HR for Neophytes @ HBR It’s a worldwide trend that has been under way for nearly a decade: Responsibility for talent management is shifting from HR to frontline executives. The transition is driven partly by cost cutting—head counts in HR departments fell sharply during the Great Recession—but it is also fueled by the recognition that many aspects of talent management are best handled by day-to-day managers. In a 2005 Australian study, 70% of respondents said that line managers had taken over many HR tasks in their firms during the previous five years. In a 2013 survey of UK companies, senior executives reported playing a much bigger role than HR departments in setting employees’ development goals. In the United States, 45% of the HR departments surveyed plan to restructure before the end of 2013, in part to reflect this trend. And research by CEB shows that when line managers, rather than HR, are responsible for recruiting, performance management, and retention, companies are 29% more successful at those tasks. For many line managers, the shift presents challenges. Investments in human capital are highly uncertain; the returns are less predictable than those from, say, new machinery. Some talent management activities that worked well for decades no longer pay off. (See the sidebar “Stale Practices.”) And acquiring skills in this area can be difficult: Research suggests that some of the most widely held beliefs about managing people are misguided. Stale Practices Executives newly responsible for talent management—and employers in general—may benefit from thinking about the questions below. The emerging best practices described will be familiar to most experienced HR professionals, but surprisingly few companies actually follow them. 1. What Are Our Talent Needs? The first problem facing managers thinking about talent is the quality of information at their disposal. Consider other decisions—for example, which parts supplier to use. You would assess vendors and their prices and analyze the costs of carrying too much inventory or of running out. But when it comes to human capital decisions, your data are probably thin. Can you quickly answer these questions: Which schools, recruiters, and rival firms have provided your best employees? What are the costs of a vacant position, or of underused workers? What percentage of vacancies do you fill internally, and how does that square with your investments in development? What is the turnover rate for each job? What are the performance differences between your employees? Some of what you think you know about these issues is probably wrong. For instance, one of the biggest misconceptions about managing talent is the belief that performance problems spring from individual failure. Research shows that the notion of “A” players is largely a myth. Most people aren’t innately good, average, or poor performers; the quality of their work depends in large part on context, including the systems and support around them. Harvard Business School’s Boris Groysberg has shown that hiring a rival firm’s star performer rarely works, because the support structure that helped her shine at that company doesn’t follow her to yours. Getting the best performance from employees often depends on putting them in the right job, with the right boss. Keep that in mind before investing money and energy to “upgrade” your talent. 2. How Should We Meet Our Talent Needs? Often when managers think about obtaining talent, they think only about hiring. More than 60% of vacancies in large U.S. firms are now filled by outside hires, compared with just 10% a generation ago. This is partly owing to a cultural shift from lifelong employment to a more mobile workforce, but it also results from poor hiring decisions, lack of employee development, and the myth of the “A” player. In fact, there are three ways to meet talent needs. You can buy talent, by hiring from the outside. You can build it, by developing existing employees. Or you can borrow it, by engaging contractors or temporary workers. How to choose? Start with costs. My Wharton colleague Matthew Bidwell studied executives recruited from the outside and ones promoted to the same jobs from within. It took three years for the outside hires to perform as well as the internal hires—but it took seven years for the pay of the internal hires to catch up with that of the outsiders. Consider, too, the direct costs of conducting an outside search and the indirect costs (low morale, high turnover) of bypassing internal candidates. It’s usually much more expensive to bring in talent. And it’s even more expensive to borrow it, because of agency fees and contractors’ steep profit margins. Also weigh costs against risk. Developing existing employees can save money, but it’s a long-term bet, which increases the chances that something will go wrong. Will you still need the skills in which you’re training your employees five years hence? Are they on board for the long term? Hiring can give you someone who already has the right skills, but, as noted, the price tag is higher—and you’ll face a different sort of ramp-up time as the new worker adjusts to your company. Borrowing talent provides a just-in-time solution—most contract workers are practiced at getting up to speed and fitting in quickly—but do you want to pay the premium? If you’re fairly certain of your future needs and your ability to retain talent, a long-term bet makes sense. If that’s not the case, it’s worth spending more to reduce your risk. Despite the cost of borrowed workers, few companies are strategic about their use—the median U.S. employer uses no temps or contractors, but in 5% of companies they make up 37% of the workforce. Some firms overestimate the flexibility these workers provide: Another study by Matthew Bidwell found that employers are slow to terminate temp workers when business turns down. Too often they contract these pricey outsiders for essential tasks rather than special projects—making them just as indispensable and hard to lay off as regular employees are.
Posted on: Wed, 25 Sep 2013 04:06:26 +0000