Agent of Change

By Ann Pomeroy May 1, 2005
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HR Magazine, May 2005At a company that thrives on growth, no one is more adept at change management than Dells HR head Paul McKinnon.

Dell Inc. was growing at the phenomenal rate of 80 percent a year when Paul McKinnon, Dell’s senior vice president for human resources, came to work for the Round Rock, Texas-based computer giant in November 1997. Annual revenue was about $10 billion—it’s pushing $50 billion today—and Dell stock split seven times in seven years. Employee computers displayed stock tickers as screen savers.

People issues, however, had received scant attention.

McKinnon says HR was “the least effective function in the whole company. The HR department had a terrible reputation.” As a result, “people simply went around HR and created their own programs. It was somewhat tribal, with lots of pieces and no whole.” Although HR was always closely tied to the business, he says, the pieces were “not always tied to each other. HR had no common presence in the company.” So it was a challenging job to take on, especially for a former management professor and consultant with no professional HR experience. “I wondered if I could get it all done in time,” McKinnon says. “The business needs were so clear, while the basics also needed fixing.”

A Nontraditional ‘Poster Boy’

“Dell was young, big and fast-growing,” says McKinnon. “It had always been a nontraditional company, and they were looking for a more nontraditional way to think about HR.”

McKinnon, with his background in academia and consulting, was a veritable “poster boy for nontraditional HR,” he says.

HR wasn’t even on McKinnon’s radar screen when he began teaching organizational studies as an assistant professor at the Darden Graduate School of Business at the University of Virginia. With degrees in organizational development and a doctorate in organizational studies, he expected to pursue a career in academia.

However, while McKinnon loved teaching, he realized that he didn’t enjoy writing. “You know how in academia, they always tell you they want you to write? Turns out they’re not kidding!” he says.

Leaving the academic setting, McKinnon moved to Boston in 1986, joining the Harbridge House consulting firm as a partner and becoming a principal at the Novations Group in 1991. As a management consultant, he put his teaching expertise to work designing executive coaching and education programs and working with clients on process and strategic development.

In 1994 he established his own management consulting firm and relocated to Provo, Utah, to be closer to his parents.

Working on his own proved a bit lonely at times and, by 1997, McKinnon was ready for a change. “I made a New Year’s resolution to figure out how to do what I do better,” he says. “I was 47 years old, and I thought I had one great big ramp left in me.”

Serendipitously, in March, he received a call from Kevin Rollins, a former Boston neighbor and friend who was senior vice president, general manager Dell Americas. Rollins asked McKinnon if he’d like to interview for the HR job at Dell. “I’d had no contact with him during the six years since I left Boston,” McKinnon says, “so the call came out of the blue.”

Dell offered a great learning opportunity. As a consultant McKinnon had advised corporate clients about HR issues, but he had not held a corporate HR position himself. “I took the job because I had to know if I could do it,” he says. That desire to prove himself, to test his own capabilities, is part of his “risk profile,” says McKinnon.

HR Learns To Count

Understandably, the members of his HR team had some doubts when he arrived. Andy Esparza, vice president of human resources for global HR services, recalls, “I had about 16 years of HR experience when I came to Dell a few months before Paul. He had zero HR experience.” But McKinnon quickly won Esparza and the others over “because he knew what he needed to learn.”

Wisely, McKinnon “didn’t come in with all the answers,” says Steve Price, vice president of human resources for the Americas. “He operates from a position of influence, not a position of power, and he surrounded himself with good people with the corporate HR experience he lacked.”

McKinnon quickly learned that HR had trouble accomplishing the most basic tasks, including coming up with an accurate head count of employees. “I think of the years from 1997 to 2001 as the years when we learned to count,” McKinnon says.

In an early meeting with Dell business leaders, he says, there was disagreement over just how many employees Dell had. “HR had one figure; the business guys had another. We couldn’t prove our number, so the business guys won,” says McKinnon.

Irritated by the disagreement, McKinnon complained later to Rollins. HR’s count wasn’t off by much, McKinnon said, and it didn’t really matter. “You are not going to make a business decision based on head count,” he told Rollins.

Rollins agreed. “But if I can’t trust you to count,” he said, “why would I trust you with something important?”

Afterward, “we figured out how to pay people accurately and on time, and created the core HR systems we now use around the world,” says McKinnon. “We developed the best comp tools, and we got the basics down right globally.”

This experience drove home a basic tenet, he says: “HR’s credibility is always based on operational excellence.”

Hard Times

As the HR function improved, however, Dell’s financial fortune took a turn for the worse as the dot-com bust and the following recession hammered the high-tech industry.

In 2001, stock prices plunged from $58 a share to $16 a share. Dell laid off about 4,000 employees—“one of the hardest things I ever had to do,” says McKinnon. Layoffs were particularly difficult at Dell, he says, because “we thought we were different than other companies. In 2001, we discovered we weren’t.”

Although the layoffs—one in February and another in May—were handled very professionally, McKinnon says, “I regret that I wasn’t smart enough to know that we should do it once and not twice.” Morale tanked, and rumors flew that more layoffs were imminent. “It took the company a year to get back to normal after that experience,” he says.

Dell had been an entrepreneurial experiment since its founding in 1984 by Michael Dell, who was barely 20 at the time. Esparza remembers an encounter at the grocery store soon after he began working for the company. “I was wearing my Dell shirt,” he says, “and the grocery clerk noticed. ‘I remember when Michael used to sell systems out of the backseat of his car here in the parking lot,’ the clerk told me.”

That entrepreneurial spirit survived the financial downturn, says McKinnon. After the two layoffs, Michael Dell and Rollins told employees, “We think we can double the size of this company in five years.” Revenue at the time was about $31 billion. “We think we can reach $60 billion in five years,” they said. Now, at the start of year four, with revenue approaching $50 billion, Dell is well on the way to “earning our way out of this,” McKinnon says.

The Soul of Dell

As the economic climate began to brighten, Michael Dell and Rollins, who was named Dell’s CEO in July 2004, asked HR for recommendations as they began to articulate the company’s philosophy. The company asked itself, “What does it mean to be at Dell now?” says Price. The resulting document outlining the company’s basic values and beliefs—“The Soul of Dell”—was “created at the top of the organization and edited by about 200 vice presidents around the world.”

While the statement highlighted the company’s focus on customer experience, product leadership and globalization, “there was no mention of people,” says Price.

Clearly, something was out of whack. “HR has always had a seat at the table [at Dell] because the HR implications—talent development and acquisition—are high,” Price says. It was time to focus on the people element.

The company hadn’t done much to develop people in the past, says McKinnon. “We’d gotten a bit cavalier. People will put up with a lot when the company stock is growing at 300 percent a year,” he says. But when bad times come, employees begin to look around and wonder what else is out there.

Dell had always been a great business; now it wanted to focus on becoming a great place to work as well. At the time, those were bold words, says McKinnon, for a company with a “churn and burn” reputation, particularly for vice presidents.

Changing the Dell Culture

To address the “people gap,” McKinnon led the effort to develop what Dell termed a “winning culture”—one that would showcase Dell as a great place to work as well as a highly successful financial operation.

“Dell is very results-oriented,” McKinnon says. “It’s very performance-driven and very data-driven.” But now, managers were told that Dell believes “good management counts.” “It’s not an either/or situation,” says Price. What Dell didn’t want was “great performers who leave a trail of bodies in their wake.” Managers would now be rated by their employees in semiannual surveys. Managers who received less than 50 percent favorable scores on five questions (see “Rating the Managers,” below) would feel the effect in compensation, bonus and promotion opportunities, and would be required to take additional training. The target score was at least a 75 percent favorable rating.

In addition, managers were expected to work continuously to improve their management performance. “If you aren’t better at your job today than you were last year, you’re falling behind,” says McKinnon, “because the job has grown.” He says Dell wants managers to aim for 20 percent improvement each year—as much as the business is growing—and he’s encouraged to see that the scores are heading upward.

“We’re making progress,” says Esparza, “but we have a long way to go.” For example, he says, the issue of work/life balance remains a challenge for the company.

Developing Leaders

As Dell improved its training of first-line managers, it became clear that the company needed to do a better job than it had with the more senior managers, “who are the culture carriers,” McKinnon says.

Executive education programs at Dell had tended to be somewhat “clinical” in the past, with lots of consultants who attempted to “inspire by PowerPoint,” says Esparza. What the company wanted to do now was to develop more-emotional connections to leaders who could inspire by example.

“Michael and Kevin didn’t get it at first, and they were pushing back,” says Dominick DiCosimo, vice president of global HR operations. Once they became convinced of the program’s value, though, “things began to happen.”

Developing strong leaders “turns HR from an administrator to a consultant. That adds value,” DiCosimo says. Because it’s so important, leadership development “is not something to be delegated to a third party.” Michael Dell and Rollins—not consultants or HR professionals—personally teach leadership skills to their senior executive team at annual sessions. In turn, those executives teach their own teams.

This works well at Dell, says Esparza, because “there are few egos here.” Everybody wants to learn, including those at the top. “I remember a dinner hosted by Michael where he pulled out his 360 review and talked about some of the things he’s working on,” Esparza says.

At a recent executive development session with Michael Dell and Rollins, says McKinnon, “one of our business leaders said, ‘You know, three years ago I couldn’t imagine spending this much time on people issues. Now I think we need to spend at least this much time every time we meet.’ That’s the shift we’ve been able to capture.”

Adept at Change

Today, more than seven years after McKinnon’s arrival at Dell, the HR function has changed so dramatically that earlier this year the company was named by Fortune magazine as the most admired company in America.

Few companies “have experienced the kind of growth Dell has experienced,” says McKinnon. “Our problems are growth problems. And it’s all organic growth, not mergers and acquisitions. As Michael says, ‘We acquire other companies one customer at a time.’ “We have had to reinvent our talent acquisition programs two or three times since I came.” During the last three years, McKinnon says, “no one could say that HR is not aligned with the business [here].”

The challenge for the future, says McKinnon, will be to find enough leaders to keep pace with the company’s swift growth, both by developing internal candidates and by hiring, training and “teaching the Dell way of doing business” to external candidates.

“The ground moves beneath your feet at Dell,” says McKinnon. There are 53,000 employees today, and the company is looking to hire “10,000 net adds” this year, he says, which could mean hiring 15,000 people to account for attrition. Keeping up, says McKinnon, “is like trying to keep an adolescent boy in trousers. You buy them big so he won’t outgrow them too soon, but before you know it, they’re too short.”

Esparza agrees. “Change and ambiguity are a core competency of the company,” he says. “At Dell we shift, flex, change, grow, adapt. We do this better than most.”

The company operates on a thin margin, and the work environment at Dell is “somewhat Spartan,” says McKinnon. There are no fancy offices—in fact, there are no offices at all except the one shared by Michael Dell and Rollins. No executive parking spots, no company plane, and the work is “relentless, hard and demanding,” says McKinnon. “The pressure is great. You are always running as hard as you can—and I really like it!

“Michael Dell’s entrepreneurial drive and Kevin Rollins’ ability to figure out how to grow [the business] combine to produce an impa-tience for why you can’t do [something],” says McKinnon. “Tell them why you can’t do something, and they’ll come back with 50 reasons why you can do it. Go through enough of those encounters, and you decide, ‘I’m just going to skip that step. Even though I don’t know how to do it, I’m going to figure out how to get it done.’ ”

This kind of hard-charging atmosphere is not for everyone, but it suits McKinnon. “I like to be tested,” he says. “I like to problem-solve, and I really like to win.” The desire to win is a basic Dell trait, says McKinnon, “but we don’t compete with each other. We have great staff work.”

McKinnon says he has learned a lot from Price, Esparza, DiCosimo and the rest of the HR team. In turn, HR team members value McKinnon as a mentor. “We work like colleagues, not like boss/employee,” says Esparza.

Price says he admires McKinnon’s authenticity, his willingness to be vulnerable. “That’s a character trait of great leaders,” he believes. DiCosimo calls McKinnon a “visionary. He thinks in a big-picture way, rather than in a tactical way.”

McKinnon looks forward enthusiastically to the challenge of keeping up with the constant change and growth at Dell.

“We aren’t where we want to be yet,” he says. “I want the Dell HR function to be recognized as the best HR function in high-tech before I hang up my spurs here.”

Ann Pomeroy is senior writer for HR Magazine .
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