The War for Talent has not fallen victim to the current financial crisis, argues Damien O’Brien, CEO of Egon Zehnder. On the contrary, his analysis of demographic factors and the gene pool of tomorrow’s top executives highlights the need for a more sustainable and holistic approach to talent management. O’Brien remains convinced that well-executed leadership is what makes the difference in good times and bad.
“The War for Talent is First Casualty of the Crisis” screamed the headline of an article that appeared in the Financial Times in April 2009. Its author argued that the “ideology of talent”, as he called it, was the root cause of the recent financial crisis and that, thankfully, it would now be relegated back to the realms of rock and roll and football… where it belonged.
As you may imagine, I disagree. Indeed, hasn’t the crisis merely served to remind us of the critical importance of talented leadership?
The crucial impact of leadership on business development
There is growing evidence to suggest that organisations with leaders who take the long-term view and continue to engage and motivate employees will come through the crisis stronger and more competitive. Based on years of analysis, Nitin Nohria of Harvard Business School believes that the CEO accounts for up to 40 percent of a company’s performance. In other words, a talented CEO can have a dramatic effect on an organisation’s performance – potentially worth billions of dollars in terms of market capitalisation.
The continuing importance of talent is being reinforced by the changing nature of markets and organisations. Gary Hamel argues that the power of organisations is shifting from the centre to the edges as we move from the knowledge economy to the creative economy. Perhaps this is why the value of a typical S&P 500 company is today determined to 70 percent by its intangible assets – up from 20 percent thirty years ago.
According to Hamel and other leading thinkers, organisational success is increasingly being determined by talented individuals at the edges of the organisation. Often these individuals will work in non-hierarchical and crossfunctional teams that form around key projects or strategic opportunities. They will partner with other organisations – competitors, suppliers and customers – to drive innovation and create new sources of value at the edges of the organisation.
Good talent is getting scarcer – and going global
In developed markets, where the baby boomers are moving on and being replaced by the much smaller Y and X generation, top talent is scarce and getting scarcer. In a survey of 50 global corporations conducted by Egon Zehnder and Harvard Business School in 2007, participants said they expected the number of executives in the 35 to 45 year age bracket to fall by 30 percent over the next six years. This is the very group from which the future leaders of these companies are typically drawn.
Many firms are sensibly trying to address this growing shortfall in their home markets by sourcing their future talent needs from countries like China and India. According to our survey, companies plan to increase the percentage of their senior executives from markets outside their home market by 32 percent over the next six years.
This transition, however, will not be straightforward. Despite more favourable demographics in developing economies, the high potentials in these markets will be increasingly difficult to attract and retain in the future. These individuals tend to be savvy, acutely aware of their value and quite aggressive in managing their careers.
How will this affect tomorrow’s corporate talent strategies? Firstly, companies will have to significantly increase their talent “gene pool”. Given the greater competition for talent, they will have to over-recruit to compensate for the higher levels of talent attrition and develop a more compelling and more differentiated value proposition to attract and retain talent.
The best companies in China and India already understand the importance of recruiting talent early and deep. They are working with top universities to co-develop degree programmes that are aligned with their business needs and even setting up private campuses.
In the face of these kinds of initiatives, Western multinationals seeking to attract talent in developing economies will need to be more proactive, more competitive and much more prepared to make long-term investments in the future. Moreover, Western companies will also have to think and act very differently when recruiting in their home markets as well.
A new generation – loyal to a value-oriented work environment
The X and Y generation is very different from its predecessors. Its members will primarily be loyal to their careers, not to companies. Moreover, these careers will tend to be defined in terms of meaning, purpose and relationships, rather than organisational power and status. Those organisations with management structures and processes that reflect these needs and aspirations will be able to attract and retain the best talent.
This generation of talent is also characterised by a volunteer mentality. Its members will only bring their creativity and passion to work if that work, and the work environment, is intrinsically satisfying and stimulating. Gary Hamel calls it the “gift economy”. Creativity cannot be commanded, it can only be released. In other words, successful companies will have to merit this gift to attract talent in the future.
Diversity as a talent booster
Another way to grow the talent gene pool is by addressing the issue of gender balance.
Our firm recently collaborated with the Financial Times to compile a ranking of the Global Top 50 Women in Business. The outstanding stories and accomplishments of these women shine a light on the major opportunity that gender balance offers us.
Their track records also provide us with a roadmap of what companies need to do differently going forward, if they are to draw on this very significant pool of talent.
Many top women leaders do not have the same “linear” career that is so often presented as the norm. Moreover, they have often done different and unusual things during their career, which are not valued by the traditional career model.
Companies need to change their views on career success and modify talent identification and development processes to reflect this. More generally, they need to recognise the inherent value of diverse teams in achieving organisational success and proactively build such teams.
Professional decision-making plays key role in recruiting
In addition to increasing the gene pool, the talent strategy of the future must also incorporate a more systematic and disciplined approach to people decisions. In a panel organised by Egon Zehnder with over 100 top executives from the United States, Germany, the United Kingdom and France, only half believed that they were actually successful at identifying high potentials in their organisations.
In many large companies, important people decisions are often made ad hoc by individuals who are not trained in proper assessment methodologies or who do not have a clear definition of what is required in a role, and judgements are often clouded by personal biases or political agendas. Yet the potential downside from getting these decisions wrong is huge. Not only do companies run the risk of promoting the wrong people into key roles, they also run the risk of losing their best people as a result.
Research shows that the competencies required for success in a particular role are best assessed using structured interviews by trained interviewers. Senior appointments should include an assessment of a candidate’s emotional intelligence. And of course, references are critical. They should be detailed, unbiased and aligned with the competencies required for the role. The talent strategy of the future must incorporate these people decision disciplines simply because, as talent becomes scarcer, companies will not be able to afford to get it wrong.
Contrary to the view of the FT correspondent cited above, attracting and retaining global talent is more important than ever. Yet it is more difficult than ever too. In short, tomorrow’s talent strategy will require companies to proactively increase their talent gene pool, both in their domestic markets and globally.
Organisations will have to invest in that talent earlier and deeper. They will also need to be more rigorous and disciplined in making people decisions or risk costly recruitment errors.
Finally, in a world where top performers are essentially volunteers, companies will need to develop a value proposition that makes such individuals want to come to work and contribute their creativity and passion.