Business Case for Investment in Talent Development

Greetings,

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.

Cheers,
Keith

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.

Twitter: JKeithDunbar
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.

Human Capital Dominance...That is the Goal!

My Department of Defense experience has provided me depth and breadth in a number of areas over the past 25 years. One of those is the concept of Information Dominance and application to our work as Human Capital Management (HCM) Leaders. The formal definition for Information Dominance is captured in this issue paper and is located below:

"Information Dominance" - the degree of information superiority that allows the possessor to use information systems and capabilities to achieve an operational advantage in a conflict or to control the situation in operations other than war while denying those capabilities to the adversary. (Current - FM 100-6, Information Operations)

When we think to what we are trying to achieve for our organizations...strategy execution, competitive advantage, long-term growth, etc...this is applicable to our activities in HCM. What a similar definition of Human Capital Dominance would look like is below:

Human Capital Dominance - the degree of HCM and workforce analytics superiority that allows the organization leadership to use human capital capabilities to achieve an strategic or operational advantage in a competitive market or industry sector while denying those human capital capabilities to the competition.

As HCM Leaders...this is what our goal should be. Providing our companies Human Capital Dominance and Superiority. A number of challenges impact our ability to achieve this ultimate goal in positioning our organizations for future success. We discussed one last week in the defining of knowledge, skills and capability requirements to execute business strategy. Others from the study included the following:

1. Determining headcount and FTE capacity requirements by job assignments and location.
2. Sourcing and recruiting individuals.
3. Developing training strategies.
4. Retaining valued talent within the organization.
5. Evaluating workforce performance.
6. Determining strategies for reduction in force, redeployment and retraining.
7. Understand collaboration and knowledge sharing.
8. Developing succession plans and career paths.

Recent articles and studies indicate challenges are on the horizon that will impact Human Capital Dominance at our organizations.

A recent i4cp survey of senior executives indicates "Nearly 50% of business executives say that the pace of change is becoming hard or impossible to predict...and it appears many companies will suffer as change inevitably happens: almost 20 percent characterize themselves as poor or very poor at handling such initiatives."

This has a direct impact on at least three of the human capital challenges addressed above. Particularly collaboration and knowledge sharing. The most agile and adaptable organizations now and in the future know that one person like the CEO must depend of a collaborative network of leaders to embrace and execute in the complex world we exist in now. This then impacts retention of valued talent and succession planning to provide organizational leadership the right human capital capabilities to succeed.

A recent survey by Execunet also identifies items for consideration. In its annual 2010 Executive Job Market Intelligence Report identified the following trends among senior executives.

• 45% of corporate leaders considered or prepared to voluntarily leave their organizations in 2009
• 80% of HR executives are concerned about retaining executive talent in the coming year
• 46% of CEOs claim their résumés are ready to send to a recruiter right now


What these informative surveys tell us is that Human Capital Dominance, while the goal, is a challenge to achieve. Those organizations that can negate their importance vs. effectiveness gaps at executing these key human capital challenges and can establish strong workforce analytics capabilities (human capital information superiority) will have a greater opportunity to achieve Human Capital Dominance. These organizations will enjoy greater alignment of HC to strategy, greater agility and adaptability in executing strategy, and a greater competitive advantage...no matter what market or sector the organization decides to engage.

A storm is brewing...as the economy improves, HCM Leaders will get opportunities to really show what our profession's contribution is to the organizations we serve. Doing our best to provide Human Capital Dominance will speak volumes!

Cheers,
Keith

Making the Globally Integrated Enterprise and the Human Network a Reality

So let me be upfront…I am a big fan of the companies I am about to write about this week. I think IBM and Cisco are world leaders in their respective industry sectors and we have much to learn from them, and if applied correctly within the context of your operational environment and culture can allow your human capital organization to “leapfrog” to a new level of partnership.

I think IBM and Cisco continue to do a fantastic job of looking at the external environment, understanding what is happening and looking into the future to see what the world will look like. Without this ability they cannot position themselves for future success and transition their business as necessary to meet changing market conditions. So the real question is what makes them so successful at it? Once they define a strategy…what makes it happen? Cash is always a good thing…can do a lot with that. Technology is super…it allows the connections to happen. But at the end of the day it takes human capital to execute, human capital that has the right knowledge, skills and attributes to execute the business strategy. Without it… doesn't matter how good your strategy is…you will not get from where the business is now to where it needs to be in the future.

So if this hypothesis is true…what makes IBM and Cisco better positioned to execute their business strategy? For starters, the Human Capital elements within IBM and Cisco are world-class organization themselves. I have seen Ted Hoff, VP for Learning at IBM, several times and the things they do are a testament to the position he has as a trusted advisor supporting IBM global operations. Both human capital organizations have an ability to understand what things are important in human capital development in enabling execution of business strategy and jettisoning transactional activities that while necessary, provide limited strategic value. By focusing on the business strategy and what human capital is necessary to execute, they are able to play a more proactive role as a partner to recommend various human capital courses of action, vice being ordered to create a five-day course (We have all been there…right?).

They are able to execute their role as strategic human capital developers because they have a process that identifies what organizational capabilities are needed to execute the business strategy, identify top performers overcoming these challenges daily in executing the business strategy and develop the necessary human capital development requirements down to the performance behaviors and knowledge, skill, attributes necessary for individuals. With human capital capabilities defined, IBM and Cisco are able to determine the current capacity of the workforce in these areas and make recommendations on where valuable and scare resources should be applied to develop the human capital capability. These recommendations can take the form of buying new talent, developing existing talent or outsourcing where talent is located.

The power this provides is amazing…As we have executed the same human capital development model within the context of my organizational environment; we have seen a compelling difference in our ability to engage our customers at a strategic level on what human capital capabilities they require to execute their mission strategies. Doing so has allowed the Defense Intelligence Agency Directorate for Human Capital to “leapfrog” 10 years of applied process in the private sector. While still early in our journey, it has started to pay dividends in having meaningful discussions with customers on their most important strategic human capital needs.

As Human Capital Leaders, we have spoken many times in the past about being strategic mission or business partners and showing the value of our efforts to the organization. Organizations like IBM and Cisco have achieved their success with a determined approach to human capital and talent development and its alignment to organizational strategy. My experience has shown that it can alter the customer relationship in a positive and meaningful way. As Human Capital Leaders...let's stop talking and start doing...it can make a difference.

Layoffs, Cash and Strategic Human Capital...The Connection

There are a number of things happening that seem disconnected, but when you dig a little deeper have impact on our profession and the role and responsibility we should play in any economic upswing.

The first is the article from Newsweek titled "Lay Off the Layoffs." Written by Jeffrey Pfeffer, he contends that the normal approach when an economic downturn occurs is corporate leadership reduces headcount. He uses the example of the airline industry after September 11, 2001 terrorist attacks, which laid off tens of thousands. One who didn't was Southwest Airlines. An airline with a larger market capitalization than the other domestic airlines combined according to Pfeffer. The former head of Human Resources at Southwest makes the statement:

"If people are your most important asset, why would you get rid of them?"

Pfeffer's thesis, backed by research, is that layoffs hurt the company and the economy. There are the obvious costs to employees who are laid off, but the research also indicates that there are impacts to the company in higher costs because of severance pay, unemployment taxes, and reduced productivity to name a few. And if the bottomline is the end goal by protecting it with layoffs...the research indicates it doesn't work.

Combine this information with a blog post and more detailed column in CLO Magazine by Dr. Michael E. Echols of the Human Capital Lab at Bellevue University. In both he references a Wall Street Journal report that companies have more cash assets on hand than in the previous 40 years. At a CLO Magazine Breakfast Club event I attended that Dr. Echols presented at in late 2009, he put a number to that cash reserve comment...$14 trillion. That's right...companies are sitting on trillions in cash assets. Dr. Echols view is that companies since 2008 have reduced infrastructure, headcount and services to develop these large cash reserves because it provided flexibility to deal with the current economic situation...it provided liquidity.

Dr. Echols makes the case that talent and learning leaders need to play a more proactive role in advocating for the investment of these cash assets in the one thing that can create competitive advantage...human capital. That we need to champion for the right investments in leadership, business-critical skills and develop new strategic human capital capabilities and capacity.

Now...to make this kind of engagement with the CHRO, CFO and CEO successful, it will take planning and data. My perspective is that you have to understand the business strategy, what the environmentals are looking like related to globalization and change and determine what strategic human capital capabilities the business needs to execute its strategy. Defining these capabilities and then determining the current workforce capacity to execute those capabilities will provide you the information to influence key decisions on resource allocations like increasing headcount by buying critical talent from the talent pool, developing new capabilities in the current workforce or renting talent through outsourcing.

While I work in the public sector at the Defense Intelligence Agency (DIA), the concept is the same. At DIA, we have a mission that is about providing the right intelligence that enables decision advantage for our customer...the men and women that serve our country in the Armed Forces. Within that mission are a number of challenges that we have to overcome by identifying the key strategic human capital capabilities related to collection of information, analysis of information and planning based upon the intelligence process. We have executed in the last year a Human Capital Development (HCD) model that enables making informed resource recommendations.

If you are interested in hearing how DIA has executed this HCD model, I encourage you to take advantage of a American Society for Training and Development (ASTD) Benchmarking Forum webinar on Tuesday 16 February where we will share our story in more detail.

The Future of Analytics in Defining Capabilities

This past week, SuccessFactors, a business execution software company, acquired Inform, a leader in HR, Talent Analytics, and Workforce Planning. In the same week, Accenture released a report (http://bit.ly/cfZmWZ) based upon a survey of senior managers at blue chip organizations that stated:

"Weak analytics capabilities - ranging from siloed data, outdated technology and lack of analytic talent - are preventing organizations from gaining valuable insight that could lead to better business results..."

The importance of analytics, especially to human capital and talent decision making, is increasing. Successful organizations that are able to react with agility and adaptability in the future work environment will be those that know the strategic human capital capabilities to execute business strategy and know the capacity of the workforce to execute that business strategy. Organizations that can do this require a model to help identify capabilities and capacity and a workforce analytics capability that can analyze and create decision advantage from workforce data. When these two are combined, they form a powerful means to provide competitive advantage in a complex and changing global environment.

While many organizations utilize analytics capabilities to improve decision making in finance, sales, marketing, supply chain and operations, utilization of analytics in human capital and talent continues to lag. The same Accenture survey indicated that HR analytics investment would increase by 16%...putting it dead last in the survey.

IBM's 2009 report titled "Getting Smart About Your Workforce: Why Analytics Matter" indicated three overarching themes:

1. In today's difficult economic environment, workforce analytics play an increasingly important role in addressing strategic human capital challenges.

2. Workforce analytics enable HR organizations to take a more proactive role in driving business strategy.

3. The implementation of workforce analytics continues to be hindered by both technical and skill related issues.

In a global environment where the one true competitive advantage is an engaged workforce that drives knowledge creation and innovation, a workforce analytics capability to enable strategic human capital capabilities and capacity identification. This enables making informed decisions on what capabilities to buy, build or rent and the necessary resources to enable organizational success.