Human Resources

Psychologists call it “cognitive dissonance” — that uncomfortable feeling that occurs when your actions conflict with what you know to be true. A lot of executives in many companies might well be feeling it these days. On the one hand, most executives know that on a playing field that has been leveled by technological and geographic parity the only real source of competitive advantage today lies in people. On the other hand, many of them continue to devalue the human resources (HR) function. If the contradiction doesn’t make them uneasy, perhaps it should, because the leaders of today’s fastest-growing, most dynamic companies share one common characteristic: they understand how to put talent at the center of everything they do.

Although most companies rotate their high-potential executives through many disparate functions — sales, finance, operations, and others — rarely is HR a way station on that path. Certainly, few people regard a stint in HR as essential preparation for a potential CEO. Yet in survey after survey, CEOs routinely rank talent among their top three priorities and an understanding of people issues as increasingly critical to their success as chief executives. By taking the groundbreaking step of making HR a fundamental part of the grooming process for promising leaders, companies have the opportunity to make two game-changing moves at once: (1) they can better prepare any eventual CEO to win on the decisive issue of talent, and (2) greatly increase the value of the HR function to the business. There is virtually no simpler and less costly step a company could take to secure its long-term future in a world where talent will determine success.

Bucking the Trends

The emergence of the Chief Human Resources Officer (CHRO) and Chief Talent Officer and the now familiar refrain that HR should move toward the strategic center of the business suggest that people issues are finally getting their due. But in our work with top management teams and HR leaders, we have also found some strong trends that suggest otherwise. For example, in more and more companies, the HR leader no longer reports to the CEO. They are not sitting at the top strategy table and their companies are not building the talent discussion into the strategic planning process. Further, the idea of HR moving toward the center of the business has largely been a one-way street: companies are urged to send their people out into the business, but rarely is the business urged to come into HR. In addition, many executives continue to regard HR as a purely administrative function in which there is little of real business value to learn. With some horror they suspect it is a place where ambitious careers might go to die.

However, some notable companies have been bucking these trends. Apple brought in a Chief Talent Officer (Global Head of HR) whose background was primarily in executive search, not HR. He focused his team on talent acquisition and created a “people factory,” even taking the dramatic step of moving “administrative” activities like benefits, stock plan administration and 401K management to the finance function. One of the world’s biggest online retailers, a global telecommunications company, and a major software company have all made or are considering similar moves of line executives into the top HR role.

Some companies, however, have sent high-potential executives into HR only because of dissatisfaction with the impact of HR on the business, not out of a desire to groom potential CEOs. Certainly, strengthening an under-performing HR department is one of the great benefits of such a move. But failing to make HR a standard rotation for extremely promising leaders misses even greater potential value: the ability of a future CEO to best the competition through the astute use of talent.

From Dissonance to Dominance

Immersing a high-potential executive in HR can have a profound impact on the executive, as well as on the entire organization. By making such immersion a standard part of the grooming process for high-potential leaders, companies can:

Begin to build a “talent dynasty”. In a world where talent is decisive, the way to compete and win over the long term is to create a “talent dynasty” — a deep and sustainable bench of exceptional people who provide almost insurmountable advantages over the competition. This requires a view of talent needs that stays well ahead of where the business operates in the short term — in essence, a talent strategy that prospectively accommodates the CEO’s vision for growth. An HR executive with a deep understanding of this vision can create succession plans that incorporate both a detailed understanding of the talent within the company and also establish relationships with top talent that currently resides externally but is primed to join as business needs arise.

Define what you really mean by “talent”. Beginning to build a talent dynasty requires a strategic definition of talent. The days of a generic definition of talent — good academic background plus relevant experience — are long gone. Successful companies today precisely define their talent needs against their markets and their strategies. These talent needs can relate to dramatically new product categories, investing for long-term growth in emerging markets, or virtually any other element of a company’s strategy. Google, for example, concluded several years ago that top engineering talent held the key to their success, and they snapped up as much of it as they could, with results that speak for themselves.

Many companies, however, fail to ask the hard questions about their approach to talent and the kind of people they want, in part because there is no function that focuses in a sustained manner on the question from a business perspective. But the regular rotation of business-oriented executives through HR, combined with a reinvigorated business orientation in the function, would enable a company to address talent issues consistently and persistently, with the same rigor they apply to any critical strategic need.

Prepare to win the talent war internationally. The rotation of high-potential executives into HR can also help address one of the most pressing questions of talent definition. CEOs and heads of HR often tell us that they aren’t sure what kind of talent they need to succeed in the so-called “BRIC” (Brazil, Russia, India, and China) countries, the areas of greatest opportunity, tightest talent markets, and greatest competition for most Fortune 500 companies. But with HR established as a strategic partner and as an essential stopover for rising leaders, companies could address the international issue directly. For example, the company’s president for India or China might be brought in to serve as Chief Global Talent Officer. The benefits of such a step would be manifold: (1) precious local talent would gain a globalized view of people issues; (2) geographic leaders would get a global laboratory for talent deployment experiments, and (3) the company would earn a reputation for internationalizing talent, thus increasing its attraction as an employer.

Transform the HR function and its people. Knowing that what gets measured is what gets done, results-oriented executives can help the function begin to measure the performance of HR against its impact on talent, just as in functions like sales or finance they would apply business metrics that both track and spur progress. When a transformational difference is required, as in the case of purely administratively-oriented HR departments, genuinely talented high-potential executives will innovate as if their careers depended upon it, seizing the opportunity to prove themselves just as they do in their other rotations.

Meanwhile, as HR people become more adept at taking a business and strategic view of talent, they can be rotated out into the business. Such rotations not only keep them fresh and build their knowledge of other functions, but also — and most importantly — train them to behave and think as accountable business people and enable them to bring those skills with them should they return to HR. If they don’t return, the business is enhanced by the addition of a talent-centric general contributor. Both outcomes can make a real difference.

Create leaders with a long-term talent perspective. When an executive’s quarterly numbers look doubtful any long-term investment having to do with talent almost inevitably drops to the bottom of the list of priorities. But executives who have rotated through HR are more likely to have a far better understanding of what long-term investments are required for building critical capabilities. They will be more adept at balancing long-term goals with short-term needs in a way that will ultimately make it easier to meet quarterly numbers. After their stints in HR, they will bring to their increasingly important roles a strategic grasp of talent and the ability to leverage it. In time, as they fan out over the organization, they will constitute a cadre of executives uniquely attuned to talent in a world where such knowledge will be decisive for competitive advantage. And they will one day become CEOs who are exceptionally adept in the all-important arena of talent.

Getting Started

The journey toward this profound transformation begins with a few simple steps:

Identify your most talented people. Using proven methods of management assessment you can determine who has the greatest potential for future leadership and understand what they would bring to HR as well as how they might benefit from time spent in the function.

Create a mutual commitment. Taking the leap into rotating potential superstars through HR requires great courage on the part of the sitting CEO. By doing so, the CEO sends a clear signal that the company is serious about making HR part of the grooming process. Conversely, high-potential executives must be willing to take the risk of jumping into an area that may be unfamiliar to them and in which, despite that unfamiliarity, they are expected to produce measurable results and real innovation.

Don’t neglect career HR people. Putting a business executive into the Chief Talent Officer role or some other high-profile HR position could create resentment among career HR people. Feeling that they have been leapfrogged, they may seek another employer. In order to short circuit such resentment and, more importantly, to develop the new skills that HR people will need in a transformed function, rotate those with high potential into field positions or other non-HR roles.

Not too many years ago, a progressive Fortune 100 company we know persuaded a well-rounded strategy and operations executive to accept the VP-HR role. At the time, she shuddered at even saying the words “human resources.” Today, while HR is still part of her leadership portfolio, she heads strategy and operations, where her responsibilities include integrating multi-billion dollar acquisitions. These days, she has no trouble saying “HR.” And when she speaks, the company listens.