Talent management is distinct from HR, in part because it is the responsibility of leaders across the organization rather than a discipline that can or should reside in just one department. In May 2006, a report from the Economist Intelligence Unit (EIU) and Development Dimensions International (DDI) suggested that CEOs from across industries and throughout much of the world are strong believers in taking direct, personal leadership in recruiting, mentoring, succession planning, talent development, performance management and retention. Indeed, seven out of 20 CEOs interviewed for the report said they spend more than half of their time on talent management compared with only four who reported spending less than one-fifth of their time in those pursuits.
CEOs and boards of public companies are paying attention to talent today for two main reasons. First, there is little room otherwise to differentiate from their competitors. During the past several decades, industry has been successful in ironing out many of the wrinkles in bringing products and services to market. Production efficiencies and supply-chain management combined with globalization have increased competition and reduced margins for most products and many services. The result is that products and processes that were once points of differentiation are now often indistinguishable from supplier to supplier. Even the most advanced products quickly become commodities today unless they offer a design or creative appeal beyond their practical purpose or functionality. Today, intangibles, including constant reinvention, innovation, design creativity, marketing prowess, and reputation (through human talent) form the key sustainable advantage for knowledge economy organizations.
Investors and shareholders constitute the second driver. They too have become aware of the importance of hiring and keeping top performers, and of maintaining solid succession plans for leaders and those in other critical positions. In 2007, the EIU reported that “human capital risks” related to “loss of key personnel, skills shortages, and succession issues” had become the number one risk to global business operations. Tighter governance rules in many countries mean that boards of directors and CEOs are held responsible for their decisions affecting the health and sustainability of their firms (which today significantly depends on the quality, depth, and character of talent as evidenced in the recent global financial meltdown). Succession and workforce planning, especially, are areas that leaders must focus on and demonstrate due diligence.
For HR leaders, this is very good news. All 20 CEOs referenced in the EIU/DDI study believe that HR should be responsible for “executing talent management strategy, being custodians of the talent management process and [providing] guidance and fresh thinking about talent management programs.” Nineteen of the 20 said that their head of HR is part of their “inner circle” of executives—a key person who they rely on to help differentiate the firm on the basis of superior workforce strategy. Indeed, the Human Capital Institute's own poll of more than 600 HR managers and executives in August 2007 and a further 1900 in September 2008 revealed that more than two-thirds of heads of HR report directly to the CEO.
This is a new and welcome development. HR is finally making headway in becoming a “strategic partner.” Traditional HR remains vital, but after decades of hard work and progress, most organizations can now rely on and take for granted efficient and effective processes for payroll and benefits administration. Traditional HR has, in a sense, been a victim of its own success in creating repeatable, dependable administrative processes. Today, most firms outsource payroll and benefits administration and a growing number are opting to outsource HR in its entirety. One potential benefit is that this should make room for internal centers of excellence in talent management.
To the extent that HR has succeeded in administration, however, it has generally failed thus far at “strategy.” Now that CEOs are demanding workforce strategies, including innovative ways to compete — for and through — superior talent, the pressure is on HR leaders to perform like their finance, IT, marketing, and operations counterparts, who, unlike HR, have for years aligned and integrated their work with the highest corporate goals and objectives. A “transformation” is necessary but most HR leaders and non-HR leaders alike agree that generally the profession has not progressed as rapidly as needed.
The trends outlined above, along with new attitudes among senior executives, present a tremendous opening for HR leaders. This is a golden opportunity for HR to move up the organizational and professional ladder. Clearly, though, HR must change in order to respond to the business challenges confronting organizations today. The art of human resources must quickly evolve into the art and science of human capital management, or talent management.
This article contains excerpts from “Talent Management Technologies, 2009”, by Allan Schweyer and Edward Newman, to be released in Spring 2009 by The Human Capital Institute Press. Allan Schweyer is President and Executive Director, Human Capital Institute.