Talent in a changing world

Lucia Rahilly: Everyone’s talking about the future of work and the potential for automation and artificial intelligence [AI] to transform working as we know it. But talent and talent shortages are not new issues. Why this disconnect in making human capital as high a priority as financial capital?

Bill Schaninger: It’s an interesting conundrum. When we ask people if they have enough talent, they almost universally say no. Then they go back to looking at KPIs [key performance indicators] for that quarter’s performance.

We’ve created a managerial system and reporting mechanism that disproportionately focus on financial capital, not human capital. Leaders haven’t spent nearly enough time asking, “What are the critical roles? What are the critical skills?” They need to reboot how they lead, with equal, if not greater, emphasis on the scarce capital—human capital.

Rahilly: How do digitization and AI compound the challenge, and what’s at stake for companies that don’t get this right?

Hancock: When we’ve worked with CEOs on setting the value agenda and determining where new value will come from, 70 to 80 percent might involve building a digital business or capability. That’s where we find gaps. When we do that analysis, we’re looking at the top 25 to 50 roles that drive disproportionate value. We break down the value agenda and ask, “How are we going to make money in the future?” Some parts will be new. Others will be sustaining. What’s new is disproportionately in the digital space.

Schaninger: Bryan mentioned “value agenda.” It’s important to understand what that means. There’s a basic way of asking, “What’s our business as usual? How does the business make money today?” You could take an organization chart and write the revenue or profit number in the boxes all the way down. That’s protecting the core.

Companies trying to improve might say, “We have three or four things going on across the company—procurement, pricing, lean management. They’re relatively small numbers for each unit, but when we add them up, that’s a big number. Should we think about a role there?” That’s improving the base business.

Then you get into the interesting thing Bryan is talking about: “net new.” Look at the company today, draw a box, and say, “That one is consumer into China. This one is the new digital platform.” They don’t yet exist, but if you have money, write the numbers in. Because the minute you ask for capital or make a commitment to the board, you’re on the hook for that number. That’s what the role should count for.

From roles to returns

Rahilly: You’re a CEO, and you ask yourself, “What does my supply–demand ratio look like: Am I long, am I short on talent?” What’s your first step?

Hancock: We sometimes look at value levers and initiatives individually, figuring out where roles and value are. But CEOs, or CFOs, or CHROs [chief human-resources officers] think at a different level of aggregation, different chunks.

One leadership team was recently talking about this in three ways. First, “Hey, I have this new attacker business I need to create. Over time, it may take over. But I want it to be unconstrained by current processes, current IT platforms. And I need somebody to lead that business.” That’s the net new.

Second, “I’m interested in digital, automation, and the future of work. To make that happen, I need more people in digital areas and fewer people in routine work. Most important are the people designing new tech tools, and maybe one or two driving implementation.”

Third, “There’s a part of the business that’s not net new, that’s not being hit by the future of work. Procurement is my number-one value capture. I need to make sure I have the best procurement person in the world.”

By breaking it into those three chunks, you can say, “OK, I have the value agenda, plus the enablers and pieces and how they fit with the three parts of my agenda.”

Schaninger: One point here is that we regularly confuse people with roles and confuse talent with broad skill pools. In many organizations, roles today bear no resemblance to what they’d look like if you were designing them from scratch. Get clear in your head: What are the few critical roles? There are probably a couple dozen. That’s it.

Everything else probably sits in a skill pool, a clustering of common skills deployed in different ways. That starts looking more homogeneous. If it starts looking more homogeneous, you can start finding types of people, not a person. One of the toughest conversations happens if you find out you’re long—that you have too many people.

Rahilly: What does that mean when you’re mapping current roles against future roles, and how do you get there?

Schaninger: Take the incumbent out of it. We’re more likely to try to make the role fit the person, which is the 180 of what we’re trying to accomplish—which is to get clear on the role and then decide whether the person fits.

It’s a unique opportunity when you recast how you’re going to make money and run the place. To maximize that opportunity, you should acknowledge that, of the people who got you here, some of them are just not going to get you there. That’s the challenge with incumbency.

Bryan Hancock: Asking CEOs about their biggest regret, the answer we hear time and again is not moving fast enough on talent. We recently looked at 170 deals within one private-equity [PE] firm’s portfolio. Fewer than half of CEOs made it all the way through. But those firms that moved faster to change their leadership had higher first-year returns, higher second-year returns, and higher total returns on exit.

So let’s bring science to that. Let’s figure out exactly what you need new folks to do and assess against it. If the incumbent is great, great. If not, you’re going to realize it in six months or 18 months or 24 months. A better fit drives better returns.

Schaninger: Every time we talk about what kind of person you need, or whether the person fits, we’re talking about assessment at its core. Many organizations have no problem assessing people coming in the door. But they get uncomfortable assessing incumbents. They think, “These are the cards I have.”

Well, you could find a different role for them. Wouldn’t they be better suited to being in a role more closely aligned with their skills and aspirations? Sometimes we convince people they’re on a track and have to stay there, and they’re not happy about it. They need to be liberated as well.

The science of soft skills

Bryan Hancock: I think we’ve spent the past 150 years making people more like machines. Think about Office Space and TPS reports ¹ coming back. That was funny because that’s how offices worked back then, much like manufacturing. Now those TPS reports are automated.

What’s important now is a different set of skills: interpersonal skills, creativity, qualities that are more innately human. How a company invests in individuals—it’s no longer, “Hey, can I teach you exactly how to fill out the TPS report?” Instead, it’s, “How can I teach you social-interaction skills? How can I help you progress as a human being?”

More broadly, the conversation is changing from, “As human replacement for machine, what’s the hourly rate I’m going to negotiate with you?” to, “How do we think about developing people so that in a changing world of work, our workers can adapt alongside the company, and we do this together?” It’s different. Wages and benefits are still important. But recognizing the broader human-development piece is interesting and fruitful to explore.