Reinventing Talent Management: How to Maximize Performance in the New Marketplace

SECTION I

New Rules in a Changing World

This book is about the lifeblood of organizations: people and value creation. I have been particularly attracted to this subject because of its profound effect on the quality of life for individuals, organizations, and even civilizations. Countries have risen and fallen based on value delivered. We have witnessed marginal organizations, including some great brands, being eliminated in the recent economic recession, and individuals have either been displaced or are thriving in new roles based on their value contribution. Whether you think about it daily or not, most of us go through life engaging in activities that create more or less value for ourselves and others. We go to school to increase our personal knowledge and our potential value to institutions of various types. We join social groups to become more socially adept—or valuable—to those groups and to satisfy our own social needs. We join sports teams to grow physically and to become better team members. And we go to work to find value of various types: monetary, social, intellectual, artistic, competencies, increased self-worth, and so forth.

Organizations, like living organisms, are also value-producing entities. A symbiosis between organizations and people has existed since early time: Organizations depend on the effectiveness of their people to create value in the market while at the same time people depend on organizations not only for their wages, but to increase their sense of self-worth. Given the time that most people spend with their work organizations, these organizations can’t help but be a major influence on their employees’ identity, sense of fulfillment, and overall satisfaction.

For much of the twentieth century, this relationship was understood and predictable. But over the last decade or more, this individual-organization relationship is changing due to economic, cultural, technological, and political forces that require new ways of thinking about talent. Certainly the most recent recession has laid open many false assumptions about leaders, values, and the world of work. Copycat, vanilla approaches to talent management created many mediocre firms that were talent-depleted or bankrupt. Many were simply trying to follow the best practices formulas of the apparently successful firms without fully understanding the connections with their own unique strategy. Some of those are now gone because of gaps in their ability to attract top performers, their approaches to productivity, or their ability to retain the best performers. Their middling approach to talent management was adequate in booming markets when all boats were rising, but it has been fatal in a major market downturn or in environments with serious competition. I have seen this in the betrayed, blank faces of employees in organizational ghost towns.

And yet in other organizations, I find bright-eyed, exuberant, and engaged employees. The difference is both in value creation and the match between individuals and organizations with the means to accomplish that. Firms that have already positioned their talent for tough competition; created hungrier, more engaged and talented people; and developed winning cultures that enabled them to grow even closer during the downturn have been the most successful. Those organizations have moved beyond the placards, wallet cards, and banners to vibrant talent-driven cultures.

Value creation requires people who focus on agreed-upon goals, who bring knowledge and skills that will enable the organization to satisfy its customers, and who are willing to put in whatever it takes to help the organization succeed. What are the ingredients that enable this to happen? What is it that outstanding organizational leaders are doing to attract and retain superior performers who are willing to work tirelessly for the organization? What systems and tools are in their talent arsenals that enable them to leverage their human capital investments far better than most? And, how do individuals best grow their personal value by affiliating with the right kinds of organizations?

We know how to address these issues—and we can no longer waste the valuable resource represented in our talent. At the Metrus Institute, we have witnessed a wide performance spectrum and have discovered some underlying factors that differentiate the winners from all others. There is no magic bullet, but there are proven principles. Some of the principles have been around for a long time; others are new, based on emerging challenges in the new marketplace.

The newly emerging concept of People Equity described in the pages that follow is a useful framework for strategy makers and talent implementers alike. This framework will:

• Guide understanding of what optimizes workforce performance and capacity, and hence the return on talent investments

• Help senior leaders align talent with their business strategy, ensuring that sufficient talent exists in the right configurations to compete in the marketplace

• Enable talent leaders to do a better job of attracting, selecting, and retaining the best talent

• Enable Human Resources professionals to be more successful in building and executing their talent-related programs and processes, thereby enabling them to justify human capital investments more effectively

• Provide a structured set of tools that senior leaders can use to assess their current and potential leadership talent, and enable them to target resources to close leadership talent gaps

• Provide a playbook for managers to grow and develop as leaders of people, giving them the key success ingredients in managing their employees

• Give employees and team members a better sense of how personal and organizational value dovetails, and what they need to do differently to become fulfilled in their roles in a variety of organizations

Organizational Darwinism will favor workforces that are highly aligned and efficient in executing strategy, that have the right capabilities to meet customer expectations, and that are highly engaged in the mission of the organization. Having a highly productive culture is no guarantee of success, but the reverse is a guarantee of failure.

Let’s explore the possibilities . . .

1

The Talent Challenge

"While some businesses skated by with mediocre talent management in the past, they will no longer be able to do so, given the fiercely competitive world ahead."

—Susan Meisinger, retired CEO, Society for Human Resource Management

Think about any important goal in your life—getting an A in an important course, seeing your child graduate, completing a successful journey, getting that promotion, learning a new language, mastering a favorite hobby, even getting your golf handicap to levels that your friends envy. Why do some people seem to breeze through these life hurdles while others struggle? Is there some secret that they possess, or are they just lucky?

Early mentors in my life filled me with insights that at first mystified me, and later settled in at a more profound level. One lesson that I remember well was from a relative who frequently reminded me that The harder he worked, the luckier he got. That was generally true, but he had so many setbacks that I began to question his advice. Why was it that he could never hit the mark despite all the hard work?

My father-in-law was famous for reminding a smug 20-something, It’s not only what you know, but who you know! Wait a minute, I had more education than he did and I thought information was power! It sounded too political and unfair to a purist coming out of school, but I began to appreciate his wisdom when I struggled with getting my right answers accepted in my first major corporate experience. But even with his extensive network, he seemed to struggle to achieve some aspirations. Why was that?

And my graduate adviser was quick to tell me, Work smart and not hard! Wow, was I wasting that much time? What was he really telling me? Was he implying that I was not competent enough to earn my doctorate? I began to realize that I was spending too much time on interesting classes and research activities, but perhaps low- or no-value activities in pursuit of a key goal—my dissertation.

And finally, my parents saw the importance of creating value with advice such as Make a difference! It sounded like a noble thing, but little did I realize that it was the primary idea that would enable me to achieve success along the way.

Each of these admonitions (and I’m sure that you have many similar examples) intertwined throughout much of my life as I struggled to uncover the ingredients of success in college, in my academic career, in my life in a corporate behemoth that employed nearly one million employees, in a firm that I started over 20 years ago, and in my personal hobbies and aspirations. I began to realize that there were underlying factors that drive success.

But were these my own instincts? My own formula? As I examined the world informally, I began to recognize that these were not unique to me, but seemed to apply to others as well. In observing people who were successful and comparing them to those who were less so, I realized that you cannot control all of the factors in life that lead to success versus failure, but that there seemed to be some important ways in which you can stack the deck in your favor to increase the odds. As I began watching, studying, and later scientifically researching successes and failures across the globe—in sports, in business, in life—I came to realize that those who are successful increase their odds of succeeding by leveraging certain success factors, whether knowingly or unwittingly.

This book is about stacking the deck, and about growing value, both personally and in organizations as they realize the value contribution of people to organizational success. And it is not only about exploring what has guided others to success, but also about how those underlying success factors will become even more important in a world that is dramatically changing. In short, it is about making a difference!

Let’s take a look at two situations. While the names have been changed for confidentiality, the stories are based on real firms. We will begin with a smaller organization because many of the underlying issues are multiplied across the many smaller units of larger global organizations, frequently becoming lost in its complexity.

Bob’s Service Star

Imagine you own a small business like Bob, and you generate $500,000 a year in sales. For the past five years, you have cleared $50,000 annually. Not bad for a small business. After asking a few questions, and doing a few calculations, what if you were told that you might have earned $100,000, or double your existing profit. I’m sure that you would want to know what could make such a difference. And when you were told that much of that gain is in your people, you might step back and say, Wait, I manage my people as tightly as anybody, and I don’t see how that would be possible! And what if you further heard that, based on your answers to a few of my questions, you have a good chance of being out of business in five years? You would almost assuredly laugh and say, You don’t know my business as well as I do. You are right that no one can know the intricacies of your business as well as you do, but armed with a few questions about your business, a look at recent research and best practices, and an understanding of emerging trends, even an outsider could have a good chance of being correct.

Recent research conducted by the Metrus Institute in partnership with the American Society of Quality tells us that:

• Firms that receive high scores in managing their human capital are more than twice as likely to be in the top one-third of their industry in financial performance, compared to those who manage labor poorly. If the average small business is earning a 10 percent profit, recent research and best practice information suggests it could be earning as much as twice that.

• Firms in the top 25 percent on key people practices are losing far fewer of their top performers—8 percent on average compared to 18 percent in low people-practice businesses. For Bob’s service business, which has 16 employees, with an employee replacement cost (finding, training, and getting them to peak productivity) of $12,000 per employee and a turnover rate of 50 percent, turnover costs are $96,000 per year. By adjusting some key people practices resulting in higher employee engagement, turnover costs could be cut in half—bringing $48,000 more to the bottom line!

• Quality provided to customers is substantially higher with highly engaged and capable people who are aligned with their customers. Companies in the top quarter of firms on those people factors have over twice the chance of being in the top third in quality among their competitors. As the competition gets tougher, top quality firms are retaining and growing their customers far better; low quality firms are seeing significantly reduced financial results or dropping out.

Bob’s Service Star is losing 20 percent of its customers each year—over half because they are looking for higher quality. Assuming that this 20 percent of the customers represent 20 percent of the revenue, then $100,000 of revenue must be replaced each year. By bringing the right talent, information, and resources to customers at the moment of truth in service delivery, that replacement number can be cut in half. In other words, the company earns $50,000 by having employees with the right service mentality.

• Typically, 15 to 30 percent of an employee’s time is wasted in low- or no-value activities (for example, low priority e-mail, meetings without actions, socializing, phone calls, peripheral projects), because of misalignments of one type or another—employees don’t understand your goals or policies, their values are not in concert with the organization’s, or they get themselves involved in activities that are not as meaningful or productive. As my academic adviser suggested, they may be working hard, but not smart.

Highly aligned businesses can often bring that unproductive time below 10 percent. This recapture of employees’ time yields $40,000 of bottom line savings in found labor time to redeploy on additional customers, new products or services, or to scale back labor costs.

• Market trends will have an adverse impact on Bob’s Service Star. First, if Bob’s region follows national demographic projections, Bob will have to cope with a substantially different labor force, one with a different availability and mix of skills and interests. Howard Winkler of Southern Company has struggled with this issue in the Southeast, for example. He notes that there has been a great deal of commotion concerning the shortage of engineers, but in many locales around the world, basic skilled trades are not in great supply—plumbers, electricians, welders, machinists, and yes, even, auto mechanics.

During recessionary periods, there will be greater competition to secure customers, meaning that Bob will face competitors, (some new and often with lower costs), that will drive prices down. Second, some competitors, such as the dealerships that compete with Bob’s, may well be outsourcing a portion of their backroom work (for example, diagnostics or advisory services) to India, Latin America, China, or other lower-labor-cost locations. This will not only create pricing pressures, but could also increase the standards for quality or speed to compete effectively.

During the next economic expansion, organizations like Bob’s will likely face double jeopardy. First, misaligned or disengaged employees who stayed put during the recession may be eager to leave, leading to a further strain on the existing talent pool. Many organizations will go from talent feast to talent famine. Second, because of the global demographics and skills mix, the world will face a talent vacuum in many of the most desirable and critical skill areas. Organizations that are not well positioned are apt to be stripped of top talent without much warning.

This combination of trends has the potential to create the perfect storm—for Bob and for millions of other business leaders, small and large. The prediction that Bob and other firms might be out of business may not be wacky after all.

Large Corporations Face Perhaps Even Greater Challenges

We started with an example that resonates with many of you—a local small business of the sort that employs millions of workers across the globe. Large corporations, however, employ nearly half the population in many industrialized countries.

If the statistics presented here are applied to large corporations, the impact is dramatic. Imagine the success of a $3 billion firm that could be 5 to 15 percent more profitable and more sustainable in the future. That’s a lot of money to the bottom line!

Let’s take a look at GlobalCompute, a global technology giant. Martha Werthing¹ had been a successful business executive who rose through the finance ranks, taking on key operational assignments, and finally assuming the leadership of a major Fortune 500 firm. She was a charismatic speaker who talked brashly about her competitors and was fearless of their might and reputation.

She fought hard to restructure the organization to acquire missing core competencies. Internally, she challenged her global leadership team to take on important competitive battles. She articulated a clear future strategy for the business and could bring even the most cynical managers to tears with her vision of bringing the competition to its knees.

But execution is often the Achilles heel of strategy, even when it is clear and compelling. Given the speed with which GlobalCompute’s formidable competitors moved, the challenge was implementing precise market plans that depended on speed, innovation, new products and capabilities, and a highly effective internal team. While employees left her town meetings ready to take the hill, they soon bogged down on defining the hill, battling internal customers over who was right, jockeying for power, and struggling to find an identity. The company was simply not agile enough to beat the competition to the punch. While her vision was initially compelling, people quickly reverted to their historical patterns of behavior and functional silos. The misalignments were deeply embedded in the how not the what.

Moreover, the company’s capabilities were falling short of market expectations. Products were late to market, inconsistent in quality, had features that did not meet market promises, and were delivered by a disconnected sales force. No one took action to address historical values and structures that were now only obstacles to the new business plans. Without a deeper base of understanding and trust that would help create the alignment needed to execute, her beginning-of-the-week words of wisdom were only faint echoes on Friday morning.

Employees knew and trusted their earlier world; they knew what to expect and how to operate in the old ways. Many were still very much committed to the old vision and values, believing that this too shall pass. And even those who wanted to embrace the new vision didn’t know how.

Not surprisingly, the new strategy went nowhere, and Martha Werthing was asked to resign. She left behind a highly talented, but siloed and demoralized culture. Rather than creating a more committed and engaged workforce, an atmosphere of cynicism, a distrust of leadership, and frustration torpedoed the goals and brought the house down.

Werthing was considered near the top of her competitive class, and yet she failed. She was astute at the 50,000-foot level, but couldn’t align and mobilize people to execute the business strategy. She had a deep understanding of the business dynamics of her industry, but could not surmount the people challenges, which proved fatal to strategy execution. She failed when:

• People—including her board and executive suite—were not aligned with her vision. The organization could not succeed as a house divided.

• She miscalculated her ability to bring the right capabilities to the marketplace—great skills and technology alone were not enough. Talent needed to be calibrated to the vision, brand, technology, and resources in a way that customers valued.

• She struggled to hold the initial engagement of many of her people in the vision, which could not survive executive in-fighting, functional silos, poor follow-through on commitments, rapidly changing strategies, low communications transparency, and lack of input and involvement of employees.

Werthing’s situation is not unique. She and many senior leaders like her fail to successfully address the make-or-break talent factors that determine the profitability and growth of today’s organizations. Many of the old rules no longer apply. And the new rules must be applied differently in various organizations and cultures.

Reinventing Talent Management will demonstrate the need to adopt fresh thinking to managing talent in organizations of every size and type. Our conclusions are based on an examination of the new talent marketplace and the role it plays in shaping organizational growth and survival. The talent marketplace is the playing field for determining who gets what talent and how well it is being used within and outside of the organization. Externally, it is represented by global and local forces that influence an organization’s ability to obtain and keep the talent it needs to be successful. Internally, it is the vibrant day-to-day dynamics that enable some organizations to have the right talent in the right place to achieve business goals better than the competition can. This often means talent that creates more satisfied customers, is more skilled, has stronger leaders, actively recruits new talent, is innovative, is loyal, and is more productive—in short, the talent has been optimized.

In support of my conclusions, I will share