HR leaders at the nation's largest companies are taking steps to manage what has been identified as one of the top risks facing businesses: keeping top talent engaged, challenged and less likely to leave in a rebounding economy.
When you think about the human resource arena, the word "risk" rarely, if ever, comes to mind. After all, risk typically connotes dangers such as kidnappings, oil spills, cyber warfare or theft. Recruiting, benefits administration and employee development may be perceived as challenging, but hardly risky.
So it's interesting that the 2011 Lloyd's Risk Index, a poll of 500 C-suite and board-level executives that was released in December by the venerable London-based insurance institution, found "talent and skills shortages" to be the No. 2 risk facing businesses, up from 22nd place in 2009. The No. 1 risk in the latest Index was "loss of customers," while "reputational risk" was No. 3.
"We have gone from a credit crunch to a talent crunch, despite the unemployment picture," said Lloyd's CEO, Richard Ward, in announcing the findings.
In addition to their concerns about skills shortages, he said, CEOs are also worried about having leaders and managers who can help them navigate today's difficult business environment.
These findings come as no surprise to Orlando D. Ashford, senior vice president and chief HR officer at New York-based Marsh and McLennan Cos. Inc.
"If you think about the financial meltdown of 2008, it was driven by human capital risks -- you had major companies being brought down by the investment decisions of a few people," says Ashford, who wrote a bylined piece for the June 16, 2011 issue of this magazine on human capital risk entitled "Risk in the Real World." HR leaders deal with risk on an everyday basis -- they just don't think of it that way, he says.
"The struggle to get employees healthier, fill critical positions even in the midst of high unemployment, develop employee skills -- these are huge issues," he says. However, viewing these tasks through the "risk" lens may lend an extra air of urgency to them, he says.
"For organizations -- especially those that are, like us, in people-driven industries -- the implications are enormous, because you're only as good as the people you're able to attract, retain and develop," he says.
In the piece he wrote for HRE, Ashford identified the loss of key talent, poorly engaged employees, and ineffective hiring and talent-management strategies as prime examples of human capital risk that too often fly under the radars of CHROs.
With respect to ineffective talent-management strategies, he says, a common risk many firms face is HR leaders who may be too focused on getting talent to join and stay with the organization at the expense of "making sure they're being optimized to create value for the business."
"Getting them here and getting them to stay is only half the battle -- it won't do much good if they're not being optimized," he says.
Other risks -- such as maintaining intellectual security in a digital world -- also compete for HR leaders' attention, says Ravin Jesuthasan, Towers Watson's global head of talent management (see story).
Some Top 100 (in terms of size) companies -- including PepsiCo, Johnson Controls Inc., PricewaterhouseCoopers and UnitedHealth Group -- are taking actions aimed specifically at ensuring their talent is optimized and engaged so they can thrive, not just survive, in a global economy. The need for protecting against the shortage of top talent is an urgent one, considering the only constants on this turbulent worldwide stage appear to be unpredictable growth patterns, skills shortages and technological change. (See the full list of Top 100 Companies.)
Focus on Agility
Research suggests one of the biggest predictors of success in any role is "learning agility," says Ashford, or the ability to "assess a situation and flex your style and approach to deliver outcomes in a challenging situation."
"One of the ways in which you can manage and mitigate human capital risk is if you can hire more people with learning agility, who can figure out the best approach in an ever-changing situation," he says.
Learning agility has become a focus at PepsiCo, the Purchase, N.Y.-based food and beverage conglomerate, as it transforms itself from a company known primarily as a maker of soft drinks and snacks to one that also emphasizes healthy, or what it calls "Good for You," products such as coconut water, fruit juices and oatmeal.
"When I joined the company back in 2000, $3 billion of our revenue was 'Good for You'-derived," says David Henderson, the company's chief talent development officer. "Today, it's $13 billion, and we're planning to take it to $30 billion by 2020."
To that end, the company is looking to diversify its array of talent, looking to incorporate outside perspectives as well as skills to ensure it has what it needs as it continues developing new healthy products and more "sustainable" manufacturing processes, says Executive Vice President and Chief People Officer Cynthia Trudell.
"Learning agility and curiosity go hand in hand, and curiosity is the precursor to innovation," she says.
In assessing its high-potentials for learning agility, Trudell and her team are relying on psychometric assessments and behavioral-based interviews to help evaluate their ability to learn from their experiences and adapt quickly to change.
With almost half of its annual revenue derived from overseas markets, PepsiCo's managers must also be comfortable leading in a variety of cultures and geographic settings, says Trudell. The company also needs leaders who bring diversity of thought and experience -- not just race and gender -- to its talent mix, she adds.
PepsiCo is mitigating its risk of coming up short in these areas by taking a long-term approach to talent development. It's introduced a 10-year career-planning model for its high-potentials to encourage them to think strategically about their careers and ensure they're given plenty of opportunities to acquire the breadth and global savvy they'll need as future leaders.
"You always want to make sure you're building on employees' capabilities, rather than just letting it happen," says Trudell. "As we look across our talent landscape, we want to see that the people we're developing are in critical development roles, and ensure we don't miss the opportunity to provide the right development plan for them."
As part of this, Henderson helped create a so-called "Critical Assignment Bank," which identified 300 roles within the organization that can provide high-potentials with crucial experience as they hone their leadership abilities. This allows HR to prioritize assignments for these employees based on their profiles, and the skills and capabilities they need to focus on. The company refers to this approach as "assignmentology."
"Our development philosophy is founded on the 70/20/10 model, with 70 percent of development coming from on-the-job experiences," he says. "So obviously, assignments are key to development here."
In addition to poor talent optimization, low levels of employee engagement represent another human capital risk companies can't ignore, says Ashford.
At Milwaukee-based Johnson Controls Inc., an employee-engagement survey conducted five years ago that had an 82-percent participation rate revealed workforce engagement levels of 56 percent and "leader effectiveness" scores of 55 percent, says Simon Davis, the company's vice president of talent strategy and organizational excellence.
While those numbers were considered "average" for a manufacturing company, they were below average for industry in general, he says.
At this point, a big risk for the company would have been to simply move on, says Davis. JCI, a mammoth organization with 150,000 employees and operations in areas ranging from automotive parts to heating-and-air-conditioning controls, was -- like many companies during the recession -- struggling to stay profitable and innovative while absorbing employees from smaller companies it had acquired in recent years.
"One thing we know about surveys is that if you ask people their opinion, the best thing you can do is first listen, then share the feedback and create action plans," he says. "The worst is to ask and then do nothing."
The action plan JCI's HR leaders helped create for managers, based on survey feedback, included an intense focus on communication training, says Davis.
All leaders are now required to have quarterly reviews with the employees at their locations to talk about the business' performance and results, and how employees can help their respective business achieve its goals, he says, adding that many leaders hold monthly reviews on these topics.
"I think people appreciate being talked to honestly and openly about the state of the business, but ultimately, they've got to have confidence that leaders in the organization have a vision and can find a way forward," he says.
In addition, the company launched "Vision Week," an annual event focused on a "core value" at the company that includes presentations from the CEO, webcasts and "fun events." The most recent event's theme was innovation, while previous themes have included customer satisfaction and the company's 125th anniversary.
"These events are a great way for the employees of companies we've acquired to learn all about who we are," says Davis.
Since these efforts began five years ago, engagement levels have steadily risen. Last year's survey revealed engagement levels and leadership effectiveness ratings were up 16 points since the survey began, to 72 percent and 71 percent, respectively, with a participation rate of 90 percent, he says.
JCI's results help illustrate why emphasis needs to be placed on leaders, rather than line managers, when it comes to re-engaging employees, says Jack W. Wiley, executive director of Wayne, Pa.-based Kenexa's High Performance Institute, the research arm of the talent-management vendor.
"I think most companies go wrong in believing that employee engagement is based almost exclusively on the dynamic between employees and their line manager," says Wiley, author of RESPECT: Delivering Results by Giving Employees What They Really Want. "In fact, our research shows that the No. 1 driver of engagement is senior leaders who inspire confidence in the future."
At New York-based PricewaterhouseCoopers, a failure to keep its millennial employees engaged could put more than just its organizational capabilities at risk. Of the 3,000 college graduates it hires each year, many will -- after spending eight or so years at the professional-services firm -- go on to hold management positions at large companies. So the HR team is taking extra steps to engage them and understand their priorities, mindful that they could one day be potential clients of the firm.
These efforts include staff advisory councils that let millennial employees sound off on what they like -- and don't like -- about working for PwC and come up with solutions to issues that vex them.
"Millennials want to know if they're making a difference, and these groups are a way to ensure they're not only making a difference, but getting to see the impact their ideas have on the organization," says Jim Walsh, PwC's human capital assurance leader.
The advisory councils, which meet on a quarterly to monthly basis, have identified flexibility and transparency as key concerns, he says. As a result, PwC is redesigning its office space for greater accommodation of flexible-work arrangements, it's introduced new mobile platforms to make working remotely easier and it now gives employees in their ninth year at the company -- who've been promoted to senior-manager positions -- a four-week paid sabbatical.
As for transparency, last year, for the first time ever, the firm's senior partner shared with all 32,000 U.S. employees the organization's business-strategy document for the upcoming year. It's also disclosing more information to employees about total rewards and compensation, including the size of the firm's bonus pool and the specific actions employees need to take in order to earn certain incentives.
"It's an opportunity to really listen to them about how we can make things better," says Walsh.
At UnitedHealth Group, "talent mobility" has become the new mantra for the company's efforts to avoid the risk of losing its high-potential employees while ensuring they're being developed in accordance with the company's needs.
The Minnetonka, Minn.-based company has a cadre of "talent brokers" within its HR department who work with both hi-pos and managers to find new opportunities for the hi-pos and ensure they're prepared to move on.
The hi-pos work with the talent brokers to craft a development plan based on the employee's career aspirations and the company's talent needs. As part of the plan, the brokers identify what the employee needs to do in terms of further development to ensure they're "move ready," says Phyllis Dozier, UHG's vice president of talent development.
"The idea is to retain these high-potentials by making it easier for them to find new positions within the company," she says.
Heather Lemke, vice president of talent acquisition, says the talent brokers "help [the hi-pos] synthesize what they're learning, and then help them formulate a plan to ensure alignment with the organization's needs."
It's expected that hi-pos will participate in at least six networking sessions per year with company executives, with the brokers facilitating the process, says Lemke.
The goal is to ensure the company's executives and recruiters are aware of the talent that already resides within the organization, rather than reaching outside the organization to meet their team's needs, she says.
"It's about educating our managers and executives on their role as talent producers," says Lemke. "We want our leaders to understand that part of their job is to fully develop the talent that's on their teams, and it may well be for the purposes of exporting it to other parts of the company. Ideally, we see our leaders sitting down and having conversations with their team members about where they want to go in their careers and asking them 'How can I help you get there?' "
The company is exploring ways to measure managers' success at producing talent, says Dozier, including process-based measurements such as conversations around development and coaching, and "event-based" measurements, such as a person on the manager's team being promoted to a more senior position elsewhere in the company.
"We explain it to our leaders this way: Just as you manage a portfolio of assets that you market to customers, you also need to have a talent portfolio and aggressively manage it to ensure maximum returns on the investments we're making," she says. "That really resonates with them."
Perhaps one of the greatest human capital risks faced by companies today -- and one that should resonate more -- is complacency in the C-suite, especially in relation to high-potential employees, says Brian Kropp, managing director of the Corporate Executive Board, a consulting firm based in the Washington suburb of Roslyn, Va.
"There's still a perception among many leaders that retention just isn't an issue right now," he says. "But many hi-pos are being given ever-more work and are feeling tired [and] burned out, and are actively looking for jobs elsewhere."
Usually, such employees often feel they have to switch to jobs at other companies in order to move ahead, says Kropp. Companies that focus on helping their hi-pos prepare for future moves within the organization while ensuring managers are aware of the company's in-house talent, he says, are helping to mitigate their risk of losing this important resource.