Posts tagged ‘Talents’
How important is leadership for business success? Soccer may provide an answer. Workforce Analytics should do the rest
How important is leadership really for business success? It is obviously difficult to answer. Perhaps we could start by asking; how important are the top leaders for a company’s success? While more specific, this question is also difficult to give a brief and unambiguous answer to. However, we can begin to approach an answer by starting a completely different place; in the world of football (or soccer to you US readers).
Many sports have for several years been working quite intense with numbers, data and analysis in order to make the best decisions and to prove (or disprove) common myths in sports. Michael Lewis’ fantastic book “Moneyball”, which has been made into a movie with Brat Pitt in the lead role, describes how Billy Beane, the manager of the small team Oakland A’s used figures, facts and analysis to produce results in baseball beyond what one could and should expect. The same has happened to some degree over the past 10 years in football (soccer).
In their equally great book “Soccernomics” by Simon Kuper and Stefan Szymanski, the two authors show that the correlation between the wage expenditure of each club in England compared to average and the average league position is a staggering 91%. This is illustrated in the figure below from the same book. In the conclusion of the full study, the authors says that “the size of the wage bills explained a massive 92% of variation in the league positions, if you took each club’s average for the entire period”. In other words, if you know how much each club spends on salaries compared to the average, you can pretty much predict where in the table the team will finish on average.
If 92% of the variation of the league postion is explained alone by the salary it goes without saying that the rest do not mean that much. The rest in football (soccer) is a lot of things like training facilities, the size and quality of the field, tactics, medical staff, fans, coaching staff and of course the manager (which is equivalent to the CEO). Only some 8 variance percentage points are left.
And before the obvious point is raised; you cannot just take a random group of players and double their salaries and then win the league the following season. The high explanatory effect is present because there is a fundamental mechanism at play in international football; you know who the best players are and the best players get the highest pay. Over the last 10 years the transparency level has increase a lot about how good a player is and therefore the salary that player deserves. In the business world, there is also a significant difference between different CEO’s pay but it is more questionable if the best are also the ones who are paid the most and visa versa.
If 92% is explained chiefly by the level of the total remuneration of the squad, you can – with a couple of assumptions – measure how good the managers are relative to each other. Kuper and Szymanski make that analysis by measuring managers are at achieving the positioning in relation to the statistical position that the team should reach based on the total amount of wages they pay. If you take a squad of players who statistically should finish in 6th place, but due to the manager’s motivation, tactics, gut feeling, management and everything else can get the team to end up in 3rd place, then you can conclude that the manager performed better than expected. This analysis shows that there are some football (soccer) managers who have performed on that metric much better than others. These include Bob Paisley, Bobby Robson, Alex Ferguson and Arsene Wenger. In those and other cases, one can statistically prove that the coach has added value, by how much and how consistent.
So to summarize; the manager of a professional football (soccer) club does not matter that much and the game is best explained as Kuper and Szymanski cites Jamie Carragher (a British footballer) for; “The bottom line is this: if you assemble a squad of players with talent and the right attitude and character, you will win more football matches than you lose, no matter how inventive your training sessions, what system you play or what team-talk you make.”. However some managers are significantly better than others and this can be measured and evaluated.
What about manages, leaders and CEO’s of companies? Is the same true as with football (soccer), that the impact of the leadership team has little explanatory power in relation to the overall business performance? That it is ‘just’ about finding the right employees? We must take an evidence-based approach. Which is not without problems.
I believe that there are many reasons why the wage of the employees (or talent as popular lingo is) do not predict a company’s performance to the same extend as is the case in football (soccer). Firstly, the fundamental mechanism around pay is not as efficient in companies as in global sports; the transparency of global talent is lower and it is not always the case that the best person gets paid the most. Performance Management systems are simply not that effective and efficient. At the same time, I expect that the IT infrastructure, processes, products and brand contributes significantly more to business success than it is the case with a football clubs – although it is probably much lower than business books in general assume.
So the question is how much? How much does a leadership team mean for the business outcome. I would like for Workforce Analytics to come up with the answer to that. We should have the data. We have the software. We have the clever data people. But do we have the insight and the incentive to find the right answer?
The “war for talent” has made many companies change their recruitment processes and practically beg talents to come and join their company. The processes have been made as friendly, warm and inviting as possible partly to signal that it is a friendly and open company (nothing wrong with that) but also to convince talented people that they should apply.
There is however an argument for doing the exact opposite. In his book “Influence”, Robert B. Cialdini present compelling evidence that people who goes through a hard (and sometimes physical painful) recruitment experience actually is more engaged and dedicated to the organization they join.
One of the best examples outside of organization life is probably during “Hell Week” held each year on college campuses across US. Here young students make their fraternity pledges through a variety of activities some of which includes social embarrassment and sometimes physical pain. Why do young people go through such a recruitment processes?
A similar example is known in most countries. Just before getting married it is a tradition the groom-to-be (and increasingly also the bride-to-be) goes through a day of social embarrassments often held by their best friends. Why would someone go through this? Why would best friends/colleagues/fellow students put them through this? Why would society allow this? And why does it work?
The conclusion comes from two researchers Elliot Aronson and Judson Mills who observes that “persons who go through a great deal of trouble or pain to attain something tend to value it more highly than persons who attain the same thing with a minimum of effort”. Interesting. In their research they saw that their participants rated the groups they joined more interesting and valuable if the access to the group was harder even though the groups were identical.
So if you actually make it harder to get recruited to your company, perhaps you will experience that people will value their job more, which in turn increases their commitment and engagement. I am certainly not saying that recruitment should resemble “Hell Week”, but perhaps companies are sucking too much up to talented young people today?
John Wooden was arguably one of the best coaches in sports history. He won the NCAA championship ten times in 12 years – seven of which were in a row. Not only that, he was also a fantastic player and he is the only person ever to be named basketball All-American both as a player and as a coach. So John knows all about finding and using talent (see this fantastic TED video).
For John performance was clearly important but famously his players have said that they don’t remember John Wooden ever stressing the importance of winning a game. He wasn’t obsessed or even focused on the points on the board. For him it was about sticking to the fundamentals and making an effort to reach your potential. If you do this the points will come and you will win.
I think companies can learn something from this thinking. In most areas of people assessment and evaluation companies are focused – even obsessed – with measuring results (the points on the board) instead of effort.
- Talents are assessed using the famous (notorious?) 9-grid evaluation tool where performance and potential is measured and talents are defined as those scoring high on both. In many cases, performance is equal to results.
- Bonuses are pay increases are often awarded to those who achieve the most i.e. getting the most points.
- Annual reviews are many times nothing more than comparing achievements with stated goals.
There is nothing wrong with focusing on results but I suggest that this should not be the only dimension. Effort should count too. I suggest that the dimensions in the famous 9-grid assessment tool should take into account that ‘performance’ is not just about achieving results but also about applying yourself to the limit of your talent and potential.
I was reminded of this reading this post, which asks the question; “should we reward effort”. My answer is yes, we should also reward effort but not base our evolution purely on effort. You can get results by doing the things wrong or half-heartedly and sometimes you can do everything you can and must and not get the results. The definition of winning is about making your best effort to continuously improve and apply what works – as Coach Wood said. We should reward this in companies too.
Talent Management is difficult to get right. Let’s be sure about that. In fact, most talent programs have a negative ROI if properly measured. However, there is one mistake you should avoid at all costs as it will lead to high turnover of talents (and a negative return on investment). That mistake is not having a plan for what happens with the talents after the program ends. And that plan should be made and communicated up front.
The unique thing about Talent Management – and Human Capital in general – is that if an employee decides to leave the company, he (or she) will then take the entire investment with him. In other words the cost of a talent leaving is not only loss of productivity, cost of rehire etc. but also the money spent on developing that person.
A key objective of a talent program must therefore be to ensure that talents stay after the talent program as this is the only way to get a return on the program. When the talent programs is ongoing talent turnover decline. But what many fail to understand is, that talent turnover often goes up when the program finishes. And sometimes quite a lot.
Why is that?
Evidence suggests that frustration with advancement opportunities is among the most important factors . Generally, the single biggest reason for why talents leave organisations is lack of advancement and development according to a 2006 Global Workforce Study by Tower Watson.
During the program, talents will – rightly or wrongly – expect that something will happen afterwards; a promotion, a big assignment, an outpost or something new. If they are ‘leadership talents’ they will expect to move up the organisation. If they are ‘specialist talents’ they will expect being offered better and more prestigious projects to work on after the program.
Studies suggest that the talent turnover can be halved post the program if proper post-program plans are in place. Don’t make the biggest mistake of not addressing this up front.
Since McKinsey in 1998 published their article on “The War For Talents” it has been widely accepted that Talent Management should be a key priority for any HR department. Actually, make that for any top management team in the world. Indeed when surveyed “Talent Management” or “Attracting the right talent” always come up as one of the top three priorities for US and European CEO’s.
So, is that how it should be? Well, I think it is. But let’s look at the convincing case there actually is for why talent management is not that important. It goes something like this:
Between 1980-2000 the use of big Talent Management programs declined rapidly. This was mostly evident in companies well-known for their extensive programs such as AT&T, IBM, Citi Group etc. Why? There are many reasons for that. A few are:
Loyalty fell and therefore the turnover of key employees rose. When they leave they take the investment with them.
- Companies went through so many restructurings that talents were not so much in demand.
- Global competition made talent forecast very uncertain and long development programs either yielded too few or too many talents.
- The high unemployment rate in the 80’s meant that it was easy to buy cheap young talent – there were so many available talents around and it was therefore cheaper to buy than to make.
The first three points are still relevant now – perhaps more than ever. So consider the fourth. Look at the chart below. Unemployment rate in US is now at 9%-10% but the youth unemployment rates are sky high- almost at 20%! And many of these are well-educated. The same is true in Europe – in Spain the rate is above 40%!
Perhaps companies do not need to invest in expensive Talent Management programs. There is plenty of well-educated young people around who can be hired for less.
Lets face it – most companies don’t measure ROI on their Talent Management programs. Perhaps this is because they don’t know how to, that they know the result will be scary (very negative) or just because they don’t believe in measuring HR. For whatever reason, they are starting from way behind the starting line.
ROI is a simple tool – and also a tool to be used carefully as it has many pitfalls. However, at is core it has two components; benefits and costs. To improve ROI you need to focus on both. These five suggestions will improve your ROI by looking at how to improve the benefits (4 & 5) and how to lower the costs (1, 2 & 3).
- Improve your development program. You can create value by finding ways to lower the cost of your development program associated with the talent program without affecting the benefit of the program. This can successfully be done using e-learning, coaching and action learning which all have significant lower costs than big classroom-based learning programs. While no program should be based solely on any of the above mentioned, the cost of most programs can be lowered without compromising the benefits using these types of components.
- Shorten your program. Going back in the 60’s it was not unusual to find talent programs which had a duration of three years or even more. This has proved to be wasteful for two reasons; firstly, the uncertainty of forecast of talent needs are too high over such a period. You end up with more talent or competencies you don’t need – and that is a serious waste of money. The second reason is that the added benefits of the final year has proved to be lower than its costs. It is simply not worth it. Best to keep programs at a length of 1½ years instead.
- Create more effective assessment centers (AC’s). AC’s are used to select and develop talent. AC has been under a lot of pressure for two reasons; the validity is often very low and they cost a lot. While both issues are real it is possible to make AC’s valid and cost effective. The difference in ROI between a standard AC and a best practice AC is significant. Make the effort to make a good one.
- Add external candidates to your program. Fact is that you will not have enough talent in-house to meet your need for growth and innovation. Instead of spending good money on people who will not be able to develop at the required speed or achieving the right level of competencies you should acquire them from outside. This is cheaper and earns a better return.
- Have a plan for what happens after the program. The single biggest reason for why talents leave after having been through a talent program is that they are frustrated of not getting moved up in the organization or being offered better projects to work on after the program. This must be addressed up front. Studies suggest that the talent turnover can be halved post the program if proper post-program plans are in place.
The first step is however to measure your return on your Talent Management program. This is not difficult, but requires a solid process based upon best practice. Once this has been done then you can find ways to improve your return. The above five categories will get you a long way.
What makes the difference; talents or systems? If you take, say, a great soccer player like Lionel Messi and put him into an inferior team will he do well and make a difference to that team or is it the fact that he plays for Barcelona that what makes him great? This question – formulated slightly different – is the crux of a debate which has been going on for a while. Lets look at the two arguments;
Malcom Gladwell (who wrote ‘Blink‘, ‘The Tipping Point‘ and ‘Outliers‘) wrote that “The talent myth assumes that people make organisations smart. More often than not, it’s the other way round” in a seminal article in the New Yorker in 2002. This is supported in Boris Groysberg’s ‘Chasing Stars: The Myth of Talent and the Portability of Performance‘. In this book Boris describes analysis of the careers of over 1,000 ‘star analysts’ at 78 Wall Street investment banks, and 20,000 non-star analysts at 400 investment banks. His startling finding: star analysts who change firms suffer an immediate and lasting decline in performance. The conclusion, in their view, is that the systems, culture, resources and teamwork of the company matters more than the talent. In other words performance may be more firm-specific than previously thought.
On the other side stands a lot of the traditional management literature, which argues that attracting and retaining the best people is the most important thing to get right. Talent matters a lot. This includes authors such as Jim Collins (notably ‘Build to Last‘ and ‘From Good to Great‘) who aruges that getting the right people on the bus and putting them in the right seats are more important than finding out where to go (talent matters more than strategy).
I believe that both arguments are right to some degree but not in their entirety. I am not sure that any of the perspectives are very productive in their purest sense. That talented people should be the answer to everything is clearly too simple. At the same time I don’t think it makes much sense to say that some people are not better skilled to do a job better than others and having a lot of those skilled people in the most important job functions makes a difference. Perhaps Malcolm Gladwell and Boris Groysberg have a point about not relying too much on star performers and not believing that they are soly the reason for the company’s success. However their argument should not be taken too far. Talents matters a great deal. Just ask Barcelona FC.