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Impact in Organization and Talent

Linking Strategy Pivot-Points to Structures and Roles

Consider the distinctions between two of the most successful organizations in the world: Berkshire Hathaway and GE. Both pursue strategies that require that they offer shareholders value through their ability to create value across a diverse set of businesses in vastly different competitive markets. Yet they could not be more different in their choices about how to organize. Berkshire Hathaway is organized as a holding company of businesses that largely operate separately.¹ GE creates distinctive value by leveraging its management systems across its diverse business portfolio.² Whereas Berkshire Hathaway seldom shares leadership talent across its divisions, GE is world renowned for building leaders that move quickly and effectively across its businesses, providing synergy and consistency and leveraging common management systems. Both companies are building valuable and strategic top management and leaders, and both companies have built organizations that deploy that talent strategically. The strategic meaning of these talent pools and how they are organized are very different. Indeed, GE and Berkshire Hathaway are successful precisely because they understand, more completely than most companies, how the organization and quality of leadership and top management talent contribute to their unique strategic value. GE doesn’t need the same talent approach as Berkshire Hathaway, and vice versa. In this chapter we describe the elements of talentship that inform decisions about how talent is organized, as well as the differential contributions of talent pools within the organization. This chapter also deals with how organizations can tell when their talent pivot-points are different from others, as is the case with leaders at GE and Berkshire Hathaway.

Chapter 4 described the first stage of the impact analysis, which is finding the pivot-points within the strategy to attain sustainable strategic success through the use of strategy lenses, including processes and resources. In this chapter, we complete the impact analysis by linking the strategic pivot-points to the organization and talent implications. Figure 5-1 shows this graphically, within the HC BRidge framework. The organization and talent linking element translates the strategy analysis into its implications for organization boundaries, management system, and the quality of the people. This element also serves as the connection to the linking elements that define strategy execution through effectiveness and efficiency.

We will use the concept of performance yield curves and highlight the strategic options revealed through understanding the connection between sustainable strategic success and the performance of organization and talent. Organization and talent pivot-points arise at three levels:

• Organizational pivot-points

• Pivotalness between talent pools (talent pool segmentation)

• Pivotalness within talent pools

FIGURE 5-1

HC BRidge framework: Organization and talent

This chapter describes the first two levels from that list, as well as some organization and talent pool decisions that exploit these insights. It also introduces the third type of talent pivotalness (the elements within pools and roles); chapters 6 and 7, which address effectiveness, more thoroughly examine that type of pivotalness and how program and practices support it.

Organizational Pivot-Points

Pivot-points at the organization level involve formal and informal relationships inside and outside the organization, such as formal organization structures, reporting relationships, hierarchy, and management systems, as well as informal social networks and communications. Every theory and framework of organizational design includes alignment with the strategy, but few describe how to analyze the strategy thoroughly enough to reveal the organizing implications. Chapter 4 showed how strategy lenses reveal deep insights, which we will now connect to organization elements.

Linking Organizational Design to Enterprise Portfolio Strategy

Why does your organization have the business units that it has? How do those units create more value together than they do apart? How do the answers to these questions reflect how your enterprise is organized?

While those are seemingly basic questions, we find that many organizational structures are not directly linked back to the fundamental theory of the organization that drives the portfolio. Berkshire Hathaway is clearly driven by a value-based investment philosophy, not unique value added by the integration of its business units. What are the implications? A very small home office and little focus on either common management systems or integrating talent across the organizational units. For example, leaders at Dairy Queen do not typically experience rotational assignment through NetJets or Geico as part of a career path to develop future enterprise leaders for Berkshire Hathaway. The situation at GE, however, is quite different.

A major part of GE’s enterprise strategy is to develop and implement state-of-the-art management systems across diverse business units. As a result, leaders are routinely moved between diverse divisions not only to bring new thinking on the management systems to new divisions but also to develop a deep bench of leaders to support new business opportunities, including mergers and acquisitions.

The portfolio strategies for Boeing and Airbus are also quite different.³ For Boeing the primary portfolio strategy includes significant investments in both military and commercial projects. One of the goals is to share innovation and know-how across divisions. When Boeing complains about the European government subsidies that Airbus receives, Airbus is quick to counter that Boeing receives significant benefits from U.S. government investment, largely through military contracts. The desire to share know-how across the organization was one of the major reasons that Boeing invested in its state-of-the-art leadership center on more than fifty acres just outside St. Louis. One of the major goals was to create a place where leaders from across the diverse Boeing enterprise could experience learning together.

At the same time investments that European governments have made in the European Aeronautic Defense and Space Company (EADS, Airbus’s corporate parent) also have organizational implications. One of the most challenging dynamics is the need to allocate production and relatively high-paying aerospace jobs across the countries that provide support to EADS. The Airbus production process must be organized in part to reflect the theory of the EADS portfolio, which in large part was driven by a desire to create a sustainable aerospace industry within Europe.

Linking Organizational Design to the Value Chain

When considering the organizational pivot-points of the strategy analysis, one of the first areas to consider is how the value chain (i.e., the supply chain) is organized to deliver the unique strategic position. How does the organizational design support the delivery of the unique value proposition? Continuing with the Boeing illustration, this is clearly a critical issue for the 787 offering. One of the most profound pivot-points at the organization level is the supplier partner network required to produce the 787. This plane is different because Boeing suppliers will preassemble large segments. One of the primary organizational pivot-points is that a larger segment of the supply chain extends outside Boeing, including more input from the suppliers on key elements of component design. To achieve cost efficiencies and rapid scaling across this supply chain, Boeing must coordinate with suppliers at a much higher level than its usual approach. Traditionally, Boeing did much more of the integration in-house and had suppliers provide components at a much more basic level of assembly. Now Boeing must create a more boundaryless manufacturing supply chain across a much more diverse range of suppliers.

The issues associated with protecting strategic advantages also have implications for the organization. Any supply chain design must consider the potential transfer of market power from Boeing to its suppliers. IBM learned this lesson the hard way. When it decided to make PCs in 1981, it lent credibility to a novel new product. Unfortunately for IBM, there was far more long-term value creation for two of its suppliers, Intel and Microsoft, than there was for IBM.

Boeing will need to carefully define not only how it intends to work with the network of suppliers but also how it plans to protect itself from competitive attacks from these same suppliers in later contracts. Boeing pursued a strategy of higher-value systems integration, meaning larger blocks of work would be done by outside suppliers, encompassing larger domains of the processes Boeing had historically done in-house. Boeing’s organizational challenge is to create large-scale systems integration without creating future competitors at the same time.

This will not be easy. Important parts of the plane will be assembled by organizations in China and Japan. These countries clearly intend to build their capabilities in the commercial-aircraft-manufacturing industry. They are also potential future suppliers to Airbus and, therefore, potential future competitors to Boeing. At the same time, selling planes in Asia is vital, and without significant production within those countries, political barriers will likely result. Boeing intends to successfully use this international group of suppliers in part through a highly integrated information network to manage the engineering, manufacturing, and supply chain across all suppliers. This is just one example of the many types of systems integrations that Boeing believes will provide unique competitive advantage.

Both Boeing and Airbus obviously need to manage their suppliers, as does any organization. However, the talentship strategy lenses look deeper, making the implications for Boeing’s talent and organization much more specific and clear. If Boeing is to achieve successful production and increase its early production to capture demand before Airbus is ready, it must be uniquely world class at managing suppliers in a very specific way that is different from Airbus. It needs to be world class at managing the coordination interfaces that make composite-based manufacturing work and at protecting the intellectual capital that suppliers will be creating.

Strategic Organization Challenges for Airbus

Airbus has its own challenges in organizing its value chain and production processes due to its unique organizational structure and history. Airbus was initially formed in 1970 with French and German ownership, followed shortly thereafter by British and Spanish involvement. In 2000 all the interests (other than the British) were consolidated into the newly formed EADS, and in October 2006 EADS purchased the 20 percent stake owned by BAE Systems to become the sole owner of Airbus.

This ownership structure, with its unique political dynamics, has proved challenging from an operational perspective. Several international newspapers and others noted that economic logic is often in conflict with the political logic that is important in shaping behavior within Airbus and among its executives.⁴ The Wall Street Journal expressed similar sentiments when it said, “The structure of Airbus—created in 1970 by technocrats in France, Germany, Britain, and Spain—is rooted in its origins as a consortium and has long proved more effective at spreading jobs and tapping subsidies than generating profits.” Some believe that the challenges present within Airbus are shared by other European corporations that focus on balancing national interests as a significant part of their capital structure, including Royal Dutch/Shell, ABB, and Unilever.⁵

Delays and cost overruns mounted throughout 2006 with the A380 project, costing Airbus a great deal economically and from a public relations perspective. The organization’s CEO, Christian Streiff, resigned after just three months on the job. It is widely believed that a major factor in his resignation was the inability to achieve the restructuring that he felt was necessary for Airbus to be competitive. In large part this appears to be a result of the economic logic for the restructuring plan not aligning with the corporate and political structure that was the foundation of EADS.

Organizing Around Strategic Resources

Another pivot-point in organizing is the coordination of strategic resources. Recall that strategic resources are those that provide the foundation for competitive advantage because of the unique value they can create and because they are difficult for competitors to emulate. When building, leveraging, and deploying strategic resources spans organizational boundaries (internal or external), resources are an organizing pivot-point. This is a common challenge in complex organizations where multiple business units share common strategic resources.

When it comes to coordinating strategic resources across both internal and external boundaries, Disney is considered world class.⁶ Its formal organizational structures and processes ensure that as a creative concept is developed and released, the strategic resources it generates are leveraged across multiple divisions. If a new character is created through a movie (such as Belle in Beauty and the Beast), it will also be a character in the theme parks. Stories about the development of the movie will be shown on the “commercial-free” Disney Channel. The character’s outfit will be available in Disney retail outlets. A traveling Broadway show, figure skating show, and permanent show at Disney World will further leverage the concept. Disney’s organizing pivot-point focuses on leveraging its primary strategic resources of new creative content across multiple platforms.

For Boeing one of the critical resources that must be coordinated across business units is organizational competency in composite technologies. The key is to collect and make available the relevant expertise and capabilities in composite design and manufacturing. This is complicated by the fact that Boeing has received a great deal of U.S. government funding and much of that has been through Department of Defense appropriations. Boeing must ensure that none of the technology involved is subject to export controls. An airplane that cannot be sold outside the United States would be a disaster, since the fastest-growing markets are overseas. The organizational units that accept Department of Defense funding must manage the resources embodied in their discoveries, realizing that those discoveries may be needed for nonmilitary applications in other parts of Boeing. Talentship emphasizes these deep logical connections between strategy pivot-points, such as strategic resources, and the unique organizational pivot-points that they imply.

Organizational Implications of Business Process Constraints

A third area of insight arises by connecting organization pivot-points with the constraint analysis using the business processes lens. We have noted that constraints commonly lie across internal or external organizational boundaries. The source of the constraint is not the relative capabilities themselves but the challenges that occur at the boundaries. For example, we worked with a service company where the critical challenge was sharing customer information across business units that wanted to reach the same customers while still managing the customers in separate product line silos. Other challenges can include lack of trust, misaligned goals, and a poor understanding of perspectives on each side of the boundaries.

Limitations imposed by the constraint hurt the entire organization, but because the constraint isn’t fully within any one unit, it is often not strictly the responsibility of any particular manager or leader. Working effectively across such boundaries is the pivot-point. We have found that focusing on the organizational boundaries where a constraint is affecting the organization can make substantial improvements in the execution of a strategy and improve results.

Relative Pivotalness Between Talent Pools

The next level of analysis focuses on comparing different talent pools. The idea is to segment groups of jobs, roles, and actions according to how much changes in their quantity and quality create changes in vital strategy elements. We noted earlier that pivotalness is different from average value. Comparing talent pools based on pivotalness often reveals very different insights than the more typical comparisons of importance or overall value. For example, Kaplan and Norton describe strategic job families as those where “learning and growth” competencies “have the biggest impact on enhancing the organization’s critical processes,” using an illustration from our presentation with John Bronson, then of Williams-Sonoma.⁷ Yet the importance of learning and growth is different from where it is most pivotal. Organizations often mistakenly believe they have adequately identified their vital talent pools when they distinguish those pools according to average strategic value. Talentship shows that comparing talent pools based on pivotalness will often produce different insights.

There are potentially many pivotal talent pools for Boeing in the execution of the 787 strategy, but we will focus on only two in this chapter: public relations and supplier relations management. In the following chapters we will explore some of the implications for the changing role of engineering within the Boeing strategy.

Public Relations at Boeing

The talent pool of public relations and communication at Boeing becomes much more pivotal in light of the organization’s strategy with the 787. While communications has always been important, Boeing now faces a nearly daily battle with Airbus to convince stakeholders that Boeing’s vision of the future of the airline industry is correct and that its claims about the 787 are more accurate than the proposed A350.

To help address this issue, Boeing has appointed a talented executive, Randy Bassler, as a key executive in their external communications. Bassler is a highly qualified leader; Boeing might have chosen to deploy his talents to any number of important projects or processes. It chose, however, to allocate his talent in large part to communications because effectively getting the messages out to a wide range of constituents inside and outside the organization is more critical than the same role in other Boeing programs. The company has even given him a blog on the corporate Web site, making him the only Boeing employee to have a direct link from the corporate Web site, where he is listed by first name!⁸ While the focus is on Randy Bassler, he is just the personification of a highly coordinated public relations effort, one that is clearly pivotal to the Boeing strategy.

Supplier Relationship Management at Boeing

Another talent pool pivot-point is the management of supplier relationships. As noted earlier, many of the pivot-points associated with the strategy are at the boundary between Boeing and its suppliers. While this has organizational implications, it also raises the importance of roles associated with supplier management. The new strategy will make these roles more pivotal than before because the consequences of performance will likely have a disproportionate impact on the program’s ultimate success. Such roles are one of the potential “sweepers” within this strategy.

These talent pools are pivotal not only because the performance variance will dramatically impact the long-term success of the 787 program but also because they have to operate in a way that is very different from previous supplier relationship management roles. This will create substantial change within Boeing and will also require that the leaders within supplier relationship management build and deploy a team that can create changes within the suppliers themselves. Chapter 6 will describe these implications in terms of pivotal actions and interactions.

Relative Pivotalness Within Talent Pools

We have described how to identify pivotalness in the design of the organization and how to use pivotalness to segment and compare different talent pools. The third level of talent pool analysis considers which elements inside a particular job or role are pivotal. This is different from comparing entire roles, jobs, and talent pools. Within-role pivotalness builds on the suggestion of putting A players in A positions, revealing a deeper level of insight. Huselid, Beatty, and Becker note that A positions are those that have important effects on strategy and have “wide variability in the quality of the work displayed among the employees in the position.”⁹ This is similar to our conclusions that organizations should identify how variations in talent quality affect critical constraints, that decisions about talent should focus where there is the greatest employee variability, and that talent segmentation should be as rigorous as segmentation in finance or marketing.¹⁰ Thus, it’s a good idea to consider A positions, which in our framework is akin to segmentation that compares whole talent pools.

Yet, talentship can also provide insights by looking at pivotalness within the position. Pivotal aspects of the position often are not obvious from traditional descriptions or the typical distinctions between A positions and others. For example, Huselid and his coauthors note that Nordstrom emphasizes personalized service as a differentiator and so has more frontline sales associates providing customer advice than Costco, which emphasizes low prices and product availability and relies more on purchasing managers for its success.¹¹ This is the relative pivotalness of two different jobs. Yet consider the differences within these positions. Purchasing managers are critical to Nordstrom, just as they are to Costco, but the pivotal actions they must execute are very different. Similarly, frontline sales associates at Costco may be as strategic as those at Nordstrom, but their contribution hinges on very different elements of the position.

Analyzing the pivotal elements within roles and connecting them to specific elements of human capacity, organizational culture, and programs and practices is the next major element of talentship (the effectiveness anchor point in the HC BRidge framework), which we will discuss in chapters 6 and 7. In those chapters we will use the talent pool of aircraft design engineers at Boeing (certainly an A position by any analysis) to show how strategic impact is much clearer when you examine pivotalness within the role. No one level of analysis is more or less useful, and organizations that use all three will see synergies that any one level could miss.

Applying Quantity and Quality Pivotalness to Talent Pools

Recall the distinction, made earlier, between quantity and quality pivotalness. Something is quality pivotal when changing its performance makes a difference in the desired outcome. Something is quantity pivotal when changing the amount makes a difference in the desired outcome. Leadership talent pools offer a good example. Many organizations find that the leadership role is both quantity and quality pivotal. It is quality pivotal because performance variance among leaders has significant impact on the organization’s strategic success. At the same time, if organizations do not have a sufficient quantity of individuals to fill the leadership roles they need to execute their future strategies, the leadership role becomes quantity pivotal.

For example, one publicly held company had identified that the leadership talent pool was quality pivotal and asked us to identify where to focus its leadership development. The company felt that it had an adequate number of leaders in current jobs, and in the pipeline feeding those jobs, to address expected retirements and potential turnover. It wanted to build the skills of that group of current and future leaders.

The impact analysis revealed an unseen talent implication of the organization’s strategy. This company was a market leader in a mature industry that was not growing. Its strategy was to use the cash flow from its strong position to both lead the consolidation of the industry and to identify new growth opportunities through diversification and through mergers and acquisitions (M&A). As a result, it had done significant strategic and financial planning regarding its potential M&A targets and the required financial capital to complete the M&A. One key element of the financial strategy was to acquire organizations that were undervalued and could benefit from the more advanced manufacturing management capabilities of the acquiring company. The company identified potential targets both inside and outside the industry that fit this criterion.

Integrating the target companies would require leadership transfers from the acquiring parent company to quickly deploy the more advanced manufacturing capabilities. Leaders from the acquiring company would also likely be required to close the anticipated leadership gaps in the target companies because underperforming organizations typically would not have adequate leadership. Many were family-held businesses, where the sale would likely result in family members liquidating their investment and leaving the business, meaning that the acquiring company would need to replace them from its own cadre of leaders. In the end the parent company realized that leaders were both quantity and quality pivotal and represented a significant risk and opportunity. The company had not adequately planned for future leadership infusions into acquired companies. It had recognized the need to increase the quality of its leadership, but without a significant increase in the quantity of leaders, it simply could not pursue its growth strategy.

Competing Better with Insights About Organization and Talent

Impact analysis reveals relative pivotalness at the organization level, between talent pools, and within talent pools. Many of the implications are revealed when organizations apply this analysis internally to the pivotpoints in their own strategy. Some of the most powerful insights, however, emerge when the tools are applied to how the organization will achieve a distinctive and unique position in the talent market itself. Few organizations use talent strategy as a source of competitive advantage, but the insights about talent and organization pivot-points reveal several approaches that can create an advantage compared with competitors who follow a more traditional talent market decision model. We will highlight a few of these opportunities next.

Use Pivotalness to Guide and Explain Differential Talent Pool Investments

Organizations should improve talent pool performance (quality, quantity, or both) where the slope is steep and the potential payoff is high. If there is a higher potential value from investment in one talent pool over another, it only makes sense to allocate resources (time, attention, money, etc.) accordingly. Yet most organizations fail to do this as reliably or as accurately as possible. There is a strong natural bias to focus on talent pools that have high average value because they are so important and, some assume, also pivotal. Roles with high average value, however, can also be flat sloped (such as Mickey Mouse), and making heavy investments in flat-sloped but high-value positions is often not optimal.

One reason for this bias against segmentation is that it is traditionally very hard to explain to employees why those in some roles get different treatment from those in other roles. HR’s roots come in part from fields such as employment law, civil service, and labor relations—many of which were intended to protect workers from inappropriate segmentation leading to discrimination. It is essential that the HR field maintain its staunch defense against inappropriate discrimination, but that does not require equal treatment across diverse talent pools. We have shown that competitiveness will increasingly require more effective segmentation of both employees and roles. Equal treatment is a useful rule of thumb in the absence of such a framework, but the future will demand a more nuanced approach to achieving differentiation without inappropriate discrimination. The difference between such legitimate segmentation and inappropriate discrimination is in part the decision framework for segmentation.

It is important to recognize that increased segmentation of talent pools is an organizational change. It is a change that can produce significant benefits but requires change management. One key is making the pivotal analysis more transparent so that the logic (or the “why”) behind the segmentation is clear. Organizations share information about revenues and costs with the management team, using a common framework. As a result, there is a broad base of understanding of the financial concepts. This common understanding provides a platform to make important decisions in an aligned way. Managers may not like it when their unit gets less capital than another unit, but they understand that investments must flow to the units that are most financially pivotal. By contrast, most organizations do not routinely present talent and organization decisions in a way that makes the value connection clear.

Such changes were historically difficult in other disciplines as well. Consider again the application of revenue management from marketing, which we discussed earlier. There has been a radical shift in the pricing of airline seats over the past thirty years. Originally, there were basically two prices: coach and first class. Now, through sophisticated revenue management processes, airlines use sophisticated algorithms and processes to optimize not only each airline seat but the fares as well.¹² Implementing this level of pricing differentiation was not easy. While the economics of the pricing were well known, many feared a customer backlash. What would customers say when they found out that two passengers seated next to each other paid dramatically different fares for the same flight? How could you upset the (highly valuable) business traveler by having vacation travelers on the same flight at a fraction of the price?

Of course, over time the economic efficiency of the yield management system won the day. Now it is impossible to quote airline fares without knowing a variety of factors, and the range of fares that result are so detailed and dynamic that it literally takes massive online databases just to manage the process. Airlines that were early adopters of the new technology (such as American Airlines) achieved significant competitive advantage over the others in the market. Today anyone who tried to compete with the old pricing models would fail, and it is widely understood that such a strategy could not be effective.

The situation regarding the pivotalness of organization and talent resources is similar today. As we have seen, talent pools can vary widely in pivotalness, yet most companies use traditional talent investment decision frameworks that don’t capture those variations. When organizations better understand talent pool yield curves and encourage open discussions about their implications, more optimal organization and talent decisions will result, just as happened with financial, customer, and product assets in previous eras. Today decisions about talent and organization are similar to decisions about pricing before revenue management was well accepted, when equity and equality were the prominent decision frameworks. Organizations that understand talent segmentation will have an advantage not only because they can make better decisions but because they will be able to better explain to their employees why decisions that direct investments to where they are most beneficial are actually fair, even though they may not be equal.¹³

Reduce Pivotalness to Mitigate Risk

Our analysis so far has emphasized finding high-sloped organization elements and talent pools and investing in them. Where variance matters most, it makes sense to improve the quality or quantity of the talent pool. However, it is often as effective to find the areas where variation in performance poses a significant risk and to change the relationship between talent and the strategy so that it is less sensitive to performance differences. Areas where there is significant downside risk due to poor individual performance are particularly fertile ground for this kind of analysis. Organizations often spend considerable time and effort to increase the performance of individuals, particularly when poor performance carries significant downside risks. An even more effective strategy is to take the slope out of the pool and make it less pivotal.

One way to do this is to minimize the negative consequences of poor performance. Another way is to minimize the probability of poor performance. Either of these is often more effective than trying to raise the performance of poor-performing individuals. Reducing pivotalness on the downside slope often means flattening the upside. So the trick is to understand the trade-offs. Let’s look at a few examples.

Team-Based Work. One way that slope can often be reduced is to have key roles worked in teams. Mickey Mouse never goes into the park without a handler. Pilots work in teams in the cockpit of passenger airlines to reduce slope in a different way. A single pilot might forget a checklist element, incorrectly hear an instruction from the tower, or enter an incorrect number in the navigation system. Such errors are less likely to happen with two pilots in the cockpit because the second pilot will usually correct the mistake before it can do any harm. These are both examples of reducing slope in a quality-pivotal yield curve, as shown in figure 5-2.

The slope associated with quantity pivotalness can also be reduced with a team-based approach. A large Midwest bank put its commercial lending activities on a team approach.¹⁴ The bank significantly reduced the pivotalness of quantity by reducing the consequences of turnover in this role. If customers are served by a single banker and that person leaves to go to a new bank, then customers must be introduced to a new banker at a difficult time. In the worst case, they may just decide to switch banks to stay with the familiar banker. When a team of bankers serves a customer and one of the bankers leaves, the customers already have other people they know, and who know them, which greatly lowers the likelihood of losing the account.

FIGURE 5-2

Reducing slope in a quality-pivotal yield curve

Quality Improvement Programs. The quality and lean movements have been major factors in systematically increasing value by reducing roles’ pivotalness. Such approaches use data-based analysis of the system to find opportunities for sustained improvement. When the organization finds a talent pivot-point—a place where performance variation has a significant impact on the business—one of the recommendations we commonly make is to apply quality improvement or lean analysis frameworks.

The cockpit of commercial planes again illustrates how to mitigate risk by removing performance slope. Over the past several years there has been a significant emphasis on improving pilot training, combined with significant focus on improving both the systems within the cockpit and the teaming processes used by pilots. The combination creates a significantly safer airline system through systematically reducing the pivotalness of the pilot role. Pilots remain extremely important, and their role justifies significant investment. That investment is often targeted, however, at ensuring that pilots are up to a very high standard and that they don’t deviate from that standard.

Notice again how this approach provides deeper insights than the typical job analysis, strategic position mapping, or even the admonition to put A players in A positions (those with high performance variability). Here talentship reveals uncharted strategic opportunities in taking performance variability out of such positions—in essence, competing better by making A positions into B positions.

Consider Development Pivotalness, Not Only Performance Pivotalness

An interesting feature of roles with a flat slope on performance is that they may offer less risky opportunities for development. Much research suggests that skill development occurs through experience. Often the most potent development experiences occur in high-profile positions that also have very steep performance slopes. Individuals placed in those positions usually face the daunting task of maximizing their performance and their development at the same time. Because performance is so closely monitored, the usual response is to emphasize performance, often to the detriment of learning and development. The role of CFO provides a good example of this dilemma and the opportunities it presents.

What if an organization purposely reduces the pivotalness of performance in a role to increase pivotal development? Boeing and Northrop Grumman assigned the role of CFO to two senior executives, Mike Sears at Boeing, who had no prior experience in accounting, and Wes Bush at Northrop Grumman, who had no prior experience in finance.¹⁵ Both had degrees in engineering and had spent the vast majority of their careers in line roles.

Didn’t this risk having those leaders make serious mistakes? Why did financial analysts (or the boards) accept this and not clamor for more finance and accounting experience? We think that investors and analysts saw the situation as a developmental opportunity and a good succession-planning move. There were stable financial systems in place and more than adequate cash. Financial structure decisions would never be made by the CFO alone, and innovative financial structuring was not key to strategic success. Any such decisions would be well supported by the finance team, including external advisers.

All these conditions lowered the pivotalness of performance in traditional areas requiring finance and accounting expertise in the CFO role. Yet, precisely because performance was relatively flat sloped in these elements, allowing these executives to serve as CFO gave them a uniquely effective chance to learn the complexities of the finance system, to get a broad perspective on how the portfolio of businesses worked together, and to apply their unique leadership skills and experiences to a wider range of business units within the organization. For most companies of such size and scope, there are very few opportunities for executives to learn through direct experience with the complex interactions required to manage a portfolio business. As a result, for Boeing and Northrop Grumman, there was more slope in the role of CFO for development of future CEOs than in its traditional performance elements. Such a move would not be appropriate in the hub-and-spoke airline industry, where the very future of the organization depends on complicated financial restructuring, making the CFO role far more pivotal.

It has been suggested that the flat-sloped positions are C positions (not C-level positions, but “C” in terms of the A, B, and C grading system), where rewards and development are less strategically critical, except perhaps to avoid significant mistakes. Again, the talentship perspective provides the framework to look beyond a simple focus on existing performance variability. It suggests a much more nuanced and integrated view that accounts for the hidden and obvious capacities of talent and organization elements. By understanding the hidden development potential of roles with flat-sloped performance yield curves, organizations can vastly enhance their ability to find unique sources of competitive and strategic success.

Enhance Flexibility Regarding the Talent Requirements

Talent pools often face a shortage of quality candidates because the role’s performance yield curve is steeply sloped and requires a very high level of applicant quality to mitigate the risk of poor performance. What if we alter the role so that we produce high value from a wider range of available talent?

Such strategies have often been applied to other vital resources. One example is the source of sweetener for soft drinks. For years the exclusive source was sugar. Prices shot up during the sugar shortages of World War I, and without a sugar alternative, Pepsi was forced into bankruptcy.¹⁶ However, corn emerged as a sweetener, and soft drink companies adjusted their processes. Now production plants can easily switch between sugar and corn syrup, based on the relative prices available in the market at any time.

The same strategy can be applied to talent sources. The key question to ask is “Can we change our production function (business processes) to get greater value from a more readily available talent pool?” One significant example of this is the massive use of call centers in lower-cost labor markets with lower-skilled worker populations. By reengineering the call-center processes to make them more standardized and using technology to reduce the risk of mistakes, organizations can employ individuals who might otherwise have been poor performers under a less controlled system. Once again, flattening the performance yield curve produces a strategic advantage.

Even in the U.S. labor market, companies such as JetBlue airlines have changed their reservation system so that people—mostly women with families—can work as reservations agents from home instead of a centralized call center. Again, using technology and other tools, the role was redesigned so that a remote labor pool could perform at an adequately high level. This change allowed a large potential employee population to consider the role, when the use of a traditional customer service call-center model would have prevented many of them from doing so.

Whole new business models have been based on underleveraged talent pools. One example is Tupperware. A truly creative part of that business was the creation of the “home party” concept, which allowed large numbers of people outside the traditional workforce to become Tupperware entrepreneurs.¹⁷ (Organizations such as Amway and Mary Kay followed a similar multilevel marketing model.)¹⁸ Tupperware was designed to capture value from an underdeployed resource in the talent market. By creating a system where housewives could be reliably expected to put on a great party, Tupperware tapped into a labor supply very different from the talent market for experienced traditional salespeople.

Compete in Labor Markets Based on Pivotalness

Where does your strategy require talent that is better than your competitor’s talent for your strategy to work? Not only does pivotalness help you understand the relative impact of talent within particular talent pools, the relative pivotalness of talent pools between opportunities reveals often-overlooked ways to compete in talent markets.

For example, the sales role in a new company usually has a much steeper-sloped performance yield curve than a sales role in a more established organization with a known reputation, brand, and product lines. The more established organization relies less on sales to carry its product message, reach its customers, and so forth. As a general rule, the stronger the relative market offering, the lower the prominence and the flatter the slope for sales professionals. It’s not that they are less important in established organizations, but variability in their performance creates less variation in organizational results.

The rules change when organizations compete for the same talent pool, but that talent pool is differentially pivotal in different organizations. Organizations where the talent pool has a steep slope should invest more heavily to attract and retain the high-quality candidates. Organizations that have a flatter slope shouldn’t be lulled into matching the pay levels, staffing processes, or retention rewards of their high-sloped competitors. Yet, because talent markets are often heavily based on simple job titles or generic job descriptions, such mistakes are common. Today traditional labor market analysis is based on job titles, not pivotalness. Pivotalness, however, is often the key to competing appropriately. We will return to this point when we discuss effectiveness in chapters 6 and 7, which explore how to find pivotalness within the job or role.

This logic is better understood in more mature markets. For example, retailers routinely distinguish customer segments by their pivotalness to the strategy. Wal-Mart does not expect to compete for the customers that prefer Nordstrom. It does not devote lots of resources to attracting those customers, even though based on generic benchmarking, they are very lucrative retail customers. Wal-Mart realizes that the payoff from trying to attract such customers in a Wal-Mart store just isn’t very high, based on its value model. On the other hand, Wal-Mart competes very diligently for upper-middle-income and middle-income customers who believe Target or Sears offers better value at a low price.¹⁹

A talent decision science applies this logic to the talent market. There are some interesting implications for the common practice of establishing pay levels by surveying what competitors are paying for jobs with similar titles and requirements. In such surveys it is common to benchmark pay and reward levels based on the entire group of competitors. Yet this will combine competitors for which the job is differently pivotal. Thus, salary surveys will reflect pay levels that combine some high-sloped competitors with lower-sloped competitors.

To return to our example, salary surveys would generally not distinguish sales pay levels of organizations with new products from the pay levels of those with well-established brands and images. Paying at the fiftieth percentile of the survey ignores these differences. Yet more established organizations can actually afford to pay less and allow some of the better salespeople to go to the competition because their established products don’t require such high performance in the sales role.

Organizations are often averse to wasting money by overstaffing because it increases labor costs without gaining much productivity. But organizations routinely stockpile or lock up other resources that have high value in the market to create a barrier to competitors. This is common with oil-drilling rights and landing rights at key airport hubs. The same principle can apply to talent. As counterintuitive as it seems, it may make lots of sense to offer higher pay and greater retention incentives for talent in highly pivotal roles as a way to attract and keep talent away from competitors. Recall the discussion of Corning in chapter 1, where locking up talent might delay competitors for years.

Conclusion

Impact unearths strategy pivot-points and uses them to uncover the performance yield curves for organization elements and talent pools. This provides significant opportunities for untapped strategic advantage through logical, systematic decisions about competing in the talent marketplace. We call the examples examined in this chapter “talent pool strategies.” Just as organizations have specific strategies for their financial resources or product line management, talent pool strategies are emerging as a new domain of competition. However, many companies develop these strategies either by benchmarking against their competitors (which rarely creates strategic distinctiveness) or with their own hunches about what is pivotal, without doing systematic analysis. Neither approach reliably leads to decisions that are consistently better than the competition’s.

Talent and organization are vital resources, so those with the best information and the processes to systematically use the information to create innovative strategies will have a vital competitive advantage. The power of pivotalness in organizing talent pools and between talent pools foreshadows how pivotalness can provide equally important insights about the elements within jobs, roles, and talent pools, and how to connect those to the investments in policies and practices to enhance organization and talent. That’s the subject of effectiveness, which we will turn to next.