Praxair’s 27,000 global employees include a number of highly skilled engineers and scientists generally not versed in the financial and business world. The company’s executives recognized the need to bridge the gap between the technical and business sides of the organization and used learning simulations to sharpen the business acumen in technical talent and identify untapped managerial potential.
Industrial gases company Praxair Inc.’s CEO Dennis Reilley took over in 2001, bringing an outsider’s perspective and experience in the energy and chemicals industries. Praxair was a healthy organization with an almost 100-year track record, but Reilley saw potential for greater growth.
He understood that even well-performing companies are vulnerable to complacency and inward-focused decision-making. For instance, he observed that while Praxair’s global pool of engineers provided a wellspring of technical talent, their lack of business and financial acumen helped to lessen their direct personal accountabilities for business results. This allowed crucial information to fall between the cracks.
Reilley also determined that, to grow at an industry-leading rate, Praxair needed to expand the managerial potential within the engineering ranks. In the company’s annual report, he said: “I believe leadership — at all levels — is what lifts adequate performance to excellent performance, and leadership development is where we focus our efforts.” Armed with that corporate vision, he challenged human resources to:
• Help Praxair’s technical talent better understand its financial impact on the organization’s success.
• Provide insight into management’s business challenges.
• Teach engineers to communicate technical information to facilitate decision-making.
• Expand the pipeline of managerial candidates from the technical side of the business.
A New Approach to Critical Thinking
Praxair brought in executive development consultancy TRI Corp. to develop a mix of simulations that form the core of its executive development curriculum. These products use short presentations, team breakouts and a computer program to standardize team input. The use of role-plays allows teams to interact with internal and external resources critical to the company’s success.
These interactions provide information and an opportunity for negotiation based on the desires and strategy of each team. A primary goal is to create a deeper understanding of what each employee must do to increase the probability of business success.
The resulting simulation-based curriculum is a series of courses that target various levels of experience as Praxair employees move through their careers. These courses are flexible and can be conducted on an as-needed basis in a particular region.
Praxair line functions are staffed with the minimum required resources to get the job done. Operating lean means the company cannot commit huge numbers of employees to simulations. In 2014, the change effort will target three distinct populations:
• The bright, newly hired who have made contributions within nine to 18 months of starting employment. The goal is to identify them early and cement their relationship with the company.
• Technical specialists with Praxair for five to 10 years who are adept at a narrow range of activities, and who have the potential to step up to management and possibly small profit and loss roles.
• Praxair executives with more than a decade of experience and strong senior leadership potential who need a broader, enterprise-wide understanding of what creates long-term success.
Participants are selected exclusively by nomination to increase the importance of the program both to the individual and to the sponsoring manager. In a typical year, 200 to 300 employees participate in the curriculum, although some years have seen more than 500.
Each year, Praxair hones curriculum content to ensure it reflects what is going on in the business. The simulations have experienced minimal refinements over time, but the core of each remains essentially unchanged.
Sally Savoia, vice president of human resources at Praxair, has witnessed a succession of employees progress through the three courses, some to assume executive-level positions. She said that “employing business simulations as the core of a multilevel development curriculum has materially contributed to the growth of Praxair’s leadership over the past decade.”
A Common Structure
Each simulation is built from a basic framework that is adaptable to the specific needs for each program in the Praxair curriculum:
• Participants are brought together from across the globe and grouped into competitive, cross-functional teams before the program starts to emphasize creating demographically balanced teams that represent a variety of functional responsibilities and experience levels. Team members are encouraged to switch out of their traditional roles to gain a different perspective on running the business. For example, a finance person might take on a human resources function. Each team is given a model spreadsheet with a task to solve for a hypothetical enterprise.
• Simulations are conducted in two-hour rounds.
• In each round, team members collaborate to create a business forecast, gathering crucial information through interactions with “customers” and “suppliers.”
• Participants learn to respond to the ever-changing circumstances that go with running a real-world business.
“These programs are intentionally laden with a series of personal challenges focused on critical development areas. This tailors the learning to help participants move their leadership capabilities forward,” said Carlo Peratoner, CEO of TRI Corp.
Each of the three simulations in the Praxair curriculum offers activities tailored to participants’ experience level and company goals, progressing from an introduction to the business for entry-level technical talent to leadership grooming for senior executives.
Promising employees in their first five years at Praxair are enrolled in the Career Development Program. For three days, participants leave their comfort zone — the tech world — and are immersed in the business, where they gain insight into their own effect on Praxair’s bottom line and a better understanding of management’s challenges. Within this stretch environment, they learn to identify their strengths and areas where they can improve. After functioning essentially unchanged for the past 12 years, this program is being restructured for 2014.
The second program, the General Managers Program, targets employees with five to 10 years of business-level experience. Its core is the general managers simulation, a five-day exercise emphasizing teamwork, individual leadership capability and executive presence. Participants gain a holistic, enterprise perspective on what it takes to be a general manager:
• Each team is tasked with successfully operating a small manufacturing business during a two-year simulated period.
• Teams make decisions on a quarterly basis.
• Each fiscal year ends with a business review that simulates Praxair’s real-world annual reviews.
• Individuals take on different roles and experiment with strategies that lead to varied outcomes.
• Through a separate activity, the customer case, participants engage in role-play with a hypothetical customer to gain perspective on the value their business creates for its real-world customers.
Praxair executives identified as candidates for key leadership positions are invited to enter the third program, the Global Leaders Program. This intensive, two-week session is designed for general managers and other senior-level executives with at least 10 years of experience. It takes place near Praxair’s corporate headquarters in Danbury, Conn., allowing participants to interact with the organization’s top executives.
Four days of the Global Leaders Program are dedicated to TRI’s enterprise-driven senior leaders simulation. Participants will recognize a more sophisticated version of the activities they completed in the general managers simulation, with more complex variables and leadership challenges to enhance their skill set while identifying areas in which they can improve.
There are six rounds in the Global Leaders Program, each representing a fiscal quarter, complete with business reviews. Facilitators guide teams through advanced financial analysis, decision-making under uncertainty and prudent risk-taking.
The remainder of the program is devoted to understanding one’s work style and the advantages and complications that come when leading people. Among the highlights is the NYC Leadership Challenge where, as small competitive teams, participants must interact with a variety of people in a range of business situations with specific goal achievements as outcomes. Winning the challenge has become a point of personal pride within the company.
The Evolution and Results
Today Praxair’s functional leaders have a better grasp of how their behaviors impact the organization’s financial success. Individual performance reviews show they understand the challenges managers face in forecasting and delivering on commitments because they have experienced it firsthand. The emphasis on generating cash flow and providing best return to shareholders in development activities has provided a consistent theme that supports Praxair’s actual business behavior.
Since the company launched its executive development curriculum, it has experienced a 10-year compound annual growth rate of 11 percent, and it continues to lead the industry. Praxair’s three-year average operating cash flow of 22 percent outperforms the industry average of 17 percent.
The program’s initial budget was less than $1 million. The curriculum has since operated within a range of 50 to 100 percent of that initial budget, with each year’s budget dependent upon market conditions and business plans.
In 2007, Praxair executive Steve Angel succeeded Dennis Reilley as chairman and CEO. Under his leadership, the curriculum expanded to include a first-line supervisory offering called Leading in Praxair, which focuses on the critical things that need to be done well to get the best out of a manager’s talent. One of these is Praxair’s performance management process, which includes pooled ratings in similar job categories and balanced monetary rewards within a forced ranking structure.
While there are many factors fueling Praxair’s competitive advantage and business results, it is executive leadership’s focus on efficient and effective business operations, executed by a consistently strong bench of current and future business leaders, that will sustain its growth for generations.
John Gumpert is a retired former executive director of corporate human resources for Praxair. He can be reached at editor@CLOmedia.com.