Where Do You Need to Invest in Your Talent to Win?

In continuation of the series of questions described in an earlier post, the answers to the first question - ”How Does Your Talent Help You Win?” help start the process of answering the question of where to invest in your talent to win. Why is it important to know where to invest in your talent? We’re all familiar with the “peanut butter” analogy. The failure to optimize investments in talent in the context of how it impacts strategic success is referenced in “Beyond HR: The New Science of Human Capital” and Knowledge Infusion’s Neil Jensen spotted how the Navy SEALs stopped using the “peanut butter” approach in their recruitment efforts. It’s a concept that resonates with those familiar with the Theory of Constraints, which eschews trying to optimize every element in a system, but rather continually focuses on the element, in this case which role or competency, where optimization does the most to increase value to the system. Taking scarce resources and spreading them equally to all roles and competencies results in opportunity costs. That is, resources that would have resulted in greater value to the company if invested more heavily in a set of particular roles and competencies get frittered away instead on roles or competencies that don’t have as significant an impact on success.

In addition, applying the same type of investments to all talent segments results in opportunity costs to the organization. Different talent segments contribute differently to the successful execution of strategy and therefore are likely to have different needs, not just in obvious areas such as training content, but also in areas that are typically seen as standardized across the organization, such as recruitment. This kind of differentiation in programs may at first seem on the surface to be contradictory to the notion of standardized processes, etc. However, this is more about understanding where the processes, while being standardized, still need to be flexible to accommodate unique needs around talent segments that are important or pivotal to strategic success. This brings us back to understanding how your talent helps you win first in order to know where investments in flexible programs are justified.

Another example in “Moneyball: The Art of Winning an Unfair Game” shows how not investing equally in all aspects of your talent can benefit your strategy. In this case, the time had come to acquire a replacement for a player who had become unaffordable, but who had both exceptional offense (batting) as well as defense (fielding) capability. Rather than try to find an exact replacement, which likely would have been just as expensive a proposition as keeping the original player, the A’s focused on finding a player with high performance on offense and acceptable performance on defense. This was because they had found that key offense skills such as getting on base contributed more to winning games than defense skills.

“Beyond HR” has a lot to say about the impact “important” and “pivotal” roles and competencies have on strategic success. Both the “important” roles within the organization and the “important” competencies within roles should obviously get investment in performance. These are the roles and competencies that are central and essential to the successful execution of strategy. In many cases, this investment is focused around reduction of performance risk, through job engineering/design (which trades off variability, both good and bad, for consistency through repeatable process and procedure) and essential performance investment (through rigorous training, credentials, testing, and documentation). This sets the minimum bar of acceptable performance that guarantees as much as possible the correct operation of fundamental processes to achieve business results. While these important roles and competencies typically contribute the highest value to the company, once the investment has been made to reach acceptable performance, the very nature of the risk reduction efforts made makes further investment in those particular areas often result in smaller marginal improvement in value to the company.  

Therefore, authors Boudreau and Ramstad also point out how important it is to find and focus your investment to improve performance in your “pivotal” talent. That is, the roles in your organization and the competencies within those roles where improvement in performance results in the best overall increase in value to your company through strategic success. Here, the investments are also more in line with supporting the ability for talent to exercise “discretion” and not as much about reducing variability. Variability relates to discretion for talent; i.e. the ability for talent to differentiate itself in responding to circumstances. While a source of risk, this can also be a source of sustainable competitive advantage, because it is not easily replicable. Processes and procedures can be observed, studied and replicated, but the novel ways in which talent solves problems, often through collaboration, is not as easily replicated. Investing in talent here can continue to reap dividends down the road through innovation, network effects, higher customer satisfaction, etc. Also, “pivotal” talent is likely to be found interacting or in combination with “important” roles and competencies and at the “boundaries” of the organization or in the interactions of the roles. This highlights the importance of using mechanisms like social network analysis as a way to identify pivotal talent.

How Does Your Talent Help You Win?

Before you start deciding what investments to make in your talent, it helps to understand as best you can how your talent can actually help you win. Without at least some understanding of this, you have reduced your ability to know where or how much to invest, which leads at the very least to opportunity costs that put you at a competitive disadvantage. However, relying strictly on conventional wisdom and/or intuition, while perhaps giving the illusion of understanding, doesn’t substitute for what ”Hard Facts, Dangerous Half-Truths And Total Nonsense: Profiting From Evidence-Based Management” authors Pfeffer and Bob Sutton describe as “evidence-based management.” They point out fallacies in much of the conventional wisdom around how talent affects organizational performance. In addition, Michael Lewis’ “Moneyball: The Art of Winning an Unfair Game“, showed how your opponents’ mistaken conventional wisdom about what helps you win could be used to your advantage if you have a better model.

“Moneyball” showed how current decision makers in baseball still relied on measurements that were developed under different circumstances and were biased by the subjectivity of the statistics gatherers at the time. These measurements resulted in a distorted view of how player talent could contribute to winning games. For instance, the venerable “Batting Average” measure was developed under the assumption that if a batter was walked, it was solely the pitcher’s fault, and therefore the batter was not credited for getting on base, even when the result was just as good as if they had a base hit. It turns out that a batter’s ability to hit influences whether they are more likely to walk. In the end, there is a chain of effect between getting on base (particularly so in not getting out), which leads to scoring runs, which leads to winning games. An “on base” measure was shown to be statistically more able to predict winning games. Finding and developing that talent would therefore contribute to winning more games.

Another example was the conventional wisdom that stolen bases and sacrifice plays were key to winning games, but the statistics showed otherwise. Here, the statistics also point to how the conventional wisdom might have gone off track. Both stolen bases and sacrifice plays are ways to execute strategy that seemed to make sense intuitively (advance runners into a scoring position), but the cost in number of outs turned out to be a losing proposition in the long run. In comparing a “winning games” equation based on conventional wisdom vs. one derived through regression analysis, it’s as if the “weights” for stolen bases and sacrifice plays were overvalued and the costs of outs undervalued in predicting wins. The conclusion: perhaps talent at stealing bases is overvalued and therefore not something to seek or invest in as much.

How does this lesson translate to other organizations? There are many instances where, just as in baseball, companies substitute conventional wisdom or intuition for hard facts when it comes to how talent helps them win. In many cases, this is not only an opportunity cost for the company in missing out on a better way, but it can have a damaging effect in the long term. In their book, Pfeffer and Sutton question some of the reasoning behind the conventional wisdom regarding talent. In many cases, these “half-truths” can obscure how your talent is really affecting your strategic success. In the end, it’s best summed up in that because successful execution of strategy is a complex thing to fully understand, with a complex interaction between individuals and systems, there is a natural tendency to look for shortcuts; to do what the latest fad, group consensus, or conventional wisdom says to do. That’s not to say it’s necessarily wrong, but without it being tested, you don’t know if it’s right for your company, either.

So instead of just following the herd, work at getting a true understanding of how your strategy’s execution is affected by your talent and organization capabilities. While this work is challenging due to the complexities involved, there are ways to approach it intelligently. To sum up how ”Beyond HR: The New Science of Human Capital” authors Boudreau and Ramstad put it, if you have a real strategy, it’s about how you are different and therefore, your success in executing that strategy hinges on whether your talent has the required unique capability. This insight allows you to focus on what really matters most instead of having to spread your attention and analysis across all the capabilities you are willing to cede as being basically the same as your competition. With that focus, you can then apply HR and financial analytics to mine performance and profile data for patterns. Then, you can develop and confirm your hypotheses as to how those pivotal roles in the organization and the pivotal competencies within those roles result in strategic success. While it covers mostly analytics in areas such as finance, manufacturing, customer relationship, etc., “Competing on Analytics: The New Science of Winning” by Davenport and Harris, describes how beyond professional sports, businesses are now making use of HR analytics to gain a competitive advantage, especially in talent management.

The continual testing and development of the analytical model of how your talent helps you win is key. A big mistake, much like the blind use of conventional wisdom, is the misapplying of analytics by blindly following a model that was built once to every situation going forward. In fact, a huge opportunity is being overlooked by not always reevaluating the results, restrictions, accuracy of prediction, etc. of the model. Doing so is a way to further increase your understanding of how your talent helps you win by causing you to reconsider variables and how they interact. As author Ian Ayres describes it in “Super Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart“, it’s the interplay of intuition in the form of testable hypotheses, and the incredible analytical power we now have at hand with huge, interconnected datasets to test them, that result in competitive advantage. Intuition by itself is too susceptible to human errors of bias and perception, while mindless number crunching is scattershot and too likely to miss what really matters.

Don’t Forget, They’re Free Agents!

AppsLab is always a good source of something to get you thinking, see things in a new way, or just get a smile, nod knowingly, and say, “Exactly.” We at TalentedApps enjoy an engaging working relationship with the team.

In a recent post, Paul cited the Knol announcement, thought about how it might be a knowledge management play, got to thinking about why KM wasn’t much of a success previously, and ended up talking about how employee contribution in skills, expertise (not storing), as well as attitude was really the performance that mattered and that measuring it would be key, thus bringing it back to Knol’s potential. (And thus also showing the kind of bright, imaginative, associative-thinking minds we get to work with.) He wrapped it up inside of a philosophy that with this kind of measurement of performance available, it would tend to drive and/or enable at least certain segments to contribute more and build their brand. This kind of measurement, reputation building, and so forth would enable more of a market economy/free agency within organizations to mobilize talent.

This is a great concept, and books such as Beyond HR, and Mobilizing Minds, call out the value of organizations taking a more “talent pool” or “talent marketplace” perspective. It requires willingness by top management to break down organization silos, have a “one company governance” leadership, and measure internal performance not just on a financial basis (i.e. ROI, etc.) but also on a contribution to value basis using “return on talent.” As Mobilizing Minds puts it, internal financial measures are still good sanity checks, but since so much more of a company’s value comes from intangibles like talent, which are also in short supply, it is wise to measure that as well in order to improve it. In fact, at some levels of the company, this might be the only measure you have that actually permits a results-oriented measurement model (as opposed to being only a cost center.)

Okay, so what does that mean?

This month is also the 10th anniversary of the Dan Pink article in Fast Company, “Free Agent Nation” which later became a book. While this article focused mostly on more people moving into the self-employed ranks, the principles put forth in this article also have been applied to understanding the challenges companies face in both the kind of changing talent market they face today (generation mix, globalization, etc.) as well as the changing and expanding sets of needs and expectations of employees themselves (GSR, remoting, engagement, etc.) In other words, the “Free Agent Nation” has impacted the Employee Value Proposition companies must present. The driving factors presented in Free Agent Nation of Freedom, Authenticity, Accountability, and Self-Defined Success fit right in with the drivers of having an engaged workforce, such as Identity, Relevance, and Measurability. Both also relate a lot to contribution as opposed to hoarding.

So, to bring it all together:

Like Paul says, we should admit the fact that we’re all free agents, even the ones inside the company. Likewise, companies should not forget that their talent is mostly free agent in nature. Employees should view their value to the organization in how they contribute their skills, expertise and attitude. Organizations, through their managers (in keeping with TalentedApps consistent theme of holding management accountable), must demonstrate value to employees by enabling them to contribute their skills, expertise and attitude. This is achieved by management, as Deloitte puts it, ”developing, deploying, and connecting” talent, which means not hoarding talent, for instance but rather enabling talent mobility. Use measurements that really show talent contribution and put in place mechanisms like talent and knowledge marketplaces, networks, etc. that help get that talent where it’s contribution has the highest impact on the strategic success of the company. To get there, leadership must measure management on its success at getting talent where it matters most.

From both the employee and employer perspective, the off-cited parable of the talents applies. To paraphrase: do you want to hoard a talent by burying it in the ground or turn it into into ten talents? To the employee, it asks if you really gain more by hoarding knowledge. To the employer (manager), it asks if you really gain by hoarding your talent. In today’s world, you could unbury it and find it gone.

Finding Value in Enterprise Social Networks

There is a lot of debate whether social networks offer any value to companies, and if so, where. Some have identified its value as a marketing and/or recruiting tool externally, but internally, many have seen them only as a drag on productivity. Nick Carr recently wrote about how companies are beginning to recognize that social network software offers insight into how informal networks within the company are actually constructed and how they get things done:

“Because they seem so natural to use, the social networks end up being incredibly sensitive mechanisms for recording the real life of a human organization…Given their benefits, I think that social networks will inevitably be adapted to corporate use…Just imagine what will happen when the informal organization suddenly becomes as visible as the formal one.”

Joe McKendrick noted on FastForward how this endorsement of social networks aligns with Andrew McAfee’s assertions about the value of Enterprise 2.0 to companies. Joe also highlights the challenges to IT presented by increasing acceptance of wikis, blogs and social networks within the enterprise. To Joe, this points to “why the future of corporate computing is informal.”

In McAfee’s recent posts, he describes a four circle model to help in thinking about how the various Web 2.0 technologies provide value to the enterprise. In it, social networks contribute value in the second from the center circle, where “weak ties” to a given knowledge worker reside. This “includes people she with worked on a project with in the past, coworkers who she interacts with periodically, colleagues she knows via an introduction, and the many other varieties of ‘professional acquaintance.’ “In another post, he points out that “SNS is a powerful tool for building, learning from, and exploiting a network of people with whom you have weak ties…”

This describes enterprise social networks as more than simply a community to hang out in as sites like Facebook and MySpace are perceived to be. They are more than just the end product of a viral marketing effort to get people to add more and more of their friends. In the enterprise, the power of weak ties that are captured in the network are of great value to the company. By facilitating finding information from previously unknown sources, employees gain enriched access to diverse perspectives, fostering innovation and reducing the likelihood of people unwittingly working on redundant efforts. Whether an enterprise social network is actually based on one of these commercial platforms or something else built around OpenSocial, the result is something more valuable to the company than had previously been recognized.

The human element of the social network rebuts the argument that they aren’t an effective use of time, because in thinking-intensive work, it is the person who has access to those who have information they need who often can be most productive. Knowledge management systems did not fulfill their promise in large part because while a lot of information is stored in documents, even more is stored in the heads of people, particularly the most up to date and relevant version. Simply searching the known universe for the required information often returns too much and sometimes the search criteria is not the best choice or we ask the wrong question. The human element can correct for that. However, sending spam emails, asking questions on forums, etc. doesn’t always offer the results we are looking for either, and are often counterproductive pursuits. It is through the filtering and forwarding mechanisms that a social network supports finding people and information to get the job done more effectively. This is done by leveraging trusted connections and human judgment and knowledge, supplemented by profile information such as expertise, projects worked on, and so forth.

There is also the employee engagement benefit to companies. Social networks often provide profile functionality that helps people to present a more complete picture of themselves to others in the network. While this might be dismissed by some as irrelevant in a work environment, it is these subtle human aspects of identity and interests, shared or not, that often help in collaboration. In geographically dispersed workgroups and in environments where workgroups are constantly reforming, this information helps to compensate for the lack of time and opportunity to otherwise build a connection and build trust with the other team members. This engagement works both ways in that not only does a team member see their colleagues in a more complete way, but each individual has the opportunity to feel a greater sense of identity through their profile as well as through their contribution of knowledge through the network. Often times, this contribution can be realized simply through connecting one co-worker looking for information to another who has it.

Finally, another source of value to the company of a social network is through the analysis of the network itself, as Carr also pointed out. A recent Fortune article highlights how, using social network analysis, companies are increasing their competitiveness and improving business results by:

• Energizing sluggish cultures
• Grooming leadership
• Keeping the talent happy
• Improving collaboration

Companies utilizing social network analysis recognize that “successful managers must understand this ‘constellation of collaborations, relationships, and networks,’ particularly in times of stress and transition.” In addition, on the engagement front, “in companies where managers worked closely with informal employee networks, respondents were three times more likely to describe their job environment as positive.”

The practitioners described in the article are doing it mostly through high-cost, time-consuming surveys and rounding up the folks within the enterprise and putting them in a room with consultants. Having a social network already in place can go a long way to capturing this information, or at least supplement the surveys and interviews, as people go about their work normally on a day-by-day basis.

Some companies are starting to see social networks less as threat to productivity and more as something that if harnessed constructively, can bring many competitive benefits. A lot of progress can be made by simply trusting employees, providing the platforms and tools, and integrating values and guidelines into their productive use.

Oracle Open World Session - “Preparing for the Future of Talent Management”

Our session on Tuesday, November 13th at Oracle Open World, “Preparing for the Future of Talent Management”, presented some thinking around what companies and their HR organizations should consider in order to achieve strategic success through their talent. Talent is becoming scarce and it has a dominant impact on profits and company value, so getting the most benefit from your talent is key to obtaining sustainable competitive advantage.

Many of the ideas presented originated from both “Beyond HR: The New Science of Human Capital,” by John Broudeau and Peter Ramstad, and the recent “HR Transformation v2.0: It’s all about the business” paper from Mercer Human Resource Consulting.

The upshot of the session was that the questions for companies to ask themselves are:

1. How does your talent help you win? - Understand how your strategy utilizes your talent in order to best execute that strategy. How well you execute your strategy often outweighs the actual selection of strategy. In fact, your talent’s capability to execute a strategy could very well be seen as a constraint on what strategies make sense.

2. Where do you need to invest in your talent to win? - Find and focus your investment to improve performance in your “pivotal” talent. That is, the roles in your organization and the competencies within those roles where improvement in performance results in the best overall increase in value to your company through strategic success.

3. How much investment is needed to win? - Determine at what point further investment to improve performance in a given role or competency no longer results in optimal increase in value to your company. Shift investment beyond that point to other areas where it continues to add the most value.

In other words, the future of Talent Management is really Strategic HR, and when properly applied, it results in Employee Engagement in a self-reinforcing cycle. That is, to effectively execute your strategy, you need to engage individuals’ energies with their roles, and your strategy in turn sets the stage for having engaged employees if you properly link your roles and competencies to their strategic impact.

The following will help HR become an effective partner in helping the organization to answer those questions:

1. Since how well you execute your strategy is often more important than what strategy you select, HR’s role in understanding the talent capability of the company to execute its strategy is crucial.

2. Following on #1, to be strategic, HR shouldn’t just be a part of the strategy. Instead, it should also be a force to help shape strategy. HR can do this by explaining the constraints of the company’s talent during the shaping of strategy, or how those constraints can be relaxed in order to better execute the selected strategy.

3. In order to accomplish #1 and #2, HR must develop business understanding and strategy skills to talk the language of business so that business and line managers will listen.

4. Beyond that, HR must also help develop talent management skills within the business and line managers themselves so that they can make better decisions regarding talent.

There is of course more to be done, but this is a good start for companies to take in preparing for the future of talent management.