Talent Management Column

The Challenge of Talent Management

At the moment, talent-management practices, especially in the United States, fall into two distinct and equally dysfunctional camps: doing nothing or relying on complex and bureaucratic systems that grew up in an era when business was highly predictable.

Monday, February 4, 2008
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I've spent a large part of the past three years trying to understand what was going on in talent management and then figuring out how we should be addressing the challenges it represents. Over the next few columns, I want to tell you what I've found.

One of the hard things about talent management is that so many different people use the term to mean so many different things. I've heard the phrase talent management used to describe literally everything that happens under the broad umbrella of human resources -- hiring, performance appraisals, compensation practices, etc. 

The phrase "talent management" does seem to have a core meaning, however, and it describes something that is not already captured by other terms. It describes the process through which employers of all kinds anticipate their human capital needs and set about meeting them. That's it. "Getting the right people with the right skills into the right jobs at the right time" is a common description of the end result of a good talent management outcome. 

But to get to that outcome, one needs to anticipate needs and have a plan to meet them. That's the process of talent management. 

There's no doubt that talent management is at the top of the HR agenda, and the reason is because it is at the top of the CEO and executive's list of concerns:

* A 2003 Conference Board study conducted when the labor market was at its nadir reported that talent management issues ranked among three of the top five concerns for CEOs.

* A 2004 Conference Board study found 65 percent of the companies surveyed reporting that talent management had become "dramatically or considerably more important" since 2001. 

* McKinsey & Co. interviewed CEOs and other business leaders around the world and found half worrying that their talent-management practices were not aligned with business outcomes; more than half felt that there was insufficient commitment to developing talent among line managers and insufficient time spent on talent management in general.

* A 2007 survey by SEI's Center for Corporate Futures found that concern about "difficulties in finding, retaining, and growing talent" ranked top in importance for international business respondents out of a list of business challenges, outpacing factors like the growing influence of China and India on business.

Failures in talent management may be more recognizable than the concept itself. The most obvious of these are having too many employees, leading to layoffs and restructurings on the one hand, and not enough talent, leading to talent crunches on the other. 

At the moment, talent-management practices especially in the U.S. fall into two distinct and equally dysfunctional camps. The first and by far the most common is doing nothing, no anticipation of needs, no plans for addressing them. 

A recent survey reported that roughly two-thirds of U.S. employers do no planning of any kind for their talent needs. For such organizations, every new need for talent presents a serious disruption. Every employee who quits is a calamity, every new demand from the business for skills represents a crisis. 

A company that does no planning, does no management of their talent, basically waits for a need to develop or current employees to leave and then hunts around for a solution, which is almost always to hire from the outside. Complaints about talent and skill shortages in the economy are driven by the fact that so many employers now are trying to meet their talent needs by outside hiring, something that was a rarity a generation ago.

The second approach relies on complex and bureaucratic models of forecasting and succession planning from the 1950s, legacy systems that grew up in an era when business was highly predictable. The marker for this approach is a focus on long-term succession planning, which is designed to match individual candidates to individual jobs. It tends only to operate in the oldest and largest companies, although it is almost always the approach touted by consultants and featured at conferences. The assumption behind this model is that we can meet the talent management challenge with long-term planning. 

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The problem with this second approach is with that assumption. With remarkably few exceptions, long-term planning in business is so inaccurate that relying on it is a mistake. The reason is that product markets are no longer predictable. 

The idea that a company could predict accurately what it would be making ten years out, something that was common in industries as diverse as telecommunications, transportation, consumer goods, and financial services until the 1970s, disappeared. When business forecasts and plans shrunk from 10 years to five years to, in most cases now one year, the ability to predict the demand for talent has to be scaled back as well.

Programs for developing talent that go out many years create a false sense of accuracy and no longer make sense: How can a company with a one-year business plan have a ten-year plan for staffing management positions?

The supply of internal talent is equally uncertain because of retention problems. Simply predicting what percentage of candidates who begin a development program will remain when it ends is now difficult. A company that has a modest 10 percent turnover rate among its managerial ranks will lose half of its managers in five years: Does it still make sense to call that arrangement a "pipeline," or is it better thought of as a sieve? 

Here are the challenges:

How do we forecast talent needs into the future in the face of inevitable uncertainty?

How do we decide whether to "make or buy" talent ? internal development versus outside hiring?

How do we design employee-development systems that avoid breaking the bank if employees leave? 

How do we prevent our talent-management plans from being undercut by employee's own career plans?

As we've already seen in the field of business strategy, the answer is going to point us away from planning and toward adaptability and responsiveness. I'll lay out the answers next month

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