TALENT IS CRITICAL

For decades, many chief executive officers (CEOs) and senior executives have said that talent is their organization’s most important asset. In fact, this may not have been true for many of them, and it is clear that they have not acted according to this mind-set. Without question, for a few organizations talent always has been their most critical resource and they have treated it that way. But in the future talent will be the most important asset for virtually every organization. Simply stated, the changing nature of the work organizations do and the rapidly changing, highly competitive environment they face will make it impossible for most organizations to perform well without the right talent. As a result, talent will become the asset that makes the difference between winning and losing.

For most organizations, talent has always been a major expense. In developed countries, a common estimate is that 70 percent of the costs of a typical organization goes to pay and benefits. If you add to that the cost of recruiting and managing talent, the total cost of labor often exceeds 70 percent by a significant amount. Thus, it has always made sense to do a reasonable job of managing wages, benefits, staffing levels, and work performance.

But this situation has changed. Most of the changes mentioned so far in this chapter concerning work and organizations mean that decisions made about talent are increasingly becoming the difference-making determinants of organizational performance and not just key determinants of an organization’s costs. Differences in talent performance effectiveness increasingly lead directly to differences in overall organizational performance. Because of this, superior talent management results in superior organizational performance. Those organizations that attract and retain the right kind of talent and treat it, reward it, develop it, and deploy it correctly, perform better than those that simply fill jobs with people.

Admittedly, in some organizations talent does not make a great difference with respect to organizational performance. Many bureaucratic organizations have been designed and structured so that individuals do not need to perform at a superior level; they simply need to perform at an adequate level. In many simple repetitive jobs in manufacturing, data entry, and maintenance, there is no opportunity for talent to perform at an exceptional level, and there is little advantage to an organization if someone performs at an exceptional level; an adequate level is sufficient. This is particularly true with respect to the work in an organization that does not make a great difference with respect to organizational performance.

The situation is different, however, when the performance of organizations depends on advanced technology, knowledge work, and highvalue-added work. In this situation, which exists in technology, financial services, the entertainment industry, and many other fields, the bestperforming talent is many times more valuable than the rest because it can make a significant difference in organizational performance. Similarly, in customer service situations, when individuals have to deal with knowledgeable and discerning customers the difference between good service and outstanding service can have a direct and significant impact on the bottom line of the organization. Thus, it makes sense for such an organization to focus on attracting, retaining, and developing individuals who perform at not just an acceptable level but an outstanding one.

The globalization and growing complexity of work are two additional changes that make talent an increasingly critical resource for an organization; they make organizations and work more complicated and require talent to have a broader understanding of management, organizational effectiveness, the global economic situation, and local cultures and norms to perform well. This means that getting the right talent may be more difficult, but it also means that it can provide a significant competitive advantage when that talent is obtained and managed effectively.

There is one additional point to be made about attracting and retaining the right talent in today’s and tomorrow’s work settings: such efforts have become more costly, and they will continue to be. It has always been true that training, turnover, and replacement costs depend on the complexity of jobs that are being filled. For some simple jobs, the cost is often only equal to a few weeks of pay; as a result, high levels of turnover are not a major cost for an organization. With complex work, the need for talented and well-trained individuals makes the cost of turnover much higher: it is often equal to six months or a year’s salary.

It is particularly important that organizations that perform knowledge work and complex customer service work do an outstanding job of attracting, retaining, and developing the right talent. They can gain a competitive advantage by doing this simply because they have lower turnover costs, but that may be the least significant result when compared to the resulting performance improvements that come from having a motivated engaged knowledgeable workforce.

One direct effect of talent becoming a more important determinant of organizational effectiveness is that it brings more bargaining power: talented individuals can often “write their own tickets” when it comes to work deals. This has been true in sports and entertainment for decades, and has resulted in some amazing compensation and benefit deals; now it is increasingly becoming true for “superstar” executives and technical contributors. The amount of high-power talent most organizations need is going to increase as the complexity of their products, work, and services increases. Thus, the effectiveness of an increasing number of organizations is going to be determined by how effectively they attract, retain, develop, and manage their major talent.

Finally, the rate of change in the work environment and the agility required by organizations to deal with it increases the importance of maintaining talent agility. There is an increasingly high probability that yesterday’s talent is not the right talent for tomorrow. As a result, organizations need to have agile talent management practices that allow them to continuously and frequently change the skill sets of their workforces. Talent agility is a difficult competency or capability to develop in organizations, and it increasingly makes effective talent management difficult. It requires organizations to take an agility point of view with respect to talent management issues such as pay, training and development, and job security, as well as the best use of part-time, contract, and temporary talent.