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Rio Tinto’s redesigned HR structure and practices will serve it well in good and bad times.
With a global recession looming, in December 2008 the Rio Tinto Group announced a workforce reduction of 14,000 employees and contractors out of 100,000 employees and thousands of contractors worldwide. In response, we leveraged our global HR personnel to accomplish an incredibly difficult task with speed and sensitivity.
As leader of Rio Tinto’s People & Organization Support team for the Americas, I made sure we had a well-coordinated approach across the region and globally with two other divisional teams, one for Europe, the Middle East and Africa and one for Australasia. In addition, these HR teams were supporting the business through this time—and reducing our own staffs.
At the time, I had the overwhelming feeling that we were prepared to meet these economic challenges, even though we didn’t know exactly what would happen. We knew we could downsize in an efficient, ethical and sensitive manner. We were confident we could get the job done because we had been involved in the initial business discussions and understood that downsizing had to occur.
Equipped with a common global approach, regional severance policies, a comprehensive database, measurement tools to track the full impact of reductions and global providers for outplacement, we completed most of the reductions in the first quarter of 2009. Early identification of high-potential leaders and workers with critical skills allowed us to move staff around internally to retain as much talent as possible. We also trained managers to help remaining employees stay focused. As a result, our chief executive was able to report on our progress to the market with confidence.
Three years ago, the process and result would have been different. Executives and HR directors in individual business units around the world would have approached reductions with different time frames, policies and tracking mechanisms. Obstacles to redeploying talent would have translated into skills losses in one business while critical needs in others remained unmet. The process would have taken two to three times longer, and employee engagement and morale would have suffered unnecessarily.
Looking back, the contrasting results stem from strategic actions taken by human resource professionals that transformed the business worldwide.
Rio Tinto Group
Industries: Mining and metals. Iron ore, copper, aluminum, diamonds, industrial minerals.
Ownership: Publicly held (RTP); FTSE; ASX; NYSE.
2008 revenue: $54 billion.
Top executives: Tom Albanese, chief executive officer; Hugo Bague, global head of human resources.
Employees: 98,000 worldwide.
Locations: More than 60 operational and project sites in more than 50 countries.
In 2004, Rio Tinto’s share price started to waver as our leadership position came under threat from a changing business model in the metal and mining industry. Pressing for lower costs, customers wanted to leverage purchases across commodity sectors—such as copper, coal or iron ore—participate in global marketing and streamline their supply chains. Rio Tinto was ill-equipped to respond. Our business model, consisting of affiliated owned or joint-venture companies, was decentralized with few global standards, systems or programs. We needed a global model to regain our competitive edge.
In mid-2004, Rio Tinto launched "Improving Performance Together," global transformation projects including Lean, Six Sigma, shared resourcing and development of a Group-wide information technology system. Rio Tinto migrated to a distributed business model organized around four product groups supported by global corporate functions and shared services to reduce duplication and administrative costs.
In 2005, I joined Rio Tinto as vice president of human resources for global functions. I was hired because of previous experience providing global shared services and HR support in another metals and mining company, and I became part of the team that transformed HR at Rio Tinto. We first spearheaded a strategic review of functions for effectiveness and efficiency. Our goal was to bring every HR function on the global journey and build a model for delivering quality services at lower cost. The transformation has been energizing and pushed me and others to re-examine the value HR managers bring to the business.
Researching best practices in and beyond our industry resulted in adoption of a consistent organizational model for the major support functions. Pushed by the mid-2007 arrival of Hugo Bague, global head of human resources, this "3D" model—design, determine, deliver—was refined for HR. It details levels of people, structure, process and systems:
HR people. To optimize our model, we need HR professionals capable of operating within and across the 3D spectrum. Ten years ago, the majority of our HR professionals would have spent their entire careers in one plant. Today, we provide opportunities that span product groups, locations and assignments. Moving staff members around fosters a consistent culture, and they emerge as well-rounded managers.
Structure. The 3D model enhances the strategic role of human resources. First, global practice leaders design corporate policies, programs and strategies within five areas: leadership and people development, total rewards, recruitment and talent, organizational effectiveness, and HR information technology. Then, in regional People & Organization Support (P&OS) organizations, HR workers deliver services such as payroll, benefits, compensation, recruitment, and training and development. At operational levels, vice presidents of human resources determine the needs of their respective product groups and business units.
To provide governance, Bague created a Senior HR Council made up of global practice heads, P&OS leaders and product group vice presidents.
Process. Common processes strengthen culture and employee engagement. We leveraged Rio Tinto’s values and principles to create a consistent HR philosophy supported by policies and standards with the flexibility to accommodate country variables such as regulatory requirements, legislation and collective bargaining agreements. We think globally first, then regionally and locally to ensure alignment from the mines’ coal faces to corporate headquarters in London.
Systems. Efficiencies can be obtained by digitizing processes and self-service tools. We are halfway through grafting critical global functions—such as talent and performance management, merit and incentive management, and recruitment—on the backbone of an enterprise resource planning (ERP) system. Acquisition of aluminum giant Alcan in 2007 introduced a different ERP, complicating, but not stopping, the project. We use best-of-breed systems to integrate data and functions. Today, we must prioritize systems needs and develop compelling cases to demonstrate value and return on investment.
Rio Tinto Group’s Human Resources Operation
Agents of Change
Unifying disparate HR departments across multiple business units with harmonized plan designs and administration has increased our speed and lowered costs. Although we improve every quarter, the transformation remains far from complete. These changes equip the organization with greater "plug and play" capabilities, adding value when it comes to acquisitions and divestitures. The ability to quickly integrate a new organization—or divest one—has become key to business strategy and produces tangible benefits on the balance sheet.
Rio Tinto’s $38 billion acquisition of Alcan catalyzed the Group’s globalization and showcased the HR team’s ability to lead change and create value. Co-led by HR and finance managers, the Integration Committee exceeded analysts’ expectations by achieving more than $1 billion in synergies. The acquisition challenged us to address cultural alignment. In 2008, Rio Tinto’s first-ever global employee engagement survey provided data and insight that have helped us tap employees’ discretionary efforts and enhance our competitive position.
Our investment in creating an end-to-end global HR function with metrics and milestones continues to pay off during the recession. A resilient model gives us the structure to go after inefficiencies. As the economy and financial markets crumbled, we helped Rio Tinto switch from managing growth to preserving cash by curtailing production, reducing the number of development and expansion projects in our project pipeline, and protecting our talent base. Assessment of organizational and individual capabilities, workforce demographics, and planning and external market intelligence number among the tools brought to closure and layoff decisions.
A move from defined benefit pension plans to defined contribution plans serves as another recent example of strategic positioning. This increases Rio Tinto’s ability to attract the next generation of workers, who demand portable retirement options, while conserving cash through reduction of longer-term pension liabilities. We take pride in the fact that we transitioned to the defined contribution platforms without disenfranchising existing employees.
Value of a Global HR Function
Rio Tinto continues to invest in mining and processing technology, hard assets and commercial resources. However, leveraging human capital, organizing teams, developing talent, and fostering creativity and innovation remain the Group’s greatest source of potential competitive advantage: Our transformation will be measured by our ability to capitalize on people. Our HR professionals have become astute strategic business partners, shared services experts and global practice leaders—and, as a result, have acquired skills essential to optimizing productivity. The value generated by a 1 percent to 2 percent productivity increase across our nearly 100,000 employees far outweighs the entire cost of the transformation.
We continue to respond to short-term needs for cost reduction and cash preservation while helping Rio Tinto’s leaders make decisions in the company’s long-term interests. For instance, we take care to rightsize the organization without stripping away our ability to capitalize on opportunities when the market rebounds. All the while, global human resources becomes embedded in the business—a business built to last.
The author is vice president of People & Organization Support for Rio Tinto Group, Americas, located in Montreal.
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