Guest Author David Sawtelle, Orcha

We have a perfect storm brewing on the horizon: baby boomers retiring by the millions; gen-Xers only half the population of boomers; young and inexperienced gen-Yers needing to be pushed up ahead of their abilities, and a terrible economy that is not going to measurably improve for a couple more years – and longer still to get to previous levels. If you haven’t prepared for this by now, you might want to consider preparing.

Problems with staff are allowed to bubble away on the back burner somewhat unobtrusively until it is too late, or until we are in a crisis of leadership or management – and then, whoa Nelly! We run around and quickly find the means to rectify the problem overpaying for services (because it wasn’t budgeted). Then we sit back and do it all over again the next time.

Talent management and its subset, performance management, are two processes that every company struggles to stay on top of. It’s a philosophical struggle. We let ourselves label the skills that are enhanced through Talent Management ™ as ‘soft skills’. Anything ‘soft’ can, by definition, be placed on the back burner. A recent Organizational Development Survey discovered the following:

• 85% of respondents claim talent management is as important as or more important than other business priorities, yet only 3% believe they’re doing an excellent job
• Only two in five are satisfied with the rate their firms are developing their most talented people.
• In fact, half of respondents rated talent management and leadership development efforts as just fair or poor, and less than half rate current leaders and internal candidates for key positions as good or excellent
• 55% of senior executives believe their firms’ performance was likely to suffer in the near future because of insufficient leadership talent. Chief financial officers are most likely to link failure to poor leadership, with nearly 70% fearing declining business performance because of a lack of good leaders
• Despite recognizing its importance, just two in 10 business leaders admit to spending frequent time on talent management and only one in 10 often reviews progress with their boards
• Given this, 75% admit they need to improve their talent management efforts.

(survey by DDI and Economist Intelligence Unit, EUI)

And shortly after they completed admitting these things, most of the respondents went back to putting out the fires on the front of their stoves, while these topics continued to simmer in the background. But pay attention to the findings here: Failure linked to poor leadership? Declining business performance due to lack of leadership? Current managers unable to be rated as good or excellent candidates for key positions? The failure here is describing the skills needed to implement and maintain Talent and Performance Management as ‘soft’. If you are talking about true bottom line impact such as declining business performance, or having to go outside your firm for costly recruiting because you didn’t develop your talent pool – don’t you think we are talking about ‘solid’ skills here, not ‘soft’?

True, people are softer and squishier than machines, but, they can think, innovate, inspire and lead. Machines can’t. While investment in technology is necessary, studies show the gains in productivity that can be had with such an investment (up to 50% gains related to statistical measures and quality management, and up to 25% gains related to innovations in the business process) it still takes people to organize the new processes and train the employees on the new technology – not to mention dealing with the conflict and change management problems that come with new technology (up to 39% increase in productivity related to Increased employee engagement by a concerned leadership, and up to 22% increase in productivity related to employee training and improved teamwork – an additional 39% improvement in productivity related to the previous two points combined with other efforts to increase Employee satisfaction). Additional studies show that investment in developing people to higher performance or to manage their teams to higher productivity have a greater positive bottom line impact even than just investing in better or different technology.

Highly productive companies with consistent bottom line growth seem to get this. In a recent study by Profiles International of over 1600 publicly traded companies in 175 sub industry groups, productivity of companies and employees was closely examined. “For purposes of this study, we defined labor productivity in terms of revenue produced per full-time employee”. The study found that America’s most productive companies regularly invested in 5 people attributes:

1. Performance-driven culture
2. Effective managers
3. High employee utilization
4. High employee effectiveness
5. Encouragement of innovation

Additionally they found that these companies invested in 5 Strategic and Operational attributes:

1. Technological sophistication
2. Financial sophistication
3. Operational sophistication
4. Effective distribution channels
5. Marketing and brand sophistication

While you are cheering at attributes 6-10, how do you measure up against attributes 1-5? There are pretty specific findings from the PI study:

• Employees from the most productive companies are twice as certain about how their jobs support their company’s key goals
• The most productive companies are 50% less likely than their peers to tolerate poor performance.
• Coaching is much more prevalent in the most productive companies
• The most productive companies are more than twice as likely as their peers to proactively identify and develop effective front-line managers.
• The most productive companies are more likely than their peers to run lean and work their people harder
• Employees of these companies are nearly twice as likely as their peers to be certain about how their job performance is judged
• The most productive companies are significantly more adept at responding to change than their peers
• Amongst the most productive companies over 40% are more likely than their peers to provide effective training to employees.

The findings speak for themselves. But the problem is: what do we do about it? Is their a simple answer? That depends upon how you define simple. Is their a cheap answer? There you go again. Listen, you know that good investment has some risk but it gets returns that more than pay for the investment cost. So that’s what you do. Do it carefully, get it right, and the ‘cost’ will not be a factor. The returns will cover it. Just take a look at the attributes in which the most productive companies invested in the above study. That says positive ROI to me.  Speaking of costs, what about the cost of not having a strong Talent Management program in place?

The following are a few examples of the organizational costs of not developing leaders after a layoff:

A December 2008 study of more than 4,000 layoff survivors by the research group Leadership IQ found that since watching their colleagues get laid off, nearly 75 percent said their own productivity had declined, almost 70 percent said the quality of their company’s product or service had dropped, and 81 percent said the service that customers receive had declined.

A five-year study of 300 firms conducted by Cigna and the American Management Association showed that layoff survivors had a 100 percent to 900 percent increase in medical claims, especially for mental heath, substance abuse and cardiovascular problems.

A 2008 study conducted by The Academy of Management Journal revealed that even a modest downsizing can unleash an exodus of layoff survivors; the study found that companies that had laid off just 0.5 percent of their staff experienced, on average, a turnover rate of 13 percent, compared with an average turnover rate of 10.4 percent at companies that had no layoffs.

A recent Fortune magazine article names five hidden costs of layoffs:

1. Brand equity costs: the damage a layoff may do to your company’s reputation.
2. Leadership costs: the loss of potential talent.
3. Morale costs: the emotional drain on those who are left behind.
4. Wall Street costs: the effect layoffs can have on stock price.
5. Rehiring costs: the difficulty of hiring and training new employees when the economy improves.

Clearly, there can be a pretty severe cost to not having an effective Talent Management Program in place but, just as clearly, a good program is an investment with productivity increases that translate into positive bottom line returns. Still think we are talking about ‘soft’ stuff that ‘costs’? Maybe we should take that pot off the back burner.

So, how do we develop a Talent Management program if we don’t have one? Honestly? Don’t try to do it yourself. Bring in an expert. A somewhat self-serving statement to be sure, but, if you haven’t done it before or have half-measures in place – what is the likelihood that you will be able to launch a successful effort on your own? Plus, you laid off all the Organizational Development experts, Training people etc., to save on your ‘soft’ costs. Not a criticism – more and more functions are being outsourced to save money. But, instead of outsourcing Talent Management, you just axed it! No, you don’t have to spend the same amount of money to bring in an expert to help you get this set up. You would compensate a senior OD employee over 6 figures (if she were worth her salt) and, when you did, you found that there wasn’t enough for her to do to keep the great programs running as there was in developing those programs. So, you laid her off. Doesn’t it make sense to bring someone like this into your company temporarily to help you get the right program going, and then keep her on retainer to help tweak it? And, for far less investment than it would take to employ that person for years. That’s outsourcing. Take advantage of it.

What would this Talent Management expert help you do? Good question. They would immediately begin to:

1. Analyze expected performance to actual performance in all your company’s positions
2. Re-examine job descriptions and the associated competencies
3. Identify or create an easily administered performance management program against competencies that have been aligned with strategy
4. Identify mission-critical jobs
5. Ensure that the right people are in the right roles
6. Help create clear expectations to sustain engagement
7. If position cuts are indicated, cut the fat and not the muscle
8. Create a skills development program that takes employees to their highest level of performance in each position
9. Develop leaders in change management skills, and process improvement skills
10. Create a Talent Management matrix that helps track employees by performance, corporate values and potential – measure well
11. Challenge and develop the high potential employees at each level in preparation for growth or succession
12. Keep doing it again and again – it’s a virtuous cycle

The importance of having Senior Leadership involved throughout this process with a semi-annual meeting, continuously evaluating the talent pool cannot be underestimated. The importance of measuring and reporting Key Performance Indicators that are aligned with strategic plan objectives cannot be underestimated. See why you need an expert to take you in the right direction?

Deploying a Succession Management Process

Best-practice organizations make succession planning an integral corporate process by exhibiting a link between succession planning and overall business strategy. This link gives succession planning the opportunity to affect the corporation’s long-term goals and objectives.

Human Resources is typically responsible for the tools and processes associated with successful succession planning. Business or line units are generally responsible for the “deliverables” -i.e., they use the system to manage their own staffing needs. Together, these two groups produce a comprehensive process.

Identifying the Talent Pool

Best-practice organizations use a cyclical, continuous identification process to compare a core set of leadership and succession management competencies in order to identify future leaders.

Engaging Future Leaders

Best-practice organizations emphasize the importance of specific, individualized development plans for each employee. Individual development plans identify which developmental activities are needed, and the “best practice” firms have a mechanism in place to make it simple for the employee to conduct the developmental activities.

Best-practice organizations rely on the fundamental developmental activities of coaching, training, and development most frequently and utilize all developmental activities to a much greater extent than the other organizations. In addition to traditional executive education programs, best-practice programs increasingly use blends of special assignments, action learning, and web-based development activities.

All right: so, its not ‘soft’ skills its ‘solid’ skills – skills crucial to the profitability of the company. It’s not a one time event, it’s a virtuous cycle: a journey, not a destination. You weren’t born knowing how to do this, so bring in an expert to get you launched. It’s not a cost; it’s an investment with positive bottom line returns. That’s it then…when are you going to get started?

© 2009 Copyright. David Sawtelle. All rights reserved.