How Much Investment is Needed to Win?

In wrapping up the series of questions described in an earlier post, the answers to how your talent helps you win leads to answering where to invest in your talent, which in turn leads to answering the question of how much to invest in your talent. Why is how much to invest so important? Just as answering where to invest in your talent recognizes the opportunity cost of applying a “peanut butter” approach to investment across all roles and competencies, so does answering how much address the same issue at the individual role or competency level. As the talent science described in “Beyond HR: The New Science of Human Capital” shows, the best answer looks at how the level of investment in a given role or competency affects its impact on the successful execution of your strategy.

Why is the level of investment at the role or competency level so important? This is because not every role or competency creates the same increment of value to the organization for a given increment of investment. We tend to look at input-output relationships as linear by default. For instance, our mental model might assume if a single hour of training would produce a 5% increase in ability, then 2 hours of training would product 10% increase in ability, 3 hours produces 15%, and so on. This is natural, intuitive, and reflects a lot of our experience. It also has the benefit of being a very simple, easy to understand model that can usually be captured with just one number – the slope of the line that describes the linear relationship. While we are aware of exceptions to this relationship, our default perspective is linear and it can actually shape our thinking of how systems operate. For more about this, “The Fifth Discipline: The Art & Practice of The Learning Organization,” offers a good introduction into systems thinking, feedback loops, and non-linear models.

As “Beyond HR” shows, many factors can affect how much value an organization derives from a role or competency for a given level of talent investment. For instance, how a job is engineered can greatly affect this “response curve.” Here, it may be that the policies and procedures, etc. of the job are well-defined, clearly laid out, and individuals are trained to strictly follow those policies and procedures for the bulk of the job. Alternatively, the education credentials and experience requirements, coupled with standards of quality, etc. may be very rigorous. In situations like this, the response curve is such that a minimum threshold in performance must be met (through training, experience, etc.) before the individual is even allowed to perform the job. In addition, because of the policies, procedures, and standards, there might not be a lot of leeway in the way that job’s main function is performed. This would cause the response curve to start off steep as you invest in training, pay, or whatever to reach the minimum required performance, but then level off beyond that point. In fact, jobs that are more “critical” or “important” to an organization can sometimes be engineered the most as insurance against major mistakes. This is a risk reduction strategy. Whatever the cause or reason, the result is not necessarily zero value gained beyond that threshold investment, just not as much increase in value as was previously observed. Competencies within a role can exhibit similar properties. “Critical” competencies may be trained or filtered for to such a degree that again little discretion is provided for in a risk reduction tradeoff once a threshold level of investment is made.

Other roles, however, or competencies within roles, can continue to provide the same or similar increases in value to the organization for a given increase in talent investment. These are what “Beyond HR” calls “pivotal” and the authors’ definition is a little more specific than what several others have defined as pivotal (i.e. as being a synonym for “important”), which can be a source of confusion. It’s easy to see how one could view “important” roles and competencies as “pivotal.” That definition comes more from the notion that an important role or competency is the role or competency upon which success “pivots.” However, it doesn’t go into depth around how that success is really generated by how the role or competency continues to positively impact the successful execution of strategy the same amount regardless of how much talent investment has been made. That is what differentiates “pivotal” talent. Of course, it is entirely possible that an important role or competency could also be pivotal, but we’ve seen how sometimes the way a job is engineered can put risk mitigation at odds with being pivotal for important jobs or competencies.

So what does that mean in terms of answering the “how much” question? Start off by not assuming that even though you have differentiated roles and competencies in terms of their impact on the successful execution of your strategy (i.e. you’ve answered the where question), that you’ve found the magical, fixed priority for talent investment. You should view those roles and competencies in terms of how the level of talent investment relates to the actual value they contribute to successful execution. Determine at what point further investment to improve performance in a given role or competency no longer results in an optimal increase in value to your company. Beyond that point, prioritize investment to more pivotal roles and competencies where investment continues to generate the most benefit to successful execution.