Sunday, April 29, 2012
Business Case for Investment in Talent Development
If you are in learning & talent development, you may still be dealing with reduced budgets and a perspective in your organization that "just-in-time" hiring will be the answer to what needs to happen to support the business strategy. However, there is a body of academic research that would call that approach into question...So lets look at how you can leverage this research to build your business case for a fresh look at creating a balanced investment portfolio in talent acquisition & talent development.
So first thing you need to do is read Dr. Peter Cappelli's Harvard Business Review blog titled "Bring Back the Organizational Man." In this piece, Dr. Cappelli starts to build your argument for you that "just-in-time" hiring is not going to work in the future. Specifically he states the following:
"There certainly are complaints here as well about the difficulty finding the right candidates, but the narrative is quite different. Here the story is about getting a "just-in-time" workforce, finding the precise workers we need just at the time we need them but letting them go when our needs change and then replacing them with new ones. It's a "plug 'n play" approach to the workforce, and it's not working that well. (In full disclosure, I wrote about this phenomenon in a book called Talent on Demand, describing how companies in the US have adopted this approach to talent management in order to deal with highly uncertain and volatile environments)."
You might recognize your organization as one of those "plug 'n play" organizations that Dr. Cappelli references. You do the work to identify people capabilities need...you know what current workforce capacity is, so you know where you have talent gaps needed to enable and execute the business strategy. But as Dr. Cappelli states...the organization makes investments in talent acquisition and many respects going after the same talent that every other organization is after. Dr. Cappelli takes note of that as well by pointing out the following:
"All that would be ok except that employers are finding it difficult to hire the skills they need. The supply of skills in specific areas is uncertain, so the quality and price jumps around a lot. Some jobs require skills or at least sets of skills that are unusual, and finding a good fit outside is very difficult. Skills that one learns through training become scarce because few employers train."
So understanding these perspectives allows us to reframe the conversation based upon what is happening in our organizations. Part of that reframing is specifically focused upon communicating what the costs of turnover are and the performance gap between internal promotions and external hires.
If you are like most organizations, your turnover could be any where across the spectrum of low, medium or high. In some organizations, the pressure to acquire talent is high because you are hemorrhaging talent. But because we treat this as a one-for-one trade-off, organizational leadership doesn't necessarily account for the costs involved in turnover of internal talent. Enter Boris Groysberg and his book "Chasing Stars." In it Dr. Groysberg looks at turnover and aggregates academic research from various academic studies that looked at the issue. In looking at these studies (All referenced in the book for your review), Dr. Groysberg states that:
"Turnover is expensive. Researchers have estimated the cost of losing a seasoned professional as 75-150 percent of that person's annual salary."
So what does that look like? If you have a talented individual in your organization that leaves and that person has a salary of $200K...it will cost you $150K-$300K to replace them. That estimate includes a number of factors that for many organizations are difficult to calculate. For example, it includes the time to source, pre-screen, interview, onboard, loss of performance as the individual gets up-to-speed (To be discussed next), increased salary, and lost opportunity. Again...very difficult for organizations to quantify. That is why this research from Dr. Groysberg is so valuable for the business case.
But you might be wondering about the loss of performance...Research by Dr. Matthew Bidwell paints a different picture. In his article, "Paying More to Get Less : The Effects of External Hiring versus Internal Mobility" he looked at the performance of new hires versus internal promotes in a financial services firm. In his research he found the following highlights...
- External hires get paid 18% to 20% more than internal employees do for the same job.
- External hires get lower marks in performance reviews during their first two years on the job.
- External hires were 61% more likely to be laid off or fired from that position and 21% more likely than internal hires in similar positions to leave a job on their own accord.
- External hires tended to have more education and experience than internal workers, but those credentials didn't always result in strong performance—especially in a new company culture.
As Dr. Bidwell points out and supporting Dr. Cappelli's perspective..."External hiring has become more prevalent in the past three decades, especially in large organizations and for high-level positions. But he said that companies should spend more time figuring out how to promote from within."
These critical pieces to the business case justifying investment in a balance approach to talent acquisition & talent development are important when viewed in light of research by the Corporate Leadership Council in 2008. In that research addressing Employee Value Propositions and key factors that attract talent and influence talent to commit to the organization, it identifies seven key components:
Attraction - Compensation, Organizational Stability
Commitment - Manager Quality, Collegial Work Environment
Attraction and Commitment - Development Opportunities, Future Career Opportunities, Respect
Knowing that these drive attraction and commitment of talent to an organization...particularly Development Opportunities and Future Career Opportunities...allows the business case to develop more fully. By reframing the argument for balanced investment, we are able to communicate the importance of internal talent development, a focus on creating internal future career opportunities, the cost of turnover because of a lack of balanced investment in talent development, and that external hiring contributes to the cost of turnover. Making these critical connections paints a different picture and enables a much broader discussion to take place about the costs and benefits of renewed investment in talent development activities.
The ability of organizations to attract and gain the commitment of the most important talent will be important going forward as Dr. Cappelli points out. This is one of the reasons Deloitte made a $300M commitment in developing its new Deloitte University facility in Dallas, Texas.
All of this research taken separately doesn't allow for making the business case and initiating a conversation with leadership. But when combined in a powerful story and contextualized for your organization, it can allow you to build the business case for an informed approach. An approach that could be a key differentiation for your organization in executing your business strategy.
J. Keith Dunbar is a Global Talent Management Leader and Doctoral candidate at the University of Pennsylvania's Chief Learning Officer (CLO) program...Creator of Talent, Leadership Capability, and Culture Change...He can be found connecting and sharing knowledge on Google+, Twitter and LinkedIn.
LinkedIn: J. Keith Dunbar
Google+: J. Keith Dunbar
Blog: DNA of Human Capital
The opinions or views expressed here are mine alone and do not represent the views of the SAIC.