stay unique for very long. This is especially true in the financial services industry where traditional intellectual property protection for example in the form of patents is not available.

As a result other companies can easily copy innovations and this forces a financial service company to decide how it will compete: it could compete on price as a low-cost commodity provider of proven concepts; it could be a ‘fast follower’ letting others bear the cost of exploring new concepts; or it could compete on continual innovation hoping to grab significant market share by being the first to market.

Realising the first mover could command the greatest profit margin in an industry where profits are measured in basis points (one basis point equals one one-hundredth of one per cent) Skandia chose to compete on innovation. As an innovation-focused company Skandia’s main competitive advantage was the skill and knowledge of its employees and the relationships with its customers and suppliers.

Skandia knew it couldn’t control what its competitors would do. It also couldn’t control what its customers wanted in the way of financial products and services. Likewise it couldn’t control the rise and fall of financial markets. What it could control however was its ability to develop innovations to meet any customer need or respond to any competitive advance.

Skandia relies on its employees’ ability to understand the needs of a changing marketplace and then combine that understanding with their knowledge of how to design and manufacture financial products and services for delivery to its customers. Knowledge and relationships and the company’s ability to manage them better than the competition determine Skandia’s success. By the early 1990s Skandia’s management realised competing as an innovator meant competing on its employees’ competence.

The competence development components

Over the almost decade-long effort put into improving its intellectual capital management Skandia’s knowledge management staff identified three high-level components to effectively develop employee competencies. These are:

A clear linkage between competence development activities and the company’s strategic and tactical needs;
A strong motivation among the employees to engage in their own competence development;
And a clear and strong strategic and financial ROI on the investments it makes.

Each component is crucial to maximise Skandia’s investment in employee competency development.

A linkage between development activities and the company’s strategic and tactical needs forms the foundation for making decisions about how to allocate resources among competing development activities. At Skandia it is important that the link must be between strategic and tactical needs. Strategic needs are the high-level drivers of sustainable success while tactical needs are the operative actions and plans implemented to achieve strategic needs. Employee competency must be developed within the context of either of these needs; failing to do so minimises the impact the new skills and knowledge will have on the company’s plans.

Skandia strongly believes in ‘hiring for attitude and training for skills’. But it knows that the best development plans will fail if employees fail to implement them. Experience has shown Skandia’s management that learning occurs best when employees take responsibility for their own development. As a result motivating employees to develop themselves is crucial to achieving successful competence development.

Investing in employee competence development is expensive in financial and intangible resources for both the company and the employee. Providing a clear and strong strategic and financial ROI to both is crucial to continued investment. Skandia looks to strategic and financial ROI to provide feedback to employees and management as to which development activities are effective and which are not.

Having identified these high-level components Skandia’s knowledge management staff recently set about organising them into an integrated framework for employee competence development. The Skandia ‘employee competence development’ framework is built upon the concept of ‘plan-do-act-check’. For its purposes Skandia renamed these steps as ‘plan-allocate-implement-feedback’.

A manager and employee work together on a periodic basis to plan the employee’s strategic and tactical competency development. The company allocates resources to enable these competency development plans to be implemented. The employee implements them and generates feedback that influences the subsequent round of competency development planning.

Over the last decade Skandia has developed methodologies and tools to address specific intellectual capital management needs. What is now clear to the knowledge management staff is that these separate tools can be integrated into the competence development framework. These methodologies and tools are:

The ‘navigator’ planning methodology supported by software;
The corporate universities tuition reimbursement programmes and the competence account that provide the resources to implement the plan;
The ‘competence marketplace’ where employees implement their competency development plan;
The Navigator Insight which generates employee feedback into the planning process.

Linking competence development to strategy

Early in its intellectual capital work Skandia realised it needed a way to improve its intangible asset management to achieve the level of innovation necessary for sustainable growth. Skandia developed the Intellectual Capital Navigator management model to communicate and explain this concept within the company. The navigator concept asks its users to understand how today’s actions and plans affect the company’s future results. Within the context of a local operating environment the navigator aims to identify what is being done to renew and develop the company’s customers employees and processes to assure long-term financial success.

As an internal tool the navigator provides a common model to understand how engaging with the company’s stakeholders drives future financial performance. The navigator together with its focus on renewing and developing the company’s intellectual capital has become the standard business control model for all Skandia local business units. It is the navigator concept that gives managers and employees a process to follow in developing individual competence.

Skandia undertook a three-year roll-out of the navigator in mid-1999. The roll-out aimed first at having all local business units replace their annual budget and business plan reporting with the navigator. After that departments within each local business unit were to use the navigator for their plan and budget requirements. Finally the navigator was to replace individual employee assessments. When this process began the local business units were at various stages of navigator implementation resulting from the decentralised way the navigator had been introduced. This roll-out provided a common project for developing the concept on a global basis.

Skandia developed a software system to support the global implementation of the navigator. This system named Dolphin stores all the company’s navigators from the global corporate navigator down to individual navigators. This global system allows the company to aggregate results and determine its current position relative to its goals.

An implementation team made up of members from Skandia’s global business control unit and its global KM unit was given the responsibility for helping each local unit with its navigator implementation. The implementation team assigned a ‘navigator ambassador’ to each local business unit who would act as a liaison with the local management team during the implementation.

The implementation team also developed its own internal rating system to judge each unit’s progress. The rating consisted of two distinct parts. The first was how well the navigator concept was being used. The second was how well the Dolphin system was being used. Following Skandia’s culture of decentralised management the implementation team gave greater weight to the use of the concept rather than the system.

The navigator implementation team examined the results and found that companies scoring highly in both concept and software implementation categories were likely to be involved in some form of change process (either a management team transition or a significant growth phase). Companies achieving a low score tended to be more established with existing business planning systems or methods in place.

Navigator planning in action

An example of the navigator in action and how it shifts management perceptions can be seen in its application by American Skandia’s call centre management team. This team is comprised of frontline first time managers who average about 25 years old. Before becoming managers they were often phone representatives in the call centre a job where they answered incoming calls from investors and brokers. The people they manage are in an entry-level position and tend to be at the start of their careers with Skandia.

Beginning in autumn 1999 this management team worked to develop its business plan for 2000. Held during a series of weekly meetings lasting one to two hours each the process took approximately three months to complete. The team asked for help from Skandia’s navigator implementation team in developing the plan. The implementation team member acted as a facilitator for the managers and began the process by asking the managers: “What important information do you need to know to run your call centre effectively?”

The managers responded that they needed to know the following:

The number of calls received;
The number of calls abandoned (a call where the caller hangs up before being answered);
The average call queue time;
The assets under management of each call centre team;
The breakage incurred by each team (breakage is the financial cost of correcting a mistake made by Skandia).

When these measures were placed in the navigator the management team saw that they had two financial measures (assets and breakage) and three process measures (queue time number of calls received and number of calls abandoned). The navigator facilitator asked if this meant that they didn’t need to know anything about their customers or employees.

The managers refuted this understanding that how these two groups developed was important. But for the managers and their team variable compensation was based on these five measures. Referring back to the company’s business plan and their knowledge of the upcoming business plan the management team began to question what they needed to know about their customers and employees.

This process revealed that customers wanted high-quality service with this service coming from employees with high levels of knowledge about American Skandia’s products and the investment industry as well as good customer service skills. Employees wanted to spend more time acquiring the skills they needed to satisfy their customers together with better systems to process customer requests.

By the end of the process the management team had a more complete navigator.

This process identified a strategically and tactically sound basis for what the company’s staff should be focusing on in the area of competency development (increased time spent in training and an increased percentage of staff undergoing training on improving sales appeal industry knowledge and product knowledge). In addition the call-centre management team now had a foundation to help the individual employee decide what that person needed to develop during the coming year. The result was that an individual’s competency development was now linked to the company’s strategic and tactical goals. And both management and employees clearly understood the linkage between competency development and increased customers.

Resource allocation

As the linkage between employee competence development and the company’s strategic and tactical goals became clear management and staff quickly realised the value-added benefit of continuing education for staff. Management began to allocate resources to develop corporate universities provide tuition reimbursement programmes and encourage employees to take full advantage of them. Employees began to take evening and weekend courses. Online training during work increased. And management rewarded these competency development efforts by paying bonuses for attaining certifications and degrees.

However this knowledge improvement activity had an unexpected consequence. In Sweden staff began to leave the company. Given management’s desire to attract and develop employees this loss was an issue for concern. Interviews with these former employees revealed that they were feeling ‘burnt out’ from the pressure to work and engage in continual learning. They were sacrificing their home life to meet these demands leading to stress in families and individuals.

So Skandia Sweden faced a dilemma: the more it encouraged employees to learn and develop new knowledge the greater their personal lives suffered which led to increased staff turnover and a loss of knowledge.

Skandia Sweden’s solution was the creation of a new benefit aimed at restoring the balance between work competency development and personal life. This new benefit was a competence savings account into which employees could pay part of their salary with Skandia promising to match the employee’s contribution. In the case of employees with only minimum education 15 or more years of experience or aged 45 and over Skandia agreed to match the contribution at a ratio of 3:1. At some point in the future funded by his or her competence account money the employee could take time off.

As European governments face the challenges of an ageing population the Skandia competence account has recently become the model for government-sponsored programmes. The Swedish parliament is considering a proposal to establish individual learning accounts and in September 2000 the United Kingdom launched its own version and saw the number of accounts opened reach one million in May 2001.

The competence market

As employees began saving towards their sabbatical an interesting development occurred. The employees rightly viewed the competence account fund as their money to be spent on improving themselves as individuals. Not surprisingly they began asking management how they could best spend their competence account money. Skandia responded by creating a website where employees are able to develop and manage their own competence growth plan (see figure one).

With the competence marketplace an employee can determine their career path and the specific competencies needed to achieve their goal. The site contains the tools and links employees need to implement their competence development plans. These include the rules and regulations governing the programme as well as the other Skandia Sweden competence development programmes. It also includes links to several Swedish universities and training organisations that have created special programmes for Skandia employees together with a calendar of when these programmes are offered Skandia’s internal job postings for Sweden employees’ competence account information (for example account value) and the tools necessary to manage that account.

The new competence marketplace became an attractive benefit for Skandia Sweden employees leading the company to see if other companies would be interested in this new product. To explore this prospect Skandia launched Netline a company charged with developing Skandia’s competence and knowledge management products and services. Today over 200 000 Swedish employees have access to a competence marketplace through their company. Netline is developing these KM and competence products for the USA and other countries.

Navigator Insight

Having invested in the creation of the Navigator concept Dolphin system and competence account/marketplace Skandia’s management was interested in knowing if employees valued these programmes. In the late 1990s Skandia’s global HR unit began developing a web-based employee survey. While employee surveys are certainly not new the Skandia approach which it called Navigator Insight was a key addition to the navigator concept.

The navigator concept and Dolphin system linked strategy and tactics and identified action plans and the performance metrics to judge those plans. However it lacked a way to systematically capture and record how employees viewed the company and its culture. This softer qualitative assessment would provide crucial feedback to Skandia that the more goal-oriented metrics might overlook. For example the unbalancing of employee work/family life might have been caught earlier had there been a way to get feedback before it appeared in the form of increased staff turnover.

Navigator Insight was designed to address this shortcoming. By supplying an initial starting point of 200 tested questions and allowing any local user to create their own unique set of questions Navigator Insight provides a fast way to assess how Skandia’s employees feel. The standard questions allow the company to compare the different operating units.

More importantly Navigator Insight was designed to integrate directly into Dolphin and as a result the feedback can be included in the company’s strategic business planning system.

Putting it all together

Skandia began working with intellectual capital and competency development because it saw an untapped source of competitive advantage. Over the last decade it has developed a series of innovative solutions to help it better manage its intangible assets.

The navigator concept and its approach led to the realisation that allocating resources to develop employee competence could be directly linked to strategic and tactical goals and also that the company’s strategic ROI could be tracked as it improved its intellectual capital management.

However the emphasis on developing employees led to the formation of new challenges. The competence account and marketplace make it easier and more effective for employees to take responsibility for their continuing development while Navigator Insight gives the employees a tool to directly comment on the company’s efforts.

Skandia has begun to understand how these separate pieces come together to form a coherent framework for future development. And it has realised its business goal of converting intellectual capital (the knowledge its employees bring and generate while working) into structural capital (new benefits and solutions to improve its employees) and then into financial capital (through the creation of Netline). But most importantly Skandia continues to develop new approaches and improvements because it knows that resting on past accomplishments is the surest way to lose the future.

Scott Hawkins is a sustainable synergist with Skandia’s Open Business XChanage. He can be contacted at: shawkins@skandia.com