A.p. moller-maersk group: evaluating strategic talent management initiatives

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Professor Boris Groysberg and Research Associate Sarah L. Abbott prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2012, 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

B O R I S G R O Y S B E R G

S A R A H L . A B B O T T

A.P. Møller - Maersk Group: Evaluating Strategic Talent Management Initiatives

At the start of 2012, Maria Pejter, senior director of Maersk Group’s Human Resources department, and Bill Allen, head of Human Resources (HR), sat down to consider some key aspects of Maersk’s talent management strategy. Through 2008, Maersk had experienced several years of rapid growth and strong profitability. The global recession in 2008 had negatively impacted both Maersk’s top line and its returns; however, operating results had since improved, and Maersk earned record profits in 2010. In recent years, Maersk had seen a rise in its unusually low historic employee turnover rate. And Maersk had experienced a notable change in its corporate culture as it transitioned from a family-owned Danish shipping company into a global, publicly-traded conglomerate.

Allen and Pejter were evaluating Maersk’s talent management priorities in the context of the increasingly competitive and fast-moving talent market of the 21st century. As Maersk continued to grow, finding, developing, and retaining high-quality talent was becoming a bigger challenge. In particular, Maersk was experiencing five notable talent challenges.

The first of these was increased employee turnover. Maersk had traditionally relied heavily on employees who started with the Group as trainees and then spent the entirety of their careers there. However, with competition in the labor market increasing, a greater number of Maersk employees were leaving the Group for external opportunities. Maersk estimated that, of the approximately 400 trainees it brought on board each year, only 20% of them were still with the Group after five years. In light of this rise in attrition, Maersk’s HR had increased its efforts to bring in experienced hires from the outside. Allen and Pejter needed to better understand how much of a problem this higher attrition rate was creating. How did it compare with what other firms were experiencing? And was it possible that this higher turnover also provided an opportunity to bring in high-quality talent and to further diversify the Group’s employee base?

The second challenge centered on what to do with Maersk’s training and development programs. The training that Maersk had traditionally provided to its trainees was extensive, and included both formal courses and on-the-job training, including rotational programs that allowed employees to move across geographies and business units. This training was costly, but had been considered a solid investment because many employees stayed with Maersk throughout their careers. However, with employee attrition rates rising, and industry competitors targeting Maersk employees because of their strong training, perhaps this strategy needed to be rethought. Additionally, as the need arose to

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hire more experienced individuals, should more emphasis be placed on the training needs of these individuals? What other types of training should Maersk be offering its employees to ensure they were well equipped to meet the business challenges of the 21st century?

Third, should Maersk continue to hire experienced individuals from outside the firm? In recent years, the percentage of senior positions filled by external hires had increased from virtually none to 30%. What were the pros and cons associated with hiring from outside? How should Maersk think about integrating these external hires? Feedback on Maersk’s integration efforts to date had not been positive. Was it Maersk’s responsibility to integrate these senior hires, or was it a matter of hiring the type of people who understood what it took to be successful in an environment like the one at Maersk? Many companies practiced “natural integration.” What practices should Maersk put in place to integrate experienced hires, if any?

Fourth, one way of bringing in external talent, while potentially reducing the associated integration risk, was by rehiring former Maersk employees (“boomerangs”). While Maersk had no formal policy on rehiring, it had historically been considered taboo. However, given Maersk’s significant talent needs, Maersk had reversed its position on this policy a few years back. Pejter and Allen planned to look at how this policy was working and determine whether or not the change had been a good one for the Group. Should it rehire former employees? If so, under what conditions? And, at what level should they be brought in?

Finally, Maersk was becoming a more diverse company with a more diverse customer base, and was operating in an increasingly diverse business environment. In light of this, how did Maersk build an inclusive culture? Did one already exist? Or was it something they needed to continue to work on?

A.P. Møller - Maersk Group: Company Background

The A.P. Møller - Maersk Group (“Maersk” or “the Group”) was founded as a shipping company in 1904 by Arnold Peter Møller and his father, Captain Peter Maersk Møller. Arnold Peter Møller served as CEO of Maersk until his death in 1965. He was succeeded by his son, Maersk Mc-Kinney Møller, who served as CEO until 1993 and chairman of the board until 2003. In 1993, Jess Søderberg, who had been with the Group since 1969, became CEO, but resigned in 2007 after a rumored clash with Mc-Kinney Møller.1 He was replaced by Nils S. Andersen, an external hire who had been with Carlsberg A/S for over 20 years—most recently as president and CEO—but had served on Maersk’s board of directors since 2005.

Headquartered in Copenhagen, by 2012, Maersk was the largest company in Denmark, and operated in 130 countries with nearly 110,000 employees. Maersk comprised over 1,000 companies, and operated one of the largest container shipping businesses globally as well as oil and gas exploration and container terminals operations. Additionally, Maersk held a 68% stake in Dansk Supermarket Group and a 20% interest in Danske Bank.

Maersk’s businesses included:

 Maersk’s container services businesses—Maersk Line, Safmarine, MCC Transport, and Seago Line—which contributed 40% of Maersk’s revenues. These operations consisted of 645 owned and chartered vessels with aggregate capacity of 2.5 million twenty-foot equivalent units (TEU).

 Maersk Oil, Maersk’s oil and gas exploration and production (E&P) operations, which contributed 20% of revenues. Maersk had E&P operations in the United Kingdom, Denmark, Qatar, and Algeria.

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 APM Terminals, which owned and operated container terminals globally and contributed 7% of revenues. Its network included 55 container terminals and 154 inland facilities in 64 countries.

 Maersk Drilling, offshore drilling and land rig operations (including a 40% interest in Egyptian Drilling Company), which contributed 3% of revenues.

 Other businesses: Maersk Supply Service (anchor handling and platform supply vessels); Maersk Tankers (oil and gas tanker shipping); Damco (logistics); Svitzer (towing and salvage operations); Maersk FPSOs (serviced floating oil and gas producers via its fleet of three floating production, storage, and offloading units (FPSOs), one floating gas storage offloading unit (FGSO), and one jack-up production module) and Maersk LNG (owned and operated Liquefied Natural Gas (LNG) carriers).

2002–2008 saw strong growth globally for the container shipping industry, driven in part by the expansion of outsourcing, growth in emerging markets, and China’s entrance into the World Trade Organization in 2001. Maersk’s other businesses also experienced robust growth, resulting in a 15% compounded annual growth rate (CAGR) in group revenues, and a 14% CAGR in both EBITDA1 and assets over this time period.

However, in 2008, the global recession resulted in slower growth across many of Maersk’s business lines. In subsequent years, container industry volumes were relatively flat, and with significant overcapacity, rates remained soft. In light of this environment, Maersk focused on expansion in growth markets, such as Asia and Africa, and on cost control and improved efficiency in mature markets. One business which remained a growth area was energy, with rising oil prices driving strong top-line growth. Maersk produced 333,000 barrels of oil equivalent (BOE) per day in 2011 and had a strategic goal of producing 400,000 BOE per day.

As of December 31, 2011, Maersk’s total market capitalization was $28 billion (in U.S. dollars). The company had been publicly traded since 1982, and was listed on the NASDAQ OMX Nordic exchange. Maersk had two classes of shares: A shares, which possessed voting rights, and B shares, which had no voting rights. As of December 31, 2011, Maersk’s share capital consisted of 4,395,600 shares, 50% of which were A shares and 50% of which were B shares. The Møller family’s foundation controlled 41.22% of the share capital and 50.6% of the total votes. (Through other entities and private ownership, the Møller family controlled an additional 25.9% of the voting power of Maersk.) Forty- one percent of the share capital was freely floated. (See Exhibit 1 for share price data for Maersk, and Exhibits 2 and 3 for detailed financial performance data.)

Talent Management at Maersk

Talent Management in the Pre-2003 Era

The evolution of Maersk’s talent-management practices can be viewed in light of the company’s overall evolution and growth. As Maersk transitioned from a family-owned Danish company to a publicly-traded global conglomerate, its work force changed, as did its talent needs and practices. Many of these changes also reflected trends in the broader market, as talent became increasingly mobile.

1 Earnings before interest, tax, and depreciation and amortization.

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Pejter described the workforce culture that had traditionally dominated Maersk: “In many ways, A.P. Møller has been a company of people who work there for life … We have disproportionately many people who get to their 40-year anniversary or 50-year anniversary with the company, and no one makes a big wahoo out of 25-year anniversaries because they are very common.” She added that, due in part to the presence of a strong founding family, Maersk employees felt they were part of something that was more of a “familial relationship.”

Maersk had historically focused on hiring and training young, inexperienced individuals. It was not uncommon to hire individuals directly from high school. Maersk’s two-year training program entailed on-the job-training and formal coursework. Successful trainees were guaranteed an overseas placement as part of their ongoing training. Individuals were hired by the Group, and moved regularly across Maersk’s business lines.

In keeping with Maersk’s familial culture, managers were often slow to let go of underperforming

employees.

What emerged as a result of these practices was a strong, arguably homogenous and company- focused, culture. Bill Allen described the culture at Maersk as “an insular organization, internally focused, quite successful, very successful when it came to Denmark, quite successful globally, a big headquarters, slow moving, bureaucratic. [There were] lots of control mechanisms in headquarters indicative of a control culture.” He added, “In terms of things we were doing well—good focus on leadership, good focus on values, and appreciation for the heritage of the organization, [there was] a passion, a tremendous passion, about the industry, or industries that we were in, and a good foundation, if you will. Smart, competitive people. It’s got a lot to [do with] our selection procedures over the years.”

Jesper Madsen, a vice president in HR at Maersk Drilling, argued that while Maersk was good at filling the firm’s needs, it was less good at focusing on the needs of its individual employees. He explained, “But where we’re not doing well enough is on leveraging the talent of each individual. I think we have a number of employees in our organization that are not the best version of themselves—that we could actually benefit from engaging more in their personal development. So, the individual career management—career development, personal aspiration development—I think that’s the area where we are underleveraging for the time being.”

Rolf Habben-Jansen, CEO of Maersk’s Damco unit, posited that the homogenous nature of

Maersk’s employee base could present challenges. He argued, “The DNA of many of our people [is similar]—they have been selected in the past based on certain personality profiles that are very, very similar. And I’m a firm believer in the need to have some diversity also in terms of personality because suddenly when you hit more turbulent times, it sometimes just helps to have some people that don’t always go with the flow because they can help you challenge the conventional wisdom.” And, he continued, “Because we had basically grown up all the management executives the same way, that’s how we ended up with a leadership team with too similar beliefs, which is not ideal for running a truly global and very diverse business.” Bill Allen concurred, arguing that traditionally Maersk employees “knew how the organization worked. They were very, very, very good operationally. They got things done, [and were] very execution-focused. But on the other hand, they really didn’t have an external focus, because they hadn’t been brought up that way. They were probably more operationally predisposed than they were commercially predisposed.”

According to Maersk employees, key personality traits that historically characterized successful

employees included “an enormous willingness to help other people” in the organization and an

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ability to build relations. “People that are able to adjust fast, and that don’t need directions all the time” have also traditionally thrived at Maersk. Intellect, a focus on execution, and being a team player were itemized by many as critical to success at Maersk. Also, an “ability to work within a fairly loose framework, and get comfortable with that is very important, because you will be given a lot of responsibility fast.”

Talent Management, 2003–2008

As Maersk expanded, its growth impacted both Maersk’s talent management practices and

processes, and its culture. To support its growth, the Group needed more experienced personnel and

managers. To fill these needs, it focused on both hiring experienced professionals and accelerating the

career progression of trainees.

Maersk’s growth also impacted the amount of interaction between business lines. Hiring and

training became business-line rather than Group functions; and rotational training programs focused

on rotations within rather than across Maersk’s business lines. Together, these changes impacted the

employee culture. As Pejter said, “when your company grows that fast, then the relationship between

the management and those employees at the end of the chain changes as well.”

Maersk also implemented more performance measurement standards, and letting go of

underperforming employees became more commonplace. As Jorn Madsen, a senior executive with

Maersk Oil, argued, ”I think that for many years some people would say that we have been conflict- avoidant. Conflict handling is something that we’ve not been very good at—having the difficult conversations, getting rid of people. It has to do with [the fact] that we spent so much time on getting

them in, and therefore it often more reflects on the managers when they have to let a person go—why are you not able to get this person to work? But I think, in general, we have become much better at that. We also have become much better at saying, ’Well, you probably don’t fit in here anymore. You need to find yourself another place to be.’”

At the same time, Maersk was becoming increasingly global, in both its business and its employee base.

In 2003, Mc-Kinney Møller, who was chairman at the time, sat down with the top 50 managers at Maersk for a discussion about the key company values. Mc-Kinney Møller set forth his views on these values, setting the tone for the discussion that followed. That discussion led to a company-wide rollout—in many ways interactive and collaborative—of Maersk’s key corporate values. As part of this rollout, Pejter said, it became apparent that “some of the things that had been going on in terms of leadership and management in the organization were not actually quite in keeping with our values.” As a result, Maersk made a number of senior management changes.

Talent Management, 2008–2012

In 2008, Allen was named head of Group HR to help transition the HR function from administrative to strategic, and to position the company for the 21st century. Under Allen, the decision was made to delegate operational responsibilities to the business unit levels. Headcount in Group HR was reduced from 87 to 24 (and all but one of the 24 were new hires). The revamped group had three key priorities. As Allen described, “Today, we have 24 people, and we focus on just essentially three, arguably four, areas. Number one is getting the right people in the right jobs at the right time for our top 1,000 employees. Number two is leadership development [because it] drives

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business results. Number three is differentiation in terms of rewards and pay for performance. Inherent in all that is performance management.”

Under Allen’s leadership, Group HR implemented a new talent-management process. The talent management process consisted of five components: attraction, identification, development, deployment, and scenario planning.

Attraction The first piece of the talent-management process was “attraction,” the process of bringing the right people into the Group. Under the newly restructured HR department, this was largely the responsibility of the business-unit HR departments.

Identification The second component of the process was “identification,” represented by People Strategy Sessions (PSS). For Group HR, the talent-management year began in January with the PSS, which was a discussion between Maersk’s six-member executive board and the head of HR, focusing on the top 120 positions in the company. As part of this review, they considered the firm’s major needs and, as a result, the required capabilities of its talent. They looked at these needs in the context of the Group’s five-year business plan and how it might impact any changes to these requirements. For example, was a large acquisition being considered that might put a strain on existing resources? Were changes in HR needed in light of a recent accident in one of Maersk’s business lines?

The top 120 positions were then labeled as mission critical (30%), impactful (60%), and less impactful (10%). In sorting the positions this way, they made careful comparisons across business units so that not just the importance of a particular position within a unit was considered, but also the relative importance of that unit within Maersk as a whole. For example, the CFO of Maersk’s biggest unit might be considered alongside the CEO of a smaller business unit.

Next, the board and head of HR reviewed the individuals in these top 120 positions. The reviewers asked, “Who are the people who have performed outstandingly? How have they done it? Is that performance sustainable?” Employees were categorized as high performers (30%), successful (60%), and less successful (10%).

Finally, the two reviews were lined up side by side so that management could evaluate whether the Group’s best people were in the most important positions. As Pejter noted, the reviewers would ask of each mission-critical position, “If this position is done optimally, what impact would that have on the organization?”

From the PSS, management and HR emerged with an action plan. The PSS allowed them to identify (and prioritize) talent gaps in the organization and to come up with a basic action plan. What needed to be done? Was it a training need? Did an employee need to be moved? Should they bring someone in from the outside?

The first PSS was held in January 2009, and Pejter recalled, “In the first year, we had a lot of action plans but that number has been decreasing.” Pejter also noted that the PSS became increasingly more productive as managers prepared more thoroughly and became more familiar with the key positions and the people in them.

A PSS was also conducted in each of the major business units, with the management team of each unit reviewing their top 75-100 positions. Each business unit adapted the PSS process slightly to fit its own needs. As Pejter explained, “The core of the process remains the same, but different business

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units use it differently . . . give it a different flavor.” For example, at Damco a key client was invited to participate in the PSS process.

The PSS was also integrated into the global compensation system for senior leaders, with an individual’s PSS rating functioning as a cap on what that person could earn as an annual bonus. Bonus numbers were based on Group or business unit performance and personal performance, which was based on both what results were achieved and how they were achieved. “High performers” were entitled to the maximum bonus. “Successful” employees were entitled to a payout of up to 50% of the maximum, and “Less effective” employees could earn only 25% of this maximum number. Pejter recalled that in 2010, with extremely strong Group business results, PSS ratings were an important factor.

After experiencing three cycles of this process, Pejter noted that the link between the PSS rating and the annual short-term incentive strongly reinforced the company’s commitment to reward performance and drive the talent-management strategy.

Development The third part of the Group talent management process was development— and much of that stemmed from the action plans of the PSS. In recent years, broad universal training programs were replaced with more individual training and development. Additionally, while traditionally training efforts had been focused almost exclusively on trainees, a greater emphasis was now placed on the training needs of experienced employees.

Deployment The fourth part of the talent management process was deployment. Maersk replaced its focus on meeting talent needs internally with a more balanced strategy. By 2012, 70% of executives were internally developed while the remaining 30% had been brought in from outside the Group. For external hires, the benchmark was whether the person could be a high performer within two PSS cycles. For each vacant position, HR reviewed the candidate list and asked, “These are the best we have, but are they also the best we can get?” Maersk had also come to utilize partnerships with external consultants in areas where management felt they didn’t necessarily need the skill-set internally (for example, partner with a third party on an IT project). This was a big change for Maersk, as historically management felt strongly about keeping all expertise in-house.

With respect to deployment of internal resources, one area of focus for HR was “talent intimacy”—understanding not only which individuals were qualified to do a particular job, but also which were willing to do it. Is the candidate willing to relocate? What family and personal