by Ed Michaels, Helen Handfield-Jones, Beth Axelrod, Harvard Business School Press, 2001.
This book suggests ways of developing a talent pool which will drive a business forward and give competitive advantage. It requires investment of money and time and has to develop an employee value proposition (EVP) to attract talent. Rather than following egalitarian principles, employees should be developed according to their performance as A’s, B’s and C’s.
(Reviewed by Edgar Wille in March 2006)
(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.
We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)
This book by three McKinsey people is based on two major surveys in 1997 and 2000, involving 27 American companies and nearly 7000 managers, by means of questionnaires and interviews, from which the many case studies were developed. It is concerned with the need to acquire, keep and develop a pool of talent in companies in order to achieve competitive advantage. It sees this as a war, because companies are fighting each other to get the best people to leave other companies and join them. Then there are further battles to keep them and to enhance their value. They admit that the approach sounds somewhat militaristic, but would claim that they are being realistic.
The authors define talent as being the sum of people’s abilities; their intrinsic gifts, skills, knowledge, experience, intelligence, judgement, attitude, character and drive. It also includes the capacity for learning and growth. As to outstanding talent, you know it when you see it, but the specific profile depends on the actual situation of a company. It is difficult to resist a wry smile when reading what they wrote in 2001: "A highly successful manager at The Home Depot might not fit the talent profiles Enron needs"!! In fact, with hindsight, the frequently expressed admiration of Enron seen as "a world class risk management player", with a ruthless approach to acquiring talent, weakens the appeal of this book. However. they do write about GE, under Jack Welch, with equal enthusiasm.
Outstanding talent is seen as requiring a combination of a sharp strategic mind, leadership ability, emotional maturity, communications skills, the ability to attract and inspire other talented people, entrepreneurial instincts, functional skills and the ability to deliver results.
Before the dot.com bubble burst there were hundreds of unfilled vacancies and talent was migrating to the dot.com upstarts. But the end of that phase did not reduce the intensity of the war for talent and the authors expected it to continue for a further two decades. People are less committed to one company and switch companies frequently for personal advantage. Demographics enter into the situation. Older people who retire take with them a wealth of experience and knowledge, which may be irreplaceable.
Talent is seen as the key to competitive advantage. Ken Lay, then chairman of Enron, is quoted as saying: "The only thing that differentiates Enron from our competitors is our people, our talent". The knowledge age depends on knowledge workers. 60% of jobs are occupied by them compared with 17% in 1900. Their differential value can be enormous. People are needed who can re-conceive their businesses and inspire their people.
The authors provide simple comparison tables. The first of these compares the old and the new realities. People needed companies; now companies need people. Jobs were scarce; now talented people are scarce. Employees were loyal and committed to their company; now they are ever on the move to improve their situation. They used to accept the compensation package on offer; now they demand much more. These changes demand a change in recruitment and retention policies. But many companies are still mired in the old ways, spending much more time on the budget process than on discussing their talent needs. Few can compare with the strength and depth with which GE manages its talent. The purpose of this book is to alert companies to the need to change and suggest ways of doing so.
A whole new approach to talent management is proposed, which is rooted in embracing a talent mindset. Human resource professionals have a vital part to play, but no manager can delegate their responsibility for talent getting, keeping and developing.
Stories are told of top managers who realised that they must invest time and effort in talent mobilisation. Succession planning must never be absent from their thinking; it is an everyday concern, not something done just once a year. "People are our most important asset" must cease to be a clich? and be replaced by a deep conviction that better talent leads to better corporate performance. Talent management becomes a central part of how the business is run. For CEOs, it goes beyond just working with the people they inherit. The story is told of a CEO who, soon after starting his new job, reviewed the performance of his 15 direct reports and then their reports, some 80 in all. At the end of his first year he had reduced the 15 corporate officers to ten and replaced nine of them, bringing in new talent from outside, some 40 people in the top 100 posts. Jack Welch at GE was famous for spending thirty days each year chairing their talent review process which considered the top 20 to 50 managers in each unit.
A clear standard, whether expressed in a sentence or in a list of key competencies, has to be established and recognised throughout the company. A simple, probing talent review process has to be in place and be shared by all managers. Money has to be invested in this and managers have to be held accountable for the strength of the talent pools they build. HR becomes strategic and HR directors assume a strategic role, though they do not relieve managers of their responsibility for talent acquisition and development.
Boldness is needed in the process, including, as will be amplified below, addressing the issue of underperformers, who must be challenged to better performance, moved to less critical work or removed from the company. Dead wood cannot be tolerated, though severance should be in a humane way.
It is a different world from a generation ago. Talented people want big money and all the perks from the start. They want to feel passionate about their work, excited about their work and clear about career opportunities. They need faith in the mission of the company, the strength of its leadership and the enjoyment of professional comradeship. When looking for a job they want to be sure that all these elements are there to motivate them. Thus the employee value proposition needs to make these factors apparent. The employee will only join and stay for a while if the company is able to demonstrate them. A compensation package is not enough.
The employee value proposition (EVP) is "the holistic sum of everything people experience and receive while they are part of a company – everything from the intrinsic satisfaction of the work to the environment, leadership, colleagues, compensation and more." EVP is the human resource version of the customer value proposition – which conveys what it is that the customer is really buying, the value beyond the merely visible product.
It may not be easy to convey all these characteristics to the potential new employee, but they will soon discover when they join whether they had been deceived and they will vote with their feet. Previously when one applied for a job, one looked for stability, size, security, a reliable hierarchy, a thirty year horizon, good salary and retirement package and a steady climb up the corporate ladder. Now talented people are looking for new challenges and exciting businesses; they want to work in a flat, flexible organisation, with scope for autonomy. They have a five year horizon with wealth related to value created and look forward to jumping from one rock face to another, rather than the steady climb. They look for excitement and meaning in the job.
Enron’s EVP, in its heyday when our authors were writing, contained the seeds which later led to disaster. They saw themselves as "a company that thrives on deal making, the chance to do something big, the promise of turning commodity markets upside down and – not incidentally – the possibility of making a lot of money at the same time". One of the unit heads told his talented people "You’ll have the opportunity to completely change the way business is done in many industries".
Ken Skilling, the then CEO of Enron, is quoted as saying, when things were apparently prospering: "We could never have successfully launched Enron Capital and Trade had we not attracted different kinds of people and offered a different kind of value proposition". Skilling is further quoted; "I don’t want anyone sitting in the same position for five years and getting bored. Fluid movement is absolutely necessary in our company. And the type of manager we hire enforces that. Not only does this system help the excitement level for each manager, it shapes Enron’s business in the direction that its managers find most exciting".
In retrospect the authors’ comments are unfortunate. After more of like material from Enron they add: "Few companies will be able to achieve the excitement extravaganza that Enron has in its remarkable business transformation, but many could apply some of its principles".
In the light of what happened, which the authors could not have foreseen, quotations like this offer a moderating note to the enthusiasm with which they talk of EVPs. Talented people are going to probe into the reality of the EVP on offer in the light of experiences like the Enron debacle. [Our summaries of Built to Last and Good to Great might help to provide balance to this discussion]
As far as the compensation component of the EVP is concerned, the authors contrast the old ways and the new. People used to get the pay for the job; now the pay is for the person and the performance. Job scope and seniority used to drive pay; now value creation drives it. Previously, people were hired within a pay range; now the compensation "rules" are broken to get the right candidate. Enron are quoted as a good example: "an employee ranking superior on a six point scale can receive as much as 30 percent of their salary in cash bonuses and 50 percent in long-term equity incentives." Those ranking low received just their salary. Maybe talented people who were also a little cautious, might have preferred something a little less sensational.
However in spite of Enron’s later reputation, the principle holds true that paying everyone by an equality rule of thumb is not the best way. Later in this book there is discussion of the ethics of differentiation. It appears to be the only reference to ethics in the discussion of how to attract and retain talent in your business.
The authors comment that a "winning EVP has to be tailored to the specific type of people the company is trying to attract…….Enron’s EVP appeals to risk-loving, analytical, aggressive deal makers. Amgen’s EVP appeals to people who love science and the notion of improving the quality of people’s lives. An EVP cannot be all things to all people; those who love Enron’s EVP, for instance, would probably dislike Amgen’s and vice versa."
An EVP is not a static thing. It changes with the company‘s development. It has to be revised as competitors get better at producing talent attracting EVPs. The company will themselves get better at focusing on the kind of talent they are looking for; they will find more incisive ways of conveying the attractive impression needed to ensure credibility and avoid potential employees being cynically turned off. The EVP is not just a document. It is a whole range of methods that convey the company culture and prospects to a possible employee. It runs parallel with company image portrayal, though with a more specific purpose.
For example work-life balance has become an issue for many. They are prepared to be committed, but not to sell themselves, body and soul, to the company. They want time for family and hobbies and other interests, but this can also say something about the kind of people they are.
The authors insist that the EVP requires the same diagnostic techniques that are applied to product or market strategy. It should be based on attrition rates of high performers, new recruits and other key groups. The acceptance rate of offers and the quality of newly hired people need analysing. Investigation of what makes people switch from any company to any other needs to be undertaken and your talent strengths need to be compared with those of competitors. A clear brand message is essential.
The EVP is summed up:
"Companies that want to attract and hold on to great talent have to deliver an EVP that satisfies people’s expectations and out-competes their alternative options.
Substantially reshaping the employee value proposition requires rethinking the way you conduct your business, the way you restructure jobs and the way you measure performance. You may need to rethink the very culture of the organisation. The changes may cut to the core of some of the most closely held traditions of the company……
Attracting and keeping highly talented people and bringing out the very best in you people will fuel your business.
Rest assured that even ordinary organisations can offer their people something extraordinary. They can deliver wonderfully satisfying careers and truly meet the aspirations of their people"
The authors compare the old and new approaches to recruitment. Companies used to grow their own talent based on climbing the career ladder over years. Now they pump in talent at all levels. They used to recruit people to fill vacancies; now they are hunting for talent all the time. Now they use diverse sources of recruitment, not only the traditional ones. They don’t just advertise to job hunters, but find ways to reach candidates who are not necessarily looking for a job. They recognise that they are not just screening applicants, but selling the company to candidates. Instead of hiring to meet needs as they arise, the newer approach is to have a recruiting strategy for every type of talent.
Traditionally there has been opposition to bringing in people from outside, whenever it could be avoided. People fear that their own prospects will be threatened, or that the newcomers will change the company culture. Particularly when new initiatives are undertaken by a company they may need new people to make them succeed. And expansion will obviously require new people. People still get promoted within, but they have to earn it in competition with the best available from outside.
Of course there can be dangers in hiring from outside. You don’t know the recruits; there has to be a period of getting to know each other, and some prefer to choose "the devil they know". But the right people will respond to carefully planned and mentored acclimatisation arrangements to move around the company. They will soon begin to create their own networks if they are right for the job.
The talent hunting concept, or opportunistic hiring, may seem strange to the traditionalist. There are three ways to make it work:
In the second and third of these recipes it is important to make the people feel that the hope of a permanent position is not illusory and that what they are learning about the company will pay off; also that any ideas they come up with will be taken seriously.
Opportunistic recruiting is an ongoing activity, by being alert whenever one is reacting with suppliers and customer or attending conferences, and by keeping an eye open for corporate or military downsizings and mergers, where there might be some good candidates.
Recruiting used to be a matter of fishing in just a few well tried ponds, one or two business schools and other educational establishments. Now the whole range of business schools are seen as hunting grounds, and also other establishments where thinking people may be found. Beyond this, people of totally diverse experience may be preferred to MBAs who may have been taught in the traditional analytical approaches; there must be people around who can bring a freshness of approach to your company, even if they haven’t got the right pieces of paper. The founder of VISA said that one should promote on the basis of integrity, motivation, capacity, understanding, knowledge, experience and in that order of priority. You could always provide experience and the choice of order was deliberate in that each depends on the previous item.
In contrast with the traditional avenues, the search for recruits can take place in different places, at different career stages, in different educational backgrounds, against different work experience, and within different demographic profiles. There is scope for creative and even unusual approaches. Also greater use of the Internet and data bases is possible.
The phrase "courting" is used above. The idea is that "every candidate should feel sought after and valued", feeling that they would love to be part of the organisation that has courted them. Examples are given of senior managers who have flown long distances to interview someone, to give them a sense of the seriousness of their purpose. The personal touch is crucial. Recruitment isn’t just a procedure. It demands the highest skills.
Beyond recruitment is developing the people you recruit and developing the people you already have. Not everyone can become a superstar, but anyone can be pushed to the limits of what they can do, when challenged, encouraged and supported. Development needs to be woven into the fabric of the organisation, but the research of the authors found that many companies were seen by the respondents as lacking in this regard.
Another of the comparisons between the old and new approaches is given. People just used to be left to develop; it would happen if it was going to. Now it is becoming part of the very key purposes and activities of a company, of every department in it of every manager, and, indeed, of every employee. It goes beyond training; it includes carefully chosen experience and learning through the job; it involves coaching and mentoring and the offering of constructive feedback. In the old days the unit owned the talent and movement outside was not normal, whereas now talent is recognised increasingly as a corporate resource, as people move around the whole organisation.
It used to be thought that development was for poor performers. Now it is recognised that everyone can grow and needs development opportunities. Managers are increasingly seeing themselves as coaches of their staff and mentoring is often formally arranged. However these enlightened views are probably still minority ones and the authors’ surveys suggested that the delivery of development still left much to be desired in a majority of companies. It is thought that a good many managers are uncomfortable with the personal nature of the activities involved, such as coaching. There is an emotional unease about undertaking it.
Special projects of significance are recommended where they are obviously important to the company. People should be given assignments and opportunities which stretch them, without being thrown in the deep end minus a life preserver. People should be encouraged to actively seek to extend the boundaries of their own jobs and not be inhibited by rigid job descriptions. They should think of their job as a broad charter. Jobs themselves could be structured so that they include a developmental ingredient.
All these approaches include an element of feedback. Everyone should know how they are seen as performing. Jack Welch uses the word candour to describe the attitude which managers should adopt. It should not be tactless; it can be kindly expressed, but it should be honest as a means of helping someone, not as mere negative criticism. It should be offered in a spirit of genuine caring about a person’s progress. Where this is ongoing there need be no surprises at appraisal time and indeed the appraisal interview will be, in the main, a tying up of development plans for the individual.
Development includes training, but goes well beyond it. It is rarely linear. It goes up and down and backwards and forward. It is also endless. We are never as developed as we would like to be.
There is a long chapter devoted to this. People are not clones of each other. They do vary and it is folly to run a company on the assumption that everyone is of equal potential and requires the same basic treatment. There are differences in the capacity of people in your talent pool, and both you and they need to be clear about them. Everyone needs to be affirmed to the extent possible, but it is unrealistic to have a pseudo ethical view that no one must be treated any differently from anyone else. Of course everyone should be treated with respect as a person, and fairly, which is not the same as equally.
The authors reject the idea that employees should thought of as equally talented. Some people just do perform better than others and thus differentiate themselves. Their performance and potential need to be assessed and they should be given work, compensation, promotion and development opportunities commensurate with their potential.
This means special treatment for your A players – the most talented, the top 10-20%. Then there is different, but still constructive, treatment for your B players – the solid people who do much of the work, but who are not outstanding. – the middle 60-70%. And your C players who are not particularly good, whose performance may be sub standard – the bottom 10-20%, need yet different and incisive handling.
Many managers are uncomfortable about categorising people in this way. They are ambivalent about passing judgment on people. But it is not judgment; it is assessment of performance and it is not a permanent verdict. It can help people to know where they stand. Other managers think that universal praise is the only way to motivate people, but this is not a realistic way to run a business. Everyone needs to be respected and to have their self worth affirmed, which is not the same as congratulating them for competences they haven’t got. Not feeling valued, the absence of this affirmation, is a prime reason for people leaving.
The question of equality is presented as an ethical one by our authors. They compare old ethics with new ethics. The old approach was to invest in all the employees equally; the new approach is to invest in people according to their talent and their capacity to perform – the level of their contribution to company success and the probability that they can contribute yet more. Not to invest in them would be as bad as not investing financially in a sure fire project. The old ethic was to give good performers a little more than the other; the new is to give the best performers a lot more money. The old view felt that length of service was the main criterion for fair treatment of people, irrespective of capability. The new view asks whether it is fair for inadequate people to be able to blight the work of the people they manage.
Another misgiving some have under the old view is that it doesn’t seem ethical to talk about people behind their back. The newer view says that it is actually a responsibility to discuss the people in the organisation, in order to benefit the organisation and often to benefit the people. Undifferentiated praise motivates the masses – so it was believed; but now it is being recognised that differentiation drives individual and company performance. Whatever perspective is used, shareholder value, customer response or staff effectiveness, it is the A’s who make the biggest contribution. Without them the company would falter and even die. It seems obvious, yet only 23% of the managers in the authors’ survey believed strongly that their companies gave high performers better and faster development opportunities. They are special and should be recognised as such. This is a key element in retaining talent. Many of the talented people who left some companies in the survey did not know how highly regarded they were by the company’s leaders.
All the B players should have the opportunity to grow, some of them into A players, others to perform better within this central band. Without the B’s the A’s couldn’t perform. So they must not be neglected. The aim must be to increase their capabilities, energise them and retain them with the appropriate investment. Pay them well for their contribution. If, for example, you have sales representatives who are very productive, but who will never make it to sales manager, pay them well for what they are doing. Do not be inhibited by traditional rates of pay scales.
The C’s require decisive action. Some of them will make it to the B level. But, if they can’t improve, C’s only impede the performance of the company, and to keep them in their position can be unfair to others. They must either be shunted on to work which they can do and where they can do no harm, or they must leave. (Even Jack Welch found this difficult, but did get rid of people. In fact he operated on the basis of the bottom 10 percent being "let go" each year.) C’s diminish the reputation of a firm and discourage really talented people from coming into it. Bosses who are C’s tend to recruit C’s and show little interest in developing their staff. They just have to go.
Equality run riot is unfair, because others suffer where incompetence is tolerated. A well managed company is a key element in an EVP which attracts good people.
Removing C’s can be done humanely, but it must be decisively done. By all means give them some time to improve, but don’t let it drag on for ever. If exit is required then insist on it. If all the staff receive regular candid feedback there should no surprise at being told that the day for exit has arrived. Give them time to find another job that they can do – and even counsel them about it; but in the end, when they have to go, ensure a reasonable severance package financially.
For all the people who can be developed there should be a robust development plan, with specific actions to be taken duly charted. This is very different from the bland pointless comments often written on annual appraisal forms.
In depth regular reviews of talent should be led by very senior managers and often by the CEO himself. Such reviews should not be merely individual, but in the context of the work of the whole unit under consideration. The starting point of review meetings should be the strategy of the company. The purpose of such reviews is to strengthen the talent pool to drive the business forward, well past the "business as usual" approach, by finding people who will do jobs in a way that they have never been done in the past. "It’s about building a pool of managerial talent stronger than that of the competitors. It’s about winning in the market. It’s about performance."
Individual action plans lead to unit action plans and examples of both are given in the book. One individual plan for a C, new in position, gave him six months to show results and laid upon his manager responsibility for candid feedback on performance. The manager responsible was named on the plan and the time frame was noted. Another was to be terminated in three months and action for a replacement to be taken – again with the name of the responsible manager and the time frame. A’s and B’s were action planned in a similar way with salary increases and the next move planned. Then there was a consolidation of action in unit action plans. Some of the reviews described were led by the CEO and took place on a name by name basis on the unit premises.
A final chapter is best summed up by quoting the panel which concisely sums up the whole book, largely from the perspective of the CEO, though with implications all down the line:
Are you prepared to win?
The readers are told to expect a huge impact in the first year, on the basis of the research. If you don’t get it, the authors suggest that you are not being aggressive enough. "You are not investing enough time and money in strengthening your talent pool. You are not setting the talent bar high enough. Expect huge impact in the first year and craft a program that will achieve that".