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The Essential Evolution

Personnel, Human Resources, Talentship

Corning, like many high-tech organizations, traditionally emphasized excellence in its R&D scientists, primarily in the United States.¹ Globalization was recognized as important, but the connection between globalization and people remained fuzzy. By the early twenty-first century, Corning’s HR and business leaders discovered that global expansion, particularly in emerging economies, demanded flexible production capability that depended on a specific type of production engineer. The organization realized that there were only a few such engineers in many global regions and that it took years to train them. If Corning could hire these engineers before other companies realized their importance, it would have several years’ head start on its competition. This would force the organization’s potential competitors into a difficult choice: lacking necessary talent, they could staff their factories with very expensive expatriates, or they could wait years to begin production, which is how long it would take to train regional engineers or build a new cadre of engineering graduates with these skills. The idea of locking up key engineering talent was a far cry from traditional workforce planning, which focused on filling vacancies. Corning had identified a tangible opportunity to exploit its superior knowledge about human capital to provide a significant competitive advantage.

The Uncharted Talent Strategy

Would your organization have been the first to realize this talent pivot-point and exploit it so adeptly? In companies, as well as government and nonprofit organizations, we’ve found that out of all the jobs, a small number are pivotal like this—the performance of talent and organization in these roles moves the strategic needle far more significantly than in other roles. Unfortunately, most organizations don’t know which jobs are pivotal (they are not always leaders, salespeople, or technical professionals). Most strategy and planning processes leave these roles virtually uncharted. It’s a dangerous blind spot.

This book is about revealing these opportunities in talent. We define talent as the resource that includes the potential and realized capacities of individuals and groups and how they are organized, including those within the organization and those who might join the organization.

Reading this book will encourage you to ask tough questions—ones you may have never considered before: Do you know where your pivotal talent is?² Do you invest differentially in the most pivotal talent? Or do you adopt a “peanut-butter” approach, spreading the same investments over the entire organization (such as paying for performance in all jobs just because it is good for some of them)?

Right beneath the surface of virtually every organization’s formal strategy are opportunities for competitive advantage that are overlooked and untapped every single day. Such uncharted opportunities exist because most organizations make decisions about their people’s talents and how those people are organized with far less rigor, logic, and distinctiveness than their decisions about other resources, like money and technology.

HR Strategies Must Become Truly Distinctive

Pull out the strategy document from your HR function. Most HR strategies contain the same things that appear in every other competitor’s strategy, such as “build the leadership pipeline,” “deal with the brain drain of an aging workforce,” “increase the available candidates in technical positions,” and “reduce health care costs.” How concerned would you be if your HR strategy fell into the competition’s hands? If your answer is “not very,” can your organization be making world-class decisions where talent matters most to your strategic success? You can bet that Corning would have been very concerned if its strategy for hiring the available production engineers had become known to its competitors before implementation!

Find the Uncharted Talent Opportunities

This isn’t just about your HR strategy. It’s about how well your entire organization connects decisions about talent, and how it is organized, to your vital strategic interests. At your next strategy meeting, ask your top organizational leaders to provide their best answers to questions like:

• Where does our strategy require that our talent and organization be better than our competitors’ to work?

• Where do our talent and organization systems need to be different from competitors’, and why?

• Where should we pay more than the fiftieth percentile of the salary survey for pivotal talent pools?

• Where should we spend more on pivotal talent programs and practices than our competitors, and why?

• If we shifted our strategic goals, which of our employees or organizational structures would have to change the most?

Our experience shows that too often the answer is “That’s HR’s problem, not mine.” Yet business leaders don’t abdicate decisions about where to invest more in pivotal customer segments by calling it a “marketing department issue” or where to invest more in strategic technologies by calling it a “technology department issue.”

Leaders Must Make Talent Decisions Like Any Vital Resource

Take a look at your competency framework for your leaders. It likely contains such things as “communication,” “vision,” “execution,” and “finding and developing talent.” But try asking your high-potential leaders questions like these: What are the necessary and sufficient conditions for motivation or learning? What are the elements of an effective organizational change? What are the requirements of an effective talent pipeline? What defines critical jobs or competencies? Their answers will far too often be based on opinion, fads and fashions, half-truths, or outdated traditions, as in other management areas.³ Such theories are often implicit, based on the last motivational speaker the leader saw or drawn from that leader’s own limited experiences. Far too frequently these theories are simply wrong. If you don’t allow managers to have their own theory of cash flow, why let them invent their own theory of motivation? If you don’t tolerate this kind of ambiguity in decisions about money, technology, and brands, why navigate with ambiguity when it comes to a resource as important as talent?

The Essential Evolution Beyond HR to Talentship

So you have a choice. You can continue to navigate your strategic territory with inadequate talent and organization tools, or you can embrace and build a new decision science that illuminates the hidden opportunities that lie in great decisions about your talent and how it is organized—where those decisions matter most and wherever they are made. This is an essential evolution, because once your competitors figure it out, you can no longer compete effectively unless you evolve too.

This evolution requires changes in the way companies use the perspective of talent and organization to form their strategies, the way business leaders are held accountable for their decisions about the talent and organization resources under their stewardship, the way HR professionals teach principles about optimizing talent and organization, and the way the HR function is organized, rewarded, and evaluated. We call the decision science for talent and organization that drives this evolution “talentship,” and its emergence will change the game just as the emergence of finance and marketing changed the game in their eras.

Talentship builds organization effectiveness by improving decisions that affect or depend on human capital, where they make the biggest strategic difference, and wherever they are made.

The Importance of Human Capital

Whether it is called “people,” “labor,” “intellectual capital,” “human capital,” “human resources,” “talent,” or some other term, the resource that lies within employees and how they are organized is increasingly recognized as critical to strategic success and competitive advantage. This observation is so common today that it almost goes without saying. Digitization, labor shortages, growth through acquisitions, simultaneous downsizing and expansion, constant hypercompetition and change, workforce demographic changes, and globalization are just a few of the trends that have made what we call “talent” a top priority.⁴ Writers in business, academia, and public policy note that business decisions must happen more quickly at the same time as those decisions increasingly depend on talent and its organization and as the employment relationship is under unprecedented pressure to adapt.⁵

Business leaders recognize that managing people is vital to organizational success, and it is among their top concerns. Top HR officers are respected by boards of directors. Successful CEOs write memoirs that note the connection between their success and their talent management processes. Financial research shows that increasing amounts of market value are driven by intangibles, including human capital. Researchers from disciplines as diverse as accounting, consumer research, finance, political science, and operations management compete to define the latest metrics for human capital within organizations. Academics and consulting firms provide a barrage of evidence that HR practices correlate with financial performance. Consulting firms that built their reputations on disciplines such as strategy, operations, and finance now have leadership and talent management practices. Enterprise software companies routinely integrate human capital applications (including competency databases, performance management, and selection and development systems) into their enterprisewide solutions. Being one of the best places to work is a goal of top management, not just HR leaders.

For example, GE is widely revered for the depth of its management talent and its ability to apply a deep and shared management logic across a wide array of businesses. This is one of the essential reasons why these businesses are more valuable inside GE than individually. GE can grow through acquisitions in no small part because, compared to its competitors, it can more reliably place good managers in newly acquired companies. This allows GE to consider acquisitions that others might forgo.

By all accounts, the HR profession should be among the most influential and strategically important. We would expect significant advancements in the sophistication with which HR leaders drive organizational effectiveness and create sustainable strategic success. Yet survey research and our own field experience with top HR leaders suggest that this is not the typical reality for HR, even in organizations that highly value their HR leaders. Instead, HR scorecards focus on costs and activities, and typical goals involve achieving benchmark levels of lowest HR cost per revenue dollar or lowest HR headcount to total headcount. The increasing sophistication of benchmarking and outsourcing accelerates this trend by making costs more apparent and offering many ways to shift massive amounts of HR staff activity and costs out of organizations.⁶

For all the evidence that the quality of talent and organization matters, it is still frustratingly difficult for most business leaders to know precisely where and how investments in employees’ talent and organization actually drive strategic success. Academics call this gap the “black box.”⁷ Business leaders are frustrated with traditional HR, even when it is executed with best-in-class programs at benchmark cost levels. One CFO (now the CEO of his organization) said to us, “I value the hard work of HR, but I worry that our organization may not know which talent issues are the important ones versus which are mostly tactical. I know how to answer that question in finance, marketing, and operations. I’m not sure how to do it for talent. I wish HR had more to offer here.”⁸ Relentless HR cost cutting can easily become the only way that such frustrated CEOs see to create economic impact through people, even as they wish for something more strategic.

In this chapter we’ll show why HR’s full potential hasn’t been achieved. Our purpose, however, is not to demean HR’s potential—it’s quite the opposite. We wrote this book in part because it has become simply too common to describe HR’s shortcomings without offering solutions. We will describe the factors that limit HR and use them to show how they hold the key to its evolution into a strategic discipline that is as valued and fundamental as finance or marketing.

The implications go well beyond HR. This evolution is not only essential; it is inevitable. Organizations that ignore it will suffer as their competitors figure it out first.

Stubborn Traditionalism in HR Management

In 2005 an article appeared in Fast Company entitled “Why We Hate HR.”⁹ It chronicled many of the all-too-common symptoms of a profession that focuses on administrative activities, requires compliance with rules, demonstrates little logical connection to strategic value, and works diligently on functional programs and practices that have no clear connection to business goals. The article has received a lot of attention. In 2006 a Web search on the title produced over twelve thousand hits, and its author asserts that it got more response than any Fast Company article in the prior two years.¹⁰

What many people don’t remember is that in 1981 there was a similar article in the Harvard Business Review entitled “Big Hat, No Cattle.”¹¹ The title referred to a “tall, well-dressed businessman” in the Dallas, Texas, airport “wearing a large and immaculate Stetson hat.” Nearby, two middle-aged, sunburned men in faded jeans looked him up and down and said to each other, “Big hat, no cattle.” The businessman dressed like a cattleman but really had no herd. The sunburned men were the real cattle ranchers, and they didn’t need to prove it with a big hat. In 1981 HR had the executive title and the executive offices, and looked and dressed like other business leaders, but the article asserted that all too often there was no evidence of real contribution to business success.

It’s the same story twenty-five years apart. As we’ll see, this doesn’t mean that the HR profession hasn’t progressed. It has. It doesn’t mean that business leaders don’t want to compete better for and with talent and organization resources. They do. It does suggest that after twenty-five years of admonishments that HR professionals become strategic business partners and calls for business leaders to tap the potential in their people, organizations still have not produced the kind of change we’d expect. There is an answer to this problem, but it’s not to continue doing the same thing better, and it isn’t achieved by the HR function alone.

Evidence from many sources confirms that the HR profession has made many technical advances, but in many ways it has changed little. Perhaps the most vivid evidence comes from a unique survey done by the Center for Effective Organizations. Beginning in 1995, HR professionals were asked how much time they spent on strategic pursuits compared to administrative pursuits. They noted the time they remembered spending on various activities five to seven years ago, and then they noted the time they currently spend. Every year the responses suggested that HR professionals perceived a statistically significant shift toward more strategic activities, with the most recent data shown in table 1-1.

Yet when we examine what HR leaders said were their actual activities across the years, the picture is much different. HR leaders in every survey since 1995 have provided virtually the same percentages! There has been very little change over time, as shown in table 1-2.

Obviously, today’s arsenal of HR activities is very different and more sophisticated than it was in the mid-1990s, and of course, HR professionals are doing different things and doing many things better. There are improved information systems, scorecards, benchmarks, outsourcing contracts, and competency models. Workforce plans can now track the headcount moving between jobs using computerized databases and forecasting algorithms. Selection testing is done through kiosks or online surveys. These are better versions of the same tools that HR has been using for decades, and they have made important differences in the efficiency and effectiveness of the HR function. Yet by their own reports, the tables show that HR professionals’ focus is still largely on administrative and service-related goals, not on strategic decisions. The data vividly reveals a profession that is getting better and better at the traditional paradigm—but as we shall see, the opportunities for breakthrough strategic successes lie in a new, extended paradigm.

TABLE 1-1

How HR professionals believe they spend their time

Percentage of time spent on …	5–7 years ago		Current
Maintaining records	25.9		13.2
Collect, track, and maintain data on employees
Auditing and controlling	14.8		13.3
Ensure compliance to internal operations, regulations, and legal and union requirements
Providing HR services	36.4		32.0
Assist with implementation and administration of HR practices
Developing HR systems and practices	12.6		18.1
Design HR programs, policies, and supporting systems
Serving as strategic business partner	9.6		23.5
Serve as member of the management team; involved with strategic HR planning, organizational design, and strategic change
Source: Edward E. Lawler III, John W. Boudreau, and Susan Mohrman, Achieving Strategic Excellence (Palo Alto, CA: Stanford University Press, 2006).

TABLE 1-2

How HR professionals actually spent their time, 1995–2004

Percentage of time spent on …	1995		2001		2004
Maintaining records	15.4		14.9		13.4
Auditing and controlling	12.2		11.4		13.4
Providing HR services	31.3		31.3		31.7
Developing HR systems and practices	18.5		19.3		18.2
Serving as strategic business partner	21.9		23.2		23.3
Source: Edward E. Lawler III, John W. Boudreau, and Susan Mohrman, Achieving Strategic Excellence (Palo Alto, CA: Stanford University Press, 2006).

The Essential Evolution: A Paradigm Extension

At the same time that the article titled “Big Hat, No Cattle” appeared in 1981, executives at Pepsi were building an internal HR function that was a significant force in changing the organization from the bottom up. In 1987 Andrall Pearson, a former Pepsi top executive, chronicled the story, which was notable for its rarity. Pearson didn’t just note the excellence of the HR function at Pepsi. He correctly understood that the paradigm shift was as much about what business leaders expected from HR and how they worked with HR professionals as it was about what HR did. Pearson said, “Unfortunately, business leaders rarely recognize the potential of the personnel function, so they often fail to staff the department with high-caliber people. Their low expectations then become a self-fulfilling prophecy.”¹²

This vicious cycle is still quite common today. The key to breaking it can be seen through the evolution of professions like finance and marketing. HR’s mission can typically be summarized by the following statement (which we constructed using several actual examples of company HR missions): the mission of the HR function is to be a respected business partner, helping the company achieve its goals by providing outstanding services to help manage the company’s most important asset, its people.

This statement defines the value proposition as providing high-quality services in response to client needs. Even strategic HR management is often defined as delivering the HR services that are deemed important to internal clients (such as leadership development, competency systems, incentive pay, etc.). This traditional paradigm of service delivery and client satisfaction is fundamentally limited because it assumes that clients know what they need. Market-based HR and accountability for business results are now recognized as important, but in practice they are typically enacted by using marketing techniques or business results to assess traditional HR services’ popularity and perceived association with financial outcomes.¹³

To break out of the traditional focus, or the current paradigm, HR must extend its focus from the services it provides to the decisions that it supports. If it did, the new mission statement would be: the mission of the HR function is to increase the success of the organization by improving decisions that depend on or impact people.

This sounds deceptively simple. Yet, when leading organizations make this paradigm shift, things change dramatically—and not just inside the HR management function. Business leaders, HR leaders, and employees are all affected. This shouldn’t be surprising. In earlier eras it sounded simple to say, “Technology companies focused only on making great products need to shift to delivering solutions.” But this simple insight transformed companies like IBM and GE and marked the demise of competitors that didn’t see it or couldn’t execute on it. The paradigm extension we describe in this book is similar in its significance to the extension from a product-based focus to a solutions-based focus. Here we apply it to talent. Such a change has significant implications for the HR profession and for everyone who makes decisions about talent and organization resources.

This evolution is as much about business strategy as it is about talent and organization management, and it’s as much about organizational strategic leadership as it is about the HR profession. This transformation is inevitable, and we shall see that history suggests the evolution has already begun. However, like organisms that fail to adapt quickly enough, organizations that choose passively to await the evolution may not be around to capitalize on it. It is an essential evolution because those who adapt first will have a significant advantage, and it’s an inevitable evolution because the talent resource is simply too important.

The paradox just described is something that HR and organization leaders experience every day. Organizations respect their HR professionals, and HR professionals are working harder than ever and achieving great things. In many ways today’s sophisticated service and information platforms provide enormous potential on which to build the new paradigm. Today’s HR leaders are generally well respected for the work that they do and for the professional standards they embrace. Business leaders have great admiration for the individual HR leaders they work with, but less for the HR function than for such functions as finance, marketing, and operations. These leaders typically find value in the contributions of their HR leaders but have difficulty articulating the value of the function in driving business success.

This is one reason that, even among very well-respected HR functions, we hear top HR officers say, “We will do great things in the coming year, but the first question my CEO will ask is whether I’ve reduced the HR budget.” Likewise, implementing useful, professional HR programs is important, but it’s not the same as having a deep and consistent effect on the organization’s vital strategic decisions. The solution to the paradox is that the current paradigm is and will remain valuable and important, so it is not a matter of a paradigm shift, but rather a paradigm extension.

Once the paradigm extension begins, it permeates the organization. It’s often seen in a subtle but profound shift in conversations about talent or in the day-to-day relationship between HR leaders and their colleagues. Most organizations have no systematic way to identify when talent strategies that worked in the past must be changed. For example, companies often persist in recruiting only at the same top schools year after year, in an effort to hire the best talent. Yet this often means trolling in exactly the same waters as their competitors, going after exactly the same limited pool of students.

In the 1970s this created significant competitive challenges not only getting enough candidates but also achieving the goals of a racially and gender-diverse pool of hires. Procter & Gamble (P&G) chose a different path. P&G could certainly compete effectively even at the top schools, but a careful analysis of the cost and quality of applicants led it to cut in half the number of schools where it recruited and to pay increased attention to key regional campuses, such as the University of Wisconsin. P&G realized that it could use its proprietary testing technology, called the “M-test” to find the high-potential future leaders more accurately than its competitors. P&G applied the same marketing principles it used for products to the recruiting process. P&G was often the first company on campus to prescreen and prerecruit promising students to sign up for interviews, rather than just waiting to see who applied. P&G nurtured relationships with deans and faculty who could help identify the promising future leaders. The company applied the same techniques to schools where candidates of color or promising female candidates were likely to be found. It provided incentives to the schools in the form of research grants or donations, based on how quickly and how far students progressed through the leadership ranks. The result was a significant increase in candidate quality, retention, and diversity, and a reduction in recruiting costs—all from a policy to stop doing what everyone else was doing and to emphasize logic, analysis, and basic marketing principles in recruitment.¹⁴

In an organization we worked with in the mid-1990s, the typical approach to workforce planning was for HR to wait until the business strategy and planning were completed, translate the business goals into headcount gaps, and propose HR programs and a budget to address those gaps (such as improved recruiting, staffing, or compensation). Using the decision-focused approach, HR leaders tried something different. They guided the annual headcount review with the following questions:

• What do these employees do that makes the biggest difference to our business?

• How does their activity blend with others in the organization to create that value?

• What are the key processes in the business where these activities have their biggest effect?

• How does improving these processes contribute most to our ability to build and sustain an advantage in the marketplace?

After this encounter, line managers said, “This is a different conversation than I have ever had with someone from HR. I never before saw head-count planning as so strategic! This is causing us to evaluate elements of our strategy that we had missed before.” In this book we will describe the logical framework that provided the foundation for these questions.

By the way, the HR professionals asking the questions were moved to line management positions to reflect their business and strategic savvy. We envision a future in which line leaders will likewise move into HR roles precisely so that they can learn how to generate this kind of strategic insight.

The implications of shifting to a decision focus go beyond HR plans and strategies. The paradigm shift has profound implications for employees throughout the organization. Employee engagement is a popular term. Yet most organizations are remarkably vague when they explain what employees are engaged with.

One financial services organization we worked with in the 1990s was acquiring companies to build out a complete portfolio of financial services offerings, including credit cards, loans, investment advice, and investment services.¹⁵ Everyone inside and outside the organization knew the strategic objective was to use the brand and the established reputation as a basis to cross-sell other services to consumers and thus create strategic success through synergy. Everyone in the industry was focusing on building a sales force that was good at cross-selling, not just selling one particular product. This organization was investing heavily in sales training just like everyone else. It surveyed salespeople to track their engagement with the synergy strategy, and it held sales managers accountable for raising those engagement scores.

Yet, guided by the new extended paradigm, this company’s HR professionals encouraged sales managers to step back from the traditional logic that enhancing sales means making salespeople better and to examine the full array of processes involved in cross-selling. They realized that past training investments had already vastly improved sales processes but that product integration lagged. Salespeople were getting better at selling products and services that weren’t well integrated!

Armed with this insight, the organization took a fresh look at the “product integrator” job and discovered that it was defined as the clerical task of recording product features in technical sales documents. Realizing the significance of the product integrators, the organization redefined the product integrator role to emphasize excellence in discovering and implementing product synergies, not just recording product features. Training and other investments for such product integrators were increased, and employees in the product integrator role developed a much clearer idea about where they could make their greatest contributions. Product integrators had always been engaged, but now they knew precisely where to engage. The organization had seen its synergy strategy differently through the perspective of the talent resource.

In this book we’ll show that opportunities like this exist in roles as diverse as aircraft engineers, street sweepers at theme parks, and Web designers at specialty retail organizations. The opportunities go untapped because, when it comes to talent and how it is organized, today’s guiding models are still rudimentary and focused largely on the programs, not the decisions. Extending the paradigm illuminates these untapped opportunities. As noted earlier, they represent an uncharted strategy that is just waiting to be discovered.

How Talent Decisions Are Made Today

Organizations make decisions about talent all the time. Such decisions are often driven by one of four approaches. The first approach is compliance, which states the rules, regulations, or standards that must be met. This is powerful because often it is directly linked to reducing the risk of penalties, fines, or lawsuits. Decisions based solely on compliance, however, provide little guidance for the increasing array of situations that are not specifically governed by such standards.

The second approach is fads and fashions. Some evidence suggests that HR innovations follow patterns more akin to fashions than to rational strategic logic.¹⁶ For example, between 2001 and 2003, organizations spanning a vast array of sizes, industries, and maturities simultaneously adopted a performance management system that required leaders to rate their employees so that 20 percent were rated top performers, 70 percent were rated middle performers, and 10 percent were rated bottom performers. What was the underlying strategic and economic shift that applied to all these organizations at precisely the same time?

Of course, it was not an economic shift of any kind, but rather a book by Jack Welch (Jack: Straight From the Gut) that appeared on the best-seller lists beginning in 2001.¹⁷ Business leaders everywhere read how Welch credited GE’s success to its “20-70-10” system. HR leaders tell us that it was not uncommon for a CEO, board member, or head of a division to walk into their offices, place the book on their desk, and say, “This performance management system worked for GE. Why don’t we have one?” Few realized that the same performance management system was also applied at Enron! Without a logic, following the fads and fashions will not necessarily lead to good results.

In contrast, business leaders didn’t ask their chief marketing officers to adopt GE’s approach to advertising or their chief financial officers to adopt GE’s approach to debt structure. Marketing and finance are more mature professions with frameworks that business leaders have learned they must use for such decisions. In the absence of such frameworks for human capital, well-meaning and smart business leaders have little choice but to follow fads and fashions, even when the HR practices in vogue don’t fit the organization’s strategic needs. Even when substantial ROI is associated with practices in other organizations, marketing and finance conduct rigorous analysis to examine whether those results are relevant to their organization.

For example, NASCAR has research showing that the stock price of the average NASCAR sponsor increases the day that a new sponsorship is announced.¹⁸ This does not mean, however, that every company should sponsor a NASCAR team. The marketing decision science dictates that companies consider whether sponsoring a team fits their particular strategic context. It also dictates that marketing practices be applied differently, depending on the market segment. Contrast this with the peanut-butter approach of applying the same performance management system to all employees, regardless of their roles.

The third approach for making talent and organization decisions is equality. Organizations say, “All our employees are important. It would be unfair to treat some of them differently, so everything we do must be fair and applied equally to everyone.” Similar debates have ensued regarding revenue management. Over time, decision principles on customer segmentation have guided the development of sophisticated revenue management systems that treat customers differently based on their significance to strategic objectives. Coca-Cola has experimented with vending machines that price soft drinks based on the outside temperature, and Wal-Mart stocks more Pop-Tarts when weather models indicate an area is in for bad weather.¹⁹ Studies in the hotel industry suggest that providing information about the logical basis for differential pricing increases fairness perceptions.²⁰ Fairness and equality are not the same, but the key to simultaneously achieving both is an effectively communicated, logical basis for differentiation.

The same thing is happening with regard to talent. Equity is important (both in terms of process and outcomes) when it comes to employment, but equity is not the same as equal treatment for all employees, just as it does not mean equal treatment of all customers. Maturing professions make this distinction. We have found this to be one of the most difficult distinctions for organizations to make, but it’s one of the most important. We’ll describe a logical framework that has helped organizations meet this challenge.

Finally, the fourth basis for talent and organization decisions is strategic logic, which is the decision framework that we will advocate and develop in this book. It is important that leaders inside and outside the HR profession evolve to make more of the vital talent decisions with a deep logical connection to organizational effectiveness and strategic success. Just as with marketing and finance, not every decision will be equally rigorous, but the essential evolution requires that organizations systematically consider such connections more rationally and logically and use them for more of the important talent decisions. Over time and with continued use, the logic and precision will improve, just as it has with finance and marketing. This will not just advance the HR profession; more important, it will advance the organization’s strategic capability.

Conditions That Mark the Emergence of a Decision Science

Historical conditions suggest that a talent decision science must emerge soon and that organizations using it will prosper. These conditions include:

• The resource is important for business success.

• The resource is constrained.

• There is a well-developed professional practice supporting the resource, providing the ability to implement decisions and monitor their effects.

Similar conditions existed at the genesis of finance and marketing. In addition, there were business processes in place to implement the decisions, largely through the accounting and sales functions. When these new sciences emerged, there was tremendous competitive advantage in their early application. However, as they became more commonly used and understood, it became increasingly difficult to create breakthrough competitive advantages with the new scientific principles. They became standard practice.

Consider how difficult it is to create and sustain breakthrough competitive advantage through new approaches to decisions about financial resources. The finance decision science has become so mature and well developed that there is increasingly little variation across organizations. Not only are additional innovations difficult to create, but they also get copied quickly—because the importance of financial decisions is widely recognized, and mature decision systems in organizations detect and absorb such innovations fast.

For example, at one time currency valuation anomalies that present arbitrage opportunities lasted days; now they last milliseconds. Financial systems have evolved to detect them and move massive amounts of capital to exploit them quickly. Markets correct in seconds, and currency valuation anomalies disappear. The same thing can be seen in marketing, with so many companies adopting a “fast-follower” model that allows advantages to be more quickly duplicated and differentiators more difficult to sustain.

The point is that the first organizations to recognize the emergence of a decision science frequently find massive opportunities for improved sustainable strategic success. As we’ll show, the conditions for the emergence of a decision science for talent and organization resources exist today.

Distinctions Between Markets, Decision Sciences, and Professional Practices

If we want to understand how a profession becomes strategic, we can’t do it by looking within the profession or by asking internal customers whether it is strategic. Rather, we must begin where strategy is formed and enacted, in the markets where organizations compete and thrive.

There are at least three markets vital to organizational success: the financial market, the customer/product market, and the talent market. In the financial and customer/product markets, there is a clear distinction between the professional practice that defines how organizations operate in the market and the decision science used to analyze and deploy the resources there. For example, there is a clear distinction between accounting (the professional practice) and finance (the decision science). Accounting is vital for management reporting and external requirements, while finance develops tools used to make decisions about appropriate debt structure, internal rate-of-return thresholds, and so forth. There is an equally clear distinction between the professional practice of sales and the decision science of marketing. Excellent sales practices and measures are vital, but they’re very different from the tools used to make decisions about customer segmentation, market position, and the product portfolio.

Today the differences between accounting and finance are so clear that we seldom even consider them. The competencies to be a successful accountant are related but clearly quite distinct from those for a successful financial executive (CFO, treasurer, etc.), and professional curricula reflect this. The industry itself has segmented this way—large accounting firms are very different from investment banking firms that focus on finance. Similarly, the competencies and activities of sales are clearly distinct from those of marketing.

This does not mean that the professional practice is merely administrative or less important. The decision science cannot exist without the professional practice; the professional practice must, in fact, precede the decision science. Few organizations survive with great marketing and ineffective sales, or with great finance and unprofessional accounting. Today the synergy between accounting and finance, or between sales and marketing, is so strong that it is easy to overlook how the decision sciences evolved from the professional practices and how they are both inextricably related yet distinct. Taking a closer look at this symbiotic relationship between the professional practice and the decision science reveals insights about the evolution of HR and the talent decision science that will change it.

Like finance and marketing, HR helps the firm operate within a critical market—in this case, the market for talent. Organizations cannot succeed in the financial and customer markets without both effective decisions and professional practices, but they are two distinct elements. Organizations will increasingly compete through the synergy of effective decisions aligned with professional practices in the talent market. When we see this distinction applied to HR and talent, we see that organizational decision processes in the talent market are less mature and refined than those used in finance or marketing, while the HR professional practices are more mature. Today the distinction between professional practices and effective decision systems is less clear in the talent market. Yet a clear understanding of this difference reveals the path for the coming evolution.

Decision Sciences Evolve from Professional Practices

While accounting and finance are clearly distinct, as are sales and marketing, perhaps the most valuable insights can be drawn from their synergy and how the decision science evolved from the professional practice. Accounting is about five hundred years old and was a well-developed profession long before the decision science of finance showed how accounting measures could support decisions based on concepts (such as relative returns on capital) and how different factors (margin, asset productivity, and leverage) affect those returns.

Finance emerged in the early 1900s and is largely credited to the DuPont organization, with the DuPont model still in wide use today.²¹ Why the early 1900s? Because that is when capital acquisition and deployment became an important source of competitive advantage, and when the ability to differentiate which businesses could generate an appropriate return on capital became vital to effective decisions. Before that, organizations consisted of business units that, even if quite large, had generally consistent capital returns. With advancing industrial production, capital investment decisions took on more importance within companies and across capital markets, and the tools of finance evolved to improve these decisions.²² For example, Sears was a large organization, but its capital model varied little from location to location.

Similarly, sales is as old as trade itself, and sales practices were a well-developed profession long before the decision science of marketing used sales information to create decision models such as customer segmentation and product life cycles. Alfred Sloan restructured GM by aligning brands to specific customer segments and charted a new course. This strategy meant, for example, that the Chevrolet division would make midmarket cars, not Cadillacs. In the years that followed, the decision science of marketing made rapid advancements as the size and sophistication of customer and product markets made systematic decisions—about market segmentation, product line management, branding, and so forth—a competitive factor for organizations. Marketing evolved from focusing almost exclusively on advertising practices to recognizing advertising as only one of many tools to be synergistically deployed to achieve strategic success and increased value.²³ During the 1950s decisions about the competitive customer moved from being advertising-research oriented to being decision oriented.²⁴ Top management became accountable and was provided tools to integrate marketing with the overall business objectives through strategic deployment decisions.²⁵ Today, in packaged goods companies like Pepsi and Kraft, products or packaging are segmented by the type of retail outlet where they’ll be sold. You’ll find single-serve Pepsi in a bucket of ice in a small convenience store and six-packs on the shelf at room temperature in supermarkets.

As figure 1-1 shows, the historical lessons from finance and marketing suggest that today’s HR challenges will not be addressed merely through incremental improvements in the professional practices of HR, as important as such practices will remain. Today’s HR functions typically create value by focusing on delivery of HR practices (staffing, development, compensation, labor relations, etc.), based on professional and often well-researched principles. These practices are important, and studies indicate that when they are done well, they add value to the organization.²⁶ Yet professional practices alone do not systematically address the increasing sophistication and importance of talent markets and today’s competitive challenges.

FIGURE 1-1

Evolution from professional practice to the decision science

Finance frameworks create organizational value by enhancing decisions that depend on or impact financial resources. Marketing frameworks create organizational value by enhancing decisions that depend on or impact customer or product resources. Finance and marketing provide reliable and profoundly logical frameworks that connect financial and customer capital to the organization’s sustainable strategic success. Strategic decisions must go beyond generic best practices to create a unique and sustainable competitive position for the organization.²⁷

Talentship: The New Decision Science

The lessons from marketing and finance tell us that the goal of a talent decision science would be to increase the organization’s success by improving decisions that impact or depend on talent resources. We have coined the term talentship to describe the new decision science and to reflect the notion of stewardship of employee talent resources. Figure 1-1 shows that talentship is to HR what finance is to accounting, and what marketing is to sales. The talentship decision science provides a logic that connects human capital, organizational design, organizational effectiveness, and ultimately, strategic success.

The talent resource as we define it includes not just the talents that your organization knows about and manages but all those talents that are potentially available and valuable, if only you knew about them. It includes not just the people you have and how they are organized but the people you potentially could get and the organizing decisions you could make. For example, in the earlier example of product integration, the organization knew and tracked the clerical talent among its product integrators through its system of job descriptions and performance tools. What it didn’t track was their capacity to discover and implement new product integration approaches. That uncharted human capacity was the key to a game-changing product integration strategy.

Improving the decisions about this resource is the domain of talentship. The talent resource not only includes the abilities of individuals; it also includes their motivations and the opportunities they encounter. It includes concepts such as human capital and knowledge. The decision science of talentship also includes a structure for improving decisions about how to enhance individual contributions, as well as how to enhance the way individuals interact in formal and informal organizational designs, structures, and so on. Talentship is concerned with improving decisions about the talents of people and how they organize and interact.

The Talent War Shows the Need for Talentship

The war for talent refers to the need for organizations to effectively attract, develop, and retain necessary human resources, particularly where they are going to be scarce, paying most attention to HR practices that get and keep more of the scarce talent. The talent war illustrates the conditions that we described earlier: the talent resource is critical for success and increasingly constrained. In addition, there is wide variation in how well the talent resource is managed, which provides the conditions necessary for significant competitive shifts and sustained competitive advantage.

Much of the talent war debate, however, still revolves around identifying the HR professional practices that enable organizations to get and keep the scarce talent. Talentship is relevant to the talent war because it addresses decisions about how to compete more effectively in vital human capital markets, but talentship encourages an expanded perspective.

Talentship suggests the first question should be “In what vital human capital markets does winning the talent war make the biggest difference to our strategic success?” Talentship helps organizations identify where winning the talent war matters most. It provides a strategic logic to determine unique ways to compete for scarce talent, not just mimic the practices that have worked for others.

Most writing about the talent war presumes that winning means getting and keeping more of the scarce talent. A talentship perspective, however, reveals that this is only one option for the strategic management of these resources. For example, shortages of high-quality fossil fuels make it prudent to invest in electrical generation facilities that operate effectively with a wider range of fuel quality. Talentship defines similar alternatives for talent resources. The best response to a shortage of high-quality call-center talent may be to redefine the role so that automated systems provide more guidance and can operate with a wider variety of talent quality. You don’t need a human being to tell you whether a flight is delayed or to take your frequent-flier number, but you may well need one to determine whether you can take your fifteen-pound cat in the cabin.

A second alternative for scarce resources is to deploy them where they have the greatest effect. An organization routinely analyzes its manufacturing operations to ensure they are devoted to the mix of products that generates the highest overall margin. Talentship suggests a similar approach to talent and organization resources. If leaders or engineers are in short supply, it is vital to allocate them where they can have the greatest impact. The talent war debate largely focuses on only one of the options—getting more talent—and the traditional HR response is to design ever more creative programs for acquiring, developing, and retaining talent.

Recognizing that there is a talent war is akin to DuPont recognizing that there was a “war for capital” and GM’s Alfred Sloan recognizing that there was a “war for customers.” Both organizations responded to this insight not simply by searching for practices to get more capital or customers, but with some of the first sophisticated systems to guide optimal decisions about capital and customers. In today’s talent war, organizations must go beyond the traditional paradigm of building ever more sophisticated HR practices to attract and keep talent. They must address talent as a competitive resource through a decision science.

The Essential Evolution and the HR Professional’s Role

It is a commonly held fallacy that the future of the HR profession lies exclusively in the realm of roles such as “strategic business partner,” “organizational architect,” or “human capital change agent.” The idea seems to be that if HR professionals aren’t in one of these roles, they are irrelevant, outsourced, or obsolete. Of course, these roles are important, but history shows that mature professions extend their role, rather than leaving earlier roles behind. When finance emerged, all accountants didn’t have to become financial analysts. When marketing emerged, all salespeople didn’t have to become chief marketing officers. Figure 1-2 shows that this is a paradigm extension, not a substitution.

Finance and marketing have evolved from an exclusive focus on control, first extending the focus to providing value-adding services and finally extending it to improve key decisions. In its control role, a profession creates value through assuring compliance with important rules, regulations, or standards. The Sarbanes-Oxley Act in the United States recently increased control activities in accounting functions.²⁸ Likewise, regulations governing advertising content reflect this focus in marketing. Regarding talent, this focus is associated with the personnel function (often seen as administrative). However, compliance remains important, such as adhering to legal requirements or international labor standards.

FIGURE 1-2

Extending the HR paradigm

The services role is also important. In finance it means there must be timely and accurate management of accounting and reporting, and in marketing it means there must be strong advertising or sales services. Similarly, it will always be important to provide strong HR services, such as compensation, succession planning, staffing, and training.

However, fields such as finance and marketing have augmented their service delivery model with a decision science that teaches frameworks that allow those inside and outside the profession to make better decisions. For example, a service delivery approach in marketing would provide excellent advertising where and when business leaders requested it. The more modern decision-focused approach teaches business leaders about the principles of customer segments and customer response to advertising, and then holds leaders accountable for their success in creating a strategy that increases sales and profits in key customer segments.

In this book we describe a decision science for talent and organization resources and how organization leaders must learn the principles of that decision science to improve their talent decisions, just as they learned principles of marketing and finance. As we shall see, a significant new role for the HR profession will be to develop, articulate, and teach these principles. This does not mean simply applying finance and accounting formulas to HR programs and processes. Rather, it means learning the principles that defined the evolution of these fields into powerful, decision-supporting functions. Those evolutionary principles provide a blueprint for what’s next for HR.

Objectives of the Book

In the chapters that follow, we strive to:

• Provide a manifesto for business leaders who realize there is something more than today’s definition of HR as a strategic partnership and want to elevate the quality and rigor of decisions about human capital in their organization

• Provide a specific logical framework that connects human capital to organizational effectiveness and strategic success

• Articulate how the same logic that historically created breakthrough insights in finance and marketing can be applied to competing with and through talent

• Describe a new science of human capital decisions, analogous to the finance and marketing decision sciences for money and customers/offerings

• Demonstrate tangibly how HR and line leaders can compete with and through human capital just as strategically as they compete with and through technology, money, and brands

Organization of the Book

Chapter 1 has introduced talentship, the essential evolution that extends the HR paradigm from services toward decisions. Chapter 2 defines a decision science and its supporting elements and shows how more mature decision sciences like finance and marketing guide the path toward a decision science for talent. We see that a logical decision framework is a fundamental pillar of a decision science. Chapter 3 describes the decision framework called the “HC BRidge model” and shows how its elements provide a logical connection between organization and talent decisions, and strategic success. This model is the organizing framework for the book and shows how investments in talent and organization are connected through efficiency, effectiveness, and impact. Chapters 4 through 8 use the decision framework to show how organizations can more purposely identify their strategic pivot-points, identify the organization and talent pivot-points that matter most, and then identify the programs, policies, and investments that will make those pivot-points happen. Chapter 9 describes the implications of talentship for human capital and organizational measurement. Chapter 10 describes what we have learned about implementing talentship organizations during our ten years of working with organizations and explores what’s next for HR.