5

MANAGE TALENT FOR VALUE

Optimizing the Most Important Asset

Talent management is one of the most important strategic objectives of companies today, many CHROs have the primary responsibility for the talent management system. The CHRO’s role represents a great opportunity to add value to the organization by acquiring, developing, and retaining critical talent. This chapter explores the importance of talent in the organization. From every viewpoint, talent is essential, and it is often regarded as a key strategy for maintaining a competitive advantage. A systems approach to talent management is needed for success, efficiency, and consistency. The systems approach follows a step-by-step process, beginning with attracting talent and ending with removing unwanted talent.

Opening Story: Tata Group

Tata is India’s largest enterprise group, with businesses in seven sectors, representing 100 companies, operations in some 80 countries, more than 500,000 employees, and annual revenue in excess of $100 billion. In recent years, it has grown through a series of strategic acquisitions and joint ventures. Global growth and diversity have brought a complex mix of talent management challenges. Tata receives more than 58 percent of its revenue from outside of India.1

Tata’s HR and talent organization has become skilled at determining the value (real and potential) of the people in the companies it acquires, as well as risk management and talent capture. Risk management involves assessing the culture of an acquired company. HR works alongside finance and strategy to ascertain “where the target company has come from” and how it has dealt with challenges in the past, says Satish Pradhan, who recently retired as executive vice president of group human resources. “You need to understand their fears, their drama, and their anxieties.” By providing insight into the acquired company’s readiness for change and the distance between its culture and Tata’s, the talent team helps mitigate risk. This process, which stretches through postmerger integrations, can take one to two years.

Talent capture is all about unlocking the ambition and potential of a leadership team that may be dispirited by a history of challenging performance or subordination to short-term goals. Pradhan grew accustomed to stories of resignation and even despair: “They’d say things like, ‘Why don’t you guys just tell us what you want us to do.’” When Tata sees opportunity in an acquisition candidate, it seeks to unlock potential at the outset by creating a shared vision: What does the company aspire to be, and how can Tata enable that aspiration? “Initially there is cynicism and disbelief and ‘What are they not telling us? What’s the game here?’” Pradhan says. “Then, over time, they realize that we are actually serious about what we’re saying. We actually want the acquired company to have aspirations.”2

Talent Management Issues

Let’s review the basic issues of talent management. These fundamentals begin to define the scope and importance of talent.

Critical Roles and Succession Management

The CHRO should create a process for evaluating critical roles within the organization. Sometimes, people who are in critical jobs are not the best performers, and the best performers are not in critical jobs. A successful talent management system identifies critical jobs in the organization and finds ways to ensure that current and back-up incumbents are top performers. Figure 5.1 provides an example of the type of data collected for talent management.

An executive talent management system also plans for organizational transitions. Some companies have extensive succession plans for several layers of management; others only create plans for the top leaders in the company. To avoid disruption in business performance, it is critical that the company plan for departures of talent. Evaluating ready-now talent, growing internal leaders, and sourcing external talent are all responsibilities of CHROs who manage talent in their companies. Essentially, organizations have shifted from success planning to succession management.

Another key element of a successful talent management system is a clear process for identifying and developing high potentials—people in the organization who are identified as the next leaders in the company. Many organizations carefully review and manage a small segment of their talent as high potentials. Others do not clearly segment out this group or provide preferential development or treatment. Either way, understanding who top performers are and fostering their development provides greater chances for business and leadership success.

Talent Movement

Companies inherently struggle with movement of talent because of the gaps it can leave in an organization. Talent mobility occurs when movement of talent happens regularly and has minimal impact on the business. If an employee’s skills can be better used in another function, business leaders should support moving that individual. Unfortunately, many managers become territorial and fear gaps in their departments. Planning for these gaps and creating a culture that believes talent belongs to the company—not a specific department—takes time and effort. When managed appropriately, there should be no gaps, because the talent management system is so robust that it can fill the openings quite quickly.

Before the Securities and Exchange Commission’s (SEC’s) rules on segment reporting, many companies had centralized talent pools that could be used across the company transparently. For example, a centralized engineering function would enable engineering leads in the businesses to pull on resources with specific skill sets. Today, companies have typically aligned functional employees in a business, which limits movement or rotations. Formal rotation programs have flourished to simulate the concept of a centralized pool of talent. These programs enable new graduates or existing employees to work for different functions during their rotation assignments. Finance departments, for example, use this model quite frequently with new MBA graduates. A rotation program that exposes the grad to financial accounting, financing strategy, financial analysis, and, sometimes, tax/treasury issues provides robust experiences and develops talent effectively for future career mobility. At the end of the formal program, the employee can select a function, manager, or group for his or her work assignment. This provides the employee with exposure to different functions and develops his or her skills, which enables more growth and talent readiness as needs arise.

Talent Management Outcomes

Many CHROs share information about company-wide organizational talent with the executive team and sometimes the board of directors. Providing exposure to management about the number of employees with international experience, the number of leaders with marketing education, or the percentage of employees with advanced degrees can provide critical information for business planning. Boards have an increasing interest in understanding the talent within a company as well as strategies for acquisition, development, and retention. CHROs are in a critical position as keepers of the talent profile of a company.

Table 5.1 shows how the talent management measurement systems are changing. The traditional group of measures of talent management focused on activity; the emerging group is focused on results, using the methods described in Chapters 4 and 14. The Institute for Corporate Productivity and AMA Enterprise (Talent Transformation Section) recently conducted a study that compared high-performing and low-performing organizations on issues affecting talent. They found that high-performing organizations, challenged by the uncertainty of continuous change, turned to workforce analytics and workforce planning to gain visibility of gaps pertaining to critical roles and skills needed to support sustainable business success. Transparency was identified as a common thread that correlates with effectiveness in virtually all talent processes and programs. This applies to everything from ensuring employees know where they stand with regards to their work expectations, progress, and development opportunities, to establishing accurate visibility into specific talent pools within the workforce, as well as building and communicating organizational strategy. In the future, transparency must be purposely incorporated into organizations to ensure high performance.3

Table 5.1. Measuring success of talent management.

Traditional examples

Emerging examples

• Three job groups defined as critical talent • Six recruiting channels utilized • 2,439 new employees recruited • Cost per hire reduced by 10 percent over the last year • Time to fill jobs reduced by 30 percent in two years • Individual development plans (IDPs) developed for 95 percent of high potentials • Ninety-two percent of managers and executives involved in 360-degree feedback process • Seven formal talent-development programs in place • Five informal talent-development programs in place • 1,479 individuals involved in talent-development programs

• Recruiting effectiveness increased by 30 percent • Eighty-five percent of individual development plans (IDPs) completed within one year • Turnover rate 30 percent below industry average • Promotion readiness rating increased by 42 percent • External hire ratio reduced by 35 percent • Performance rating of newly promoted managers increased 36 percent • Manager/executive failure rate sliced in half • Regrettable turnover rate for three critical talent groups at half of the industry average • In sales and marketing, a revised talent management system adding $15 million in sales • In IT, a new talent management system saving $2.3 million in costs • Three ROI studies in talent management completed with an average of 139 percent

Talent Analytics

Human capital analytics practices have been developed throughout major organizations, and these practices are tackling all kinds of issues. In a recent study of more than one hundred organizations with dedicated human capital analytics practices, the number-one area the practices were serving was in the recruiting and selection process.4 In this scenario, the analytics are used to understand the effectiveness of different recruiting sources and selection processes. Not only do the analytics track effectiveness in terms of correlation and causation; they are also developed into models that can be used in the processes to predict which individuals will be more successful. This is a great development that holds much promise for the future, particularly for the high-performance organization.5

Talent Mismanagement

The unfortunate reality is that most organizations have not addressed critical talent management issues. There have been some mismanagement practices. Another report showed that the majority of organizations are ineffectively employing important talent capabilities. Consequently, the workforce is not performing to its potential, and gaps in leadership and critical roles exist due to failure to develop adequate bench strength and ineffective development of leadership competencies throughout the organization. This is particularly true for performance management, succession planning, and leadership development. The high-performing organizations reviewed in the study were much better at this, but still there is much room for improvement.6 This chapter focuses on many of the issues that need to be addressed to avoid talent mismanagement.

Why Talent Is Critical to Success

Talent is considered the most critical source of success in an organization, and no executive will argue this point. How did it get this way? How critical is it now? How critical will it be in the future? There are several major reasons talent is so important and will be even more critical in the future. While these reasons were presented in Chapter 1, a few others are briefly described in the following pages.

Talent Adds to Market Value

When considering the value and importance of talent, you need look no further than the stock market. Investors place a tremendous value on talent in organizations. The balance sheets of very progressive knowledge industries reveal the dramatic difference talent makes. When you compare the market capitalization to the assets listed on the balance sheet, there is a big difference. Investors see something that has a value much greater than the assets listed on the balance sheet. This “hidden value,” as it is sometimes called, comes from intangible assets, which now represent major portions of the value of organizations, particularly those in knowledge industries. Talent makes up a big part of intangible assets.

The Best Idea Will Fail Without Proper Talent and Execution

Talent management is fundamentally about ensuring that the right people are positioned in the right places and utilized to the fullest potential for optimal success of the organization. Business leaders clearly understand their talent pool. They work hard to identify the key players who have critical relationships with customers and suppliers, and then they work even harder to nurture and keep those key resources.

A number of business leaders have asserted that acquiring and developing the best talent for their companies is the most important task they have to perform. These leaders put a premium on keeping the talent they need for growth. They do what is necessary to ensure that key people are secure and do not leave because of low morale, thus preventing a defection domino effect.

Talent Is a Major Source of Competitive Advantage

Today’s organizations have access to most of the key success factors. Financial resources are available to almost any organization with a viable business model. One company no longer has an advantage over another to access the financial capital needed to run a business. Access to technology is equal; a company can readily adapt technology to a given situation or business model. It is difficult to have a technology advantage in an information technology society.

Businesses also have relatively equal access to customers, even if there is a dominant player in the market. Newspapers are laced with stories of small organizations taking on larger ones and succeeding. Having entry and access to a customer database is not necessarily a competitive advantage. What makes the difference, clearly, is the talent of the organization.

Companies Want to Be Talent Magnets

Probably no document about the importance of talent is more visible than the list of organizations selected as the “100 Best Companies to Work For” in America. This list is published each year in Fortune magazine and has become the bellwether for focusing on the importance of talent. Although other publications have spin-offs, this is the premier list that organizations strive to make. The most important factor in selecting companies for this list is what the employees themselves have to say about their workplaces. For a typical list, at least 350 randomly selected employees from each candidate company fill out a survey created by The Great Place to Work Institute based in San Francisco.7 For more methodology on these criteria for this list, please see www.Fortune.com.

These lists are alive with tales of how employers focus on building a great place to work and building employee respect, dignity, capability, and talent. These firms are successful in the market. A typical list includes well-known and successful companies such as American Express, Cisco Systems, FedEx, Eli Lilly, Marriott International, General Mills, Merck, Microsoft, Proctor & Gamble, QUALCOMM, and others. Inclusion in the list has become so sought after by organizations that they change many of their practices and philosophies in an attempt to make this list. This list underscores the importance of talent and how much emphasis companies place on it. It shows how diversity, job growth, turnover, and learning make a significant difference in an organization. For the most part, these organizations are investing heavily in human capital—far exceeding those on any other list. Investment, in their minds, translates into payoff.

Talent Is a Game Changer

A group of Harvard professors studied three very successful organizations to try to understand what made them so effective. One organization was BlackRock, the world’s largest asset management firm, with a tremendous track record. Another was Envision Energy, a very successful Chinese company, and the third was Tata Group, a very successful conglomerate in India with more than 500,000 employees. These very successful companies had one important common thread: they each had a very effective talent management strategy.8 Collectively, their work developed very precise actions that an organization should take to have a game-changing talent strategy. Table 5.2 lists the statements that an employee can make in a company with highly successful talent policies and practices.

Table 5.2. Talent strategies for game changers.

Source: Adapted from Douglas A. Ready, Linda A. Hill, and Robert J. Thomas. “Building a Game-Changing Talent Strategy.” Harvard Business Review, January–February 2014.

Talent Is a Major Expense

Successful talent acquisition and management is expensive. The total investment in competent talent is the total HR department expenses for talent management plus the salaries and benefits of the talent. HR expenses include every function that exists in the chain of talent acquisition and management. Attracting, selecting, developing, motivating, compensating, and managing talent are accounted for in this total cost. Because the traditional HR department expenses do not include salaries of other functions, this broader measure has the effect of showing the total cost of talent. It should be reported as a percentage of operating costs or revenue or on a per-employee basis to show realistic comparisons with other organizations. All direct employee-related costs are included in the human capital measure.

Executives in some organizations realize the magnitude of these expenses and have a desire to manage them efficiently. Although the costs do not include office space and support expenses, they are still very significant, often two to three times an employee’s annual pay. In many—if not most—industries, the cost of talent is the largest operating expense category. Because talent is so expensive, it must be managed carefully and systematically.

Talent Departures Are Extremely Costly

When talent leaves, the costs are high. Executives see the direct cost of recruiting, selection, and initial training, but they may not understand other impacts. The total cost of turnover is not calculated routinely in organizations. When the cost is estimated, it is often underestimated. Estimations of the total cost are also not communicated throughout the organization, leaving the management team unaware of the potential costs. If turnover is a problem, the costs are always significant. In some cases, the actual impact can be devastating and can result in the organization’s demise.

The total cost of turnover involves both the direct and indirect costs. Figure 5.2 lists the costs in the sequence in which they occur. This figure suggests that there are many different costs, some of which are never known with certainty but can be estimated if enough attention is directed to the issue.

Table 5.3. Why talent is critical.

As Table 3.3 showed, these costs are significant. There is healthy turnover in any organization—people who retire, leave to work in nonprofit organizations, or go back to school. The area of most concern in managing talent is when top performers or critical employees depart their jobs unexpectedly. The CHRO’s role is emerging to manage this turnover successfully and on-board new employees quickly. In an ideal scenario, the CHRO is prepared with talent sources, so there are no gaps in organizational performance or product road maps. Managing talent in an organization is a critical responsibility. CHROs must be aware of talent needs, know the sourcing strategies for aligning great talent, be prepared to build capable talent internally, and manage the employment brand.

Summary: Why Talent Is Critical

It may be helpful to summarize this information, which clearly details the critical role of talent in the organization. Table 5.3 provides a quick summary, showing many of the reasons talent is critical to success. The remainder of this chapter describes a system to provide the focus, attention, and care needed for this strategic issue.

Needed: A System for Talent Management

The most effective way to tackle talent management is to use a systems approach, ensuring that the different elements and pieces of the process are working in concert to acquire and integrate talent into the system. Several issues support the need for this system.

Disconnected Efforts

The traditional way to deal with this issue is to have the responsibility assigned to various groups that cut across functional HR lines. Recruiting, learning and development, reward systems, and employee relations are traditional functional groups. Several problems may surface with this approach. First, in this traditional HR model, talent management is in a reactive mode, reacting to critical issues, problems, and talent shortages. There are few early signs—other than the lack of communication between groups—to signal an impending problem. Also, because individuals involved are not tightly integrated with open communication, inefficiencies abound in the processes, often creating duplications and delays throughout the system. Consequently, this is a very expensive approach to the problem—one that fails to generate the success needed and leaves voids, omissions, and delays. The results can be disastrous for an organization in need of talent and attempting to grow. Most of all, the traditional approach creates confusion—not only in roles and responsibilities but in the process of designating who is in charge. This confusion can be minimized by a systems approach.

A Systems Approach

Figure 5.3 shows the traditional model for a talent management process, where the focus is on acquiring and retaining talent.9 Today, more issues must be addressed and integrated.

A systems approach to talent management is presented in Figure 5.4. It includes the major issues of planning, acquiring, developing, managing, and retaining employees. These are often subdivided into responsibility areas, as outlined in the figure. Traditionally, many of these have been under different sections apart from the typical learning and development area of responsibility. However, this is a system that must work together in close coordination and integration, ideally under the direction of a central person whose key responsibility is talent management—the CHRO. When this is in place, the benefits are tremendous from the client’s perspective. First, this approach presents consistent attention throughout the process. Problems can be spotted quickly and adjustments can be made. Second, talent acquisition can be more effective, ensuring that adequate talent is recruited and integrated into the system and the appropriate quality and quantities are secured. Finally, value is added as costs are reduced when the process is more efficient and duplications are avoided. The systems approach is rational and logical; it is the economic way to address talent management.

In the traditional model, when a company needs to quickly hire thirty multimedia engineers for a new technology deployment, the staffing lead receives notification, opens thirty position requisitions, creates an advertisement, posts the job on a website, and begins the candidate-screening process.

In an ideal model, the HR staff would be working closely with the executive team and know the business strategy is moving toward multimedia. The HR team could scan a database of talent profiles that would identify twenty internal candidates that either have multimedia skills or need a few courses/development opportunities to acquire the skills. In this case, the request for external talent drops to ten people, and the ramp-up time for the other twenty employees is much shorter. Time to fill productivity is reduced. The HR team then works to backfill the jobs that were filled by employees who are now in the multimedia jobs. This is a true talent management model—HR deploys resources where they are needed most and develops internal talent for optimum performance and long-term value to the company.

Defining the Critical Talent

Before describing the mechanics of talent management, it is helpful to define the critical talent in an organization. Critical talent refers to the employees who drive a major part of the company’s business performance and who generate above-average value for customers and shareholders. Typically, the critical talent possess highly developed skills and deep knowledge. They don’t just “do their job” but go above and beyond to contribute to the organization’s success. Surprisingly, these are not always the high-tech or highest-paid employees; often, they are the valuable employees that are seldom mentioned in the annual report. Take FedEx, for example—the world’s largest overnight package delivery firm. One report suggested that the couriers might be more critical to the operation than the pilots who fly the packages through the night. The couriers have direct contact with the customers and must make continual decisions that impact efficiency and the effectiveness of the supply chain, such as how to reconfigure a route and how long to wait for a customer’s packages.10

Critical talent can vary considerably by industry and organization. At Merck, critical talent may include the scientists and clinicians who discover and develop pharmaceuticals that fuel the company’s growth. At ExxonMobil, it may include the geologists and petroleum engineers who find and extract oil. At YRC Trucking, the critical talent may be the long-haul truck drivers. At Toyota, the critical talent may be the machinists who perform precision operations to develop parts for automobiles using Six Sigma standards. At Amazon, the critical talent may be the IT staff who develop and support the innovative online marketing. At Wal-Mart, they may be the inventory managers who ensure that the right goods are in the right store at the right time.

Recruiting wars often erupt when there is a shortage of critical talent, leading to much inefficiency, cost, and many disruptions along the talent management system.

Competencies: A Starting Point

In recent years, there has been a tremendous focus on the use of competency characteristics and traits of individuals. Some experts indicate that attracting talent can only be achieved if it is focused on identifying competencies and using them throughout the talent management system. Competency models are fundamental to talent management systems. Many organizational units use a unique language when describing recruiting standards, training requirements, and promotional criterion. The problem is exacerbated when organizations span cultures and countries. By using an agreed-upon competency model, the organization can communicate via a common language that describes performance from one unit to the next.11

As shown in Figure 5.5, competencies ideally drive the entire talent management system. A competency is a reliably measureable, relatively enduring characteristic of a person, community, or organization that causes or statistically predicts a criterion or level of performance. Competency characteristics are knowledge, behavioral skills, competency processing (IQ), personality traits, values, motives, and occasionally other perceptional capabilities.12 Competencies are a critical part of planning, recruiting, and selecting talent at the beginning of the process. The processes of preparing and developing talent should focus on the same competencies as the processes of managing, rewarding, and motivating employees. The competencies for a particular job—even among similar jobs—can vary.

The key challenge is to determine, to the extent possible, the competencies needed for talent in specific divisions, groups, functions, or even job categories and use them to drive the talent management system. Some companies use behavior dimensions, leadership characteristics, or behavioral quotients instead of competencies. Whatever the language, it is important that the basis for the talent management system fit the organization.

Planning for Talent

Planning is perhaps the area that has been most neglected in many talent management systems. The objective of planning is to have an orderly process for acquiring the appropriate types of employees to meet the needs of the organization, given the constraints of market forces and the available labor supply. The three areas that are often addressed, sometimes by separate individuals or units within the talent management system, are discussed in the following sections.

Analyzing Talent Needs

Several factors will determine the need for talent, as defined earlier. First, the growth of the organization often translates into the largest component of talent requirements. The CHRO must be aware of the organization’s strategy, both short- and long-term. Needs are sometimes driven by shifts in products and services, acquisitions, mergers, and routine growth through expansion. Whatever the reason, growth translates into the need for a specific number of individuals in different job categories.

Second, replacement needs are created by employees leaving the organization. If turnover is excessive, replacement needs become significant. If there is low turnover, replacement needs are minimal. In the context of managing retention, only the avoidable turnover is considered. However, when replacements are needed, all types of turnover must be considered—including those individuals who retire, leave due to disability, or transfer to other regions. The retirement issue alone is a critical problem for many organizations. NASA, for example, faces a tremendous loss of talent as much of its science and engineering capability will be retiring in the next few years.13 This situation will have a tremendous impact on their talent management system, which will have to ensure that the proper replacement talent is recruited and prepared for their assignments.

Third, changes in skills and competencies translate directly into human capital needs. As technology advances, markets change, and products shift, a different set of skills and competencies are sometimes needed, either in addition to or beyond those currently in the organization. These three issues generate needs that must be translated into specific numbers forecasted in both short- and long-term scenarios.

Market Analysis

Since the majority of needs must be filled from the available labor market, a market analysis is critical. When examining the labor market, several issues must be taken into consideration. First is the supply of labor in the recruiting area—this is a critical issue for some organizations because of labor shortages. This may require the relocation of facilities to ensure a better source of labor. For example, many automobile companies based outside the United States are developing plants in record numbers in the southern part of the United States. For example, Toyota, Honda, Mercedes Benz, and Hyundai have all developed major plants in the state of Alabama, making this state the automobile capital of the South. A major part of the attraction is the available labor supply—in both quality and quantity—as well as a strong work ethic.

Developing Plans

After the needs are determined and the market is analyzed, the plans are developed, generating a schedule of the number of employees that will be acquired at what times from what sources, sometimes by job group. If it becomes apparent that the market will not be able to supply the required resources, the shortages must be addressed and alternatives developed. For example, due to the difficulty of recruiting fully trained nurses, hospitals have created their own nursing schools, sometimes in conjunction with a university. This is a classic case of attempting to regulate supply and demand—taking control of the situation and creating the supply. This situation illustrates an important issue that must be part of talent planning—scenario planning. Because all forecasts contain error and there are many events that can have a significant effect on the sources of talent, different scenarios should be developed, including worst-case conditions. This process provides insight into what can, should, and perhaps must be done to ensure that available talent is onboard when needed.

Acquiring Talent

Acquiring talent involves four key issues: attracting, recruiting, selecting, and employing. Each of these is an important step, often performed by different individuals.

Attracting Talent

Attracting talent is a long-term issue. The attraction of a workplace comes from many factors, but two very important ones relate to the issue of developing the company into a talent magnet. One factor is being an employer of choice, representing a great place to work. The second is the overall reputation, or employment brand, of the organization. Employers of choice have several things in common. They organize a work–life balance program that meets needs across the business; they give professional and personal development opportunities to all; they enable employees to make contributions to the firm tied to personal responsibility; they foster a friendly and culturally rich environment; and they operate a business that is responsible to the community as a whole.14 In the United States, employer-of-choice lists are developed by a variety of organizations and publications. The most common is Fortune’s “100 Best Companies to Work For” in America, described earlier in the chapter.

Organizations are working harder to polish their image in the eyes of prospective talent. Some have staff who do little but keep the firm’s name in front of both faculty and students, promoting their “employer brand.”

Organizational reputation is based on several factors. Harris Interactive and the Reputation Institute published a corporate reputation poll based on the views of almost thirty thousand respondents.15 They developed six categories to rank reputation:

Reputations, particularly of workplaces, often evolve and develop over time and have to be driven by senior leadership. A few scandals, ethical concerns, or ineffective leadership can spoil an otherwise superb reputation. Many companies work very hard to ensure that their image, from a talent-attraction perspective, is superb. In essence, they are attempting to brand their organization as a great place to work as well as a great place to invest. Sears perfected this sentiment in their overall strategy to create a compelling place to shop, a compelling place to invest, and a compelling place to work, putting the customers, shareholders, and employees on equal footing.

Recruiting Talent

Recruiting has changed significantly in the last decade, not only the methods, but the overall approach. Table 5.4 shows how the recruiting strategies have shifted.16 The newer approaches involve constant recruiting, using many sources, branding, and involving many individuals. Recruiting strategies are reflecting a comprehensive process with long-term focus.

Table 5.4. The shifts in strategies of recruiting.

Old recruiting strategies	New recruiting strategies
Grow all your own talent.	Recruit talent at all levels.
Recruit only for vacant positions.	Search for talent all the time.
Go to a few traditional sources.	Tap many diverse sources of talent.
Recruiting is limited to a few individuals.	Every employee is a recruiter.
Advertise to job hunters.	Find ways to reach passive candidates.
Specify a compensation range and stay within it.	Break the compensation rules to get the candidates you want.
Recruiting is about screening.	Recruiting is about selling as well as screening.
Hire as needed with no overall plan.	Develop a recruiting strategy for each type of talent.
Keep a low profile except during employment growth.	Brand your company as an employer of choice.

Source: Adapted and updated from Ed Michaels, Helen Handfield-Jones, and Beth Axelrod. The War for Talent. Boston: Harvard Business School Press, 2001.

Table 5.5 shows the shift in the actual methods of recruiting. Although the traditional methods are still being used, newer methods are being adopted, particularly those involving web resources and networking. Monitoring current events in specific areas to understand where the talent may be located or what may be driving available talent is an effective tactic. Using employees as talent scouts is another useful approach. Because of the scarcity and competition for quality talent, a talent war is being waged in certain industries. Nontraditional recruiting methods are often needed to capture the interest of the passive prospect. Recruiting has become so subtle that some organizations—such as Cisco Systems—have a philosophy of not hiring candidates that are actually looking for a job.

Table 5.5. The shifts in recruiting methods.

Traditional recruiting methods	Nontraditional recruiting methods
Job service agencies Recruiting ads Professional recruiters Campus recruiting Internships Employment support groups Community recruiting Job fairs Walk-in applicants Trade and professional associations Employment hotlines	Web resources Open houses Receptions at conferences Information seminars Diverse profile candidates Military recruiting Employee talent scouts Networking Employee referrals Monitoring current events Pre-employment programs

An important development in the recent years is being able to predict success with assessments. Sometimes these assessments are used in the selection process as candidates are being considered for employment. Others are used internally to see who may be high potentials in the organization. The applications are varied and almost limitless. Table 5.6 shows some examples of predicting success, taken from SHL Talent Measurement, a part of CEB. This organization had tremendous success with this process, and these examples show a wide variety of evolving possibilities for predicting the success of talent in an organization.

Table 5.6. Predicting success.

Source: Adapted from CEB/SHL Talent Measurement.17

Selecting and Employing Talent

Recruiting brings the prospects for consideration. Next comes one of the most critical talent decisions—the employment decision. How it is made, who makes it, when it is made, or whether or not it is accepted are important issues. Although selection is only one component in the talent management system, it must be consistent. It is at this stage that there is the most scrutiny in terms of being fair and equitable. An inconsistent selection process is doomed to be challenged and may be difficult to defend. A systematic process should be followed for each selection so that no one is subject to disparate treatment and the selection does not represent an adverse impact. Figure 5.6 shows the selection system for a commercial banking officer for a large banking firm in the United States. The figure shows steps in the process and where the applicant can be rejected. Because there are so many components in a typical selection process, it has to be organized very carefully so that the selection time is minimized.

Just as recruiting methods have changed, so have selection methods. Table 5.7 shows the nontraditional selection methods now being utilized to make better employment decisions. Executives are anxious to ensure a good fit for an employee before the ultimate selection is made. After it is made, it becomes expensive, time consuming, and disruptive to make adjustments or changes.

Table 5.7. The shifts in selection methods.

Traditional selection methods	Nontraditional selection methods
Resumes Background checks Reference checks Testing Physical exams Drug testing Interviews	Behavioral interviews Job simulations Pre-employment training Assessment centers Work samples Referral profiles Internships

Employing talent comprises the processing and administrative steps. Timing and convenience are the concerns as new talent joins the organization. All payroll tax forms and employee benefits forms need to be completed. An organized system is the key to handling these steps efficiently, effectively, and with as little frustration as possible. Two important problem areas must be avoided: administrative delays in the processing and unpleasant surprises, particularly those that can create a negative first impression.

Developing Talent

After the new talent is hired, the learning and development process begins with on-boarding, initial training and learning for the job, and development to refine processes and improve capability as well as prepare individuals for other job positions.

Initial indoctrination and orientation (or on-boarding, as it is sometimes called) creates early impressions that are lasting. It is important for new talent to have a positive first day on the job and an outstanding first week. In some job situations, where employees have an opportunity to move quickly to another job with little investment, an unpleasant experience in the first week of work may result in an early turnover. The early turnover measure is the number of departures in the first month of employment. When this number is excessive, 10 percent for example, this is an indication that either the selections are improper or something is happening in the early days of employment to change their opinion.

On-boarding helps individuals align with the organization and its values, mission, philosophy, policies, and practices. Employees must understand the rules, practices, and policies—even the unwritten ones—so that initial success can be ensured. It is important to avoid frustrating experiences, missteps, miscues, and unpleasant surprises. At the same time, this is the best opportunity to secure employee commitment to the organization. Both the motivation and the potential for engagement is extremely high. The efficiency and effectiveness of handling the orientation are important.

Regardless of the level of talent, a certain amount of preparation for the job is necessary. For some, it may be significant, as in preparing for skills or applications unique to the job. For most, it will be a matter of adjusting to the situation and learning specific practices, technology, and procedures. If the competencies are already in place, significant skill building will not be needed. If these competencies do not exist, significant training may be required.

A variety of learning and development programs must be available to continue to improve performance, refine skills, learn new techniques, and adjust to changing technology. A variety of development methods should be used, with specific emphasis on the nontraditional ones.

Succession management is preparation for the next job. Because today’s employees are interested in all types of career movement and development opportunities, several approaches are utilized and explored. Succession planning is part of this, as well as other types of replacement planning.

Managing Talent

With talent in place and performing, the next challenge is to ensure that performance improves and employees are highly motivated and thoroughly utilized. Managing talent involves two new responsibilities of the CHRO: managing performance and rewarding talent appropriately.

To ensure that performance is discussed, recognized, rewarded, and understood appropriately, many organizations are focusing renewed efforts on performance management systems. The old approach was the traditional performance review conducted quarterly, semiannually, or annually, which was usually a one-way conversation from a manager to an employee. All parties typically disliked the process. Managers did not like it because there was the potential for conflict and they did not have the skills or the confidence to do it properly; employees did not like it because it did not meet their needs and often left them confused, frustrated, and sometimes angry. The human resources staff did not like it either, because it was not conducted properly, effectively, or consistently.

CHROs are attempting to make this process less painful by automating the system. For example, a typical approach to performance management is to develop briefing sessions and maybe even e-learning modules that show how the process should work and the benefits of conducting these types of discussions. Discussions are often more frequent, and there are meetings between the employee and the manager to discuss performance improvement and set goals that align with organizational goals. These goals are entered into an online system, posted for constant review, follow-up, and adjustment. As progress is made, the status is updated. Performance data are available to others who need to keep track of key issues and see how well the system is working overall. Progress is monitored and the feedback is obtained in a variety of follow-up discussions. This approach brings constant overview, feasible goals, challenging assignments, and alternative delivery, and it saves time and provides excellent documentation. Figure 5.7 shows the performance management system at a large financial services firm. An important challenge for the CHRO is to track and manage this type of process so that it becomes a motivational tool to drive performance instead of a headache that creates confusion.

Rewarding performance, accomplishments, and milestones is very important. If used appropriately, recognition is one of the most effective motivators, and another one of the best ways to motivate is to tie bonuses and incentives directly to performance. Nonmonetary rewards can often be just as motivational. The development of these programs is beyond the scope of this book and can be found in many other references.

When providing recognition, both the substance and the style must be considered. Substance is the value of the reward or recognition from the perspective of the person receiving it. If that person places no value on the reward, it will have very little motivational effect. The style is the manner in which the recognition is provided, including how, when, and where. The style relates foremost to the sincerity of the communication and is just as important as the substance.

Retaining Talent

Keeping talent on board, the retention process, is perhaps one of the most critical challenges for the CHRO, representing one of the newest responsibilities. A strategic accountability approach, outlined in Figure 5.8, is needed to tackle the retention issue.18 This approach has five important advantages:

Ultimately, the approach positions the organization in a preventative stance, working to maintain the appropriate level of staffing and reduce the risk of turnover. Each segment of the strategic accountability approach is briefly discussed in the remainder of the chapter.

Measure and Monitor Turnover

For many organizations, turnover is defined solely as voluntary. For others, resignations and terminations based on unsatisfactory performance are included in the definition. The cleanest definition to use is avoidable turnover—employees leaving (voluntarily) or being forced to leave (involuntarily) when such departures could have been prevented. It is important for the classification to match the definition in benchmarking studies, industry reports, or trade publications. Turnover by demographics should be reported, showing the regions, divisions, and branches as well as the sex, age, and personal characteristics of the individual employees. Job groups are also important.

When using benchmark data and other comparisons, trigger points for action must be developed. When should an alarm sound? Is it a rising trend or a sudden spurt? Is the measure going up when it should go down? Each of these could signal that it is necessary to begin exploring causes and creating solutions.

Develop the Fully Loaded Cost of Turnover

The impact cost of turnover is one of the most underestimated and undervalued costs in organizations. It is often misunderstood because it does not reflect the stated costs in turnover statistics, and it is not regularly reported to management teams, who are left unaware of the actual cost. Although turnover rates are reported routinely, additional reporting of actual costs can be more effective. The fully loaded cost of turnover, detailed in Table 5.3, should be reported even if it is only an estimate. The total cost will attract the attention of the senior management team, revealing the true impact that turnover is having in the organization.

Identify Causes of Turnover and Needs for Retention Improvement

The causes of turnover must be determined. Some causes appear obvious, whereas others can be deceptive. Collecting appropriate data is often a challenge because of the potential for bias and inaccuracies that surface during the data collection process. Several diagnostic processes are available. A variety of tools are available for use with turnover analysis, beginning with analyzing trends and patterns in particular groups and demographic categories to pinpoint the problem area. As Table 5.8 lists, the tools range from conducting a survey to coordinating a focus group to uncover the causes of turnover.

Table 5.8. Tools to diagnose turnover problems.

Explore a Range of Solutions and Match Solutions to Needs

Creative approaches to the turnover problem have resulted in hundreds of excellent solutions. In fact, because there are so many potential solutions to the problem, confusion often results. The solution must be appropriate and feasible for the organization. When matching solutions to needs, five key recommendations should be considered:

Forecast the Value of Solutions

Forecasting is an expert estimation of what a solution should contribute, and the process can be difficult, challenging, and risky. When a forecast for the value of a solution is developed, this allows the team to establish priorities, work with a minimum number of solutions, and focus on solutions with the greatest ROI. When as much data as possible is accumulated, the estimate is supported and credibility is built around the process. The payoff value can be developed if the percentage of expected turnover reduction can be related to it.

Ideally, the forecast should contain an expected ROI value, particularly if the solution is expensive. However, a more realistic approach is to offer a range of possible ROI values, given certain assumptions, which removes some of the risk of making a precise estimation. This step is perhaps one of the most difficult parts of the process.

Calculate ROI for Turnover Reduction Solutions

Another commonly neglected step is the calculation of the impact of a turnover reduction strategy. This step is often omitted because it appears to be an unnecessary add-on process. If accumulating solutions is the measure of success of turnover reduction or prevention, the impact to those solutions may appear to have no value. However, from a senior executive’s point of view, accountability is not complete until impact and ROI data have been collected, at least for major solutions.

Make Adjustments and Continue

The extensive set of data collected from the ROI process will provide information that can be used to make adjustments in turnover reduction strategies. The information reveals success of the turnover reduction solution at all levels, from reaction to ROI. It also examines barriers to success, identifying specifically what kept the solution from being effective or prevented it from becoming more effective. This information also identifies the processes in place that enable or support a turnover reduction solution. All the information provides a framework for adjusting the solution so that it can be revised, discontinued, or amplified. The next step in the process goes back to the beginning—monitoring the data to ensure that turnover continues to meet expectations—and then the cycle continues.

Implications for Human Capital Strategy

Talent management is a critical force for any type of organization. It makes a difference in the success or failure of most organizations. In the current economic climate, critical talent is in demand. We are in a war for talent, and an organization must find ways to acquire the best talent and develop critical talent internally as well. This is an important part of the human capital strategy, which must address the following issues: