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REDESIGNING THE HUMAN RESOURCES FUNCTION AT LAFARGE, RESEARCH PAPER, ASHOK SOM, 30TH MAY, 2003

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This is a preprint of an article published in [Human Resource Management, Fall 2003, Vol. 42, No. 3, Pp. 271-288 ©2003 Wiley Periodicals, Inc.] . An electronic link to the Journal s WWW site, located at the followinghttp://www3.interscience.wiley.com/cgi-bin/abstract/107064070/ABSTRACT. The Contributor agrees not to update thepreprint or replace it with the published version of the Contribution.

[ REDESIGNING THE HUMAN RESOURCES

FUNCTION AT LAFARGE ] Research Paper

Ashok Som, 30th May, 2003

Ashok Som

Assistant ProfessorStrategy and ManagementAreaTel: + 33 (0)1 34 43 30 73 /3309 (O)Fax: + 33 1 34 43 30 01eMail: [email protected]

ESSEC Business School, Paris

Avenue Bernard Hirsch - B.P. 10595021 Cergy-Pontoise CedexFrancehttp://www.essec.edu

[ Abstract ]

This article describes the detailed process of redesigning and implementing the human resources(HR) function at Lafarge. The article argues that a well articulated and integrated approach of (1)recruitment, selection, and induction, (2) retraining and redeployment, (3) performance appraisalsystem, (4) compensation and reward mechanism, and (5) rightsizing is required to be aligned withthe overall business strategy of the organization. It also reinforces that the foundation of a value-added HR function is a business strategy that relies on people as a source of competitiveadvantage. Key challenges for Lafarge in the future include (1) maintaining the change momentum,(2) fast and effective integration of acquired companies and transfer of “best practices”, and (3)attracting and retaining a diverse workforce thorough their internationalization program.


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[ Introduction ]

During the last 25 years, constant marketplacediscontinuities and the accelerating pace ofchange have seen traditional businesses andorganizations redesigning themselves forsuperior organizational performance (Huselid,1995; Delaney and Huselid, 1996; Huselid,Jackson & Schuler., 1997). In this quest, formore than a decade human resourcemanagement (HRM) has aspired to be abusiness partner. There has been a continuousdebate on how human resource strategy canbe linked to the business strategy of theorganization (Wright, McCormick, Sherman& McMahan, 1999; Ulrich, 1997; Martell andCarroll, 1995; Schuler, 1992; Pfeffer, 1994;Wright and McMahan, 1992). Recently therehas been an emphasis among academics andpractitioners on people (and peoplemanagement systems) as a source ofcompetitive advantage (Becker and Huselid,1999; Ulrich, 1998, Bartlett and Ghoshal,2002). Previous empirical research has givenuseful insights about the linkage of HRM with

firm performance (Becker and Huselid, 1998)and has consistently found that more effectiveHR management is associated with superiorfinancial performance. Yet data on howorganizations actually manage people toprovide a source of competitive advantage arescarce. What is still missing is a clearerunderstanding of how these processes operate,and subsequently, how organizations mightactually manage their people (Becker andHuselid, 1999), and more importantly howorganizations might redesign their humanresource function to help provide a source ofcompetitive advantage to keep up with theaccelerating pace of change in the externaland internal environment.

This article attempts to provide some insightsinto the redesigning of the HR functions atLafarge through the presentation of a detailedcase study describing the HRM strategiesemployed by Lafarge, which is known to be aleader in the management of people.

[ Previous Research ]

The study began with a review of previousliterature on case studies of differentorganizations, which have reportedlyunderstood HRM practices and the redesignof these practices to provide a source ofcompetitive advantage.

A detailed case study of the redesignof the HR process and structure at WhirlpoolCorporation saw a multidimensional modelthat integrated three redesign tactics:contracting out new roles with linemanagement for a new role for HR,identifying and developing new HRcompetencies, and redesigning HR work,systems, and organization (Kesler, 1995).While in a case study of Albert EinsteinHealthcare Network, the reason for designingand redesigning HR programs was to achieveorganizational agility through contextualclarity, embedding core values, and enrichingwork practices (Shafer,Dyer, Kilty, Amos &Ericksen, 2001). In the case of Northern

Telecom (Kochanski and Randall, 1994), theHR function tackled the task of changing thefundamental form of the organization byreducing costs and improving performance,employee effectiveness, and satisfactionthrough the development of a strategicarchitecture that integrated work flows,structures, and the competency enhancementprocess. During the revitalization of EastmanKodak, the key competencies under the rubricof HR excellence, a small number of corecompetencies, and an even smaller number ofleverage competencies applicable to HR roleswere the source of competitive advantage(Blancero, Boroski & Dyer ., 1996). Similarlyin the case study of 3M, an executive-levelglobal competency model consisting of 12competencies, such as developing people,inspiring others, customer orientation,nurturing innovation and others, was thesource of competitive advantage (Alldredgeand Nilan, 2000).


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In the critical case-study analysis ofMercantile Bancorporation Inc., Forbringerand Oeth (1998) reported that HR practicesmade a significant impact on business resultsand provided a springboard for the HRdepartment pursuant to the findings of Ulrich(1997). Some of their findings included HRinitiatives to help identify, communicate, andsupport core cultural competencies; expandeconomic literacy; expand corporateknowledge or the capture of collectivewisdom; play the role of a change agent(Ulrich, 1997; Ulrich, Brockbank, Yeung andLake, 1995 );and overall strive to beinnovative. The linkage of employee needssatisfaction and organizational capability forcompetitive advantage in the case study ofSouthwest Airlines illustrated the role ofhuman resources in creating and sustainingcompetitive advantage (Hallowell, 1996). Thefindings suggested that much of the value thatSouthwest creates was through employeesatisfaction, which was converted to customerand shareholder value via organizationalcapabilities and was captured by the firm as aresult of its cost advantage and superiorservice.

Becker and Huselid (1999) attemptedto provide insights into the “state of practice”through the presentation of five detailed casestudies describing HRM strategies employedby partnership firms (Herman Miller, Lucent,Praxair, Quantum, and Sears) known to be theleaders in the management of people. Thelessons learned were (1) the foundation ofvalue-added HR function is a businessstrategy that relies on people as a source ofcompetitive advantage and a managementculture that embraces that belief; (2) a value-added HR function will be characterized byoperational excellence, a focus on clientservice for individual employees andmanagers, and delivery of these services atthe lowest possible cost; (3) a value-addedHR function requires HR managers thatunderstand the human capital implications ofbusiness problems and can access or modifythe HR system to solve those problems. In thecase study of Hewlett Packard, Truss (2001)tried to contribute to this debate of the linkageof HRM and organizational performance by

asking what HR policies and practices afinancially successful organization likeHewlett Packard uses. Her findings seem tosuggest that the notion of “good performance”needs to be disaggregated and compared andcontrasted to individual and organizational-level performance parameters.

As helpful as the earlier research wasin helping to identify the linkage of the role ofHRM and firm performance, it alsoengendered several concerns. Most of thestudies, for example, were anchored in thepresent, raising questions concerning currentHR philosophies and HR practices, but notdescribing how the organizations redesignedtheir HR functions for competitive advantageand aligned their HR functions with overallbusiness strategy for superior performance.Further, the studies tended to produce a list ofHRM best practices or a framework forachieving HRM competencies for sustainedcompetitive advantage. It seemed likely thatthere is a possible convergence of the abovestudies, and in particular that the assumptionswithin the best-practice and HRM-competency literature can produce auniversalistic set of HR practices suitable forall situations. The studies provided noapparent basis for individual HR practices.Finally, it was not clear in some of the studiesthat the respondents in the studies (eventhough the studies were company specific)possessed the knowledge required to makeaccurate judgements about overall businessstrategy, HRM strategy, their linkage, andfirm performance.

Given these concerns and keeping thelimitations of the past case studies in mind, aconscious effort was made to build onprevious efforts by conducting a company-specific longitudinal study of how anorganization redesigns its HR functions forcompetitive advantage and aligns the HRfunction with the overall business strategy forsuperior performance.


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[ Methodology ]

This study is exploratory in nature. FollowingYin (1994) and Eisenhardt (1995) anembedded case-study design was foundsuitable for this study. A broad, qualitativemethod was deemed suitable to study thephenomenon of HRM, utilizing multiplesources that tap into the rationale of how anorganization redesigns its HRM functions(Becker and Gerhart, 1996, Gerhart, 1999,Becker and Huselid, 1999; Truss, 2001).

This paper reports on the findings of alongitudinal case study of a French firm,Lafarge. Lafarge was chosen for analysisspecifically because it is a successfulorganization in terms of financialperformance (i.e., it was a leader within theindustry of building materials, was growing ata steady rate, and had been profitable withinindustry standards); it has a reputation forbeing excellent in terms of human resourcemanagement in France and all over the globe;and it was willing to participate in thelongitudinal study.

Data were collected over a two-yeartime period from December 2000 to February2001 and from January to March 2003. Morethan 15 top management (including thepresident & CEO, regional president,executive vice president, vice president,general managers, and country heads) and 9senior and middle management executives(senior managers and managers) includingHR executives were interviewed using adetailed, semi-structured open-endedinterview format. Open-ended questionsinvolved how HR policies and practicesevolved in the organization. A genericapproach was adopted to analyze the HRpractices, and data were collected on a widerange of HRM areas, including recruitmentand selection, induction, retraining andredeployment, performance appraisal,compensation and rewards, careermanagement, and rightsizing. The data werefrom the perspectives of both policy makers,that is the HR department, and practitionerssuch as staff and line and senior managers,recognizing that experiences are likely to vary

between levels of staff. On an average eachinterview lasted from 1.5 hours to 2 hours.Extensive evaluation of archival data,company documents, media reports,consultant reports, and sector reports wereundertaken. At both times, the research wascarried out at the Lafarge head office in Paris.

[ The Context : Changes atLafarge ]

Léon Orvin began producing industriallimestone in 1833 after acquiring a limestonequarry in southeastern France. He took overthe business, acquired by his family in 1749,with the purchase of the Lafarge domain insoutheastern France, an area known forgenerations for the quality of its limestonedeposits. That was the history. From a localFrench cement company, Lafarge today is theworld leader in construction materials,spanning 75 countries. The transformationwas in no way an easy task. BertrandCollomb, who is the chairman and CEO ofLafarge since 1989, points out the situationover the last decade:

Following prolonged recession inEurope, which lasted from 1991 until1996, and the Asian crisis of 1998,worldwide economic trends now appearpositive. World growth was 4% in2000, and is forecasted to continue atabout 3% per year. But we must remainon our guard because interest rates areon an upward slope, oil prices arerocketing, growth in the United Statesis expected to slow, and the Germanconstruction market remains sluggish.Most importantly, the process ofworldwide consolidation in ourindustries is gaining pace, and this iswhy it is necessary for us to ensure wehave the means to stay among the top-ranking world groups and be thepreeminent player in our sector. … In2001, Lafarge strengthened its positionas world leader in building materialsthanks to a vigorous policy of


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acquisition and development on everycontinent.

Over the last five years, sales increasedfrom 6,413 million euros in FY 1997 to14,610 million euros in FY 2002 while netincome, Group share, increased from 371million euros in FY 1997 to 756 million eurosin FY 2002. Lafarge had 37,097 employees in1997, while in 2002 it had 77,000 employees,a growth of more than 100%.

The Cement Industry, Globalization, andBusiness Strategy at Lafarge

The cement industry has been witnessingmajor shake-ups, takeovers, joint ventures,mergers, integration, and the formation ofglobal conglomerates. The industry is alsoinvesting in alternative activities in order toprotect itself from the economic impacts ofbusiness cycles. Lafarge, in the last decade,has invested heavily in newly industrializingcountries that offer considerable medium tolong-term growth potential, such as Turkey,Morocco, Eastern Europe, Brazil, Venezuela,China, and India. For Lafarge, globalizationoccurs in every strategic market by acquiringone or more cement producers in order to gaina significant market share. To gain marketshare, cement organizations in general arefacing buyer bargaining power and have todeal with secret rebates, price-cutting, pricediscrimination, and competition on servicequality.

In this scenario, markets have becomeglobal. Yet markets are inherently local:consumer tastes are diverse; businessstrategies of firms result in the fragmentationof markets according to product lines andlocation; trade and competition policies varyfrom country to country. For the cementindustry, high transportation costs and lowinventories together mean that there is nosuch thing as a worldwide, market-clearingprice, as distinct from a global average price.In this sense, cement is a commodity, but nota commodity like grain or oil. It is notpossible to build sustainable, worldwidecompetitive advantage by locating productionin any one country. Supply and demand are

matched on a local basis. At cyclical peaksand troughs the boundaries may becomeregional, but never global.

Keeping this globalization strategy inmind, the vision, mission, and values ofLafarge were as follows:

Our vision is to offer the constructionindustry and the general publicinnovative solutions bringing greatersafety, comfort and quality to theireveryday surroundings. The consumershould be placed at the heart ofLafarge's preoccupations. This visionis to be achieved by offering allconstruction industry sectors - fromarchitect to tradesman, fromdistributor to end user - acomprehensive range of products andsolutions for each stage of the buildingprocess. The company values a "waitand see" philosophy and it includes along term orientation with industrialefficiency, value creation, protectionof the environment, respect for peopleand cultures and preservation ofnatural resources and energy.(chairman and CEO)

Five of the key issues it will need toaddress in the globalization process are (1)continuing development of its growthstrategy, (2) managing its human resourceswhich have doubled in the last five years, (3)further realization of the benefits from itsrestructuring program, (4) fast integration ofthe acquired companies to create synergy andhence value, and (5) internationalization ofits workforce and development of managerswilling to be mobile and able to operatesuccessfully in a wide variety of markets andwith people of diverse cultural backgrounds.

The strategic intent is to “keepgrowing and growing profitably.” The threemain goals followed by Lafarge were (1)doubling sales within 10 years (1997 to 2007)by development in emerging markets andthrough acquisition in mature markets, (2)growing more rapidly than its competitorswith an objective of 60 to 80 Metric tons in


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increased capacity between now and 2005,and (3) integrating acquired units as quicklyas possible.

The Lafarge Group did not focus onlyon emerging markets as did some of the otherglobal players. In February 2000, it mounted ahostile bid for Britain’s Blue Circle, the sixth-largest cement competitor and then in January2001, Lafarge bought Blue Circle at a price of3.8 billion euros to become the global leaderin the construction business, with one tenth ofthe world market. Through this acquisition itaimed to achieve a certain size in order toremain visible and attractive to investors, toexpand cash flow and geographic presence,and probably to dislodge Holceim from thetop spot in the global cement industry. TheGroup’s aim was indeed to become the worldleader in cement.

We [Lafarge] want to be theundisputed leader in all of ourbusinesses, and, as such, the leader inconstruction materials throughoperational excellence, growth and thecreation of value. Today a strongmovement towards worldwideconsolidation characterizes theconstruction materials market. Lafargemust be able to take advantage of thebest acquisition opportunities thatarise; there are currently many on themarket. To finance this program, theGroup has chosen to concentrate itsresources on its major worldwidebusinesses. The introduction offinancial partners will enable theGroup to enjoy greater financialflexibility while maintaining stronglinks with the Division’s businesses.(chairman and CEO)

For the Lafarge Group, strategy implies anambition. The Principles of Action (Figure 1)was drawn up in consultation with all thestakeholders.

Restructuring for Internationalization

International development can befostered through diversity and

innovation. If one wants to pushinternational development one cannotmanage it from the top. Hencemaintaining a decentralized operationis very critical. Developinginternational executives is the bestway to become more international.(chairman and CEO)

Lafarge initiated an organizationalrestructuring process with the help ofMcKinsey and Company. The implementationprocess began on January 1, 1999. The Groupwas divided into four divisions – cement,aggregates and concrete, roofing, andgypsum. A new organizational structure wasdrawn up to facilitate the change process. Theclarification, simplification, and formalizationof Group policy in the areas of finance,human resource, research and development(R&D), corporate communication, theenvironment, information systems, andpurchasing and marketing have accompaniedthis decentralization. In addition, guidelineson the management style expected of allLafarge managers have been set out in TheLafarge Way (Figure 2). Though, after twoyears, there have been many suggestions thathave been proposed about the organizationalstructure and constant communication, topmanagement’s conviction has made it work.

Key Human Resource Initiatives andActivities

As Lafarge worked to create and broaden itsidentity and investor confidence, it becamemore innovative and proactive. The workenvironment was driven by a demand foroperational excellence. The organization wasrestructured and streamlined and over 100%more employees were added to the groupthrough new acquisitions. In support of thesechanges much of the corporate HR’s time wasfocussed on career management, key-postmanagement, development of high potential,internationalization, language skills,compensation and benefits, managementdevelopment and training, post-mergerintegration, organizational development,employment, and safety and workingconditions. The level of HR involvement in


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the development, redesign, andimplementation of process changes, however,varied widely from one division to another,one business unit to another, and one regionto another, reflecting Lafarge’s regionalbusiness management approach. For example,the major focus in Asia was on businessdevelopment, transfer of best practices, andquick integration of the acquired companies.In Europe and United States, support wasprovided largely through delivery of training,while in Africa, many of the change-orientedactivities were integrated with or led by HR.

Implementing this process of HRredesign throughout the Group requireduniform operating mechanisms that wereemphasized and communicated worldwidethrough published policies such as LafargeHR Group Policy Manual and CareerManagement Manual. In the words of thechairman, the priorities in the field of humanresources were twofold – enhancingperformance and investing in people. Lafargeplans to raise their investment in training bysetting up a Group training program that willbe an extension of the “Meet the Group”(Figure 3) integration seminar and tocomplement training packages run by thedivisions and business units. Lafarge intendsto standardize career interviews for managersonce every three or four years, on theoccasion of every transfer. Together with theabove training programs, Lafarge is alsoworking on the leadership profiles that theGroup needs.

[ HR at Lafarge ]

Fundamentals of the Redesign of HRInfrastructure

The HR community at Lafarge has beenwidely identified as the single most importantdepartment in leading the change effortsinternally and as well as externally, most ofwhich have come about largely as a result ofsuccessful integration of acquired companies.The structure of HR at Lafarge has fivelayers: (1) headquarter-based corporate HR,(2) divisional HR – cement, aggregates andconcrete, roofing, and gypsum, (3) regional

HR, (4) country HR, and (5) plant HR. Theplant HR is usually run by the local personnelsupervised by the country HR (preferablyfrom the same country but belonging to theHR network of Lafarge). The country HRreports to the regional HR manager. Toachieve this goal, HR functions follow anintegrated and aligned approach towards (1)recruitment, selection, and induction, (2)retraining and redeployment, (3) performanceappraisal system, (4) compensation andreward mechanism, (5) rightsizing, and (6)integration.

Recruitment, Selection, and Induction

Lafarge competes for the best peoplein the labor market with a long-term view. Itrecruits diversified and international profiles,which have a potential to evolve. HR believesthat career development is the responsibilityof both the individual and of the Group. Therecruitment function is decentralized. The HRdirectors of the regions take the initiatives, asthey understand the local and regionalmarkets better. The central recruitmentdepartment recruits staff for the headquartersin Paris.

The establishment of the Group in anumber of newly industrialized countries(India, Korea, Egypt, Jordan, Philippines,etc.) is a source for a rich knowledge pool ofinternational expertise and experiences.Employees of increasingly varied nationalitiesare being recruited and international mobilityin career paths is being stepped up. These twofactors will help to promote future growth andbuild up a pool of international managerstrained to be business heads of Lafarge.

Seminars are organized, as a part ofthe induction program (Figure 3), on a regularbasis in all five continents in the context ofintegration of newly acquired companies.Similarly, 400 recently hired managersparticipated in the “Meet the Group” seminar.These meetings are organized with the aim ofpresenting the Group, its values, its strategy,and its way of functioning.


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Lafarge has special recruitment processesunder three categories, which started in 1996:

1. Junior High Potentials – underthe age of 40 and can reach thelevel of general manager before 41years. (The “high potential”,according to the Director, HR, isloosely defined as “those who willbe the international managers ofthe Group in the future.” Identifiedhigh potentials, if French, wouldinvariably have a background fromÉcole Polytechnique, French“Grandes Écoles,” or EcoléNationalé d’Administration, andfor non-French personnel,preferably would be educated atone of the worldwide-reputedbusiness schools in the UnitedStates, Europe, or Asia.)

2. High potentials – over 40 yearsand can reach the level of generalmanagers by the age of 45.

3. “Viviers” – those who are undertraining in a mature country (likeFrance, Spain, North America,Brazil, Germany, Austria) toinherit a particular position. Thevivier policy allows new units torapidly develop their competenciesin different areas. The viviers caneither be newly hired people orinternal resources, generallytrained outside the unit. Mature orexisting units further develop theirresources to assist in thedevelopment of the groups,complementing their immediateneeds by proactive recruitment.

There is scope in Lafarge forinternship and apprenticeship. The businessschool to company relationship has beenforged over time as an ongoing initiative.Lafarge is in direct contact with the studentpopulation through a number of openingssuch as student fairs, presentations in collegesby Lafarge managers, and paid internships.Lafarge also offers limited-duration contracts

to fresh graduates to provide them withprofessional experience, which also gives theGroup a chance to talent-spot futuremanagers.

Retraining and Redeployment

Lafarge has also done a good job in retrainingand redeploying people. With 50% of itsemployees joining the Group throughdifferent acquisitions across the globe,redeployment was a necessity in order toshare and train the Lafarge Way. Forretraining and redeployment, Lafarge targetsall its employees and looks for both technicalexpertise and management perspective – theability to work in cross-cultural teams, abilityto listen and to lead, language skills,adaptability to new environments, and anopen mind-set to think in international terms.The company believes that it would bedifficult to fit into the Lafarge Way withoutthese attributes.

In addition to general trainingprograms, specific training programs andopportunities are decided upon during theyearly appraisal and career management ofindividuals. The corporate headquarters, thedivisions, and the business units share thetraining responsibilities.

Before the redesign of the HRfunctions, Lafarge had different trainingpolicies for top management, middlemanagement, and lower management. Thetraining program for the top management wasunder the corporate HR, which identified andprovided individualized training schedules intop business schools under the executivedevelopment programs. The trainingprograms for middle management werelooked after by the respective divisions(cement, aggregate, etc.). Workers were giventraining at the plant level. After the redesignof HR in 1999, Lafarge now follows thelearning organization methodology with anemphasis on learning on the job, learningfrom within the group, and coaching in thefield. This is done through formation ofnetworks and by internal consultancy. Thetraining managers act as facilitators of


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learning and development and help managersto learn and cooperate on the job. Some ofthe examples of the new training policy are totalk about dreams, send invites for trainingobjectives, and make the managers feel thatthey are responsible. The training programtoday wants to boost performance, the realchallenge being how training changes the waypeople work and how it influences thebusiness results. In the words of the Director,Training,

We have to understand that we are aninternational organization and not theold French organization taking overcompanies all over the world likecolonizing countries. Since we aregrowing, we have to find ways oflearning and sharing the knowledgethat comes with every acquisition.Budget is an important parameter andthe new policy is to learn as muchfrom the diverse experience that theGroup has from its acquiredcompanies. There is a lot of mobilityin the Group. There are 400expatriates all over the globe with 150of international status. Usually thenewly acquired companies wait andwatch instead of working with a cleanslate to harness benefits fromLafarge’s huge wealth of resources byputting forward their competenciesand best practices. This is where thelearning will take place.

The retraining and redeployment cycleis critical in Lafarge. Redeployment is linkedto career development, which means that aninternational assignment (see Figure 4 forprocess of internationalization) is taken as acareer development tool rather than a reward.Expatriation or a transfer within the Group ismeant to be a career move and taken as ameans to gather international experience forfurther career growth. Compensationincreases with an expatriation assignment.Employees are recruited for the home countrybecause the Group wants to develop localpeople to work locally after gaininginternational experience if required. Thehome unit pays for all the costs including

expatriation and training. For units stillundergoing restoration (i.e., not yet up todivision performance standards),requirements for the development ofcompetencies are even more important. Thenewly acquired units will have to identify thenecessary competencies required to be able toreplace the expatriates present in their units.

Performance Appraisal System

Lafarge has recently tried to integrate theperformance management system (PMS) andpersonal development plan (Figure 5) with theother elements (recruitment, selection,training, and compensation) of the HRsystem. From 1998 it has increased itsemphasis on PMS and its linkage to careerdevelopment. This has been the key focusarea within Lafarge’s new bonus plan, whichstarted from 1999. All the HR directors fromdifferent divisions formed a central team,which is responsible for decision-makingregarding the implementation of theredesigned HR policies and specifically PMS.

Like many organizations, Lafarge hasshifted from a 180-degree performanceappraisal system to a 360-degree performanceappraisal system for key positions includingsenior managers and “cadres.” Performance isreviewed according to set objectives. To dealwith any potential negative consequencearising from the process, the corporate anddivisional HR departments provide coachingand training to deal with negative feedback.Overall, this process has worked well at theadministrative level, but some managers thinkthat PMS is an American concept and moreeffective coaching and training is needed toaccustom French managers to provide andreceive direct feedback.

Compensation and Reward Mechanism

Lafarge believes that a strongcompensation-performance relationship is anessential element of a strategy that relies onpeople as a source of competitive advantage.Lafarge wants to attract, motivate, and retaintalented people by providing competitive totalremuneration (base pay, variable pay, and


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benefits). Lafarge’s compensation policy is totarget total cash compensation (base salaryand bonus) between the median and upperquartile of relevant companies. Lafargefollows the Hay Scale in its compensationpolicy.

To support the strategy of continualperformance improvement and value creation,a new bonus plan has been implemented formanagers. It introduced a set of new elements,such as (1) use of EVA (Economic ValueAdded) as a financial performance indicator(2) a greater focus on long-term valuecreation through the introduction of a long-term bonus and (3) a significant increase inthe maximum bonus percentage, to allowdifferentiation between average performanceand excellent performance. The bonus planconsists of two components – the annualbonus and the long-term bonus. The annualbonus is split into two equal parts where onepart is based on the financial successmeasured through EVA for the year and therest of the bonus is based on yearly personalobjectives. The personal objectives are basedon the SMART methodology (specific,measurable, accountable, realistic, and time).Based on financial and personal targets thataim to foster operational excellence in each ofLafarge’s businesses, the new plan has beendesigned to accord recognition to superiorperformances and forms part of a policy ofequitable and competitive globalremuneration.

A new employee shareholding scheme(ESOP) called Lafarge en action 99 waslaunched to give many employees theopportunity of becoming Lafargeshareholders, and 21,000 employees locatedin thirty-three countries participated, bringingtotal employee shareholders up to 28,000.

Rightsizing

Lafarge does not believe in downsizing butbelieves in an optimum workforce and investsin absorbing the excess workforce. Once theinternal skills are developed in newlyacquired units, redeployment schemes areoffered. The employment units are a resource

for counseling, out-placement, or retraining inorder to acquire a new professionalqualification. All employees who wish to starttheir own businesses are helped to do so atevery stage, until completion of their project.Similarly, job creation is initiated andsupervised by internal Lafarge teams. Forexample in Romania, there were 8,000workers in three plants. With Lafargepractices in place, the workforce is nowreduced to 2,500. Most of the workers whoacquired new skill sets were relocated to otherplants in Central and Eastern Europe.Optimization was achieved by subcontractingperipheral jobs such as regular cleaning andmaintenance.

Innovation and Research and Development:A Storehouse of Best Practices

Lafarge is considered a storehouse of bestpractices and specialists who are the best inthe industry. The specialists of the cementindustry are in the CTI, the technical center ofLafarge under the cement performancedepartment (DPC). The technical expertise isdistributed in a two-tier structure – the centrallaboratory, which provides a source for thepooling of scientific knowledge and thedevelopment synergies between materials andthe decentralized network of over 25applications laboratories supplemented bydivision, business, and unit technical centers.The technical expertise is divided further intothree professional fields of manufacturing,technical support, and research anddevelopment. The technical experts are fromsixteen areas of expertise – geology, quarrymanagement, process, manufacturing, productquality, cement applications, engineering(mechanical /electrical), control, industrialprocess automation, maintenance,management of engineering projects, projectdesign and studies, technical economic audits,performance audits, and environment. Thecement performance department coordinatesthe technical expertise with the departmentsof investment, industrial performance,knowledge management, process, technology,and products.


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Corporate Social Responsibility andEnvironmental Protection

Lafarge places a high value on corporatesocial responsibility through the wealth itproduces, the jobs it creates, the training itprovides, or the community-oriented social,educational, and cultural initiatives that itsupports. Lafarge actively participates in thedevelopment of communities that surround itsemployees. It is on this principle that Lafargehas founded its employment policy. Forexample, in October 2000, Hurricane Mitchbattered Honduras and neighboring countriesin Central America with torrential rains. TheDirection Générale at Lafarge decided tomake an initial emergency donation, and atthe request of scores of employees, an appealfund was launched enabling the Group’spersonnel to contribute some 190,000 euros ($200,000) to the emergency relief effort. Of thetotal 5,000 tons of cement donated by theGroup, 1,500 tons were used by non-governmental organizations forreconstruction, while 3,500 tons were handedover to a national foundation, Maria, whichwas headed by First Lady Maria Flores, wifeof the president of Honduras, to enable ahospital to be built.

Lafarge has also signed a partnershipagreement with WWF (Word Wildlife Fund),to contribute towards the protection ofbiodiversity and to raise awareness levels.Lafarge is in fact the first industrial group tosign an agreement of this type.

[ Challenges Facing the Redesignof HR at Lafarge ]

Maintaining the Change Management

While Lafarge faced a number of issues in2002, the most important concern was how tosustain the internal change process. Lafarge'slarge-scale acquisitions in China, India, SouthKorea, Indonesia, Malaysia, Philippines, andBlue Circle stirred some concerns about thedifficulties of working across different

cultures, different languages, and differentmind-sets.

Aligning with the overall businessstrategy of the company of growth andperformance, the key challenge for HR,according to the Vice President, HR is tosupport international growth keeping in mindthe professional and technical skill setsrequired by the Group. Huge effort has beenput in place to hire the right people andimprove their international capability.Encouragement and reward mechanisms arein place for both career and personaldevelopment through promoting, training, andcoaching. The effective linkage between HRand business strategy is being constantlymaintained and upgraded by means of the HRaction plan at the corporate level. The HRaction plan states the business needs of theindividual HR business units. The cumulativeplan of the different HR business unitsthroughout the globe is reviewed to form thethree-year action plan to match with the mid-and long-term strategy of the company.

The momentum of change leads to the

creation of divisions. But sometimes it is feltthat the role of the corporate HR and thedivision HR are somewhat diffused. Betterintegrating mechanisms between thecorporate HR and the division HR are beingdebated. One of the senior vice presidentsreflected that overall the HR policies andpractices of the Lafarge Group are excellentand can perhaps not only be compared to thebest in the industry but to the best companiesin the world. What remains to be done isquick diffusion and implementation of thosepolicies and practices.

Substantial steps have been taken in

the HR redesign process like the use of duallanguage within the Group. The commonbackground of engineering or technicaleducation of most of the top-managementteam was in itself a language of sorts.Extensive internal and externalcommunication within the Group and aboveall Lafarge's continuous policy of respect andcare for its employees could serve as a path tomanage the transition and transformation of


[ 12 ]

Lafarge from a local French cement companyto a global leader.

Fast and Effective Postacquisition

Integration of Acquired Companies andTransfer of Best Practices

One of the regional presidentsportrayed the overall view of the HR role inpostacquisition integration.

HR is a scarce resource for achievingsuccess. It is more so whencompanies have to be integrated intoLafarge. Lafarge would like to see theacquired companies integrated as fastas possible to give returns on itsinvestments. Often there is a wide gapin what was perceived and the realitythat one encounters in the acquiredcompanies. One has to look into thestyle of management, hire new bloodand train them. There is a lot ofpressure during the implementationstage and the wide gap between theoryand practice is felt acutely during thisprocess. Integration has a key role toplay as it has direct linkages with thecapital deployed and the ROI which inturn is directly linked to improvingoperations, creating value and itsreflection in the stock exchanges. Postacquisition integration at Lafarge

means getting a new unit to attain theperformance levels fixed at the time of theinvestment, to meet Lafarge standards ofoperational excellence, and to assimilate anacquired company within the Group’s fold toattain the Lafarge standard of performance.The redesign of the HR function in the Groupwitnessed the creation of an integrationdepartment in 1999 headed by an integrationdirector, and the creation of an integrationmanual and an integration toolkit. Theintegration toolkit will provide the newlyacquired companies with full informationabout the “Lafarge Way” and the bestpractices in areas like maintenance, HR,organization, safety, environment, process,quality, logistics, and in business functionslike communication, marketing and sales,

control and information technology (IT),purchasing, and technical centers.

From the HR point of view,

postacquisition integration is a crucial issue.The Integration Director [Director,Integration?] expressed that the key successfactor in a postacquisition integration phase isto keep the right balance between the transferof softer skills such as shared values andculture and harder skill sets such as technicalexcellence. The right balance is critical tothe success of an integration mission.

Lafarge culture is predominantly

French, as its roots are French. But duringpostacquisition integration, Lafarge feels thatthe culture and values of the acquiredcompany cannot be ignored. This feelingportrays that shared culture is perhaps morecritical than putting the systems, procedures,policies, and practices in place. Once theshared culture is taken into consideration andthere is enough respect for the acquiredcompany by placing trust in good andtalented people, the rest of the systemprocesses are not too difficult to implement.Lafarge best practices can be transferredsmoothly to make the unit at par with Lafargestandards.

While the integration department isnew, Lafarge’s primary concern is to find theright balance between a fast and a slowpostacquisition integration process. Theongoing debate seems to be the choicebetween the fast, harsh, and forceful way ofintegration that one of Lafarge’s competitorspractices and the original Lafarge Way ofintegrating acquired companies. Historicallyintegration by the Lafarge Way has been aslow process. Lafarge, after acquisition,starts the integration process by speaking toall the stakeholders and tries to incorporate anaction plan. When the rules of the game areput in place Lafarge invites the acquiredcompany to play the game together accordingto the rules. Some of the concern is that toomuch time is spent on minute details,technical matters, and transfer of bestpractices which results in delay in achievingthe bottom line. For example, Lafarge gives a


[ 13 ]

10–15-year horizon and a long-termcommitment for plowback, compared to itsclosest competitor, which has a 5–10-yearcycle. But the general view at Lafarge is thatthere is enough room for local people andlocal culture to be integrated within theGroup’s fold. Also, Lafarge, does not believein firing people: it takes time to find out waysand means to invest again to absorb theexcess workforce (for example as has beendone in Poland, Germany, andCzechoslovakia). One of the regionalpresidents commented that Germany had beenvery well integrated by the slow process andthat the country manager did a very good jobtogether with the then regional president.Good integration has been possible in Spain,Brazil, Czechoslovakia, Poland, and Austria.With the business environment becomingharsh and fierce competition in the industry,Lafarge has to quickly heed this issue in thenear future.

Attracting and Retaining a DiverseWorkforce thorough their

Internationalization Program

Perhaps the biggest challenge for HR is tokeep pace with Lafarge’s growth strategy inits quest to shift from a French cementcompany to a global leader in the building-construction industry. This shift requires anability not just to respond to business-strategyrequirements, but to understand globalbusiness trends so that HR can work inpartnership with top-management objectivesto recruit the right people, train them with theright skills, develop the right mind-set, andprofitably navigate growth opportunitiesefficiently. HR believes that a productiveenvironment built upon its strong culture andvalues will enhance its ability to attract andretain talent.

The challenge the company faces isthe fast rate of expansion and the ability tokeep pace with incoming people from theacquired units, determine their placement, andat the same time do strategic recruitmentwithout getting overstaffed or understaffed inthe process. While Lafarge has madesignificant progress in this area, some

managers feel that there are not enough HRinterventions regarding recruitment of brightpeople in comparison to the pace at which theGroup is growing. Due to lack of talent insome specific areas, integration of the newlyacquired companies perhaps takes too muchtime.

[ Lessons for Redesigning theHRM Function ]

Clearly, the implications of the Lafarge casestudy (and the experience of other largecorporations) revolve around the ability toredesign the HRM function and align it to theoverall business strategy of the organization.Notwithstanding the limitations of the study(noted below), the present study holds anumber of lessons that are potentiallyimportant for researchers and practitioners,who are, or will be, trying to redesign HRMfunctions in the years to come.

Lafarge’s successful redesigning of itsHRM function speaks consistently of topmanagement’s commitment toward changeand constant internal and externalcommunication with its stakeholdersregarding the change process. Thephilosophies at Lafarge (Principles of Actionand The Lafarge Way) have beensuccessfully transformed to HRM practices.Thus, the first implication of this study is thatdeep top-management commitment andconstant communication of that commitmentare the key links to transform philosophies(mission, vision, goals, and business strategy)into practices.

The second implication focuses on theimportance of alignment or fit of theredesigned HR strategy with the overallbusiness strategy of the organization. HRMfunction at Lafarge has been successfullyredesigned to fit the overall ambition ofLafarge (Principles of Action).

The third implication of the case studyis that HR must design and redesign effectivemethods to anticipate business needs andprovide strong leadership. Finding the rightbalance between corporate, divisional,


[ 14 ]

regional, country, and local HR issues iscritical within the framework of today’shighly competitive internal and externalenvironment. For HR to design effectivemethods and provide strong leadership,appropriate skills and competencies arerequired: to know the business, to know howto translate the business needs to HR goals, tomanage uncertainties by being present in themarket, to forecast changes, and be able tointegrate and grow to create value in terms ofhuman potential.

The fourth implication focuses on theeffort of the organization to expand the roleof HR to that of a strategic partner and achange agent, without sacrificing thetraditional role of HR (administrative expertand employee champion). This finding issupported by the studies of Ulrich (1997) andlater Becker and Huselid (1999).

As a corollary to the fourthimplication, the fifth implication reinforcesthe role of HR in change management andexplains how HR can redesign itself and theorganization to create a culture that supportsthe change process and spearheads thechange momentum.

The sixth and the final implicationfollows from the resource-based view whichargues that having unique, inimitableresources and the effective deployment ofthese resources are key to achieving sustainedcompetitive advantage (Barney, 1991).Competitive advantage through people andculturally entrenched HR practices is difficultto achieve and even more difficult to sustain,but once achieved, it is not easy to duplicate.Here it is important to mention thatredesigning the collective competencies of anentire HRM function is a Herculean task thatrequires the effective cooperation of the linemanagers, credibility of the redesign process,willingness of the HRM department toactively pursue the redesign process. As anychange process suggests, generating short-term wins to consolidate gains and producemore change anchors the new approaches inthe culture (Kotter, 1995).

There are, inevitably, limitations tothis study. The lessons are, of course, basedon the data of a single case study and there isa problem of generalizability.

[ Conclusion ]

This case study explained how anorganization redesigns its human resourcefunction to help provide a source ofcompetitive advantage to keep up with theaccelerating pace of change in the externaland internal environments. As HR becomesmore aligned to the business needs oforganizations it becomes a competence thatorganizations can leverage to provide

sustaining value to the needs of theorganization. Three specific needs identifiedfor Lafarge were to maintain the changemomentum, to create a fast and effectivepostacquisition integration mechanism foracquired companies and for the transfer ofbest practices, and to attract and retain adiverse workforce thorough theirinternationalization program.


[ 15 ]

[ Bio ]

Ashok Som is currently Assistant Professor of International Strategy Management at ESSECBusiness School, Paris. He holds a Ph.D from Indian Institute of Management (IIM), Ahmedabad,and M.Tech and M.Sc from the Indian Institute of Technology (IIT), Kharagpur, India. His currentresearch and consulting activities focus on the role of strategy in shaping human resource practices,creation and evolution of organizational capabilities and performance during organizational design /restructuring process, cross-cultural integration and HRM innovations within firms. He haspublished in International Journal of Human Resource Development and Management, KeioBusiness Forum (forthcoming) and in international conference proceedings. He is a recipient ofawards such as Best Research Proposal Award, Aditya Birla (India) Center, London BusinessSchool, and McKinsey Wings of Excellence Award, University of St. Gallen, Switzerland. He iscurrently the country representative of France at the International Management Division of theAcademy of Management.

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[ 18 ]

Figure 1. Principles of Action

Source: Internal Company Documents, Paris


For the Lafarge Group, strategy implies an ambition, some demands and a sense of responsibility. Itis only when these components are brought together, that actions become sustainable and long-term.

Our principles of action have been drawn up and worked on in consultation with all concerned.They epitomize our ambitions, our convictions, our code of conduct and our values.

OUR AMBITION To be a world leader in construction materials Be recognized as an important participant and shape the future of our businesses through our

capacity to innovate Be a leader in a competitive environment Pursue long-term strategies Adopt an international approach

OUR RESPONSIBILITIESTo anticipate and meet our customers' needs

Create a perceived difference and be the supplier of choice Serve our customers better by knowing them better Contribute to the development and progress of the construction industry

To enhance the value of our shareholders' investments and gain their trust To provide shareholders with a competitive return on their investment To provide them with clear information To respect the interests of our partners and minority shareholders

To make our employees the heart of our company To base legitimate authority on the ability to contribute to the company's success To develop mutual respect and trust To provide employees with equitable compensation and a fulfilling professional environment

To gain from our increasing diversity To make our cultural diversity an asset To delegate responsibility with accountability and control To develop an effective cross-operational management approach To make use of synergies and share know-how

To respect the common interest To participate in the life of the communities where we operate To operate responsibly toward the environment To be guided by the principles of integrity, openness and respect in our commitments


[ 19 ]

Figure 2. Lafarge's Management Style The Lafarge Way


Lafarge’s management style is defined as “participative”. But this concept has sometimes been misunderstood as“management by consensus”. Either that or participation has been forgotten because of business or time pressures. Inany case the Group has changed so much recently – half of Lafarge’s employees were not in the Group two years ago –that it is time to redefine its management style.

Create value while respecting the Group’s guiding principlesOur “Principles of Action” have not changed, and define our responsibilities: our overriding objective is to create valuefor our shareholders. To achieve this objective, we must first meet the needs of our customers. Lafarge’s identity andsuccess is also based on the importance we give to our employees, and on the strength and benefits of being a group.

Clarify our strategies & our organizationTo be successful as a Group, we need shared values, clear strategies, common information and reporting systems andperformance measurement criteria. Today, we have started to develop a number of these systems, such as the CementOperations Reporting Project (CORP), Top 2000 for our ready-mix concrete, as well as the EVA (Economic ValueAdded) project, to improve our performance measurement and compensation systems. We are now redefining theGroup’s organization, by rationalizing the role of the corporate function and giving the five divisions (Cement,Aggregates & Concrete, Roofing, Gypsum & Specialty Products) more direct responsibility for strategic developmentand performance improvement.

To allow more decentralized initiative ….with better decision processesOur aim is to create a management framework that allows more decentralization and individual empowerment. Thisrequires trust in people, as well as clarity if the decision processes. We need to determine at what level a decisionshould be taken, who is accountable and on what basis, in order to avoid pushing the decision upwards, or dilutingresponsibilities through a slow inefficient process.

True participation, but not necessarily a consensusParticipative management is not decision by consensus. Rather, it means involving all those who can contribute to abetter decision, while clearly recognizing who has the ultimate responsibility to decide. In this regard, our proposedreorganization is meant to streamline our decision making processes.

Managers leading by examplesEven more important that this organizational framework is the attitude of our employees. We especially want managerswho are true leaders, able to drive their organizations to the highest performance level. Individuals who practice whatthey say, respect group disciplines, share information, and who are professional in managing employee evaluation,career management and the compensation system. Hence the renewed importance we want to give to open frank two-way discussions in the evaluation interviews.

Innovative and willing to contribute to the Group’s successWe also need individuals able to innovate, to take initiative and to act decisively within their realm of responsibility.Finally we want individuals who look beyond their particular objectives, and who are ready to contribute the attainmentof Group synergies and overall goals.

A management “model”In summary, the main components of our management philosophy are:

An organized and coherent Group, with shared values and clear strategies, well defined procedures, systems andrules

Confident in a decentralized and participative management process With managers who lead by example, take initiatives and who want to contribute to the overall success of the

Group


[ 20 ]

Figure 3. Induction Program - "Meet the Group"


After more than 20 years, the “Meet the Group” seminar has been given fresh impetus and will nowreflect the growing size of the Group. The new program, which will be identical on every continent,takes the “Lafarge Way” as its central thread. These seminars target managers who have been in theirjobs for between 6 and 18 months, whether they are recently recruited or have been promotedinternally, along with managers who come into the Group as a result of an acquisition. The objectiveis to enable them to acquire a better knowledge and understanding of all the Group’s businesses, thechallenges it faces and its priorities for the future, to identify ways of implementing the Lafarge Wayconcretely, to help with the improvement of businesses by making use of Group best practices, and todevelop a network beyond the frontiers of their own Business Unit and their Division people.

What has changed?The new formula is highly interactive and is based on the participation of the group members, whoare the leading players in their own training. Each session is sponsored by an operational managerwho is the seminar leader, representing the Group and participating throughout the 3-day program,assisted by a professional facilitator.

The program is built on the following sequences: “Getting to know the Group”, “Knowing theproducts and their applications”, “The Lafarge manager” (a team leader and change agent, HR andcareer manager), “Improving the performance of our businesses”, and “Creating value”. After an“Exchange with the Direction Générale”, the seminar ends with a sequence called “Proposals for thefuture”.


[ 21 ]

Figure 4. Internationalization


Why Internationalize?Internationalization is an essential strategic element. Its aim is to:

Bring together the human resources necessary to take in hand the new activities anddevelopments of the Group and the search for new opportunities. Taking into account ourdevelopment objectives we want to double the number of managers in international situations inthe next five years

Diffuse accumulated know-how and expertise throughout the Group’s diverse Operating units. Integrate men and women of different nationalities, origins and professions. Develop a management style based on networking in the different domains of the company’s

management Increase the awareness, within our management ranks, including non-expatriates, of the

“international” reality of the Group’s strategy, activities and way of functioning.

Whom to Internationalize? Internationalization must be a success not only for the Group but for the person who is

internationalized. Expatriates for international assignments should have a desire to go overseas and have a

recognized level of performance. The priority us t offer career development opportunities tomanagers and experts who have an important development potential.

Internationalization is not only reserved for technical people. It is also important to diversify the origins (nationality and culture…….) of expatriates in order to

have the necessary human resources in place, avoid the difficulties of reinsertion in the homecountry and make up international teams who have good local roots.

Internationalization also concerns the expatriate’s family.

How to Internationalize? The Group has made a policy decision to encourage international exposure to greater number of

employees as possible. Internationalization can take many diverse forms depending on theobjective required:

Classic expatriation for 3-5 year period in respect to career development Expatriation to professionals in order to respond to precise operational needs due to international

needs of the Group Assignments of reasonably short duration


[ 22 ]

Figure 5. Individual Assessment Methodology: Appraisal and Personal Development Plan


REFERENCE TOOLS

Reference of roles andskills

Job description andprofile

⟨ Permanent missionsand responsibilities

⟨ Behavioural skills andrequired technicalskills for the position

PLAN

ObjectiveSetting

⟨ Performanceobjectives

⟨ Personaldevelopmentplan

ACHIEVE & IMPROVE

Accomplish Missions

Coaching:⟨ Opportunities of

skill development⟨ Formal or on-site

training

PLAN

Personal DevelopmentPlan

⟨ Necessary trainingand missions toimproveperformance andprepare for the nextposition

VERIFY

Annual Assessment

⟨ Performance & skillreview

⟨ Assessments ofexpertise andpotential level

⟨ Career development