Transforming your firm into a talent-focused meritocracy supercharges innovation and drives explosive value.
Talent is your firm’s best asset in the struggle to stay on top, say Dominic Barton, Dennis Carey and Ram Charan, writing for McKinsey Quarterly. But how do you build a talent-first ethos into the fabric of your organisation?
The authors (whose new book, Talent Wins, examines this very question) explain that by flattening hierarchies, handing power to small teams and giving individuals their chance to shine, you have the power to unleash your firm’s true potential.
A TOP TEAM OF THREE
Embedding a talent-led approach to your firm’s decision-making process starts with creating a top team of three – the CEO, CFO and CHRO. In 2010, the S&P ratings service McGraw-Hill was still reeling from the financial crash of 2008 and investors were questioning the corporation’s cohesion in view of a lack of synergy between the main business and other interests in publishing and media.
Then-CEO McGraw appointed a new CFO and CHRO to work together to evaluate the firm as “outsiders”. Ultimately, they recommended splitting the corporation into two companies. Figuring out “compensation levels at both companies, the bottom-line impact of key personnel in critical roles and a leadership structure for the standalone education business” were all made easier by putting the human and the financial on equal footing.
It’s no good talking about talent once you’ve made your capital allocation decisions; talent considerations must be an integral part of the process. That’s something you can only achieve by bringing your chief human resources officer into your innermost circle. As McGraw-Hill’s CFO, Jack Callahan, says: “If finance and HR aren’t talking, they aren’t creating value.”
Appoint a CHRO with a “can do” attitude and, wherever possible, recruit from your own ranks – experience matters; make sure your CHRO understands finance and your CFO understands human resources, and create a context of openness and honesty in which a positive team spirit flourishes.
GET YOUR BOARD ON SIDE
Widen your board’s focus from total shareholder value to also doing a good job of “developing people and ensuring that the company has a strong, healthy culture”. That’s something which, according to McKinsey’s recent survey of corporate directors, boards don’t currently feel they do well.
To rectify the problem, try changing your “compensation committee” into a “people and governance committee” as Norwegian telecoms firm Telenor did in order to improve gender diversity across its business. Here, directors engage at a deep level, with updates on diversity presented at every board meeting.
Telnor’s former chief people officer, Jon Erik Haug, says the change helped to create a competitive advantage for the firm: “By focusing on gender, we stand out in some markets like Asia, because our competitors are not focusing on it.” The name change is about shifting emphasis from executive remuneration, to recruiting, developing and deploying talent right across the firm.
FIND YOUR CRITICAL TWO PER CENT
Virtually every organisation depends on the “critical two per cent” – the handful of people who deliver most of the firm’s value. It’s imperative to retain, develop and reward these people but, according to research by McKinsey, 70% of senior execs fail to correctly identify who they are.
Look beyond the fanciest name plates on office doors to find the real movers and shakers in your company. Those who really matter are a mixture of “designers, scientists, sales people, up-and-coming leaders, influencers, integrators and support staff tucked away in unglamourous corners of the company”.
Rewarding key personnel means being prepared to flatten your hierarchy and embrace meritocracy. Former Google CHRO Laszlo Bock says “there have been situations where one person received a stock award of $10,000, and another working in the same area received $1,000,000”. It’s not their job title that should dictate your employees’ opportunities and earnings potential, but the value they bring to the firm.
And you need to hold current leaders to account for developing the executives of the future too. Chief talent officer at BlackRock Matt Breitfelder says that, at his firm, they create some “positive paranoia” by asking managers, “What’s your track record? Name the people you’ve developed.”
Help your employees find their way to projects that interest them, then build your business around small, well-empowered teams made up of these people. Chinese appliance manufacturer Haier has 2000 “microenterprises” each comprising ten to 20 staff from across all departments. Each unit is “ferociously focused on a set of customers who use its particular product”.
“Agile organisations built around empowered teams are the best way to constantly and nimbly match the right talent to the right strategic initiatives.”
It’s about giving customers what they want rather than simply selling them a product. And while the thought of delegating that much power to small teams might be daunting, it’s worth noting that Haier is now the biggest manufacturer of appliances on the planet.
Remaining agile in the face of rapid change is also about promoting a culture that’s not afraid to hire in the right talent when you need it. When Mark Zuckerberg told his staff: “Come in with mobile,” every team got a mobile developer. In 2016, 84% of the firm’s ad revenue came from mobile.
Leading a talent-focused firm is, as Haier CEO Zhang Ruimin says, about learning to “lose control, step by step”. That’s a process that starts with good old top-down leadership. Create a top team with human capital at its heart, focus your board on identifying and rewarding the personnel who deliver the most, make developing talent your strategy, then adopt a flexible structure that gives your star players room to manoeuvre – and hand over the keys to the future.