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STRATEGIC TALENT MANAGEMENT

The dramatic changes that are taking place in the world are transforming work and organizations so significantly that traditional approaches to talent management are, at best, obsolescent. In many cases they are obsolete. They were designed for an era of stability, predictability, bureaucratic management, traditional financial accountability, little information technology, and slow change. Today we are in a world of rapid change, diversity, the high strategic importance of human capital, globalization, triple-bottom-line accountability, and radical advances in technology. In most corporations, all of these aspects are present today; and many of them are dominant themes.

Talent management needs to change in ways that respond to how organizations, work, and workers have changed and will continue to change. Doing this requires using the six talent management principles that will be reviewed in this chapter as a guide. They need to be the basis of all talent management practices and systems that an organization uses.

TALENT MANAGEMENT SHOULD BE STRATEGY DRIVEN

As is shown in figure 2.1, talent management needs to be driven by an organization’s strategy and the capabilities it requires for it to be effectively implemented. Every strategy is only as good as an organization’s ability to implement it, and its implementation is only as good as its talent’s ability to execute it. Because of this, organizations need to be sure that the capability demands of their strategy (e.g., agility, low-cost production, etc.) can be met with respect to how talent is managed. If they cannot be met, then the strategy needs to be changed. This relationship between strategy and talent is why figure 2.1 has a two-way arrow between “Strategy” and “Capabilities.”

Figure 2.1

The five most important talent management practice areas are identified in figure 2.1. To some degree they are independent of each other, and they will be treated separately in the chapters that follow. Yet they are interdependent in many ways and need to fit with each other. Thus, they are connected by two-way arrows in the figure, and as we examine each one of them, we will consider issues of fit with other talent management areas. Only by using talent management practices that fit an organization’s strategy and fit together to create an integrated talent management system can an organization be effective.

The reality that talent has become the key resource of many corporations mandates that it be a major determinant of most corporations’ business strategies and that it be managed in ways that support strategy implementation. Much of the writing on talent management emphasizes that strategy should drive the talent management practices of corporations. Given the importance of talent, it is hard to argue against this point. To be successful, a strategy needs to be supported by the right talent management practices. But thinking of strategy as determining talent management is not the best way to state or think about the interaction of the two.

Yes, talent management needs to be influenced by an organization’s strategy, but its strategy needs to be driven by the talent that is available to it and how it can be managed. A strategy that cannot be implemented or executed effectively because of talent availabilities and deficiencies is not a good strategy. It is just as likely to lead to poor organizational performance as one that is based on incorrect assumptions about financing, marketing, or production.

Perhaps the most obvious area in which talent should drive business strategy involves the availability of talent. The key to implementing every strategy is the ability of an organization to recruit and/or develop the talent it needs to implement and operate the strategy. Thus, there are a number of questions that every organization must ask when it develops its strategy: What is the right talent, and do we have it? If we do not have it, can we recruit and/or develop the talent we need to implement this strategy? Can we structure and design talent management practices that will lead to the type of talent we need to be motivated and willing to commit to the effectiveness of the organization? If the answer to either of the latter two questions is no, then the case is clear: the strategy will not be effective and should not be adopted.

There are numerous challenges to an organization’s recruiting the talent it needs to implement a strategy. For instance, there simply may not be people in the labor market that have the right skill sets, or the organization may not have the assets it needs to make an attractive offer to the right talent. There are also many reasons why it can be difficult for an organization to develop the talent it needs; these include the willingness and ability of current employees to develop new skills and competencies, or the lack of the expertise needed to develop the skills of both existing employees and new ones.

In many ways, there is a great deal of similarity between the factors that are critical in recruiting new talent and those that are involved in obtaining financial capital when a new organization is formed. New organizations do not have a track record, and they need to sell the promise of future payoffs to talent. Not surprisingly, one of the major things that causes the demise of many start-up organizations is their inability to attract the kind of talent they need to be successful.

At the forefront of any discussion of talent availability should be a consideration of alternative approaches to accessing talent. For a host of reasons ranging from agility to cost and availability, the best way for an organization to get the talent it needs may not be by employing it on a full-time, permanent basis. Consideration needs to be given to the wide variety of talent access approaches that are available today and will be increasingly available in the future. These include contract employees, gig workers, employees borrowed from other organizations, workers hired through temporary agencies, and a host of other ways to temporarily obtain talent. Organizations increasingly need to think of themselves as being made up of constantly changing teams that assemble talent to meet the performance demands of a changing market.

It is increasingly common for organizations to take into account the availability of talent when it comes to implementing a strategy that has been decided upon. Talent availability is increasingly driving decisions about where organizations locate their operations. Further, an increasing number of organizations are using technology that allows talent to work anywhere, and at any time.

Most executives do recognize that implementing a strategy depends not only on having the right talent but also on being able to motivate and direct the talent to behave in ways that are strategically appropriate. But what it means to operate in strategically appropriate ways and how this can be accomplished is not always well thought out during the strategy development process; instead it is left for “later.”

Leaving talent management considerations for later is a big risk, because it may not be possible to design an organization that has talent management practices that are conducive to the implementation of the business strategy. It is during the development process that organizations need to deal directly with how the organization can obtain and manage the right talent for a strategy to be implemented successfully. The next question should be, Does our organization have these practices and, if not, can we implement the right talent management practices?

Simply adopting a series of best practices with respect to rewards, performance management, recruiting, selection, and development is rarely the right answer to creating strategically appropriate talent management systems. Different strategies require different systems. Organizations must start with an understanding of what the talent management options are and an understanding of how the many options that exist impact the behavior of individuals and organizations.

Overall, developing strategic talent management practices is a critical and challenging task. To be done well, it requires an extensive knowledge of the alternative methods of talent management as well as an understanding of how they relate to the kind of organizational culture, competencies, and capabilities that are required to implement and operate a strategy. It also requires realizing that talent management practices may soon be outdated, especially with the way work and organizations are changing. Few “silver bullets” exist that can solve all talent management problems or can be strategically relevant for years or even decades.

TALENT MANAGEMENT SHOULD BE BASED ON SKILLS AND COMPETENCIES

Traditional organizations are built with a job-oriented, hierarchical mind-set. As a result, how employees are treated and managed depends more on the job they are doing than on their performance, skills, competencies, and needs. In the traditional hierarchical bureaucratic organizations of the past this may have been defensible, but it is not in today’s world of work and will be even less so in the future. The management of talent needs to be designed to focus on the needs, skills, and competencies of individuals. This is the single most important thing that the talent management system of an organization can do to ensure that the organization will perform effectively and be prepared to deal with a dynamic environment. It means focusing on what skills individuals have and on what skills might be needed for an organization to be effective and evolve in an agile, strategically appropriate way.

In a job-based organization, how talent is treated is primarily determined by the hierarchical position it has. This includes how and how much employees are paid, how they are selected, the training they receive, their mobility, where they park their cars, where they work, what kind of furniture they have, and so on. In a skill-sand competency-based talent management system, the key drivers—pay, recruiting and selection, training and development, where someone is located, and how someone is treated—shift. Such a system is focused on what skills an individual has vis-à-vis what skills the organization needs to be effective. Particular attention needs to be paid to determining and developing the skills that make a difference in organizational performance.

An organization will develop the performance capabilities that are aligned with its strategy, and the ability to change its capabilities when the strategy calls for it, only if a skill- sand competencies-based focus exists. Thus, it is critical that the organization’s talent management system and practices be based on skills and competencies.

TALENT MANAGEMENT SHOULD BE PERFORMANCE FOCUSED

The talent management systems in an organization need to be focused on the type of performance it requires from its talent to be strategically successful. The types of performance needed may vary from individual excellence to outstanding levels of group, unit, or organizational performance. Most bureaucratic talent management systems fail to take into account the complexity and importance of different types of organizational performance. They usually promise promotion and meritbased salary increases to the “best performers” and on the basis of seniority. This often is not the right approach, particularly with respect to promotions and to creating talent management systems that support organizational effectiveness. It ignores or fails to focus on the critical performance behaviors and talent development motivators that are needed to make the organization effective and that therefore should be the focus of talent management systems.

What is needed to develop talent management systems that are correctly performance and development focused is a strategic analysis of the type of performance an organization needs from individuals, groups, and the total organization to implement its strategy. This needs to be followed by a process that uses the results of such an analysis to motivate and develop the kinds of behaviors the organization needs at all levels and in all segments to be effective. These behaviors then need to become the key to what is rewarded, how talent is recruited, and how it is developed.

We can take as an example an organization in which cooperative and team behavior is very important. The right approach to rewards may be a group-or organization-wide incentive plan (e.g., a profit-or stockoption plan) rather than a traditional merit salary increase plan. It may also include training and development that focuses on cooperative team behavior. Finally, it might include a recruiting and selection system that is targeted at hiring talent that performs well in team-based organizations.

An important feature of every organization should be the attraction and retention of high-performing individuals with key skills. This ties directly to the reality that in today’s work world the individual performance of key contributors plays an increasingly important role in the overall performance of many organizations. Because of the growing complexity of work and organizations, individuals can increasingly be the difference between an organization that is successful and one that just survives or, for that matter, fails. The reality is that more and more people are in critical positions in organizations because their individual performance has a major impact on the overall performance of their organization.

Increasingly, it is not enough to have someone who just gets the job done. For many types of work, organizations need people who get work done at higher levels than that being done by their competitors. This can only be accomplished by having talent management systems that focus selectively and strategically on the performance of individuals, teams, and the organization as a whole. Particular attention needs to be focused on work that is done at very different levels of effectiveness and has a key impact on organizational performance. Strategically important work that is performed at very different levels of effectiveness by individuals and groups is where the right talent management systems can have the largest positive impact on organizational performance.

Overall, talent management practices need to be aligned with each other and the organization’s strategy and structure to create the mix of individuals and work units that can perform at a level that makes a difference. This can only be done if they focus on competencies, their impact on performance, and competitive advantage rather than on issues of fairness, seniority, and hierarchy.

TALENT MANAGEMENT SHOULD BE AGILE

The rate of change in what organizations need to do, how well they need to do it, and how fast they need to do it is continuing to increase. The only way to respond to this is to have an organization that is agile. The only way to create an agile organization is to have talent management practices that create talent agility.

What does talent agility require? It takes having talent management systems that are able to respond quickly and strategically to constantly changing labor markets and business strategy conditions. It is not a matter of having one or two agility practices; it requires a totality of management practices that allow organizations to adjust the kind and the amount of talent they have and the behavior of their talent on a continuous and rapidly changing basis.

There are a variety of types and degrees of performance change that organizations need to make in a rapidly changing environment. As a result, no single approach to creating an agile talent management system exists that is ideal for all organizations. Organizations may be able to develop a sufficient level of agility simply by constantly training and developing the employees they have. For decades this was adequate in the automotive and telecommunications sectors, but today it is unlikely to be sufficient because it cannot produce the rate of change and amount of change that is needed. It also may be very costly because of training costs and lost work time. To change more rapidly and at a lower cost, these sectors and others need to change their talent by hiring individuals who already have the skills they need or using talent that is not employee based.

The best approach for an organization to take depends on the nature of the business it is in, the labor market conditions it faces, and the rate and kind of change that is needed. What is clear is that an organization’s talent management policies and practices need to be driven by the kind of change that it faces and by the specific needs that it has for talent and performance. Once those are established, it is a matter of putting in place the types of reward systems, career development programs, selection programs, employment arrangements, and other talent management policies and practices that will lead to the levels and kinds of agility that the organization needs to respond to its environment.

Historically, organizations including General Electric and IBM were admired for their career approaches to talent and for the kind of development programs they had for their talent. They provided careers, not jobs, and offered extensive development and training experiences. Many rewards were based on seniority and hierarchy, and employees might receive gold watches after twenty-five years of work for the company. Today’s rapidly changing environment has made many of those approaches obsolete. As already noted, in most cases organizations simply cannot change rapidly enough by using training and development programs to change talent. Because of this, they cannot promise their employees a career, much less a job.

What an organization can promise is information about what its current business and talent needs are and updated timely information about how those needs are changing. Further, they can make themselves an attractive place to work for individuals who have the skills and capabilities needed at a given point in time. They also can adopt what Netflix does with respect to severance: the company promises its employees high pay while they work there, and a generous severance package if they are no longer needed; but what it cannot (and does not) do is promise everyone long-term job security. The reason for this is obvious: like many organizations, Netflix cannot predict with a high level of certainty where the business environment will go and what its future talent needs will be.

All that most organizations are able to do is control what happens today and put in place agile talent practices that will enable change. They know their staffing needs will change in ways they cannot predict. Thus, instead of talking about job security, they need to promise to fully inform individuals about what they think the organization’s future will hold and to treat people appropriately given the business situation.

Creating an agile talent management culture in an organization is not a matter of simply changing one part of its talent management system. Every part needs to be changed, starting with the attraction and selection process and continuing through the performance management process. The emphasis needs to be low on long-term commitments and high on communicating what the talent management situation is and what the organization will do to help individuals adjust to any changes that may occur.

The most difficult talent management agility issue is balancing retention and realistic promises about what the future holds. Putting great emphasis on promising a future for individuals whose skills may be outdated can lead to short-term retention but serious long-term problems for an organization, including wrongful discharge lawsuits and a culture of mistrust and deception. On the other hand, not retaining talent can lead to recruiting problems, extremely high levels of turnover, and all the costs and dysfunctions that are associated with turnover. Organizations must create talent management practices that do not over-promise with respect to the future and underdeliver with respect to the present. They must deliver a workplace experience and culture that attracts, retains, and motivates the kind of talented individuals that are needed to operate an agile organization. Talent management cannot be based on seniority and security.

TALENT MANAGEMENT SHOULD BE SEGMENTED AND INDIVIDUALIZED

The talent management processes and practices of most organizations adhere to a “standardization and equal treatment approach” that is oriented toward treating people who hold similar positions in the same way. Standardization is said to be the key to fairness, and fairness is said to be the key to good talent management. Sameness also leads to economies of scale. Treating everyone the same makes training, record keeping, and a host of other talent management practices less complex and less costly.

Certainly, sameness does represent one approach to fairness, but it is not the only approach or necessarily the best one. An alternative to sameness is to define fairness as treating individuals the way they need to be treated based on their needs, abilities, and performance and what is needed to make their organization effective. Based on what we know about the future of organizations, work, and workers it is clear that treating everyone the same is unlikely to be the best approach from either an organizational effectiveness point of view or an individual preference point of view. People differ, and organizations need to focus on how to take advantage of and accommodate these differences in light of their needs for performance.

The growing diversity of the workforce immediately makes the idea of similar or identical treatment being the best treatment for everyone null and void. What is good for a seventy-five-year-old is not likely to be as good for a twenty-five-year-old, even though they may be doing relatively similar work or working in the same function or unit. Similarly, what may be the best career model for an individual with a key organizational skill set may not be the best for an individual with a skill set that is not critical to an organization’s source of competitive advantage. The same is true for an individual with a competency that is scarce and in demand versus one who has a competency that is easily available in the labor market.

Standardization needs to be replaced by a reasonable approach to segmentation and individualization when it comes to how talent is managed. The challenge is to create approaches to compensation, job security, development, selection, and other talent management practices that are legally defensible and fit the diversity of the workforce and the rapidly changing business environment that dominates today’s world of work.

The operationalization of a segmentation approach can be facilitated by giving individuals greater choices so that they can create a work environment that fits their preferences. It also can be enabled through technology that makes possible administrative systems that allow individuals to make choices about when, where, how, and why they work.

The emphasis needs to be on reasonable individualization because without clear limits there is the danger that every employment deal in an organization will become a personal deal that is constantly changing. This could result in a level of complexity so great that it overwhelms any administrative capability that an organization can create and manage—even while taking advantage of the power of modern information technology.

There is no simple, generally applicable solution to the challenges that are created by the need to treat different segments of the workforce differently. But it certainly is much more important and possible to do it efficiently and effectively today than it was before the web-based talent management systems that currently exist were available to help companies administer their human resources (HR) programs.

It is increasingly important that organizations develop and implement segmented, individualized management practices in all areas concerned with how they manage talent. There are few organizations that should promise the same treatment to all employees when it comes to key talent management issues. Of course, to some degree organizations never have; executives have always been treated differently from other employees; hourly and salaried employees have always been treated differently. The reasons for this range from legal requirements to the difficulty and cost of implementing different practices for multiple groups of employees.

The difference today is that organizations have a greater need to adapt and expand their approaches to treating people differently than they did in the past when they treated employees the same under an umbrella of fairness and efficiency. They need to communicate that the traditional job-level-based approach is no longer effective; it cannot be made to fit a workforce that varies as much as the individuals in today’s workforce do—not to mention differences in when, where, and how they work. Companies need to replace the old approach with one that provides more choices and is aligned with the work to be done.

TALENT MANAGEMENT SHOULD BE EVIDENCE BASED

Given the importance of talent management practices and systems in organizations today and their greater importance tomorrow, they need to be based on evidence, not just common sense and experience. This is true in the case of decisions about how individual talent should be treated when it comes to hiring, pay increases, work assignments, and promotions. It is also true with respect to which talent programs, policies, and practices are put in place in an organization. Given the increasing importance of effective talent behavior in organizations, it is time to move beyond the practice of relying on what “seems right” and what “makes sense” with respect to talent management. Decisions need to be made based on research evidence and data.

There is an enormous amount of existing research that establishes what makes for effective talent management. It ranges from research on the effectiveness of secrecy with respect to pay, to how to select and develop highly talented individuals. Unfortunately, too often this evidence is not taken into account when decisions are made in organizations. Managers and executives assume that common sense and experience are their best guides when they are making hiring and other talent management decisions. All too often they are wrong. For example, based on their interviews of job candidates, many managers are confident that they can pick the best candidate. But research shows that hiring decisions based on unstructured interviews simply do not predict performance.

There is no magic way to create more evidence-based talent management, but it is possible for organizations to move in that direction. One approach is to do research. Today many organizations have a great amount of internal data on performance and behavior as well as significant data analysis capability. It is thus possible for them to validate their selection activities and other talent management decisions. Similarly, in many situations it is possible to measure performance to determine which talent, and which talent management practices, are best. In addition, it is possible to gather data about the attitudes and behaviors that predict turnover, absenteeism, and other critical aspects of the workplace. Finally, it is also easier to calculate the cost of turnover and other talent management outcomes that need to be taken into account when decisions are made about talent management.

There is one additional factor that comes into play when organizations gather, analyze, and make talent policies and decisions based on data from their workforce. It eliminates the “not invented here” reaction, which often leads to organizations ignoring evidence from studies done in other organizations in the belief that it does not apply to them because they are different. Of course, they can still take talent management actions that are not based on an analysis of their organization’s data, but it is less likely in part because it will make them look bad. Google, IBM, and 3M have impressive HR analytic groups and have stated that having them increases the chance that their talent management decisions are evidence based and effective.

Of course, organizations do not have to do their own research to find out what talent management practices are effective. There are over 100,000 studies of talent management in the academic literature, and a number of very readable books that cover selection, training, compensation, and development. The bad news is that most of them focus on outdated best practices and must be read with caution when it comes to reinventing talent management; the good news is that there is a growing number that are relevant to how talent management should be reinvented.

Perhaps the best way of stating what needs to happen is that talent management needs to move from the category of gut feeling to the category of evidence-and data-based decision making. Organizations need to consistently and regularly ask and examine how their talent management programs and policies are working, what their costs are, and what outcomes are produced. They need to experiment with new approaches and determine if they work based on performance data. They need to use data to develop and manage individuals and their careers, and they need to provide data to individuals that will guide them in their career choices and decisions about skill development. In short, talent management needs to become much more data based and much more evidence driven.

There is a good chance that if organizations move to a more evidencebased approach to talent management, this will aid not only the organizations but also their talent. It is particularly likely to help organizations develop a more talented, productive, and cost-effective workforce because they will know the right way to treat talent and develop it. On the individual side, talent with additional data will be much more informed about how to develop skills, what career choices are best, how best to perform the work, and how long to stay in a job and with an organization.

In short, evidence can lead to better data-based decisions and practices that have the potential to create win-win situations. There is an increasing reason to believe it is imperative that individuals and organizations make more data-based decisions; they are a requirement in a world in which work is changing rapidly and both individuals and organizations constantly need to make key talent management decisions that affect individuals, organizations, and society.

CONCLUSION

The talent management principles and practices covered in this chapter are all focused on meeting the six work and workplace changes that were presented in chapter 1 and are intended to respond to one or more of these changes. Table 2.1 presents an analysis of how important and effective a response each of the six talent management principles is to the six major changes.

All of these talent management principles are important responses to multiple changes in the world of work. All of the workplace changes, with the exception of diversity, argue strongly for talent management to be strategy driven, skills based, and performance focused. The need for agility is strongly driven by the increased prevalence of technology; this change in the business environment makes it imperative that an organization build and adopt agile talent management practices. A second very important driver of the need for talent agility is change, which is often technology driven as well.

Table 2.1 Talent management principles and changes

Copyright © Edward E. Lawler III and Center for Effective Organizations at USC.

Notes: 1 = little or no importance; 2 = moderate importance; 3 = very high importance.

Segmentation as a talent management practice is strongly driven by the two changes that lead to more diverse organizations: globalization and diversity. Technology and talent are also important reasons to focus on segmentation because they increase the need for talent to be dealt with in a targeted and individualized way.

Finally, an evidence-based approach to talent management is needed to deal with the importance of talent and the many complex issues that technology presents. Given the advances in technology and the resulting importance of talent, it is simply not prudent to allow decisions about the individuals who manage technology and drive strategy to be subject to decisions that are not based on the best evidence and data available.

As far as the changes are concerned, technology is pervasive in the way it affects organizations. As a result, having technology be anything other than a major driver of an organization’s talent management principles runs the risk of creating organizations that lack the talent they need to develop and produce competitive products. The same reality is the reason that the importance of talent makes evidence-based, skills-based, and performance-focused management so important. The rate of change and the importance of talent also contribute to the high importance of having skills-based talent management systems.

Overall, the six talent management principles are useful and important guides in deciding which talent management practices will be effective in the new world of work. Thus, as we review how organizations should manage their talent, we will analyze whether particular talent programs and practices follow these talent management principles and focus on those that do because they are the practices that will create an effective strategic talent management system.