Matching supply to demand

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Matching supply

^to demand

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Drawing on research with the world’s most admired companies this paper argues that strategic talent management depends on focusing on demand, not just enhancing supply >>

5 2007

Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organise people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organisations realise their potential.

We have 2000 employees working in 88 offices in 47 countries.

www.haygroup.co.uk

For further information please contact Hay Group’s UK Talent Practice Leader [email protected], dd +44 (0)20 7856 7310.

A strategic approach

to talent managment

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In a context where between half and three quarters of senior managers are due to retire by 2010, only one in five CEOs has confidence their current approach to talent management can deliver the leaders they need.

Their concern is that, while their organisations have a focus on increasing their supply of leaders, they are still having to hire externally, particularly at senior levels.

So, what is it about talent management that isn’t really working for CEOs?

1. Focus on the future 4

2. Why it’s worth it and why it’s so difficult 5

3. A model for success 6

4. Strategic talent management in action - a case study 8

5. Best practice checklist 11

The issue lies in the fact that most talent management processes traditionally start with people when they should start with what their organisational requirements are in terms of roles - what they actually need people to do in the future. This insight has caused a shift in thinking. Those organisations considered best in talent by their peers are now moving from a tactical,

people focused approach to a more strategic one focused on roles. This paper draws on our work with the best CEO / HRD partnerships to demonstrate how they have achieved this. Our aim is to share the knowledge from that work so organisations can challenge and hopefully enhance their own approaches to talent management.

has confidence their

current approach to talent management can deliver the leaders they need.

¹

“

”

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4 Matching supply to demand

While most organisations have done a good job at developing supply (i.e. identifying and developing talent), not enough has been done on understanding the kinds of roles their organisations are going to need to keep themselves successful for tomorrow.

Translating future demand needs into what that means for people supply is where talent management needs to shift if it wants to be more strategic and business relevant. It is not that the best at talent management don’t do this, more that most organisations don’t give it the critical analysis it needs before jumping to enhance the quality of people supply.

For example,10 years ago we were developing leaders for positions of clear, managerial authority to manage resources that were directly under their control. In the future most organisations will have many more matrix jobs that lack clear boundaries and dedicated resources.

Understanding this before identifying high potentials is what we mean by leading with demand.

By starting in the wrong place or by only doing minimal analysis, talent management is judged to fall short because it doesn’t actually deliver what the business needs. It might have enhanced talent generally but this not the same as meeting an explicit demand need e.g. less operational managers and more leaders who can manage across the matrix. It is only by meeting future demand and so getting succession continuously more right than wrong, that organisations survive and win in the future – a sobering thought when you consider that post the inauguration of the FT100 in 1984, just 23 of the original Companies survive today and even fewer exist in anything like their original form.

Strategic Talent Management – a definition

Strategic Talent Management [STM] starts with the analysis and definition of what matters for the delivery of business strategy in the future. Looking through a demand lens enables organisations to know what needs to be done and, therefore, more precisely what kind of people they need to achieve it. For example, a change in strategy, operating model or path to market will result in new roles which, in turn, will require different skill sets and different kinds of leaders. The management of talent is the fulfillment process to close the gap between demand and supply – ensuring the right number of people of the right quality are ready when the organisation needs them now and in the future.

1. Focus on the future

Why its worth it

Meeting the challenges of tomorrow When organisations don’t focus on demand first, they get their talent management wrong. This impacts their ability to transform themselves, their profits, how they overtake competitors, recover from a crisis, or get the best from a merger. While it might sound alarmist, longer term it will also threaten the survival of many organisations themselves. As one CEO said to us: “Strategic Talent Management isn’t just a nice to have; it’s the ongoing life force of our organisation, the mechanism that helps us determine the future demands on our leaders, specify the gap between what we have and what we need. It’s what helps us win today and renew ourselves for the challenges of tomorrow” .

Getting to sleep at night

Our research with CEO Magazine and Fortune suggests that after mission and strategy, finding the right leaders for the future is what keeps Chairmen and CEO’s awake at night.

The issue won’t go away

Organisations around the globe are struggling to keep pace with the speed of change going on around them. 80% of companies believe they do not have enough of the right qualified internal candidates to meet the increased challenges in their senior executive roles¹ and nearly three quarters reported a similar issue at middle manager level.²

New roles emerging

In response to globalisation many organisations are increasingly becoming more matrixed. This, in turn, demands different operating structures. The roles needed to deliver within these structures are very different. You can’t fill them by increasing the quality of traditional leaders as they move up the pipeline. You need to

understand what’s different about these types of roles, quantify how many you are going to need and then develop or source new types of leaders accordingly [see case study page 8].

It pays

A generation ago 20% of corporate values were put down to intangibles such as leadership, patents and brand, now that figure is more like 70%. Analysts increasingly want to know about leadership ROI. The reason is clear: the best companies for managing their talent consistently out perform their peers in terms of return on share price.³

Why its so difficult

Strategy and business unit disconnect In many instances there is an inadequate translation of the business strategy into what that means for the people strategy. Likewise there is often a disconnect across BU’s, geographies and functions with the result that no organisation wide approach to talent management emerges. This makes it difficult to trade or broker talent on a group basis.

Poor infrastructure

Hay Group’s joint survey with Human Resources magazine (UK) found only 20%

of CEOs have confidence that their talent management processes can deliver the executives needed to win in the future.

Lack of management know how Talent management is traditionally seen as the sole remit of HR. In the best

organisations the mindset is different - talent management is seen as a critical task of the Line which is supported, rather than owned, by HR.

Initiatives pull in different directions Too often reward is not aligned with initiatives to move high potentials across different geographies or business units.

1Hay Group / HR Magazine Survey, 2005 2Hay Group research ‘Corporate Soufflé.

Is the middle giving way?’, 2006 3Hay Group / Chief Executive Magazine Survey, 2006

2. Why it’s worth it and why it’s so difficult

This paper draws on Hay Group’s annual global survey with Fortune’s Most Admired Companies, recent research conducted with Chief Executive Magazine and Talent Surveys with Human Resource Magazine in the UK.

The CEO / HRD Partnership

Many CEO’s do not see or hear a business based demand focus from their HR departments. What they often experience is a mindset that focuses on generally enhancing talent supply and alignment as endpoints in themselves. The challenge is to look at talent through the demand lens – to understand what the CEO wants from the business in the future.

On a practical level HR Directors can meet the concerns of their CEO’s by helping their organisations get shared clarity on what needs to be delivered as the start and end point to their talent fulfilment activities. Once the gap between demand and supply is quantified and understood, then clear decisions can be taken on the tactical means to cover the gap between the two.

Great leaders don’t need to be told to manage their talent for best returns; to them its intrinsic, a core part of the job, how you get more out of what you started with.

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Strategic talent management is not something completely new. It is, however, a re-framing of the field of play - an integrated way of thinking through how organisations can optimise the return on their people assets. In reviewing our annual survey with Fortune Magazine’s Most Admired Companies, the best organisations take the view that strategic talent management is more straightforward than might first be thought. Fundamentally they see it is all about understanding the demand as well as the supply elements in the talent equation. We found from the analysis that those organisations considered best at talent management do four things well:

1. SO - the best organisations decode how strategic direction and change impacts the roles they require and therefore the people they need to be successful in the future. In many organisations (even some of the largest!) there is a strategy, but it

has not been de-coded into something that is meaningful for talent management.

Strategy needs to be defined in terms of the people needed to deliver it. This sets the stage to define accountabilities (especially in a matrix), behavioural expectations and interdependencies and provides an overall dashboard to stay focused on the strategic or most important things.

2. KNOW - the best organisations evaluate their talent supply so they know what they’ve got and what it’s good for. In conducting a review of their talent, the best think through the pros and cons of fully contracting-out assessment to third parties. While Assessment Centres and externally benchmarked Organisation Talent Reviews can help with objectivity, they tend to hinder ownership of and action around the results. Reports are

‘interesting’ and ‘nice to have’, but beyond helping with personal development, don’t change the deployment or flow of talent. To avoid this there are increasing examples of Talent Benchmarking Forums.

In these forums externally benchmarked data (including data from direct reports and peers on competencies, leadership style and the climate the leader creates) is considered alongside what the organisation already knows about individuals. This could include the line manager and HR’s view of performance, functional/technical competencies, career track record, ambition, mobility etc. Also discussed are the broader notions of learning agility, adaptitude and career de-railment. By debating and challenging these diverse viewpoints, more robust judgments are made about talent.

Hunches are confirmed or challenged with the consequence that there tends to be a greater confidence to act. More risks are taken with the placements of confirmed high potentials and more roles are freed up for high potentials by acting quicker on under performers.

3. A model for success

3. GROW - the best organisations enhance their talent’s ability to meet the role demands from the implication of future strategy, through leadership development and careful, supported role placements.

They invest heavily and regularly in growing talent from within and developing people for the long term. They are keen to avoid the high risks associated with the ‘tissue rejection’ of external senior hires so only make judicious use of importing talent.

The best organisations consciously work at growing talent by considering suitable role moves across their business units, so that high potentials experience the challenge of delivering outside their technical comfort zones before their next promotions. By taking some supported risk in this area, high potentials are forced to fall back on and build their innate leadership skills before larger roles preclude these risks being taken. Multiple research studies show time and again that this is the route to building long term leadership success.

4. FLOW - the best organisations optimise the deployment of talent through Talent Benchmarking Forums, cross divisional brokerage of talent and action orientated

succession planning. The aim is to flow talent to where it is most needed and where it can best grow. They engineer line management to co-own the accountability for talent management in conjunction with HR rather then by HR. They encourage action rather than just ‘review’ by upward reporting on what has been done to improve the stock of talent and how leaders intend to enhance their supply to meet the changing business demands. Critically, they also ensure other HR levers, such as reward and performance management pull in the same direction.

Getting this flow right requires an effective talent infrastructure; not solitary or secretive line manager nominations, nor fully subcontracted assessment centres where little is known about an individual’s day to day performance; and not static

‘tick the box’ succession planning. The best organisations collaborate on getting their talent to where its most needed;

talent isn’t hoarded by business units, the culture is to view it as a corporate asset. As a consequence more moves are made on the organisational chess board, and talent starts to flow to where its most needed.

0 10 20 30 40 50

52%

61%

35%

57%

22%

35%

16%

1%

6%

51%

60 70 80

Average Best

Off the shelf training Business schools Coaching

*

Career assignment

*Explicitly manage careers through job assignments designed to take people out of their technical comfort zones so they develop broader leadership skills; it’s not just ‘rotation’ that’s important, more the variety of learning experiences

Bespoke training Doesn’t differentiate - is a

must-do to avoid being below average

Key differentiators, but the key is about execution and

implementation

Off-the-shelf training is not a key differentiator though Business Schools

can help with business planning skills etc Which of the following are used to develop high potentials and key executives?

FORTUNE Most Admired Companies Survey

People are not your most important assets; the right people in the right roles are.

Talent infrastructure / culture

Talent infrastructure /culture

Align policies to attr ac t, r et ai n a n d r ew ar d Align policies to attr ac t, r et ain a n d re w ar d

FLOW

SO decode

future demand for roles

GROW enhance

talent supply

GROW enhance

talent supply KNOW evaluate demand

/ supply gap

optimise talent deployment

1 2 4

3

The SO, KNOW, GROW, FLOW model 1. SO is about Strategic Orientation or so what? – decoding and defining what business demand is in terms of future roles.

2. KNOW is about evaluating the gap between the people you want and the people you have, e.g. conducting an Organisation Talent Review.

3. GROW is about enhancing the gap between demand and supply, growing talent or in some cases buying it in.

4. FLOW is about optimising talent flow and deployment so it can make the best impact across the organisations.

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One CEO we worked with in the Financial Sector expressed dissatisfaction with the way talent management was undertaken in his organisation. Digging deeper the underlying issue became clear:

“The mistake we keep making is that we keep starting with people. We keep refining our talent to be better at what we used to need. What we actually need has changed and will keep changing. I want us to get a handle on what our future roles look like. Its clear we’re going to be need to move away from a regional model and become increasingly more matrixed. To secure the back office savings we need and become ‘one’ company, I need less roles based on formal operational authority and more global business / brand roles that are collaborative and work across regions. The trouble is I’m not sure our cadre of leaders can adapt quickly enough for us to be successful. I know we need to change our operating model but it scares me when I contemplate the difficulties involved”.

What was needed

It quickly became clear that the consulting support needed was quite different to how we were traditionally engaged by our clients. What he wanted was an assignment that enabled him to build the capability needed in advance of the shift required in the operating model. If HR was able to develop the kind of people he needed to fill the new matrix roles, then he would embrace the risks involved in changing the operating structure. What was core to success overall was defining what this new operating structure would look like and then envisioning the new roles needed to deliver it. With a clear definition of the accountabilities and key enabling

behaviours, the organisation’s talent management could focus on closing the gap between future demand and current supply.

The theory

This challenge connected with research Hay Group had recently undertaken into role types. The research had arisen out of the intuitive and logical notion that what predicts success in one job does not necessarily predict it in another. In an effort to solve this without creating multiple models across a multitude of different jobs, we undertook a study of 600 top performing executives to connect what we know about jobs through our Job Measurement methodologies with what we know about people through our Hay McBer researched competencies database. The aim was to develop a greater understanding of what predicts success across distinct types of roles at different organisation levels. ⁴ Differences Across Roles

Despite many similarities in executive roles, there are a variety of significant, albeit sometimes subtle, differences depending on the shape of the role, its proximity to business results, and whether it is strategically or operationally focused. There are at least three distinct types or clusters of executive roles, see figure on page 10, each requiring its own unique set of leadership skills and behaviours. There is also an emerging, extremely challenging role, that of the coordinating or commercial manager that is markedly different from traditional leadership roles. These positions, which lack the authority and accountability of other roles, can be extremely challenging for the individual who has risen through more traditional executive ranks.

Co-ordination / Matrixed Roles Particularly in larger organisations, these are often found in areas such as brand and product management, marketing, supply- chain functions, and programme and project management. At the operational level coordinating managers deliver results for their specific area through a network of internal and external resources over which they have little control. At more strategic levels, such managers develop, define, and deliver longer-term and strategically important programmes - again through networks. As with the with the two other role types, the executives studied who were successful in coordinating roles exhibited a unique set of competencies.

Such executives were: tenacious in seeking critical information; they didn’t accept the first answer handed to them, but

systematically researched issues; they were proactive, not waiting for problems to arise; they anticipated them and proactively addressed them; they were also extremely flexible, not surprising, given the organisational white space in which they operated; and they tailored their influence and communications based on the people, the situation, the culture.

Putting the research to practice While our research gave us an initial insight into the challenges of these different types of roles, it was important to get definitions based on the client’s unique culture and business environment. Clarity here was key for selection to the new roles and for developing the existing talent supply towards them.

4. Strategic talent management in action – a case study

4For further information see Hay Group white paper, ‘Towards a More Perfect Match’

8 Matching supply to demand

Put your best people on your biggest opportunities not your biggest problems.

Key project steps:

Define future demand – strategic demand interviews based on 3-5 year projections on what were to be the biggest changes facing the business: ‘what kind of roles are going to be needed’.

Benchmarking - Reference was made to other organisations who had overcome similar strategic challenges and role shifts.

Mapping the existing roles – the Role Profile Framework was used to ‘see’ where the current jobs were and how they were weighted across role types and levels.

Mapping future roles – the framework was used to highlight the roles reducing in scope and where the new roles were likely to be.

Profiling new roles and the future leadership DNA – this included elements such as key accountabilities, shared deliverables and the critical/differentiating competencies.

This gave talent managers a clear leadership competency framework and clear role profiles to work towards.

Organisational talent review – by Behavioural Event Interview, competency 360 survey and upward feedback from direct reports on the climate of engagement created by leaders through their style or approach with their teams. This data was combined with career CVs, performance track record, and items such as mobility.

Talent deployment - Talent Benchmarking Forums were employed to optimise the deployment of talent and how best to grow it.

Feedback and on-boarding advice – done to mitigate risks as leaders transitioned into the new roles.

Designs are now in place for delivery of a leadership programme designed to help the leaders re-think their value add and to build the skills and mindset shifts needed to operate more effectively across the future matrix structure.

1.

2.

3.

4.

5.

6.

7.

8.

The CEO / HRD Partnership Insist on a decode of the business strategy and market trends into what it means for future roles and structures; define the future success criteria or leadership DNA [model / framework]; embed it as the cornerstone of all HR policies;

conduct a review of talent; identify and take supported risk with ‘hidden diamonds’; refuse to accept ‘tick the box’ succession planning; break down talent silos; make some symbolic exits and promotions based on the new definitions; reclaim ‘talent’ as a corporate asset ; ensure line managers own talent management in

conjunction with HR; embed talent management within people’s performance plans.

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10 point best practice checklist

Be led by strategy

- talent management has to evolve and reflect the people implications of chosen market contexts, strategies and operating models.

Get serious

– the war has already started, it will become increasingly difficult to stay ahead using a tactical approach such as ‘buying’ talent; even then change is now so rapid you need to have created a work force that can flex and adapt quickly to external change.

Own the problem & invest

– the issue isn’t going to go away.

Focus on demand first

- know what your needs are in terms of jobs and what people need to do to succeed in them.

Close the demand/supply gap

- talent management should be the fullfilment activity to achieve this.

Build value / don’t destroy it

- when done well, strategic talent management can be both the

‘burning platform’ & ‘development bridge’ to the future; when done badly it can cast a long shadow and destroy value.

Motivate / don’t de-motivate

- what’s the bigger win if a review of talent means telling 75% of your people they’re below par? Talent reviews need to be a catalyst for change and development.

Focus on the middle as well as the top

- only the middle can provide for longer term needs and allow you to take risks with developmental moves.

Create ownership

- taking a strategic approach to talent management is not the remit of HR alone;

to succeed it needs to become part of the culture - this means engineering joint Line & HR ownership, involvement and accountability. This is at the heart of all great CEO / HRD partnerships.

Measure ROI

- the key is to know what you are after AND what you want more and less of.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

A Advisory Provides advice and guidance to support the achievement of business results through the development of functional capability and the interpretation and application of functional policies.

B Matrix

Manages and coordinates internal resources and/or develops relationships with external partners to deliver measurable business results.

C Delivery

Held visibly and directly accountable for the achievement of business results/outputs which are achieved through the direct control of significant resources.

1 Enterprise Leadership Thinking about the organisation’s overall policities and strategies,.

Goals are very broadly defined (e.g. increase international operations). Often confronting the unknown.

A1 B1 C1

CEO

2 Strategy Formation Thinking required to set broad strategy for a business integral to the core purpose of enterprise. Long-term, integrating discontinuous change in terms of products, markets, technologies.

In functional roles the contribution includes setting enterprise-wide policies and developing corporate objectives and strategies.

A2 B2 C2

Chief Investment Officer

3 Strategic Alignment Thinking to position a business or function within broadly defined business strategy. Scanning the environment and anticipating the impact of external forces - up to 5-year horizon.

A3 Head of Legal

Head of IT Head of HR Head of Finance

B3 Head of Trading

Head of Compliance Mgr Director Europe Mgr Director Asia/Pacific

C3 Head of US Equity Division Head of FI Division Head of Int’s Equity Division Head of Passive Equity Division Head of Asset Allocation Division Head of Absolute Returns Head of Sales and Marketing

4 Strategic Implementation Focused on the variable application of policy locally - turning functional policy into reality. Requires considerable degree of interpretive, evaluative and or constructive thinking to address issues that are noticeably different from what has been encountered previously

A4 B4

Head of US Client Service Mgr Director Canada Mgr Director Hong Kong Mgr Director Australia Mgr Director UK / Europe

C4 Head of Quantitative Analytics Head of Enhanced

Head of Large Cap Equity Head of Hedge Funds Head of Currency Head of Global Alliances

5 Tactical Implementation Thinking is towards clearly defined functional objectives within established policy frameworks, but requires solutions that represent improvements on current practice.

A5

Research Director B5

CIO Canada CIO Japan

C5 Head of US Bonds

Head of International Passive Equity

Head of US Pass Equity Head of Int’l Cash Mgmt

Executive talent matrix: client example

Strategic contribution