Talent The Talent Paradox: A 21st century talent and leadership agenda A selection of recently published articles from Deloitte Review
Foreword by Jeff Schwartz Talent Contents
Foreword | 2
Attraction: New views of talent, work and strategy
The Talent Paradox | 7 Critical skills, recession and the illusion of plenitude
Talent and Work | 19 Playing to your strengths
Where Did Our Employees Go? | 28 Examining the rise in voluntary turnover during economic recoveries
Diversity as an Engine of Innovation | 38 Retail and consumer goods companies find competitive advantage in diversity
Corporations, careers and culture
Mass Career Customization | 53 Building the corporate lattice organization
The Corporate Lattice | 64 A strategic response to the changing world of work
Culture and the Myth of the Black Box | 77 Why you can—and should—manage your company’s culture
ii The Talent Paradox: A 21st century talent and leadership agenda
A world of talent
Headwinds, Tailwinds and the Riddles of Demographics | 88
Talking About Whose Generation? | 98 Why Western generational models can’t account for a global workforce
Smarter Moves | 108 Improving the value of global mobility by aligning strategy, investments and operations
Deep Talent, Vast Distances | 119 Realizing the full value of global knowledge workers
Decisions: Numbers, human nature and performance
Irrational Expectations | 129 How statistical thinking can lead us to better decisions
Beyond the Numbers | 140 Analytics as a strategic capability
A Delicate Balance | 153 Organizational barriers to evidence-based management
1 Talent Foreword
The future is already here. It’s just not “very evenly distributed yet. —— William Gibson ” With the relentless march of technology- by populations that are different demographi- driven innovation, mobility and connected- cally and in their goals and expectations. ness, and a rising ocean of data redefining what Physical space, hierarchy and tenure, which is possible strategically, our industrial and together described most of what you needed post-industrial models for talent and the to know about talent in decades past, have organization are inadequate at best. The lost much of their preeminence and relevance. changes are in front of us every day and yet we Credentials and education are important, but rely on talent practices and models from earlier continual learning in the context of techno- eras: corporate ladders; organizational hierar- logical change and social collaboration is even chies; spans of control. Even the notion of more essential. “talent management” reflects an age when We are beginning to understand more much of the world’s work (and schools) were about how work will be done in this century organized on models that looked more like and the types of people who will thrive in factories and manufacturing lines than this environment. The collection of articles knowledge networks. that we present in this book will, we trust, Perhaps the 21st century for talent and inform a broader emerging view of a disci- work began with the current decade. The ’00s pline—focused on talent—that is emerging as were in many ways a continuation—the last co-equal with strategy and technology in many gasp—of the last century. In the past ten years, discussions of corporate growth and perfor- the world of work has redrawn its boundaries: mance. These articles examine several themes: we have seen three billion new capitalists join Attraction—the new retention: In the the global market place in China, India, Brazil, depths of the Great Recession, it became too the former Soviet Union and now Africa and easy to view talent as a simple in-out proposi- the Middle East; the emergence of a hyper- tion, with few people leaving and many want- connected world (albeit with spikes in global ing in. Given the critical nature and shortages creative city centers); and social and mobile of an increasing number of skills, however, technologies that have changed the way we live it has become clear that a recession is not a and work. serious retention strategy: businesses need to The challenges are clear: business is driven become better at understanding critical talent by globalization, technology, and hyper-con- and why the best decide to join, to stay – or nectedness. And yes, work is done differently— leave – and designing work in ways that seeks distributed, virtual, knowledge-intensive—and to improve the talent experience – perhaps
2 The Talent Paradox: A 21st century talent and leadership agenda
much like the customer experience. Similarly, to development to deployment. The concept of the connections among the consumer market, making informed talent decisions by the num- business’s workforce and corporate brands can bers has moved from the realm of metaphor to be particular sources of competitive advantage. the realm of possibility: what is the interplay Diversity, in all of its forms, is an essential between culture and talent analytics: what kind part of this. In short, the challenge is mov- of company loves its quants and is better for it? ing beyond models of retention to strategies Are we ready – or even equipped as organiza- of attraction. tions – to accept the insights we can glean from Careers, culture and corporations: Oddly, data and analytics, or will we, like the scouts given the significant shifts in how work is described in Michael Lewis’ Moneyball, cling done, and in the aspirations of newer genera- to our gut instincts and tribal wisdom? tions with new expectations entering the work- The interplay between talent and work in force, the ladder model for the corporate career the 21st century is evolving rapidly, and so track soldiers on with its uniform expectations should our views on how we lead and how we – for everyone. The importance and changing think about talent challenges. Generational expectations of talent in the new workplace changes and a global workplace transformed point to a need to revisit the one-size-fits-all by technology are putting stresses on the tra- approaches. Likewise, culture impacts perfor- ditional models. But, in almost any way I can mance, and the traditional and passive notion think of, this new, flat (okay, sometimes spikey) that culture “just happens” underestimates its and hyper-connected, work-anywhere world importance as a factor to be managed: an orga- is shaping up to be a fascinating and creative nization can be a platform for performance, or place. It is different. And it demands more of a bog that impedes even the best from achiev- us as creators, collaborators, professionals, ing to their potential. specialists, producers, managers and leaders. It A world of talent: The art and science of is an exciting time for those comfortable with leading, attracting and developing talent in a new ideas. I believe the articles we have col- global context is emerging as both a challenge lected in this volume offer a taste of the oppor- and opportunity. Many businesses are far from tunities awaiting those who see the chance to proficient when it comes to deploying and change how we think about talent and work engaging with knowledge- and skilled workers in new, different, and hopefully increasingly around the world. Further, demographic issues impactful ways. vary by country, suggesting that it really is no longer sufficient to implement one talent strat- Jeff Schwartz egy – or one product strategy – globally. Global Co-Leader, Talent, Decisions: Data and analytics are poised Performance and Rewards to reshape approaches to business including Deloitte Consulting workforce and talent issues from recruitment
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4 The Talent Paradox: A 21st century talent and leadership agenda
Attraction: New views of talent, work and strategy
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The Talent Paradox: A 21st century talent and leadership agenda The Talent Paradox Critical skills, recession and the illusion of plenitude
By Robin Erickson, Jeff Schwartz and Josh Ensell > Illustration by Brian Stauffer
ith relatively high unemployment and difficult to meet skill needs while keeping labor Wlow voluntary turnover, it is tempt- costs at desired levels. ing to go back to “business as usual” and put A targeted retention strategy can help employee recruitment and retention challenges companies navigate the talent paradox through on the back burner. Many executives may an increasingly sophisticated view of what expect there to be a surplus of labor avail- employees are looking for, what they value and able that companies can swoop in and grab why they are leaving. If a company can better when the market picks up. However, this is understand why employees are leaving, it can only half of the story. Despite high unemploy- take the requisite actions to get them to stay— ment, many companies are increasingly having in effect, creating a retention firewall to keep trouble filling job vacancies, with over 3.2 employees in and competitors out. million unfilled jobs in the United States as of July 2011.1 Worse, these shortages often occur in critical, skilled roles that have high barriers A recession isn’t a strategy to entry and are crucial to a company’s success. ompanies face a labor market where, This points to a talent paradox: While there is a Cdespite high unemployment, they still need surplus of job seekers, some companies are fac- to focus on attracting, developing, managing ing shortages in critical areas where they most and retaining their critical employees who have need to attract and keep highly skilled talent. opportunities to leave for higher salaries and In other words, high unemployment rates do more varied job roles and experiences. As the not mean that the talent you need will be there economy improves, we expect employees with when you need it. critical skills will begin to leave their employers This talent paradox is raising the stakes in in larger numbers based on historical turnover the competition for critical talent, with organi- after recessions and recent Deloitte* research zations trying to outbid each other for a select that suggests only 35 percent of global employ- group of critical employees and the skills they ees surveyed expect to stay with their current need to succeed. Poaching competitors’ top employers.2,3 performers is becoming commonplace. This Since employees’ desire to change jobs is so competition is fueling rising salaries as well as strong, one may wonder why these employees prospective employees’ expectations, making it have not already left. The main reason is that
7 Talent
the majority of these employees have nowhere January 2010, there has not been a significant to go in the current labor market. However, change in overall unemployment. Part of the critical employees whose skills are in demand, reason is that employees who have opportuni- no matter the economic situation, frequently ties in the market quit their jobs after receiving can leave to go to another organization. better job offers instead of quitting to join the Because organizations have a constant need for ranks of the unemployed.8 this critical talent, power in the labor market Lost critical talent is becoming increasingly for these skills and talent is shifting from difficult to replace as the shortage of skilled demand (organizations) to supply (employ- employees continues to grow, even in emerging ees). Even when the economy is down, these markets with higher numbers of science and employees have opportunities to leave if dissat- engineering students. Employees with critical isfied with their jobs and retention incentives. skills often fill roles with barriers to entry (e.g., Overall, quits (or voluntary turnover) have length of training, arduous certifications, legal dropped significantly since the recession began issues such as citizenship requirements), take in December 2007. However, since the a long time to develop the requisite experi- National Bureau of Economic Research ence, and are in limited supply. In these labor declared the end of the recession in June 2009, markets, companies can go out and buy more the economy is slowly beginning to see an workers (up to a point), but the wage increases increase in voluntary turnover as workers needed to attract these workers and make switch from one job to the next (Figure 1).4 In them take the risk of leaving their current May 2011, 2 million employees quit their jobs, jobs could be very significant. However, even the highest level since December 2008 and a 35 a large increase in wages will not necessarily percent increase from a low of approximately lead to many new people ready to fill the jobs 1.48 million employees who quit their jobs in in the short run; because of the time it takes January 2010.5 to develop these employees, it could be years Critical and highly skilled talent is cau- before workers are more readily available.9 This tious but increasingly on the move. Despite only increases the importance of a company’s an increased level of voluntary turnover since retention efforts to its overall success.
Figure 1. U.S. quit level in thousands of employees, total nonfarm, seasonally adjusted (June 07 to July 11)
Quit level (in 1,000s of Recession begins Recession ends employees) December 2007 June 2009 3,500
3,000
2,500
2,000
1,500
1,000 Jun Dec Jun Dec Jun Dec Jun Dec Jun 2007 2008 2009 2010 2011
Source: Bureau of Labor Statistics: Job Openings and Labor Turnover Survey6 and National Bureau of Economic Research7
8 The Talent Paradox: A 21st century talent and leadership agenda
Software engineers are one area where com- Meeting the employee panies’ inability to keep and find the engineer- retention challenge ing talent they need is impacting their ability to create new products. Daniel Gruneberg, ompanies’ retention strategies should co-founder of the daily deal site Zozi, notes Ctake an increasingly sophisticated view of that “there are a lot of ideas, but to actually do why employees are staying and leaving. Yet, as it you need someone to build it.”10 Deloitte surveys and recent data show, business To try to attract the necessary talent from and HR executives’ perspectives on what they the market or competitors, technology com- think their employees want and what employ- panies have begun to increase starting salaries, ees actually want often differ—this is especially benefits and stock options. Reggie Bradford, true of nonfinancial programs and priorities. CEO of Vitrue, noted that his company “now So where should business and HR leaders pays starting salaries of up to $90,000 for focus their retention efforts? To successfully engineers with one year of experience,” over attract, develop and retain the key employees $20,000 more than they paid six months ago.11 needed to succeed in today’s economy, three Because of this high demand for talent, imperatives emerge: voluntary turnover and job switching are com- • Identifying the employees and skills most mon in technology companies. For example, critical to your organization and strategy. Top Prospect, an incentive-based social recruit- • Determining what different groups, genera- ing site, analyzed the companies their users tions and, wherever possible, individual left and subsequently joined to show the flow employees actually want through increas- of employees through Silicon Valley. Their ingly personalized approaches. analysis showed high flows such as Facebook • Cultivating your capabilities to understand, gaining 15.5 employees from Google for every anticipate and predict what is driving your one employee Facebook lost to Google, Apple employees to leave. gaining 7.6 employees from Yahoo! for every one lost to Yahoo!, and LinkedIn gaining 22 employees from Microsoft for every one lost 1. Identifying the employees and skills to Microsoft.12 While these flows are due in most critical to your organization and part to the relative size of the companies and strategy the attraction of future IPOs, with constant Organizations should first identify their turnover such as this, it is no wonder technol- critical workforce segments, those employees ogy companies offer a wide range of benefits to who drive a disproportionate share of rev- try to retain top talent. However, just as using enue, who are difficult to replace and without the recession as a retention strategy has proved whom an organization cannot execute its ineffective, poaching employees with critical business strategy. These are the employees that skills isn’t a strong talent strategy for long- a company needs to acquire and keep to be term success. successful in the market. Identifying the key
Deloitte’s Longitudinal Talent Survey Series Talent Edge 2020 is a longitudinal survey series conducted for Deloitte Consulting LLP by Forbes Insights that explores changing talent priorities in all industries at large businesses in the Americas, Asia Pacific, and Europe the Middle East and Africa. Available at www.deloitte.com, the Talent Edge 2020 series follows Deloitte’s Managing Talent in a Turbulent Economy series from 2009 and 2010.
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workforce segments that produce the most to this and the overall increased demand in value to the organization and focusing efforts the green energy sector, the National Joint on these groups enable executives to make tal- Apprenticeship and Training Committee, ent investments that yield the most significant a joint program between the International return. Our experience suggests that many Brotherhood of Electrical Workers and the companies think they do this but actually find National Electrical Contractors Association, it hard to do for a variety of reasons, including published a Green Jobs curriculum with 75 company politics, HR concerns and an egali- lessons to help apprentices learn new skills and tarian discomfort with saying one group of to further develop journeymen looking for the employees is more valuable to the organization skills needed to work in the green economy.14,15 than others. However, focusing investments on Developing employees with the skills needed critical workforce segments is no different than today is key to resolving the labor shortages; focusing capital investments on the areas of the however, development programs also need to company growing the fastest—it is all about be focused on the future as skills will continue getting the most return for the dollar invested. to evolve. Given how technological change, regula- Skills evolution has also occurred in the tions and globalization continue to drive services sector. For example, ManpowerGroup structural change in the labor market, compa- notes that companies are now looking for nies should go beyond identifying their critical salespeople who have skills such as “excellent talent in the present and also take a long-term oral presentation,” “critical thinking” and “con- view that considers finding and keeping the sultative approach: ability to read people, diag- skills needed now and in the future. It doesn’t nose problems” while only a few years ago they help that these skills are changing—sometimes were looking for salespeople who had “asser- rapidly. As the economy continues to evolve, tiveness,” “thorough knowledge of product or it will increase the pace at which current skills service” and “competitive nature.”16 Because of become obsolete and are replaced with new constant skill change, it is no longer enough to ones. For example, the skills companies needed hire a critical skills worker; you need to hire their software engineers to have only a few a critical worker who has the latest skills and years ago have now become commonplace and the ability to up-skill over time. If companies replaced with new ones such as mobile applica- want to thrive in a constantly changing market, tion development and HTML5—technologies they will not only need to attract and retain that barely existed only a few years ago. employees to fill key jobs; they will also need Not only are the required skills continually to focus on developing and attracting employ- changing in the world of technology, but most ees with the right skills within these jobs and companies are demanding new skills from keeping them. their skilled trade workers. Additionally, a lack Health care providers are experiencing this of qualified trade workers with the new, neces- issue in the area of medical coding. Coding sary skills is leading to labor shortages that is how organizations take the descriptions could impact the proliferation of new tech- of patients’ conditions and turn them into nologies. For example, in the solar industry, codes that can be easily tracked and grouped there is a rapid increase in demand for photo- together, and it plays a key role in insurance voltaic installers and electricians with specific reimbursement, reporting and quality of experience in solar installations as job growth patient care. Currently, the practice of medi- for these occupations was expected to exceed cal coding is going through a transformation 40 percent from 2010 to 2011. Given this rapid as companies and countries move from the growth, solar employers cannot find the quali- World Health Organization’s International fied workers they need as there are not enough Classification of Diseases (ICD) Ninth workers with the necessary skills.13 In response Revision to the ICD Tenth Revision. The
10 The Talent Paradox: A 21st century talent and leadership agenda
Figure 2. Top three most effective retention initiatives by generation: Executives’ expectations vs. employees’ desires
Baby Boomers Generation X Millennials (ages 48 – 65) (ages 32 – 47) (31 and younger) EXECUTIVES EMPLOYEES EXECUTIVES EMPLOYEES EXECUTIVES EMPLOYEES # Additional Promotion/Job Promotion/Job Promotion/Job Promotion/Job Promotion/Job 1 benefits advancement* advancement* advancement* advancement* advancement* (e.g., health and pensions)
# Additional Support and Additional Additional Individualized Additional 2 bonuses or recognition bonuses or bonuses or career compensation financial from financial financial planning incentives supervisors incentives incentives (within or managers* company)*
# Flexible work Additional Leadership Additional Additional Additional 3 arrangements* compensation development compensation bonuses or bonuses or programs financial financial AND incentives incentives Flexible work arrangments*
(Tied)
*Indicates non-financial retention initiative changes from ICD-9 to ICD-10 are signifi- ICD-10 skills are receiving large offers to leave cant—for example, the number of diagnosis their current employers and move to competi- codes will increase from approximately 13,600 tors. If health care organizations want to keep to approximately 69,000 to allow for more the medical coders that they invested in train- granular descriptions.17 Additionally, compa- ing from leaving, they will need to understand nies in the United States have to move to this their needs and target specific retention initia- new standard quickly as the U.S. Department tives to keep them. of Health & Human Services set an October 1st, 2013 deadline for ICD-10 compliance.18 2. Determining what different groups, Some health care organizations have been generations and, wherever possible, early adopters in moving to ICD-10 and have individual employees actually want trained their employees on ICD-10 as part through increasingly personalized of that transformation. However, since other approaches health care organizations now need these Once an organization confirms which resources, competitors are increasingly trying employees are critical, they should conduct a to poach medical coders with ICD-10 skills. diagnostic to find out what these employees Because of increased demand, codersw with really want through anonymous employee
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engagement surveys, focus groups and in- as one of the three most significant fac- person conversations. Research from Deloitte’s tors that could cause them to look for new Talent Edge 2020 and Managing Talent in a employment today, while only 14 percent Turbulent Economy survey series has uncov- of surveyed employees in EMEA made the ered a tale of two mindsets where, for the most same choice.20 part, employers are unaware of which retention Talent management and retention need to incentives are most effective. Most compa- be viewed as a global art and science. For nies think they know what their people want, example, global corporations are more wor- but often do not take the time to understand ried about the poaching of critical employ- what different employees want from them ees in India than in the United States right or understand the impact the recession has now because even with shortages of key had over the last few years—e.g., yes, flexible skills, the talent markets in the United work environments are important, but after States are deeper than they are in emerging three lean years most employees are now more markets. Part of successfully managing the interested in promotions and higher compen- talent paradox is making sure that organi- sation. The risk is that many companies take zations that want to compete around the a blanket approach that does not reflect what world have a global portfolio of employees, employees truly value, which varies based on e.g., employees with the right skills in the generational, global and gender differences in right countries. addition to the current economic, technologi- cal and cultural environment. • Gender differences. Deloitte’s research • Generational differences: Different found that surveyed men appeared to focus generations have different goals, expecta- on financial incentives, while surveyed tions and desires—and employers should women were more likely to seek recogni- tailor their retention plans to satisfy them. tion. Among surveyed men, 42 percent Figure 2 reflects what executives think each said “additional compensation” would generation wants and what each genera- keep them from leaving and 39 percent tion is really looking for.19 Coming out of cited “additional bonuses or other finan- the recession, the foremost thing that cial incentives” as top retention incen- employees are looking for are promotions tives. Among women, only 27 percent followed by additional financial incentives cited “additional compensation” as a top for Millennials and Generation X and sup- retention incentive and only 19 percent port and recognition from managers for cited “additional bonuses.” Meanwhile, Baby Boomers. 40 percent of surveyed women said “sup- port and recognition from supervisors or • Global differences: The latestTalent Edge managers” would be a valuable retention 2020 report found that almost a third incentive, compared to just 28 percent of (32 percent) of the surveyed employees surveyed men.21 in Europe, the Middle East and Africa (EMEA) thought that “lack of job secu- • “I want what I want, and it’s not what rity” would be the top reason for them to you think.” As technology, the economy leave an employer and more than half (57 and culture change, so too do employees’ percent) of the EMEA employees surveyed expectations of their employers. Only a found promotion/job advancement to be few years ago, employees had never even the strongest retention incentive. Almost a heard of iPhones, would not have dared third (35 percent) of surveyed employees ask to work from home on a regular basis, in Americas and 21 percent in Asia Pacific and could not have carried their whole (APAC) chose “lack of trust in leadership” office with them unless they had a moving
12 The Talent Paradox: A 21st century talent and leadership agenda
truck. However, employees now expect (63 percent) surveyed Millennials rated a their employers to provide them the tools company’s commitment to “sustainability” as they need to work remotely and offer them “very important” compared to just one in three the chance to do so. To adapt continually to (35 percent) surveyed Baby Boomers. And by such changes, companies should focus on more than 2:1 (32 percent to 13 percent), having a culture that is open and receptive surveyed Millennials were more likely to to constantly changing its talent programs consider their employers’ commitment to to meet its employees’ needs. It is no longer “corporate responsibility/volunteerism” to be enough to have a “menu” of talent pro- very important than were surveyed Baby grams where employees can pick the ones Boomers. Work-life balance was most impor- that meet their tastes—instead, a talent tant to surveyed Generation Xers at 53 percent, strategy needs to focus on the company’s compared to 38 percent for surveyed Baby and employees’ core values to provide the Boomers.22 flexibility needed to meet the demands of As an example, W.L. Gore is a company that its talent. focuses on a set of fundamental beliefs and When looking at cultural aspects that guiding principles that serve as the basis of its 23 contribute to retention, consider how values strong culture. Part of its culture is believ- differ by groups of employees, such as genera- ing that employees should be passionate about tions. Figure 3 shows that nearly two in three what they want to do and then giving them
Figure 3. When considering an employer, how important is the organization’s commitment to the following?
Baby Boomers Generation X Millennials
Sustainability
Creating a fun work environment
Work-life balance
Corporate responsibility and volunteerism
Diversity and inclusion
Source: Talent Edge 2020: Building the Recovery Together, April 2011, Deloitte Consulting LLP
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the freedom necessary to pursue their passion are modeled to identify predictive patterns, while at work. Its culture is also shaped by a such as the probability of voluntary turnover. lattice organizational structure that is “free Predictive analytics is a sophisticated approach from traditional bosses and managers” and to data analytics, creating leading indicators, as makes employees responsible for the work they opposed to historical insights. Using advanced choose to take on. Continuing to focus on this analytics to predict turnover risk, down to and other aspects of its culture has allowed the individual level, can provide the lead time Gore to be named in Fortune magazine’s “100 needed to identify employees who are likely Best Companies to Work For” for 14 years in to leave, help companies understand why a row. By continuing to focus on providing its each individual is at risk, and help determine employees what they need to live their cultural what to do today to minimize the risk of that values, Gore has been able to gain the talent it employee leaving. needed to earn a spot on Fast Company maga- The specific reasons that drive the individ- zine’s 2009 “Fast 50” list of the world’s most ual risk scores will be unique to each organiza- innovative companies.24 tion’s workforce, industry and culture. Rather than deploying costly blanket initiatives, using 3. Cultivating your capabilities to predictive analytics to determine why specific understand, anticipate and predict what individuals are at risk enables HR leaders to is driving your employees to leave invest in targeted activities that are customized to the individual or group at the most signifi- Too many organizations start actively cant risk of leaving and that have the most managing attrition at the moment a critical or likelihood of success through intervention. highly skilled employee tenders his or her res- Recognizing the high demand and turnover ignation—in other words, when attrition risk rate in management consulting, Deloitte has has reached 100 percent. A better paradigm developed a retention analytics model that would be to: identified possible predictors of voluntary • Identify which of your critical, high- turnover for key talent segments in Deloitte. performing and high-potential employ- The model helps Deloitte identify both indi- ees are most likely to leave six months in viduals and pivotal groups of employees most the future. at risk. For each employee, the model detailed • Understand the reasons why those indi- both the calculated attrition risk score and the viduals might leave. key drivers of that risk (reason codes). Some • Know what you can do to increase their of the top reason codes for Deloitte were the likelihood of staying. average number of flights taken per week, the average number of hours worked per week, The use of retention analytics and predic- and the number of paid time off (i.e., vacation) tive models allows organizations to identify hours actually taken. The tool also identified employees at risk of leaving before they leave, actions that might mitigate the risk of turnover helping companies to develop the mitigat- for each employee with a high probability of ing programs needed to keep their critical attrition. Key retention initiatives will soon be employees. By understanding what employees implemented by individual, pivotal role and are looking for and what their options are, key demographics. organizations can do a better job of giving their employees what they want. Internal data (promotion, compensation, etc.) and external data (demographics, economic indicators, etc.)
14 The Talent Paradox: A 21st century talent and leadership agenda
Why would anyone choose Analytics and predictive models can highlight to work here (and why which employees are most at risk of leaving and suggest what actions might get them to would they stay)? stay. Analytical tools and capabilities are now iven the talent paradox, that is the ques- an attractive investment for business leaders Gtion many companies should answer if whose plans rest on having critical talent in they hope to attract and retain critical, scarce the organization. and highly skilled talent. Companies can no Ultimately, there is no off-season. With the longer assume they can easily acquire the criti- global economy in the doldrums, it is tempting cal talent and skills they need or that talent will to consider the recession as an unfortunate but stay put in their organizations simply because convenient moat around critical talent. Yet, just of economic conditions: The recession and as planning continues in a turbulent economy, current weak economy are no longer a viable the competition for the best players to imple- retention strategy for highly skilled and prized ment those plans also continues. Neither “the employees and leaders. Given the growth economy” nor “talent” are monoliths. Even as aspirations of many companies and the scar- some segments of the workforce see their for- city of critical skills and talent, no matter the tunes fall, others are well aware that they will economic state, it is increasingly important to be key players in growth segments during and proactively focus on giving employees a reason especially after economic conditions improve. to stay and grow with the organization. Being the place those workers seek out, stay At some level, this boils down to treat- and grow is to be in a position of strength. ing critical talent like customers, focusing on needs and expectations for money, benefits, job Originally published in experience, development and corporate values Deloitte Review #10, 2012 to develop talent or employer brands that clearly summarize what employees (current About the authors and future) can expect from their employer. The employer brand a company offers should Robin Erickson, PhD, is a specialist leader in give employees a sustained reason to want to Talent Strategies with Deloitte Consulting LLP. join, stay and grow—focusing on financial, Jeff Schwartz is a principal with Deloitte tangible and intangible benefits including a Consulting LLP and a global co-leader in company’s culture. To build a strong employer Deloitte Touche Tohmastu Limited’s Talent, brand, companies should identify their critical Performance and Rewards group. employees and determine what they really Josh Ensell is a consultant with Deloitte want and combine their talent experience Consulting LLP. with their customer experience and overall corporate mission. Finally, there is a good dose of science emerging in what was once mostly art.
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Endnotes
1. Bureau of Labor Statistics. Job Openings 13. National Solar Job Census 2010: A Review of and Labor Turnover Survey, Series ID: the U.S. Solar Workforce. The Solar Foundation. JTS00000000JOL (A). [Database]. Available October. 2010. < http://www.thesolarfounda- from
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The Talent Paradox: A 21st century talent and leadership agenda Talent and Work Playing to your strengths
By Jeff Schwartz and Andy Liakopoulos > Photography by David Clugston
or an increasing number of organizations, Such a narrow view of talent management is Fthe talent crisis is no longer an abstrac- common among organizations today. At many tion. It’s an all-too-real threat that’s spurring companies, what goes by the name of “talent executives, perhaps for the first time, to begin management” consists primarily of programs to treat talent as a vital business concern. But focusing on the employee life cycle — pro- despite the best of intentions, business lead- grams such as recruiting and hiring, learning ers often struggle to link their talent efforts to and development, performance management, business strategy in practice. They have trouble and succession planning. Some companies identifying talent solutions that address busi- even focus their talent programs on point ness issues. Or the solutions they choose don’t solutions within the employee life cycle, an work well enough. Or even when the solu- approach encouraged by technology vendors tions work, they’re too expensive or unwieldy who in the past few years have relabeled their to sustain. single function HR software as “talent manage- These struggles often result from over- ment” solutions. looking a key piece of the talent manage- Of course, employee life-cycle programs are ment puzzle: changing the way work itself is critical. Companies rightly invest significant defined and done to align more closely with effort, sometimes even too much, in doing the employer’s talent pool. A broader view of them well. But important as they are, they are talent management that includes both work- only one piece of a much bigger picture. force and workplace approaches can reveal Missing from the widespread view of talent an increased range of potential options for management is the broader concept of engi- addressing talent-related strategies and achiev- neering the work to fit the available talent, as ing business results. well as the other way around. In contrast to “talent-based” approaches that focus on help- Expanding the talent ing the available talent better do the work in its existing configuration, “work-based” solutions management universe focus on changing the what, when, where alent management,” one HR execu- and how of the work being done to better “Ttive said in a 2008 Personnel Today accommodate the realities of the internal and article, “really is only excellent performance external talent market. Because relatively few management.”1 This remark illustrates the companies engage in work-based solutions, tendency of companies to turn to a growing list those that can effectively manage work-based of silver bullets and point solutions that claim and talent-based approaches would be better to solve the key problem driving the array of positioned to gain a real competitive advantage talent challenges companies face. over those that don’t.
19 Talent
Work-based solutions can include anything employee life-cycle programs, as well as the that changes the way work is defined, how it essential work-based activities needed to orga- is organized, and how and where it is done. nize work at any company, such as basic job They range from job redesign and process and organization design. reengineering to virtual workplace and social Differentiating solutions, in contrast, networking initiatives. They can even involve distinguish an employer by delivering value in changing a company’s basic operating model a way that relatively few other employers can to make its operations and work processes duplicate. They focus on talent solutions that more conducive to employee productivity are linked directly to critical talent, custom- and engagement. ers, and specific business activities. Though Both talent-based and work-based the list of differentiating solutions is constantly approaches can include what might be called shifting as new ideas arise and older ideas are “core” and “differentiating” solutions. Core more broadly adopted, current candidates solutions are activities that almost all compa- include targeted talent-based approaches, such nies perform. While some companies may be as accelerated development and global sourc- better at them than others, they generally do ing, as well as work-based solutions, such as not fundamentally distinguish one employer virtual workplaces, social networking, and from the next. They include most traditional global mobility.
Figure 1. The expanded universe of talent and work solutions
TALENT-BASED WORK-BASED
Recruitment & Staffing Knowledge & Collaboration Orientation & Onboarding Organization Design Performance Management Work Design Learning & Development Job Design Succession Management CORE
TALENT DIALOGUE* REWARDS TRANSFORMATION* MASS CAREER CUSTOMIZATION* EMPLOYER BRAND*
Accelerated Development Global Mobility Coached Organization Social Networking
DIFFERENTIATING Global Sourcing Virtual Workplace
* Catalyst
20 The Talent Paradox: A 21st century talent and leadership agenda
Finally, a company can invest in especially productive sooner, but lessen the need for innovative, far-reaching approaches that can new engineering talent in the first place. The be described as “catalysts.” Catalysts are solu- company is consolidating its IT environment tions that transcend the talent-based/work- to simplify the engineering workflow, signifi- based and core/differentiating distinctions. cantly reducing the training requirements for They embody a “talent-centric” approach that, new engineers. It also is leveraging the skills similar to customer-centric external sales and of its retired engineers through a collective marketing programs, focus on understanding intelligence technology platform that allows employees’ needs, preferences and expecta- retirees to work on projects as independent tions to deliver an outstanding total employ- contractors. Drawing on improvements in ment experience. Because so few companies work processes and enabling technology, today have adopted such talent-centric the platform delivers work requirements to approaches, catalysts that take “talent-cen- contractors in an organized manner, efficiently tricity” to a high level can drive exceptionally incorporates input and delivers feedback, and strong differentiation. allows contractors to work on a very flex- Figure 1 shows the expanded universe of ible basis. The company combined talent and talent-based and work-based solutions. Using work in an approach that lowered the need this model as a guide, executives can begin for new recruits and extended the productive to systematically explore the possibilities for life of soon-to-be and newly retired engineers, developing talent strategies that extend beyond through the reengineered work processes, the employee life cycle to take advantage of systems and platform. The approach also gave work-based solutions, differentiating solutions, the company continued access to the valu- and catalysts, as well as the more traditional able experience and skills that its retirees talent-based, core approaches. This expanded would otherwise have taken with them when way of thinking can suggest new approaches they retired. that may deliver results more effectively than employee life-cycle solutions alone. Talent as a component of business strategy Backs to the wall iven the dynamic nature of business Consider what one industrial products strategy today, talent strategies and solu- manufacturer did when it realized that 70 per- G tions need to be grounded in business plan- cent of its engineers would retire over the next ning and operations more than ever. This is five years. In this company’s case, intensive where a systematic approach to aligning talent recruiting and hiring efforts weren’t enough strategy with business strategy can offer valu- to make up the shortfall; schools just weren’t able guidance. Such alignment begins with producing enough qualified engineering articulating the company’s business objectives graduates. Moreover, a fragmented informa- and determining, as specifically as possible, tion technology (IT) environment and a high the nature of the talent needed to achieve each reliance on manual work processes not only of those objectives. Once executives clearly hampered engineers’ efficiency, but made it understand an organization’s talent needs, they hard for new engineering hires to reach com- can examine internal and external patterns of petency quickly enough to replace the skills talent supply and demand, identify current and being lost to retirement. likely future talent gaps, and develop specific Instead of simply intensifying its recruit- approaches for filling those gaps based on an ing efforts, the company decided to change understanding of what critical talent values its work environment in a way that would and the company’s own appetite for cost, risk not only help new engineers become more and change.
21 Talent
Catalysts: The forefront of innovation in talent management Innovative approaches being piloted by companies and organizations around the world include:
Talent dialogue. In talent dialogue — modeled on customer-facing market research strategies — an employer establishes a systematic, ongoing dialogue with its employees to better understand their views and expectations about the employment experience. Through a variety of channels, the employer explores topics such as employees’ satisfaction with specific talent and HR programs, career goals, current and future life situation, salary and benefits expectations — anything, in short, that can help guide the employer’s talent management efforts.
Rewards transformation. Rewards transformation involves tailoring the design of a company’s total rewards program to align with its employees’ needs and expectations as uncovered through talent dialogue. By understanding employees’ views on a broad range of work-related factors — including not just compensation and benefits but any aspect of the work environment that can affect employee behavior — employers can design total rewards programs that shape employee behavior more effectively than making changes to compensation and benefits alone.2
Mass Career Customization. In Mass Career Customization, an organization trades the traditional corporate ladder model of career advancement for a more dynamic “corporate lattice” that allows for planned descents and lateral moves as well as upward climbs. Using the corporate lattice model, employer and employee collaborate to align employees’ work responsibilities with their life circumstances in a range of ways that satisfies both parties’ changing needs.3
Employer brand. An employer brand, analogous to a product brand, seeks to encapsulate the total value that employees gain from their relationship with an employer. By articulating and promoting an employer brand, a company can communicate the value of an integrated portfolio of benefits, helping employees appreciate the full scope of what the employer offers and enhancing the attractiveness of the employee-employer relationship.
Several concepts and techniques can intelligence.” Just as companies collect, be especially helpful in translating a broad mine and analyze customer data to better understanding of talent needs into specific understand their markets, workforce intel- talent solutions. Perhaps foremost is the ligence applies advanced analytics to the concept of “critical workforce segments” — huge amounts of workforce-related data employee populations that drive a dispro- typically found in ERP systems, HR informa- portionate amount of business value, that are tion systems, and other repositories to help difficult or expensive to replace, and whose employers better understand their employees. skills are in high demand. (An example Workforce intelligence allows employers to would be the engineers at the manufactur- go beyond the lagging indicators offered by ing company described above.) Identifying a simple view of HR data (which tells com- critical workforce segments is the first step panies what problems they already have) in setting priorities and talent investments. to identify leading indicators, based on a Focusing on critical workforce segments broader range of workforce-related data, that allows executives to allocate resources to can help companies predict and develop solu- various employee groups based on the value tions to issues that they might experience in they generate for the business. the future. For example, a predictive model Another technique, and one with a great built from a variety of data elements — any- deal of upside, is the use of “workforce thing from an employee’s amount of overtime
22 The Talent Paradox: A 21st century talent and leadership agenda
to the length of his or her daily commute an experience-based approach to determine to the turnover rate for similar jobs in the certain aspects of new nurses’ benefits pro- region — can quantify the likelihood of and grams, making it a more attractive employer to predict reasons for an employee taking a par- mid-career nurses who could now take jobs at ticular action, such as leaving the company. the hospital without being penalized for their An employer can then use these insights to lack of longevity. proactively address impending talent issues. Executives also conducted a hospital-wide survey that asked employees to rate not only The expanded universe in action their satisfaction with various aspects of their rewards programs but also the importance Companies across a range of industries are of each element — base pay, 401(k), time off, beginning to integrate this broader range of training and development, and so on — to approaches — talent-based, work-based, core, their level of engagement. Separately, the differentiating, and catalysts — to design talent hospital evaluated both the cost and the effec- solutions to more directly address business tiveness with which it delivered each rewards challenges and strategies. element. Putting the pieces together, the hospital was able to reduce spending on several Talent dialogue drives more high-cost rewards elements that employees bang for the buck perceived as relatively unimportant, and A large regional U.S. hospital needed a new reallocate the money saved toward improv- talent strategy to match a new set of growth ing other elements that were more important and quality goals. To execute its strategy, the to employees but were being delivered less hospital had to deliver outstanding medical effectively. One of these opportunities involved care, which meant that it needed to become scaling back certain health and welfare benefits the region’s leading choice for health care while enhancing training and career develop- employment, especially for highly trained and ment programs. Another was to restructure the mid-career nurses. But executives also knew disability coverage program to provide uni- that controlling costs and improving profit- versal disability protection while reducing the ability would be critical to the hospital’s ability likelihood of employees’ accumulating more to attract affordable financing for its planned coverage than they could use. expansion. The hospital would have to find a Thanks to the detailed input it obtained way to significantly increase its attractiveness through talent dialogue, the hospital was able as an employer without increasing overall total to reconfigure its rewards programs to improve rewards costs. attraction and engagement without signifi- Executives decided to seek guidance from cantly increasing total rewards costs. the source: their employees. Multiple inter- views and focus groups with critical workforce Global mobility for global leadership segments helped identify several changes that Top executives at one global company would improve job satisfaction and engage- know that it needs leaders with a world-span- ment without necessarily increasing costs. ning perspective. Every year, the company For example, to accommodate the career spends nearly US$100 million to support aspirations of nurses who wanted to rise on international job assignments, not just as a the pay scale without moving into manage- way to get the right people to positions in ment positions, the hospital designed a career more than 100 countries, but also to give path for bedside nurses that allowed high- promising talent the international experience performing nurses to advance in the organiza- and global perspective they need to lead a tion while remaining in patient care roles. The worldwide organization. hospital also moved from a tenure-based to
23 Talent
Executives worried, however, that the An “alternative” solution global mobility program was not deliver- to a “real” issue ing the development benefits the company Ask most executives how to cut real estate needed. Fully half of the program’s annual costs without shrinking headcount and they’ll international assignment budget went to sup- probably tell you to move to a cheaper loca- port assignees who fell outside the company’s tion, double up personnel, or rebuild using target talent profile. What’s more, in many smaller offices and cubicles. But that’s not how cases the jobs people were being sent to fill one global financial services company sees it. not only had alternative local talent solutions, As part of an enterprise-wide reengineering but didn’t align with assignees’ development effort, the company is targeting real estate cost needs. Most troublesome of all, the company reduction through a large-scale alternative and had no formal procedures to evaluate the mobile workplace program. Executives expect impact of an international assignment on an this program to not only drive significant sav- assignee’s development. ings from shedding excess office space, but also To better use global mobility as a develop- improve employee attraction and retention, ment tool, the company created a program increase productivity, and support the compa- that identifies high-potential leadership ny’s corporate responsibility and sustainability candidates, evaluates their development efforts by reducing its carbon footprint. Above needs, and places them in positions across all, they hope to reinforce a performance-ori- the global organization that will help them ented culture that focuses on what people do, gain the skills they need to take on leader- not where they do it. ship roles. One of the essential attributes the Combining an analysis of high-cost real company has identified for successful global estate areas with a detailed examination of leaders is “having a global mindset,” and an job function, business suitability, and cultural international assignment is mandatory for norms around work flexibility, mobility and all participants in this new career path. A choice, the company identified a target pool structured decision-making process helps of about 35 percent of its employees in loca- senior leaders systematically assess the fit tions around the world to participate in the between program participants and open posi- program. These employees are being offered tions, and the program actively measures and a variety of options for remote and mobile evaluates how effectively each job placement working based on their preferred work style, shaped each employee’s development. their job responsibilities, and the company’s These changes have put strong execution real estate goals. In a parallel effort, the com- capabilities behind the company’s strategic pany’s IT infrastructure is being standardized view of global mobility as a talent investment. in a way that will enhance employees’ ability The proportion of international assignees to work from any location. To help make the fitting the company’s target talent profile has cultural shift to the new work environment, increased, and the total cost of the program affected employees and managers will receive has decreased by 15 percent as assignments training on how to work in, manage and evalu- involving people outside the target talent ate virtual teams that might include members profile have ended without being renewed. from a variety of locations, cultures and back- Most importantly, the organization is now grounds. The entire effort is being backed by a able to effectively develop the leaders it needs comprehensive communication package that with the right skills and perspectives to create ranges from simple executive memos and proj- innovative opportunities and drive growth in ect Web sites to videos and town hall meetings. new businesses and geographies. The ongoing shift to a more mobile work- place has required a high degree of collabo- ration among the company’s corporate real
24 The Talent Paradox: A 21st century talent and leadership agenda
estate, IT and HR departments. The project advantage of a much wider range of tech- leadership team includes the COO of real niques than many companies currently use. estate, a global HR executive and a global IT Some parting perspectives to consider on executive who work closely together to coor- ways to put this expanded universe of solutions dinate the required technology, talent and real to work: estate activities. To further drive the necessary Talent is a business problem, not an HR cross-functional involvement, the company problem. To have an impact on business has developed a detailed implementation guide issues, talent strategies need to start with that describes the specific responsibilities of business issues — not with employee life- real estate, IT and HR professionals in each cycle issues. For precisely this reason, in fact, local rollout. And to hold all relevant stake- some CEOs are appointing business leaders holders accountable for progress, the project’s outside HR to head the talent function. But outcome metrics include not only the extent no matter who leads talent, the business chal- of real estate savings, but participation rates, lenges should always be front and center. technology deployments and other metrics tied Break down silos. Many innovative solu- to each business unit. tions, especially work-based solutions, require Begun in late 2007, the alternative work- close collaboration between functions to place effort is expected to yield overall run deliver effectively. In fact, one reason rela- rate savings of hundreds of millions of dollars tively few companies apply work-based talent per year by 2011. Management also expects approaches is that the talent group typically the benefits to employees — reduced com- lacks enough visibility into operations to mutes, greater control over work schedule and develop appropriate solutions and the author- location, and a focus on the “what” of work ity to make operational changes. A clear exec- rather than “when” or “where” — to improve utive mandate, supported by multifunctional the company’s ability to attract and retain metrics and an explicit statement of each employees who value flexibility. Productivity is function’s responsibilities, is often needed to expected to increase due to decreased commute foster the appropriate collaboration. times, improved employee ability to use tech- Focus on critical workforce segments. nology, and a work environment that accom- A surprising number of companies spread modates different work styles and needs. Finally, their talent programs across all groups of thanks to its smaller physical footprint and the employees like peanut butter. Not only is this reduction in employee commutes, the company expensive, but it may also leave the company’s expects this initiative to help in its efforts to most valuable and critical workers vulnerable reduce total carbon emissions by 10 percent and looking for opportunities elsewhere. For by 2011. every business and every business strategy, there will be specific critical workforce seg- Toward an integrated talent ments that deliver disproportionate business management strategy value and that should command the lion’s The acute talent and business issues facing share of a company’s attention and resources companies today require an approach that when designing a talent management strategy. provides new dimensions for solutions. A Recognize when “good enough” really is framework that includes both talent-based good enough. In certain areas, being good, and work-based approaches, organized not great, may be enough. Executives should around core and differentiating solutions, can carefully choose the nature and amount of a help business leaders develop an expanded company’s talent investment to deliver a val- talent management strategy that takes ued premium for critical talent without over- spending on elements that are less important.
25 Talent
Not all talent solutions require the same level in every working day. If the covert messages of investment. transmitted by these factors don’t coincide Innovate to differentiate the employer with the company’s explicit talent manage- brand. In a world where the demand for ment efforts, employees may conclude that skilled workers is greater than the supply, the company isn’t willing to “walk the talk” employers have to give critical talent a very — and they’re likely to leave. Companies that good reason to work for them, stay with master the twofold challenge of building a them, and come back to them. That’s why broad-enough infrastructure to provide the innovative, talent-centric approaches, such backbone for their talent efforts, while tailor- as the catalysts described previously, can ing infrastructure investment to be just “good make the difference between a so-so talent enough” in table-stakes areas and excellent strategy and one that consistently delivers on in areas that differentiate the company, will its business objectives. Every company has multiply the power of their talent solutions in a strategy to delight its most important and supporting their business strategy. valuable customers in order to keep them in a “Insanity,” as Albert Einstein is credited long-lasting, mutually beneficial relationship. with saying, “is doing the same thing over and Innovation and talent-centricity can help over again and expecting different results.” employers do the same for their most impor- A broader approach to talent management tant and valuable talent. — one that incorporates talent and work Build the right talent infrastructure for approaches, core and differentiating solu- your talent strategy. Much of the talent tions, and catalysts — can help companies infrastructure in use at companies today was avoid such insanity in their talent efforts. By built to administer HR — not to engage and considering the expanded universe of possible develop talent. To accomplish the latter, it talent solutions, executives can take advan- is important to recognize that “talent infra- tage of a much broader range of approaches to structure” includes more than HR technol- help create effective talent strategies that more ogy and service delivery. It also includes the directly drive business results. technology that supports all aspects of work and collaboration, the change management Originally published in and communications capabilities to engage Deloitte Review #4, 2009 employees, and the attitudes and values of the larger corporate culture, including factors About the authors such as ethics, corporate responsibility and sustainability, diversity, and leadership. Why? Jeff Schwartz and Andy Liakopoulos are The work employees do, the tools they use, principals with Deloitte Consulting LLP. the people they work with, and the leaders they work with are the sea employees swim
26 The Talent Paradox: A 21st century talent and leadership agenda
Endnotes 1 “Talent at the Table,” Personnel To- day, March 4, 2008, pp. 20-21. 2 Deloitte Development LLP, “Rewards Revisited: From ‘Me Too’ to Value Driver,” 2006. Avail- able online at
27 Talent Where Did Our Employees Go? Examining the rise in voluntary turnover during economic recoveries
By Bill Chafetz, Robin Adair Erickson and Josh Ensell > Photography by David Clugston
ast forward to smoother seas after the Executives may be tempted to think that Fcurrent economic storm: your company has their current actions are having no effect on survived. You made the hard decisions regard- the retention of their employees since volun- ing layoffs, expenses, and closing facilities to tary turnover rates have been low throughout improve operational performance and short- the downturn. However, their actions may be term earnings. Like your peers, you made actually increasing turnover intentions with cutting and managing costs your number one many employees planning to jump ship once strategic priority while pushing focus on man- the economy improves. To prevent the loss of aging human capital to the back of your mind. talent typically seen during economic recover- But unfortunately this turns out not to be ies with a resulting “resume tsunami,” leaders the whole story. must avoid making mistakes that increase employees’ turnover intentions. A downturn,
A turnover intention is an employee’s “conscious and deliberate willfulness to leave the organization” within a certain time interval, e.g., the next six months —— (Tett and Meyer, 1993)
28 The Talent Paradox: A 21st century talent and leadership agenda
it turns out, should not be considered a license When the economy is strong, unemploy- to put human capital management on the ment decreases as firms hire more employees back burner. to create the output needed to meet rising Instead of celebrating the upturn, many demand. Alternatively, and as expected, when corporate leaders may well face a new prob- economic demand and growth slow, organiza- lem: replacing lost employees as the economy tions cut costs and downsize the workforce, kicks into gear and talent is once again a increasing unemployment. Because of this, scarce commodity. looking at the unemployment rate’s relation- ship with voluntary turnover shows how The impending rise of voluntary voluntary turnover will change as the economy seesaws back and forth.1 Chart 1 shows that as turnover after a downturn unemployment goes down, voluntary turnover hile the vast majority of employees goes up (and vice versa), which implies that Wstay put during economic downturns, voluntary turnover will most likely increase an analysis of the correlations between volun- once the economy recovers. tary turnover (quits) versus unemployment Looking at voluntary turnover’s relation- and voluntary turnover versus consumer ship with consumer confidence also shows confidence suggests that employees will that organizations should expect employees begin to leave their organizations once the to leave their current jobs when the economy economy recovers. improves.2 When consumer confidence is
Chart 1. Quit Level in Thousands of Employees, Total Nonfarm, Seasonally Adjusted vs. Unemployment Rate, Seasonally Adjusted
Quit Level Unemployment (Thousands of Employees) Rate 4000 8.0 7.5 3500 7.0 6.5 3000 6.0 5.5 2500 5.0
4.5
2000 4.0 3.5 1500 3.0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Quit Level in Thousands of Employees, Total Nonfarm, Seasonally Adjusted Unemployment Rate, Seasonally Adjusted
Source: Bureau of Labor Statistics, St. Louis Federal Reserve Economic Data3
Chart 2. Quit Level in Thousands of Employees, Total Nonfarm, Seasonally Adjusted vs. Conference Board 29 Consumer Confidence Index
Quit Level Conference Board Consumer (Thousands of Employees) Confidence Index 4000 140
3500 120
3000 100 2500 80 2000 60 1500
1000 40
500 20 2001 2002 2003 2004 2005 2006 2007 2008 2009
Quit Level in Thousands of Employees, Total Nonfarm, Seasonally Adjusted Conference Board Consumer Confidence Index
Source: Bureau of Labor Statisics, Polling Report4 Chart 1. Quit Level in Thousands of Employees, Total Nonfarm, Seasonally Adjusted vs. Unemployment Rate, Seasonally Adjusted
Quit Talent Level Unemployment (Thousands of Employees) Rate 4000 8.0 high, consumers expect the economy to grow, The cause of voluntary 7.5 causing them to become more willing to spend. turnover’s cyclicality 3500 Since consumer spending represents two- 7.0 s the economy languishes, workers have thirds of gross domestic product, the increased 6.5 consumer spending helps drive economic Areduced alternative employment opportu- 3000 6.0 growth. Alternatively, when consumer confi- nities. Since quits are motivated in part by the dence drops, consumers expect the economy to prospects of finding a new job, employees5.5 do weaken, and they reduce spending, contribut- not quit during the downturn but instead put 2500 5.0 ing to a slowdown in economic growth. their heads down and weather the storm until Chart 2 shows that when people expect the the economy recovers. 4.5 However, while the number of alterna- 2000 economy to improve, they are more likely to 4.0 quit their jobs (and vice versa), implying that tive opportunities is a factor in voluntary voluntary turnover will most likely rise when turnover, it is not the driving force. Instead,3.5 1500 economic growth is expected to start again. decreased job satisfaction, which is “a simple3.0 These two trends suggest that, while single summary measure” capturing employ- 2001voluntary 2002turnover is2003 low throughout2004 eco- 2005 ees’2006 perceptions2007 of how2008 their organization2009 6 nomic downturns, organizations should treats them, sets employees off along the path expect a spike inQuit voluntary Level in Thousandsturnover once of Employees, the Totalof voluntary Nonfarm, turnover. Seasonally During Adjusted an economic economy recovers.Unemployment5 Rate, Seasonally Adjusteddownturn, employees experience decreased job satisfaction for a number of reasons, including Source: Bureau of Labor Statistics, St. Louis Federal Reserve Economic Data3
Chart 2. Quit Level in Thousands of Employees, Total Nonfarm, Seasonally Adjusted vs. Conference Board Consumer Confidence Index
Quit Level Conference Board Consumer (Thousands of Employees) Confidence Index 4000 140
3500 120
3000 100 2500 80 2000 60 1500
1000 40
500 20 2001 2002 2003 2004 2005 2006 2007 2008 2009
Quit Level in Thousands of Employees, Total Nonfarm, Seasonally Adjusted Conference Board Consumer Confidence Index
Source: Bureau of Labor Statisics, Polling Report4
30 The Talent Paradox: A 21st century talent and leadership agenda
increased job insecurity7 and preventable employer mistakes. Decreased job satisfaction drives increased turnover intentions.8 When job satisfaction decreases, employees begin to consider leaving their jobs and start evaluating their alternative employment opportunities. If they think it is likely they will find a job that will bring them more tangible and intangible benefits than their current one, they will begin to have a turnover intention. Once an employee reaches this point, it is likely they will leave your orga- nization as turnover intentions are strongly positively correlated with voluntary turnover.9 Therefore, if you do not take action to prevent a drop in employee job satisfaction and rising turnover intentions, then many of your performance.12 However, these costs are only employees will walk out the door as the econ- the tip of the iceberg as customer relationships omy recovers. First out the door will be your are impacted, knowledge is lost, and other critical workforce segments, those employees employees have to pick up the slack. and groups that “drive a disproportionate Given this and the trends in voluntary turn- share of their company’s business performance over, organizations may think they are fated and generate greater-than-average value for to see their people walk out the door once the customers and shareholders,” top performers, economy recovers. To some extent, that may be and future leaders who have transferable and true: a good economy presents more options highly demanded skills.10 and some people will make the move. But there are several mistakes that organizations make Keeping the lid on employee that decrease job satisfaction and increase turnover intentions turnover intentions. These can be caused by both actions taken without proper planning or t seems counterintuitive — employees are important actions not taken. Inot running for the exits in a downturn — but organizations should be careful not to 1. Don’t forget that your high performers alienate employees during a downturn because can always get jobs somewhere else. of the tangible and intangible costs associated with losing talent once the economy recovers. Your top performers, future leaders, and If voluntary turnover increases after an critical workforce segments increase opera- economic downturn, then companies have tional performance, drive value creation, and to bear the costs to recruit, train and attract — to put it plainly —can succeed anywhere. new employees to replace those who have left. During an economic recovery, companies are Replacing lost employees quickly becomes likely to lose these employees as they have the expensive. A review of various benchmarks most options. Not only can these employees suggests that the cost of replacing an employee find new jobs during an economic recovery, lies somewhere between 25-200 percent of but they also are actively recruited during an leaver salary.11 Not only does turnover have economic downturn. Forty percent of surveyed direct financial costs, but voluntary turnover executives reported they would try to attract has also been shown to decrease workforce more critical talent with hard-to-find skills in response to the current economic downturn.13
31 Talent
By communicating one-on-one with downturn. By showing that you have dedica- top performers, you can let them know that tion to the firm and its employees, you will they will not be cut, preventing the rise in earn your employees’ respect and dedication. turnover intentions that might have caused them to look for outside opportunities. Also, 3. Don’t cut employee compensation instead of offering only additional compensa- to avoid layoffs without first tion, consider offering them other benefits, looking at your company’s such as developmental experiences that they tolerance for compensation cuts. cannot find elsewhere, for example interna- Throughout the economic downturn, tional assignments, rotational programs, or some organizations looking to reduce costs leadership roles. These actions can increase are considering cutting compensation instead organizational commitment and help you keep of reducing headcount. In a 2009 Deloitte* your top performers without breaking already survey, 326 global executives were asked how tight budgets. they anticipated their organization’s focus on reducing costs and employee headcount would 2. Don’t give leaders bonuses while change over the next 12 months. As a way to expecting employees to go without. reduce costs, these executives noted that they Given the public outcry over Wall Street expected to reduce bonuses (35 percent), ben- bonuses and automaker CEOs flying in private efits (23 percent), and salaries (18 percent).16 jets to ask for bailout funds, it is apparent that However, before implementing compensa- the focus on executive compensation is greater tion reductions, you need to understand your than ever before. Because of this, CEOs and organization’s tolerance for compensation cuts other executives cannot cut employee sala- because this will determine if they are a better ries and jobs on the one hand and take large route for your company than layoffs. bonuses on the other if they hope to prevent a In 2001, a professional services firm rise in employee turnover intentions. decided to institute pay cuts to reduce the To show that leadership is dedicated to number of layoffs. However, they learned the organizational success and is willing to share hard way that their organization’s culture was the economic burden with their employees, not tolerant of pay cuts. Their top perform- leaders should consider a symbolic act of ers, who did not feel tied to the company, dedication. During the 2001 downturn, the knew they could get better money elsewhere. 107 partners of DiamondCluster Consulting Additionally, those who remained had strong unanimously agreed to take a 10 percent pay feelings of resentment and a lack of trust cut to avoid layoffs. DiamondCluster’s employ- toward management; they felt they should be ees viewed this gesture positively and thought compensated for their hard work throughout that it reflected their team-focused culture.14 the downturn. As the economy picked up and Symbolic acts of dedication have also occurred salaries for new hires increased, the company more recently such as when Gap CEO Glenn faced salary compression issues taking several Murphy volunteered to take a 15 percent years to remedy and saw voluntary turnover pay cut.15 increase substantially leading to a talent gap By following these examples, you will show they are still recovering from today. your employees that you care about them and Alternatively, as mentioned in The Boston are committed to your organization’s success. Globe, Beth Israel Deaconess Medical Center Such actions can prevent employees from CEO, Paul Levy, recently proposed to his staff resenting management and feeling as if they have been treated unfairly throughout the * As used in this document, “Deloitte” means Deloitte Con- sulting LLP, a subsidiary of Deloitte LLP. Please see www. deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
32 The Talent Paradox: A 21st century talent and leadership agenda
the idea of doing what they could to protect Managers need to focus on how they treat “the lower-wage earners — the transporters, their employees because employees’ satis- the housekeepers, the food service people.” He faction with their supervisors is negatively told them that to protect these workers, they all related to employee turnover.18 The Corporate would have to “make a bigger sacrifice,” includ- Leadership Council has reported that 22 of ing giving up “more of their salary or benefits.” the top 25 most effective levers of employ- As soon as the words left his mouth, the crowd ees’ intentions to stay within an organization roared with applause. He went on to ask his were driven by their managers (for example, employees for cost-cutting ideas and, as emails accurately assessing employee potential, clearly started to pour in, it was clear that employ- articulating organizational goals, and encour- ees were willing to forego pay and benefits to aging employee development).19 Additionally, prevent their fellow employees from being let employees’ perceptions of manager support go. For example, employees suggested bypass- play such a large role in their decision to ing raises, working only 4 days a week, giving stay or leave an organization that even when up vacation and sick time, and eliminating employees do not believe that their organiza- bonuses as possible ways to cut costs and avoid tion supports them, employee perceptions layoffs.17 Because of the interconnectedness of manager support can still keep employees between hospital employees, where nurses and committed to their organization, preventing a administrators rely on janitors and cafeteria rise in turnover intentions.20 workers to keep everything running smoothly, To make sure managers do their part in Beth Israel possessed a culture where employ- preventing talent from leaving your organiza- ees were willing to bypass pay to save their tion, consider tying their bonuses and rewards fellow employees’ jobs. to not only operational and financial metrics Considering your culture’s tolerance for but also to their department’s turnover num- compensation cuts is key to understanding bers. By tying managers’ rewards to turnover, if they are a viable option. If they are, you you will give them the incentives they need to can avoid the anxiety and insecurity associ- maintain their focus on their people. ated with layoffs, which can prevent a rise in voluntary turnover when the economy recov- 5. Don’t assume that downsizing ers. However, if your employees are not willing survivors can do all the work to take a pay cut to keep others’ jobs, you will of their laid-off colleagues. create resentment and anger in your company, In 2000, a technology company had 10 HR leading to higher voluntary turnover, especially coordinators spread throughout the coun- among your top performers. In this situation, try managing their 650 interns. When the you are also weakening your company because economy dropped in 2001, they decided to let you are losing your best employees to keep go of all 10 HR coordinators who had experi- your worst. ence running the program. Instead of closing down the intern program, they chose one HR 4. Don’t let your managers off the employee to run it. At first, the employee tak- hook for retaining their employees. ing over this role felt proud that the company While manager focus on improving busi- thought she could do the work of 10 people, ness results is especially important and chal- until she realized how much work had to lenging during a downturn, it can lead to a be done. Trying desperately to complete the reduced focus on a company’s human capital if work of 10 people led to endless long days managers do not have an incentive to proac- and nights, causing the employee to resent the tively deal with employee issues. company and to leave as soon as the opportu- nity presented itself. Additionally, the interns
33 Talent
had a bad experience that resulted in fewer had to go to employees and tell them their accepted offers and negative buzz on campus. roles would be eliminated in a year. However, While this is an isolated example, we often leadership proactively communicated that see organizations, in their rush to reduce costs, cuts were coming, were as transparent as pos- cut people without focusing on how layoffs will sible, and let employees know they would help affect their remaining employees. This causes those impacted acquire new skills and find additional new responsibilities to be thrust new jobs. This targeted and effective com- upon survivors who are expected to pick up munication strategy made it possible for the the slack for their downsized colleagues. As a director to comment only a month after the result, employees experience “role overload,” announcement that the pending layoffs were a which lowers organizational commitment and “non-issue.” increases turnover intentions.21 These two examples show the importance Before you cut your employees, analyze of effective communication in helping reduce their tasks and be prepared to cut their low employee anxiety and building trust between value-add activities. If you are planning to have leaders and employees. Honest and transpar- employees take on new roles, make sure you ent communication can help reduce employee provide training and clearly communicate their anxiety and turnover intentions as it allows new responsibilities so they understand what employees to understand that a layoff is com- is required. ing, how it will affect them, and how the orga- nization will handle the process. Creating trust 6. Don’t be afraid to communicate between you and your employees can also help what is really occurring. prevent a rise in turnover intentions as trust may help keep employees supportive of their There is no way around it: spin does not organization, even when the organization’s work, and honesty does. At a life sciences decisions are unfavorable.22 company, management refused to announce a downsizing until the day that it occurred because they feared that an earlier announce- 7. Don’t ignore the loss of valuable institutional knowledge ment would cause people to stop working and caused by downsizing. begin looking for new jobs. However, as news of the downsizing leaked out and company When management looks to downsize, performance continued to drop, the lack of there is an incentive to cut as quickly as pos- communication from leadership led to anxiety sible to realize cost savings. However, man- and fear among their employees. The fear and agement often underestimates how much anxiety reduced organizational productivity as knowledge resides in their workers’ heads employees spent their time talking and worry- and how little is contained in the organiza- ing about the impending layoffs. It also led to tion’s systems and processes. Companies may an increase in turnover intentions throughout go through layoffs without thinking about the organization because employees knew lay- those who are left behind, often overlooking offs were coming but were unsure when they the absence of a formal process for knowledge would occur and who would be affected. transfer. The resulting chaos may lead to turn- Contrast that with one public sector orga- over intentions as survivors experience confu- nization that was implementing a new claims sion, stress and burnout as they figure out how processing system. Leadership realized early to do their predecessors’ work. on that the system would lead to a reduction In some cases, it is impossible for survivors of one-third of their workforce, and they knew to figure out what their predecessors did, caus- which employee roles would not be required ing some organizations we have worked with in a year. Due to state disclosure laws, leaders to bring back certain terminated employees
34 The Talent Paradox: A 21st century talent and leadership agenda
as contractors, paying them more than when While the decision may be hard, it is better they were employees. Without taking steps to to make one large cut than a bunch of small capture this knowledge before it leaves, the ones. “A single big layoff is tough on everyone organization must decide whether to bring but does a lot less damage than seemingly back laid-off employees at higher wages or risk endless rounds of unpredictable cuts,” writes losing customers and productivity as someone Robert Sutton, Stanford professor of manage- new adapts to the job. To avoid this risk and ment science and engineering.24 By cutting the risk of increased turnover intentions, con- once, you can put the layoff behind you and sider offering downsized employees a financial focus your efforts on improving the morale and reward or a service, such as job placement reducing the anxiety and insecurity of your or resume help, to incent them to share their remaining employees. This will help reduce the knowledge before they leave. likelihood that your remaining employees will leave the organization, help them once again 8. Don’t make small cuts over become productive, and better position you to and over again to avoid the press realize the business benefits that motivated the coverage and shock of large layoffs. cut in the first place. A recent New York Times article spoke not of massive headline-making layoffs but 9. Don’t buy into the belief that of how some companies have begun to “rou- across-the-board layoffs are good for your company. tinely carry out scattered layoffs that are small enough to stay under the radar.”23 While small Often, newspaper layoff announcements layoffs stretched over a period of time may not include the designation “across-the-board.” make the paper, these small cuts still create In our experience, organizations implement a lot of anxiety throughout the organization across-the-board layoffs because they feel they as employees start to wonder when it will be are fair since all departments share the bur- over. Repeating small cuts over time creates den. While having employees believe that the increased turnover intentions and wreaks procedure for choosing downsizing victims havoc on a company’s organizational culture. is fair can help increase organizational com- For example, a consumer products com- mitment,25 an across-the-board layoff is bad pany, which relied on its culture of knowl- business and will ultimately increase employee edge sharing to spur innovation, found itself turnover intentions. continuously laying off a few workers here For example, a pharmaceutical company and there until, over a period of years, layoffs may ask each department to cut 15 percent were a way of life. The constant cuts caused of its workforce in an effort to reduce costs. knowledge hoarding to become the new norm. However, in doing so, they will end up cutting Employees felt they could not be let go if they their critical workforce segment, the scientists had information that no one else knew. As a and researchers who develop new drugs that result, employees became increasingly reluc- drive company growth, by the same amount as tant to share information with their colleagues, other departments. Such a cut is bad business; leaving corporate knowledge management You are essentially shooting the goose that lays systems outdated and empty. Consequently, the golden eggs to keep around the one that productivity dropped as employees no longer lays nothing. Additionally, if such a cut were to had access to previous work products and occur, survivors on the R&D team could view spent time worrying about when the next cuts layoffs as unpredictable, causing an increase in would come. The fear of the ever-impending job insecurity, anxiety and turnover intentions layoff also led employees to look for new jobs among the critical workers. because they never knew if they might be next.
35 Talent
To avoid these dual threats, you first need to Endnotes identify your critical workforce segments and 1. George A. Akerlof, Andrew K. Rose and avoid cutting there unless you have no choice. Janet L. Yellen, “Job Switching and Job During, before and after the cuts occur, get Satisfaction in the U.S. Labor Market,” your leaders in front of your employees and Brookings Papers on Economic Activity, 1988, Vol. 2, 495-594. Note: Akerlof et al.’s data prepare them to communicate the reasons, only covered manufacturing as the JOLTS basis and procedures for the layoff. Make sure survey was not yet created by the BLS. they are prepared to answer any questions, 2. Kelly A. Clark, “The Job Openings and deliver a common message, and do not say Labor Turnover Survey: what initial data anything that might cause legal trouble. show,” Monthly Labor Review, Nov. 2004, 14- 23. http://www.bls.gov/opub/mlr/2004/11/ art2full.pdf . Last accessed 25 Mar. 2009. Preventing the downturn from 3. Chart 1 shows the seasonally adjusted unem- spreading into the recovery ployment rate (which is defined as the number of unemployed persons divided by the civilian utting costs and focusing on operational labor force, where the civilian labor force is the Cperformance can help companies control total of all civilians classified as unemployed the flames of an economic downturn, but if and employed) and the level of quits in the economy, seasonally adjusted, where a quit they hope to put out the fire completely, they occurs when employees voluntarily leave must also focus on their talent. If not, they their jobs. Quits data come from the BLS Job will be prone to making mistakes that will Openings and Labor Turnover Survey (JOLTS) leave smoldering resentment throughout the (http://www.bls.gov/jlt/). Unemployment numbers data from the Current Population downturn. Mistake after mistake, resentment, Survey and were accessed using the St. Louis anxiety and turnover intentions will slowly Federal Reserve’s Economic Data which can be grow and spread. As long as the economy is accessed here (https://research.stlouisfed.org/ not growing, these embers may appear dor- fred2/ ). Both last accessed on 20 Apr. 2009. mant. However, once the economy picks up, 4. Chart 2 shows the same quit data as explained new alternative employment opportunities in in note 3. The Conference Board’s Consumer Confidence Index measures public confidence the economy will ease the way for employees to in the economy by asking respondents to answer begin leaving your company. Instead of being five questions evaluating their view of current able to take advantage of the economic recov- business conditions and job availability and ery, you may find yourself on the defensive as their view of future job availability, business talent walks out the door. conditions and income. All data are season- ally adjusted and revised. Data were accessed through Polling Report on 20 Apr. 2009. http:// www.pollingreport.com/consumer.htm Originally published in Deloitte Review #5, 2009 5. Hoyt Bleakley, Ann E. Ferris, and Jeffrey C. Fuhrer, “New Data on Worker Flows During Business Cycles,” New England About the authors Economic Review, July/Aug 1999, 49-76. Bill Chafetz is a principal with Deloitte 6. Donald P. Moynihan and Sanjay K. Pandey, Consulting LLP and works with global “The Ties that Bind: Social Networks, companies on their human capital strategies. Person-Organization Value Fit, and Turnover Intention,” Journal of Public Administration Robin Adair Erickson, Ph.D, is a manager with Research and Theory, Vol. 18.2, 2008, 205-227. Deloitte Consulting LLP and is the Program 7. Magnus Sverke, Johnny Hellgren, and Manager for the Global Talent Initiative. Katharina Näswall, “No security: A meta- analysis and review of job insecurity and its Joshua Paul Ensell is an analyst with Deloitte consequences,” Journal of Occupational Health Consulting LLP. Psychology, 2002, Vol. 7.3, 242-264.
36 The Talent Paradox: A 21st century talent and leadership agenda
8. Eric G. Lambert, Nancy Lynne Hogan, for Research,” The Academy of Manage- and Shannon M. Barton, “The impact of ment Review, 1986, Vol. 11.1, 55-70. job satisfaction on turnover intent: a test 19. Corporate Leadership Council, Driving employee of a structural measurement model using performance and retention through engagement: a national sample of workers,” The Social A quantitative analysis of the effectiveness of Science Journal, 2001, Vol. 38, 223-250. employee engagement strategies, 2004, Wash- 9. Rodger W. Griffeth, Peter W. Hom, and Stefan ington DC: Corporate Executive Board. Gaertner, “A Meta-Analysis of Antecedents 20. Robin Adair Erickson and Michael E. Roloff, and Correlates of Employee Turnover: Update, “Reducing attrition after downsizing: Analyzing Moderator Tests, and Research Implica- the effects of organizational support, supervi- tions for the Next Millennium,” Journal of sor support, and gender on organizational Management, 2000, Vol. 26, 463-488. commitment,” International Journal of Orga- 10. Robin Athey, It’s 2008: Do You Know Where nizational Analysis, 2007, Vol 15.1, 35-55. Your Talent Is? : Why acquisition and retention 21. Tammy D. Allen, Deena M. Freeman, Joyce strategies don’t work, Deloitte Research, http:// E. A. Russell, Richard C. Reizenstein and www.deloitte.com/dtt/cda/doc/content/DTT_ Joseph O. Rentz, “Survivor reactions to DR_Talent_final05.pdf Accessed 30 Mar. 2009. organizational downsizing: Does time ease the 11. Deloitte, Talent Based ROI-Ways to Improve pain?,” Journal of Occupational and Organi- Employee Impact to the Bottom-Line, 2008. zational Psychology, 2001, Vol. 74, 145-164. 12. Jason D. Shaw, Nina Gupta, and John E. 22. Joel Brockner, Phyllis A. Siegel, Joseph P. Daly, Delery, “Alternative Conceptualizations of the Tom Tyler, and Christopher Martin, “When Relationship between Voluntary Turnover Trust Matters: The Moderating Effect of and Organizational Performance,” Academy of Outcome Favorability,” Administrative Science Management Journal, 2005, Vol. 48.1, 50-68. Quarterly, 1997, Vol. 42.3, 558-583. 13. Deloitte, Managing talent in a turbulent econo- 23. Steve Lohr, “Piecemeal Layoffs Avoid Warn- my: Playing both offense and defense, Feb. 2009. ing Laws,” The New York Times, 5 Mar 2009. 14. Stacy Collett, “Surviving the Big Chill,” http://www.nytimes.com/ 2009/03/06/ Consulting Magazine, 2001, Vol. 3.7, 46-51. business/06layoffs.html?pagewanted=1&_ r=2 Accessed 25 Mar. 2009. 15. “Gap CEO Takes Pay Cut,” Associated Press, 19 Mar. 2009, Fox40.com. http://www.fox40. 24. Bronwyn Fryer, Laurence J. Stybel, Maryanne com/pages/landing_local_headlines/?Gap- Peabody, Jurgen Dormann, and Robert CEO-Takes-Pay-Cut=1&blockID=243940 I. Sutton, “The Layoff,” Harvard Business &feedID=190 Accessed 20 Mar. 2009. Review, Mar. 2009, Vol. 87.3, 33-40. 16. Deloitte, Managing talent in a turbulent econo- 25. Gretchen M. Spreitzer and Aneil K. Mishra, my: Playing both offense and defense, Feb. 2009. “To Stay or to Go: Voluntary Survivor Turnover following an Organizational 17. Kevin Cullen, “A head with a heart,” The Downsizing,” Journal of Organizational Be- Boston Globe, 12 Mar. 2009, http://www. havior, 2002, Vol. 23.6, 707-729. boston.com/news/local/massachusetts/ articles/2009/03/12/a_head_with_a_heart/?s_ Source for Text Box: Robert P. Tett and John P campaign=yahoo Accessed on 25 Mar. 2009. Meyer, “Job satisfaction, organizational com- mitment, turnover intention, and turnover: 18. John L. Cotton and Jeffrey M. Tuttle, “A Path analyses based on meta-analytic findings,” Meta-Analysis and Review with Implications Personnel Psychology, 1993, Vol. 46, 259-293.
37 Talent Diversity as an Engine of Innovation Retail and consumer goods companies find competitive advantage in diversity
By Alison Kenney Paul, Thom McElroy and Tonie Leatherberry > Illustration by Igor Morski
38 The Talent Paradox: A 21st century talent and leadership agenda
ive decades ago, the case for diversity was Fast forward to today, as a new conversa- Fa compliance conversation that mainly cen- tion about diversity emerges. As the United tered on workplace race and gender differences States experiences major shifts in its demo- and was largely motivated to action by civil graphic profile, businesses are paying attention, rights legislation. By the 1990s, the diversity because customer needs and expectations are topic had broadened significantly in scope changing in ways that align with their cultural, to include a wide range of other identity and ethnic and other demographic-related prefer- cultural categories, including age, ethnicity, ences. Retail and consumer goods companies, religion, sexual orientation and physical ability in particular, recognize that understanding differences. By then, U.S. society had begun and satisfying an increasingly diverse customer to embrace the concept of recognizing and base is critical to growing market share and the respecting differences as less of a compliance bottom line over the next decade and beyond. concern and more a matter of social conscious- The United States is a far more diverse ness and fairness. In short, diversity became country than it was just 10 years ago, and it is the right thing to do. far less diverse today than it will be in another
39 Talent
10 years. Increasingly, retailers and consumer it is expanding in size more rapidly than goods companies must embrace diversity as other groups.2 a market force, and that includes diversify- • The economic clout of women. Women ing their workforces – not simply to do what really do control the nation’s purse strings. is right, but because they know that a diverse Research shows that, in addition to expe- employee base will drive affinity with and riencing social gains and improvements in understanding of the customer. The numbers workplace equality, their choices impact support this: up to 85 percent of purchasing decisions. • Ethnic shift. The U.S. Department of By some analyses, they account for $4.3 Commerce reports that 85 percent of U.S. trillion of total U.S. consumer spending population growth between 2011 and 2050 of $5.9 trillion, making women the largest will come from nonwhite ethnic groups. single economic force not just in the United Today, one in three individuals in the States, but in the world.3 United States are people of color, and by • Think strategically about untapped con- 2050 that proportion is expected to climb to sumer segments. It is estimated that the 1 one-half. buying power of the lesbian, gay, bisexual, • The bottom line. For nearly two decades, and transgender (LGBT) market will reach the growth in buying power of minority $835 billion in 2011.4 The LGBT commu- communities has greatly outpaced that nity on a per couple basis spends more on of white consumers. (See Figure 1, “The luxury goods – they are tech-savvy, early rise in buying power by diverse groups.”) adopters, brand loyal and have more house- While purchasing dollars among whites hold discretionary purchasing power than increased by 139 percent between 1990 and other segments.5 2008, growth in the same time frame was As the retail consumer landscape evolves, 187 percent among African Americans, diverse communities are representing a larger 349 percent among Hispanics, 337 percent and more important part of total buying among Asians, and 213 percent among power. Leaders of retail and consumer goods Native Americans. African Americans are businesses, in particular, will need to take steps seeing gains in disposable income, giving to understand and create affinity with an that segment the ability to spend more. increasingly multicultural and multifaceted The Hispanic market increasingly repre- consumer base. sents a larger proportion of all buyers as
Figure 1. The rise in buying power by diverse groups
2014 Buying power Increase between 1990 Buying power (projected) 1990 and 2014
African American $318 billion $1.1 trillion* 246%
Hispanic $212 billion $1.3 trillion* 513%
Asian American $117 billion $696.5 billion* 495%
Native American $19.7 billion $82.7 billion* 320%
White $3.8 trillion $13.1 trillion* 245%
(LGBT) Lesbian, Gay, Not avail. $835 billion** Bisexual, Transgender
* Source: The Multicultural Economy 2009, Selig Center for Economic Growth ** Source: The Buying Power of Gay Men and Lesbians 2008, Witeck Combs Communications
40 The Talent Paradox: A 21st century talent and leadership agenda
The business case has been demonstrated quite “thoroughly. When you’ve got over one-third of this country as people of color, a diverse workforce benefits in terms of connection and creativity. … Regardless of the group, it is hard to form a brand relationship unless you have people that come from those cultures and ethnicities that can connect.6 —— Don Knauss, chairman and CEO, The Clorox Company ” Recent research indicates that forging those Parallels with environmental connections effectively and for the long term sustainability movement depends, to a significant degree, on having an employee population that reflects the popula- wo separate but aligned studies form tion overall, as well as specific communities Tthe basis of this article. The first was a served. Appealing to a carefully segmented, survey of senior executives at 29 of the larg- diverse market is no longer only a niche oppor- est U.S. retailers based on STORES’ Top 100 tunity for adventurous store managers and list. Deloitte Consulting LLP conducted the edgy entrepreneurs: Multiculturalism is fast survey in collaboration with the National becoming a retail and consumer goods indus- Retail Federation (NRF) during the fall of 2009 try opportunity too big to ignore. A diverse to examine talent trends in the retail industry. workforce serving a broadened customer base Study findings clearly showed that the topic is a critical success factor because, as market of workforce diversity had moved from being research further demonstrates, a diverse work- a set of progressive workplace programs to a force improves service outcomes and enhances competitive and value-building imperative for financial performance. these organizations. Embracing diversity as a way of thinking is We followed up on the initial survey the most effective response for business leaders research in the spring of 2010 with a sharply and an important driver of an organization’s focused project. The goal was to gain a more innovative engine. This means diversity needs in-depth understanding of diversity, its appar- to be brought to the forefront of your value ent transformation from social issue to busi- proposition and ingrained in the organization’s ness strategy, and to identify best thinking and cultural DNA so that it becomes a branded leading practices. In this endeavor, Deloitte component of how you do business. When an Consulting LLP worked with the Network authentic, inclusive culture is at work, a diverse of Executive Women (NEW), an organiza- workforce is capable of producing a range of tion focused on providing leading practices, original and engaging ideas that is simply not research and learning events related to gender possible among homogenous employee popu- diversity, to conduct more than 30 one-on-one lations. At the top of the organization, this can interviews with diverse retail and consumer translate into more apt and financially reward- goods executives, including many respected ing decision-making.
41 Talent
The best leaders and the best companies will “leverage and exploit diversity to help make their organizations more relevant and sustainable. … Their workforce will view the world differently. They will come up with better solutions and be more effective in the market by seeing the opportunities that others in the industry do not see.7 —— James White, president and CEO, Jamba Juice ” industry leaders who also happened to be rep- into their companies through ambitious resentative of various diversity populations. recruiting efforts and the adoption of Together, these two sets of research strategic practices specifically tailored to findings reveal several compelling lessons attract and develop such talent. and opportunities: 3. Where workforce diversity is aligned 1. Retailers and consumer products compa- with demographics, those employees nies are missing key openings to capture are playing an increasingly important their share of the growing purchasing role in helping their companies connect power of diverse consumers. with a diverse customer base. Retailers 2. Retail organizations must take deliber- have a huge opportunity to leverage their ate steps to bring diverse employees diverse workforce to increase revenue and
I think the greatest benefit we have found is that “diversity drives innovation. People from different backgrounds engaged in thoughtful debate leads to groundbreaking solutions. When you have a team that is engaged and reflective of your consumer base, you can better understand, anticipate and meet the needs of your guests.8
—— Tracey Burton, former director of diversity at Target Corporation
42 ” The Talent Paradox: A 21st century talent and leadership agenda
market share by involving them in key in the workforce have a competitive business decisions. edge in understanding their diverse • Diverse employees provide access customer base. to better consumer insights because Increasingly, companies see a clear stra- they understand the cultural tegic connection between recognizing grow- nuances firsthand. ing needs in a diverse consumer market and • A workforce that reflects key character- value to their bottom line in meeting those istics of shoppers motivates improved specific and distinct product or service prefer- loyalty as those consumers feel more ences. (See sidebar, “Insights from Hispanic comfortable doing business with people employees rekindle Kingsford growth; product who understand them and mirror their manufacturer finds value in accessing a diverse “community.” market’s perspectives.”) If you are a food com- pany, for example, the Consumer Expenditures • The employee base is further strength- Report of the U.S. Bureau of Labor Statistics ened by development of a pipeline of makes for some interesting reading9: the best recruits. • African Americans and Hispanics spend 4. Understanding how diverse communities more on food than on any other item make purchasing decisions can help retail each year. and consumer goods companies adjust their product and merchandising strate- • On average, Hispanic American families gies. Companies that focus on diversity spend more annually on food than do any other consumer groups.
Insights from Hispanic employees rekindle Kingsford growth; product manufacturer finds value in accessing a diverse market’s perspectives The Kingsford brand of charcoal products was at one time 10 percent of owner Clorox’s revenue and was on the verge of becoming a dead brand a few years ago because of the growing popularity of gas grills.
Clorox CEO Don Knauss discovered that a group of Latino employees had pointed out potential value in marketing more specifically to the Hispanic consumer base. That demographic segment, the Latino employees noted, possess a family orientation and penchant for cooking outdoors with wood charcoal that would make them an ideal target customer group.
According to Knauss, “We focused on getting them (the Hispanic community) acclimated with charcoal briquettes. Connecting them with our brand and introducing charcoal transformed what was a declining business to a growing … Kingsford has (since) resurged to 4-6 percent growth.”10
In another example, a large consumer products manufacturer wanted to reach out and engage a minority segment of women consumers. Drawing on input from female employees in the same market segment, it created a highly successful affinity marketing campaign that celebrates the diverse, collective beauty of these consumers and focuses on their contributions toward positive change in their communities. The effort is positioning the manufacturing company as a socially responsible corporate citizen in addition to promoting and growing its many personal care brands.
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• On average, Hispanic (22 percent) and companies must fully utilize all of the African American (14 percent) families resources within their control, not the least spent more on apparel and services than of which are their human resources. (See did any other consumer groups. sidebars: “Going to the source to gain cus- tomer understanding” and “Trends in LGBT But, often, having a workforce that under- market: Online, optimistic and loyal.”) The link stands and is part of the consuming commu- between customer segmentation and product nity is essential to translating data into growing and service appeal can effectively be made by the bottom line. leveraging a diverse employee base – people who instinctively know what customers want Diversity challenges faced because they understand in a very direct way by retail and consumer the lifestyle and experience drivers of custom- goods companies ers’ needs and desires. Good news for employers is that diverse Participants in our research cited a variety employees comprise a growing part of the of talent challenges associated with becoming overall talent pool. Growth of the U.S. labor more internally diverse and performing better market between 2010 and 2018 is being among diverse consumers. One-on-one inter- projected at about 6 percent, with increases views included the following comments: among diverse workers the primary drivers of • Our workforce is not reflective of our that expansion: For example, Hispanic workers customer base. are expected to increase in that timeframe by 27 percent, followed by Asians at 23 percent, • Our leadership team is not diverse. African Americans at 9 percent and Whites at • We are having trouble recruiting 4 percent.12 diverse workers. Retailers and consumer goods companies • We are held back by lack of understanding that recruit their share of these new entrants of the cultural nuances of diverse consumer at all levels of the organization may realize the groups, and/or diverse consumers do not opportunity represented by an enhanced cul- identify with our brand. tural mix. This may include added perspective on marketing and merchandising campaigns, Keeping up with a changing customer improved strategic decision-making and the demographic has great impact on the evolu- benefits of these workers’ direct interactions tion of the retail value chain. In an era of with customers on the selling floor. global competition, retail and manufacturing
Going to the source to gain customer understanding IKEA, the Swedish home furnishings manufacturer, has a knack for identifying consumer needs and tastes on a global basis. Several years ago, the popular and highly successful retailer realized it was not reaching Hispanics in California. Since the company is particularly attuned to the vast differences in consumer preferences across the United States, Mats Nilsson, the interior design director at that time, was curious what they had missed. He had designers visit the homes of a number of California Hispanic staff members, which revealed some important gaps in the store’s appeal within that community: Displays did not feature dining setups for large families or living room seating for more than two people, which is the Swedish norm. In addition, the IKEA color palette was too subdued and photo/picture displays too minimal to suit typical Hispanic tastes and preferences. By enlarging settings and warming up displays, the store was able to better position itself for success in the Hispanic consumer market.11
44 The Talent Paradox: A 21st century talent and leadership agenda
There is no question that seeking out diversity of “thought, background, experience and perspective, coupled with having an inclusive environment where those differences are seen as assets, helps give us a competitive advantage.13 —— Mark King, business partner, Office of Diversity and Inclusion, the Kellogg” Company Start with recruiting for diversity arget Corporation’s presence at diversity Trends in LGBT market: Trecruiting events along with its reputation Online, optimistic and for promoting from within the company has loyal created a recruiting brand that attracts diverse Recent studies regarding the talent. In addition, Target makes a point of LGBT market’s buying power and recruiting on historically diverse campuses purchasing characteristics indicate and participating in diversity recruiting events, that a high percentage of gay such as annual conferences organized by the consumers are college-educated, shop online and purchase the National Black MBA Association, National latest technology.15 Among other Society of Hispanic MBAs, Out & Equal, and traits cited, gay and lesbian more. Diverse team leaders from across the consumers tend to be more company attend these recruiting events so that optimistic than other Americans job candidates are able to see employees who about the overall direction of look like them and get firsthand information the country and the economic 14 recovery, an observation that has about a company where they can grow. led industry analysts to anticipate Although many companies have found it that this group’s spending may difficult to measure the impact of diversity increase, despite the country’s and inclusion initiatives on the bottom line, slow progress in regaining its research indicates that executives from market- financial health. In addition, LGBT dominant companies overwhelmingly believe consumers are typically loyal to LGBT-friendly brands and those that diversity is profitable. In a 2009 study by that speak to them directly. Deloitte Consulting LLP of retail talent trends, Consumer data indicate that 78 percent of gay senior executives were asked how important online users prefer to buy from companies that diversity and inclusion are to company perfor- specifically advertise to the gay market.16 mance; 90 percent of respondents agreed that it was critical. Furthermore, in another study, Catalyst found Fortune 500 companies with with the lowest percentages of female the highest percentages of female corporate corporate officers.17 officers reported, on average, a 35.1 percent Measurable goals related to attracting and higher return on equity and a 34 percent maintaining diverse talent create accountabil- higher return to shareholders than companies ity, telegraph the seriousness of the initiative,
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Retail is a demanding business, and successful retailers don’t just overcome challenges, they purposely challenge themselves to improve continuously. It is important that we leverage this willingness to challenge ourselves through our diversity programs and our associates, making diversity an integral part of our culture. The Office of Diversity should not build stand-alone “programs.” We must instead leverage our approaches into sustainable structures that change the way people think about diversity. Diversity is critical to our broader, fundamental goal of maintaining a competitive workforce, which requires maximizing the potential and value of all our associate base, including their diversity of thought, experience and perspective.19
—— Cole Brown, chief diversity officer, Walmart Stores, Inc.
46 The Talent Paradox: A 21st century talent and leadership agenda
unambiguously define its scope, allow for today’s diverse talent. Mike Vail, president the celebration of measurable successes, and and COO of Sweetbay Supermarket, tells clearly illuminate any need for reassessment or how he recognized the limitations for women improvement. Toward that end, some compa- to become store managers based on the nies have several diversity recruiters dedicated career path structures that were in place. He solely to recruiting multicultural talent. explained that the store manager position in his industry can be demanding, inflexible and Retaining diverse talent sometimes physically challenging. “As I began to do work within the area nce you have them, you have to keep of diversity,” he said, “I saw this first hand Othem. In The Inclusion Paradox: The and we started making immediate changes. Obama Era and the Transformation of Global Traditionally, women would hold positions Diversity, Andrés T. Tapia writes, “Many diver- within service departments (i.e. bakery, deli, sity best practices have focused on bringing front end, etc.) with limited paths to growth. those who are different in the door. Many of At Sweetbay today, aspiring store managers these efforts have been quite successful, and can complete a customized career path that companies have achieved diversity – the mix. exposes them to all required aspects of man- But in many places, the mix is not working agement but in a manner that doesn’t dis- well. We end up with diversity without inclu- criminate against any biases. We’ve seen great sion. Here diversity’s promise—that greater improvement with diversity among our store diversity leads to greater innovation and managers as well as in mid- to senior-level profitability—dies.”18 management positions. I’m proud of the work Diverse employees have different motiva- we’ve begun.”20 tions, attitudes and lifestyles than those who Ultimately strong recruiting, retention and currently occupy the C-suite in many retail development initiatives will build sustainability and manufacturing organizations, leaving of the multicultural talent pool and become many to feel that in the long term they sim- a self-perpetuating cycle of investing in and ply don’t fit in. In these situations, traditional receiving value. ways of retaining talent must be revisited and made relevant to the needs and values of diverse populations. Engage diverse talent: Mentoring programs and thoughtful suc- Affinity drives loyalty cession planning help engage diverse individu- drives business value als in a well-supported, long-term career with op management must view workforce their employer. Retention of high-potential, diversity not as a stand-alone program diverse talent starts with identifying indi- T but as an essential element of their organiza- viduals early on so that steps can be taken to tion’s value proposition and a critical ingredi- invest them in the company and put them on ent of their business survival. Moreover, they a track to the next level. Another increasingly must demonstrate openness to fresh ideas popular means of providing a community of and ensure that mere tolerance for differences support is Employee Resource Groups (ERGs) is replaced by a commitment to inclusion. or Business Resource Groups (BRGs), which Rather than lip service, they must actively and provide networking, support and professional genuinely embrace that which makes people development opportunities to diverse talent. different—even unique—in their experiences (See sidebar, “ERGs lead to tasty and profitable and aspirations as well as their physical and investments.”) cultural distinctions. In many instances, the paths that led cur- Sustainable enterprises will be those that rent leaders to the top will not work with view diversity in a holistic, business-focused
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consumers who see themselves in the employ- ERGs lead to tasty and ees by whom they’re served, and enhanced results from both employee recruiting and new profitable investments business development efforts. Retail organiza- Tapping the innate cultural expertise of a diverse workforce tions and consumer goods companies focused can be quite profitable. Because the consumer is best served in a meaningful and credible way on diversity when diverse employees bring their unique perspectives to the table, companies often make use of ERGs to can inspire purchases and loyalty with entire develop innovative products and services or bring together populations of consumers who experience the diverse task forces to generate solutions around major regard, respect and affinity they seek. business issues. With the commitment of their top lead- ership, retail and consumer products orga- There are many examples of successful products and solutions coming out of such groups. At the Campbell Soup nizations will redefine the culture of their Company, Select Harvest was successfully developed by companies and genuinely reflect and embrace women employees for women consumers.21 ConAgra Foods pluralism for the benefit of their consumers, reached out to its Asian ERG for input into a new line of communities, employees and shareholders. Healthy Choice Steamers that is seeing great returns.22
Similarly, the Frito-Lay division of PepsiCo involved its Latino Originally published in ERG in new product development, resulting in the addition Deloitte Review #8, 2011 of product flavors that reflected Hispanic heritage and enhanced sales.23 About the authors
Alison Kenney Paul is vice chairman and U.S. way. (See Figure 2.) Their leaders will architect Retail Leader, Deloitte Consulting LLP. a talent strategy that is inclusive of diversity Thom McElroy is a principal with Deloitte and that gets the organization where it aims Consulting LLP and is the U.S. Retail Human to go. Capital Practice Leader. By these actions, company leaders lay the Tonie Leatherberry is a principal with Deloitte foundation for better insights about their Consulting LLP and chairs its Diversity & customers, improved loyalty from diverse Inclusion program.
Figure 2: A holistic approach to diversity means measuring performance at all levels and embedding diversity into the DNA of the organization Make leadership Align diversity goals Establish your brand Set goals at all levels accountable with corporate goals for diversity Build diversity goals in Create diversity goals at the Create a diversity strategy Build diversity into the executive compensation executive, functional, team that supports the corporate strategic marketing plan and individual levels mission Include people Hold everyone accountable Make diversity strategy an Establish a record of development of diverse for their contributions to a enabler of business growth external recognition from talent in leadership goals more inclusive workplace organizations such as: Diversity, Inc.; Catalyst; Working Mother magazine; the Human Rights Campaign Develop metrics for Establish diversity Develop relationships accountability in: recruiting, councils throughout the with women and minority retention, development, organization to empower leadership organizations advancement, bottom- the workforce to innovate line impact, employee and create change engagement, etc.
48 The Talent Paradox: A 21st century talent and leadership agenda
Endnotes
1. U.S. Census Bureau, ‘‘Annual Estimates of the 12. “Labor Force Data.” U.S. Bureau of Labor Population by Race, Hispanic Origin, Sex and Statistics. Web. 23 Sept. 2010.
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50 The Talent Paradox: A 21st century talent and leadership agenda
Corporations, careers and culture
51
The Talent Paradox: A 21st century talent and leadership agenda Mass Career Customization Building the corporate lattice organization
By Cathy Benko and Anne Weisberg > Illustration by Andrew Pinkham
s a senior executive, Steve has had a tra- in a manner that employees could have their Aditional career in many respects. Always proverbial cake and eat it too? on the move, he scaled the corporate ladder Business leaders like Steve are not the only as he built a series of successful business units ones looking for alternatives to the all-or- within the same organization. His wife stayed nothing approach of the corporate ladder. home to raise their three children, returning Many of tomorrow’s leaders are searching for to graduate school only when the kids were in the same thing. These “knowledge profession- middle and high school. In one respect, how- als,” who are in ever-increasing demand and ever, Steve is not so traditional. Ten years away will drive business growth through the early from retirement, he wants to scale back his decades of the 21st century, are redefining travel, even though this may limit his opportu- what it means to build a successful career. They nities for leadership roles. “At this point in my have grown up in a customized world, where life, my priorities are such that my faith and choice is everywhere. As Mark Penn states in personal life come before the role I play within his book Microtrends, “The power of individual the organization,” Steve explained. “I want to choice has never been greater.”2 At the same be true to my priorities.” time, people’s lives are increasingly complex In other words, Steve wants options – and varied, resulting in the “end of the lock- options that have not historically existed step lifestyle.”3 No wonder, then, that men and for people at the top or on the fast track up women are increasingly disappointed with the the corporate ladder. In fact, for a variety of one-size-fits-all corporate ladder. As a result, reasons including better health, financial gains we believe responding to the war for talent in and personal preference, many Baby Boomers the coming years will require a restructuring nearing retirement do not want to stop work- of both the expectations and the mechan- ing completely, but they don’t want to work ics of how careers are built. In this article, we in the same way they’ve been working either.1 propose a new model for doing both we call What if an ingredient of the solution to the mass career customization (MCC).4 MCC is impending talent gap posed, in large part, by based on our view that the career journey of the retirement of the Baby Boomers, was to knowledge workers increasingly looks like sine provide options for customizing career paths waves of sorts, with climbing and falling levels of engagement with work over time.
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Figure 1 — Corporate Ladder Versus Corporate Lattice
CORPORATE CORPORATE LADDER LATTICE
• Traditional hierarchy • More conducive to evolving matrix • Singular path upward Upward momentum structure • Move up or stop moving • Multiple paths upward • Work-versus-life balance Integrated with talent • Move faster, slower; • Fits more traditional management change directions family structure systems • Career-life fit • Assumes workers’ needs • Adjusts as workers’ remain consistent over time needs change over time
From Ladder to Lattice Deloitte* conducted of over 250 executives across over a dozen organizations, over 70 n fact, we see the corporate ladder model for percent of them said they had dialed up or career progression already giving way to what I down, either formally or informally, at some we term the corporate lattice. In mathematics, point during their careers.5 a lattice ladder allows one to move in many Looking back, have you ever formally directions, is not limited to upward or down- or informally “dialed up or dialed down” ward progress, and can be repeated infinitely at your career? any scale. In the real world, lattices are living Stories abound. A former U.S. Marine with platforms for growth, with upward momentum an MBA moves across industries and geogra- visible along many paths. The corporate lattice phies, as well as in and out of the workforce, model of career progression allows for multiple staying home for three years with his children. paths upward taking into account the changing He has customized his career in tandem with needs of both the individual and the organi- his wife’s as they traverse the world of work zation across various intervals of time. It can and home. Today, he works full-time from foster transparency and shared responsibility home, where he enjoys the level of day-to-day for career planning, which in turn can drive a flexibility that this arrangement affords. An new brand of loyalty, based on the continuous attorney turned forensic investigator not only collaboration between employer and employee changed careers, but spent six years at home to design customized career paths. with her children, then gradually advanced and While not visible to most managers, much was eventually promoted to partner, all while of the challenge they face today likely comes maintaining an 80 percent schedule. Now, as from the fact that knowledge workers are an empty nester, she is completely dialed up already building lattice-like careers by moving in and out of organizations and up and down * As used in this document, “Deloitte” means Deloitte LLP hierarchies, albeit often without support or [and its subsidiaries]. Please see www.deloitte.com/us/ about for a detailed description of the legal structure of structure from their organizations. In a poll Deloitte LLP and its subsidiaries.
54 The Talent Paradox: A 21st century talent and leadership agenda
– leading a team of 30 and traveling around the stagnant career ladders.”8 Instead, SAS is con- world (including England, where her oldest is tinuously calibrating the needs of the business studying at a university) on business.6 with the needs of its people, moving people around the organization and customizing dial- Looking back, have you ever formally or informally “dialed up up/dial-down options. or dialed down” your career? While SAS and other companies can Votes Received: 259 demonstrate the benefits of an informal lattice Yes 72.2% model, we believe that adopting a systematic approach to replacing the corporate ladder No 12.0% with the corporate lattice creates more consis- No, but I know someone who has 15.8% tent, scalable results. To meet this challenge, we have designed the MCC framework, which These stories are evidence that sweeping draws on the effectiveness of mass product cus- changes in the way we work, live and build tomization for inspiration. Mass product cus- careers are not just on the horizon – they tomization produces business benefits in three are here to stay. Managers are struggling to areas: reduced costs, increased profitability respond to these changes. They can sometimes (through value pricing), and greater customer have difficulty relating to the issues facing their satisfaction and brand loyalty. MCC can pro- employees since today’s circumstances are dif- duce similar benefits: reduced acquisition and ferent than when these managers were climb- retention costs; increased productivity through ing the ladder. They also can make the mistake greater employee retention and career-life fit, of treating the changes in the workforce as a and increased loyalty from greater connection series of discrete, singular events. In fact, we with employees. believe these events are not only connected, they are converging, creating unprecedented Mass Customization pressure on organizations to accelerate the Shared Benefits transition from corporate ladder to lattice. The workplace has experienced an erosion of loyalty – and rise of churn. Fifty-six per- Mass Career Customization: cent of Americans say that employers are less Enabling the Corporate Lattice loyal to employees than a generation ago, and 9 uilding the corporate lattice organiza- 51 percent say that employees are less loyal. Btion first and foremost requires a new About one in three employees had recently mental model of career progression based been approached by another organization on lattice-like thinking. Some organizations hoping to lure them away, and 77 percent of demonstrate this type of thinking with excel- workers aged 36 to 40—right in the pipeline lent business results. Take SAS, the world’s for leadership—last in new jobs less than five 12 largest software company. Based in Cary, years. What The Economist calls “the collapse North Carolina, SAS enjoys double-digit of loyalty” has made it harder for companies to growth, a turnover rate of 3 percent compared respond to the talent shortage, as people move 13 to the industry average that hovers around 20 in and out of jobs more frequently. percent, and a customer retention rate of 98 This flux is difficult on individuals as well percent.7 They attribute much of these results as organizations. Even Gen Y workers, who to innovative workplace practices supported have a reputation for being fickle, would actu- by lattice-like thinking, including work/life ally rather stay with one organization if that integration programs. As its vice president organization delivered on its commitments and 14 for Human Resources explained, “One of the allowed them to grow and contribute. From hallmarks of our success is we don’t really have the employer’s perspective, employee loyalty
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Six Trends Converging to Create the Urgency for Change We have identified six trends which, when taken together, explain the urgency of accelerating the transition to the corporate lattice model.
Figure 2. Workforce trends convergence KEY TRENDS Shrinking pool of skilled labor
Changing family structures
Increasing number of women WORKFORCE IN 2007 Changing expectations of men AND BEYOND
Evolving expectations of Gen X and Gen Y
Increasing impact of technology
Trend 1: Shrinking Pool of Skilled Labor The Economic Policy Foundation estimates that there will be a six-million-person gap in the United States between the number of students graduating from college and the number of workers needed to cover job growth and replace retiring Boomers by 2012 and a 35-million-person gap by 2025.10 Despite assumptions to the contrary, this gap cannot be filled completely using conventional tactics like outsourcing and technology-based productivity gains. In fact, India—a major outsourcing destination—is itself starting to feel the pinch, with a 500,000 worker shortfall predicted in its IT sector by 2010.11
Trend 2: Changing Family Structures. Only 17 percent of U.S. households today are traditional with a husband who works outside the home and a wife who does not, compared to 63 percent of households in earlier generations.15 Nontraditional families are putting pressure on existing workplace models of career progression originally structured to match the mainstream rhythms of the traditional two-parent, single-income household of the past.
Trend 3: Increasing Number of Women in the Workforce Nearly 60 percent of college graduates today are women, graduating with better grade point averages and more honors than men.16 More than half of the management jobs today are held by women. Yet, most women’s lives do not fit traditional career trajectories; indeed, the majority of women have nonlinear or discontinuous careers.
Trend 4: Changing Expectations of Men More and more men have reached a point where preserving or increasing their personal time is more appealing than acquiring bigger jobs and more money. A recent study found that 56 percent of senior executives surveyed would strongly consider refusing a promotion if it meant fewer hours available for their personal lives.17
Trend 5: Evolving Expectations of Generations X and Y Defined as those between 18 and 43 years of age, these demographic groups have high expectations for both personal and work lives.18 Members of these generations view careers as personalized paths that fit their individual interests, development goals and desire for many diverse experiences. They are technologically savvy, adaptable to change, and often eager to work using nontraditional methods and schedules.
Trend 6: Increasing Impact of Technology Advanced technologies continue to pave the way for employers and employees to create new options for when, how and where work gets done. The payoff for using technology in this way can be substantial. Sun Microsystems reported cost savings of more than $387 million over four years from a global program involving more than 55 percent of its 35,000 employees.19
56 The Talent Paradox: A 21st century talent and leadership agenda
can help create customer loyalty—creating a by moving the sliders up or down, MCC allows positive, reinforcing relationship. As James employees to dial up or dial down to optimize Goodnight, CEO and founder of SAS, has said: their career paths at varying life stages. “Over the years, I have learned that employee Although MCC provides options for loyalty leads to customer loyalty, increased multiple career paths, it does not open the innovation and higher-quality software.”20 door to an infinite number of profile combina- MCC can bring loyalty back into the workplace tions. Our research has shown that, on the through a more transparent, continuous col- contrary, and perhaps counter-intuitively, at laboration that can benefit both the employee any point in time the vast majority of employ- and employer sides of the corporate table. ees will have profiles that look more or less the The MCC framework articulates a defi- same (like the one depicted in the MCC nite, not infinite, set of options along the four Common Profile). However, employees who dimensions of a career—Pace, Workload, believe they have some control over career Location/Schedule, and Role—as well as the options and enjoy organizational support for trade-offs associated with choices across these their decisions can be happier, more loyal and interrelated dimensions. In collaboration with more productive.21 Even if they don’t currently their managers, employees customize their need options, employees can derive a psychic careers by periodically selecting options along benefit from knowing that options and an each dimension based on their career objec- organizational process for managing these are tives and current life circumstances within the available should they need to deviate from context of business needs. These choices are common, full-time and unrestricted employ- reflected on an MCC profile. The MCC “com- ment sometime in the future. We call this MCC mon” profile, shown below, depicts what most option value, and it is what, in part, can build a people’s profile would look like at any particu- greater sense of loyalty. There is also a cultural lar point in time. value that MCC can deliver by requiring well-framed conversations between employee MCC Common Profile and employer regarding career choices. The transparency and shared responsibility for The MCC profile provides a snapshot of career planning that result from these struc- each employee’s career at a given point in time, tured conversations can be integral features of and it can be adjusted over time. Just as you a corporate lattice organization. would adjust the sound on a stereo equalizer
Figure 3. Mass customization and shared benefits
MASS PRODUCT CUSTOMIZATION MASS CAREER CUSTOMIZATION
Increased loyalty from greater Increased loyalty from greater connection with customers connection with employees
Decreased workforce Reduced supply chain costs acquisition and retention costs
Increased productivity Increased profitability through greater satisfaction from value pricing and career-life fit
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MCC Over Time: Fact, Not Fiction What’s Your Sine? aving determined the need to evolve hile most employees’ MCC profiles Hinto a corporate lattice organization, Wwill display common attributes, over Deloitte began piloting MCC in 2005 and has time each employee’s MCC profile will exhibit since rolled out MCC to approximately 7,500 its own path, recording the series of choices individuals, with plans to roll it out to over made over the course of the employee’s career. 30,000 additional U.S.-based employees over For many, this path will look like a sine wave of the next year. The objectives of the pilot and sorts, with climbing and falling levels of con- the initial wave of implementations were to: tribution over time, as illustrated in the MCC • Sustain high levels of client service Sine Wave figure below. As this employee’s • Quantify the impact of MCC on various career progressed, his level of contribution rose talent models and fell. While he is not fully dialed up today, • Support a cultural shift in acceptability of he anticipates being fully dialed up in the near career customization future. As he explained: “I see a time in the not-too-distant future when I will want to dial • Improve practitioner job satisfaction up my career, in part so that my wife can dial and commitment down and spend time at home with the kids • Increase retention of high talent before they go off to college.” Under the MCC • Create a sustainable, scalable model framework, his desire to dial up would be cap- tured in building his next stage MCC profile. The findings from the Deloitte MCC This is the option value that MCC delivers. pilots and the initial waves of implementation
Why Flexible Work Arrangements Are Not the Answer To date, the primary corporate response to the changing workforce has been flexible work arrangements (FWAs). Typical FWAs include reduced hours or part-time arrangements, telecommuting, job sharing and compressed work weeks. FWAs were instituted as a retention tool, but rarely have worked that way. For example, while public accounting firms have aggressively implemented FWAs for years, work-life issues are cited by almost 90 percent of women and men as the reason for leaving.22
Similarly, while over 90 percent of law firms offer FWAs, very few lawyers actually use them, and turnover rates among associates are at an all-time high, with nearly 80 percent leaving by the end of their fifth year.23
Whatever the form, by focusing on the job at the moment rather than the career over time, FWAs have served mainly as way stations in career paths, sidelining—and even derailing—the careers of FWA program participants. They are point solutions positioned as one-off accommodations or exceptions that do not scale or address the structural issue of aligning the workplace with the evolving needs of the workforce. FWAs are often negotiated in a state of crisis. They focus almost exclusively on hours and work location at a specific point in time and are neither adequately integrated with the organization’s ongoing talent management processes, nor do they address the larger question of career progression. In short, FWAs lack connection with the construct of careers. In addition, men view FWAs as “for women only,” and utilization among men is extremely low, even though men are increasingly interested in a better career-life fit.
Basically, as exceptions to the norm, FWAs do not change the norm. If anything, FWAs result in reinforcing the workplace norm of continuous, full-time employment over the course of one’s career. It is our prediction that within the next few years, FWAs increasingly will be viewed as an interim, late-20th-century workplace solution, a transitional step that helped individuals cope with changing work and personal demands. What is needed now is a more significant structural response to the workforce changes that are already well underway.
58 The Talent Paradox: A 21st century talent and leadership agenda
Figure 4 — The four dimensions of mass career customization LOCATION/ FOUR DIMENSIONS OF MCC PACE WORKLOAD SCHEDULE ROLE Not Accelerated Full Restricted Leader PACE Options relating to the rate of career progression
WORKLOAD Choices relating to the quantity of work output
LOCATION/SCHEDULE Options for where and when work is performed
ROLE Decelerated Reduced Restricted Individual Choices in position and responsibility Contributor
were encouraging. Not only was there no an effective career-life fit were nearly twice negative impact on client service, some clients as likely as those who did not have an effec- responded very positively and were interested tive career-life fit to report that they intended in what they could learn from Deloitte’s experi- to stay for six years or more. And those who ence. Participants reported an increase in job projected a good future career-life fit were satisfaction and productivity, stating that the more than twice as likely to report that they MCC framework helped them manage work, intended to stay than those who did not, career and personal life. There has also been confirming that there is a psychic value in a significant improvement in the quality of knowing a model exists that can be tailored career conversations. Findings from the initial to evolving life circumstances—regardless of roll-out of MCC confirmed that, while 85 whether these options are ever exercised in an percent of participants said they were having extraordinary way. career development conversations, less than Another key survey finding is that 55 half said those conversations covered career- percent of respondents reported upon initial life fit. The MCC framework can help bake introduction of MCC that MCC had a posi- this element into career conversations. “The tive impact on their continued desire to work counseling sessions I have held using the MCC at Deloitte, and 62 percent of respondents framework were clearly more productive. My reported that MCC had a positive impact on counselees came prepared to talk about how their likelihood to recommend Deloitte to their profiles look today and what their profiles others as a great place to work. In addition to might look like in the future. They appreciated employee attitude survey results, key met- the transparency,” says Mike Pacetti, a partner rics for the first wave of MCC roll-outs have with Deloitte and Touche LLP. “My counselees positive trends. talked openly about career-life fit. There was a Retention of top performers in those areas real acknowledgment of the need to be able to of Deloitte that participated in the initial MCC customize careers.” roll-out improved more than the retention In addition, findings from the initial waves improvements made by Deloitte as a whole. of roll-outs further confirm the ways in which Another key metric, employee referrals, MCC builds employee loyalty. First, survey showed that roll-out participants have a higher findings confirmed that respondents who have referral rate than the baseline population.
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Figure 5 — The mass career customization sine wave
STAGE 1 STAGE 2 STAGE 3 STAGE 4 Career years: 1-5 Career years: 6-9 Career years: 10-present Career years: Future Phase: Pre-kids Phase: Young kids Phase: Dueling careers Phase: Next
LOCATION/ LOCATION/ LOCATION/ LOCATION/ PACE WORKLOAD SCHEDULE ROLE PACE WORKLOAD SCHEDULE ROLE PACE WORKLOAD SCHEDULE ROLE PACE WORKLOAD SCHEDULE ROLE Not Not Not Not Accelerated Full Restricted Leader Accelerated Full Restricted Leader Accelerated Full Restricted Leader Accelerated Full Restricted Leader
Individual Individual Individual Individual Decelerated Reduced Restricted Decelerated Reduced Restricted Decelerated Reduced Restricted Decelerated Reduced Restricted Contributor Contributor Contributor Contributor
• Enlisted in Marine Corps • Has two kids in less than • Telecommutes from home • Intends to dial up PACE two years office, but travels and LOCATION/SCHEDULE • Completed military service; periodically for work; in the near future to allow Moved to manufacturing • Spouse scales back to Pace somewhat slower as his wife to dial down 30-hour work week • On accelerated career path a result • Rigid demands that he be • Got married available to work anytime, and be present at the plant whenever necessary, result in having to be “on call” all the time
Referrals are a significant measure of efficacy significant amount of attention. The attention because the quality of candidates is a higher was much less about technology per se but caliber than the open market, and because it’s a around several philosophical areas. For exam- positive indication of employee satisfaction. ple, whether or not those who elected to dial While there was a significant concern early down could be given high performance ratings in the execution of the pilots that moving to (they can) garnered some debate. In addition, an MCC model would open the floodgates for there was debate about how to treat perfor- decelerating careers, the fear was shown to be mance ratings for those who elected to dial up unfounded. The vast majority of employees but failed to achieve their dialed up goals. elected not to initially change their level of At the same time, managers have had engagement with Deloitte by either dialing up to take action to integrate new information or down. In the eight percent of cases where about their employees’ plans and desires into individuals wanted to adjust their level of con- how their teams are structured and work tribution, the interest in initiating new requests is delivered. Not surprisingly to us, there to accelerate careers outpaced interest in decel- was variability in both their willingness erating careers by as much as two to one. and ability to handle this and their effective Even with these initial positive results, counseling abilities. implementing MCC at Deloitte has had its Other organizations are now adopting challenges. One challenge has been integrating the MCC framework. One such example MCC into existing talent management pro- is Thrivent Financial, which is using it as a cesses and systems. Articulating the impact foundation for creating a “career culture that of different choices available under the MCC appeals to the different generations in our framework on compensation, goal setting, workforce and aligns with our corporate value performance reviews and ratings required a of respecting the whole person,” explained
60 The Talent Paradox: A 21st century talent and leadership agenda
Barbara Foote, vice president of the Enterprise the question: “Why should I care?” using the Talent Office at Thrivent. As a financial- ser language and discipline of business. While vices institution struggling with high turnover that answer will look different for each orga- among its sales force and the need to attract an nization, we think that maintaining industry increasingly diverse workforce, Thrivent has advantage will depend largely on whether you been piloting MCC as part of an overall career ask that question. development program in its Marketing divi- sion, where the leaders see the MCC frame- The Elephant in the Room work as a way to build the talent strength they need to deliver on their goals. Thrivent’s lead- With the business challenge well articu- ership recognizes both the need to evolve into lated, the arguments convincing and defen- a lattice organization, and the need to inten- sible, and the course of action laid out, we are tionally address those elements of its corporate aware that not everyone recognizes that (1) culture that stand in the way. there is a structural workforce shift at hand, Specifically, Thrivent was experiencing a (2) the workplace must respond in kind, reluctance of their people to express career and (3) now is the time and place to address aspirations because of their emphasis on per- this challenge. sonal humility, as well as the negative percep- Perhaps this perspective is most effectively tion surrounding lateral moves, which were described by a personal experience in a local seen as resulting from either less-than-stellar Italian restaurant with a great friend and newly performance of the individual or “hoard- retired mentor. Over a leisurely dinner, we ing” behavior of the manager. Things are began talking about workforce trends and different now. mass career customization. After some good- “MCC allows our people to have career natured bantering back and forth, his bottom conversations in a way that is acceptable within line took me aback. He asserted that successful our culture, and yet transformational in terms people in business possess two qualities: They of quality, breath and depth,” Foote said. are talented and they work really hard. And Adoption of MCC as the framework to anything that undermines these two character- enable the corporate lattice organization to istics will ruin business. take root is, in many respects, acknowledge- While we agreed that talent and hard work ment that the organization is at an inflection are essential, I believe the reality is that the point relative to how it views and develops its career journey of today’s knowledge workers talent. Having said this, each of us walks into will not look like his. As his wife of 40 years the future backwards – even if we want to go pointed out, “The reason that you were so suc- in a new direction, we are not always aware cessful is because you had the talent and you that we are defining this in relation to our past worked really hard at one thing – your career. experiences. We call this the “TiVo revelation.” The other elements of life during those years When TiVo was introduced, most thought were handled by me.” The division of labor at of it as a fancy VCR. But over time, we have home for their three married children, in their come to appreciate how TiVo affords a whole 30s and parents of young children, is totally new, customized approach to experiencing different. Take their oldest son as an example. television entertainment. Similarly with MCC, He is talented and works very hard – and so leading your organization to adopt MCC—in does his neurologist wife. The difference is spirit or in form—will require a solid under- that they do not “work hard” singularly at their standing and buy-in of the urgency regarding careers. They work hard as a team, traversing the realities of the talent market, as well as the home and work responsibilities. business benefits of embracing the new lattice The point? The delineation between the paradigm. In other words, you need to answer home front and the work front has become
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irreversibly blurred. While the couple I had Endnotes dinner with typified the 17 percent of the 1. See, e.g., Comptroller General’s Forum, U.S. population that categorize the traditional Engaging and Retaining Older Workers (GAO, workforce, their children characterize the 83 February 2007); Ken Dychtwald, Robert percent who do not. And this is not likely to Morison, and Tamara J. Erickson, Workforce Crisis: How to Beat the Coming Shortage of change. We believe it’s time to start thinking Skills and Talent (Boston: Harvard Business and creating solutions to deal with this new School Press, 2006); “Realizing an Experience reality structurally and systemically. And that’s Dividend,” http//civicventures.org/publica- what building a corporate lattice organization tions/booklets, accessed October 4, 2007; AARP, Workforce Trends, http://www.aarp. is about. org/money/careers/employerresourcecenter/ trends; Ken Dychtwald, Tamara Erickson, and Bob Morison, “It’s Time to Retire Retirement” Originally published in (Harvard Business Review, March 2004) Deloitte Review #3, 2008 2. Mark Penn, Microtrends: The Small Forces Be- hind Tomorrow’s Big Changes (Twelve, 2007) p. xi About the authors 3. Phyllis Moen and Patricia Roehling, The Career Cathy Benko is vice chairman and chief talent Mystique: Cracks in the American Dream officer for Deloitte LLP. (Lanham, MD: Rowman & Littlefield, 2005) 4. U.S. Patent Pending Anne Weisberg is a director in Deloitte’s talent organization, with Deloitte Services LP. 5. Poll taken during Mass Career Customiza- tion DeBrief, September 28, 2007 They are co-authors of Mass Career 6. Interviews conducted by the authors, 2007 Customization: Aligning the Workplace with 7. Cathleen Benko and Anne Weisberg, Mass Today’s Nontraditional Workforce (Harvard Career Customization: Aligning the Workplace Business School Press, 2007). with Today’s Nontraditional Workforce (Harvard Business School Press, 2007) pp. 110-115 8. Ibid 9. Paul Taylor, Cary Funk, Peyton Craighill, “Public Says American Work Life Is Worsening, But Most Workers Remain Satisfied with Their Jobs (Pew Research Center, September 2006) 10. Dychtwald, et al, Workforce Crisis p.6 11. The Economist, “The world is our oyster – the talent war has gone global and so have the talent shortages,” within The Search for Talent: Why It’s Getting Harder to Find (Economist Special Report, October 7, 2006) 12. The Economist, “The battle for brainpower,” within The Search for Talent: Why It’s Getting Harder to Find (Economist Special Report, October 7, 2006); “Number of Jobs Held, Labor Market Activity, and Earnings Growth Among the Youngest Baby Boomers: Results from a Longitudinal Study,” Bureau of Labor Statistics, August 25, 2006 (USDL 06-1496)
62 The Talent Paradox: A 21st century talent and leadership agenda
13. The Economist, The Search for Talent, Why Executive Committee, AICPA Work/Life It’s Getting Harder to Find (Economist and Women’s Initiatives 2004 Research Special Report, October 7, 2006) (New York: American Institute of Certi- 14. Leigh Buchanan, “The Young and the Restful,” fied Public Accountants, 2004) p. 8 Harvard Business Review, November 2004; Cata- 23. Towards Effective Management of Associ- lyst, The Next Generation: Today’s Professionals, ate Mobility: A Status Report on Attrition, Tomorrow’s Leaders (New York: Catalyst, 2001) (National Association of Law Placement 15. Catalyst, Two Careers, One Marriage: Making Foundation for Law Career Research and It Work in the Workplace (New York: Catalyst Education), www.nalpfoundation.org 1998); US Bureau of Labor Statistics, Annual Social and Economic Supplement: Current Popu- lation Survey (Washington, DC: GPO, 2005) 16. U.S. Department of Education, National Center for Education Statistics, “Table 246. Degrees Conferred by Degree-Granting Institutions, by Level of Degree and Sex of Student: Selected Years, 1869-70 Through 2013-14,” Digest of Edu- cation Statistics: 2005, June 2006, http//nces. ed.gov/programs/digest/d05/tables/dt05_246.asp 17. Lisa Belkin, “Life’s Work: Flex Time for the Rest of Us,” New York Times, December 17, 2006 18. Marilyn Elias, “The Family-First Generation,” USA Today, December 12, 2004. For more on younger generations’ expectations, see Orange, “Aspiring Law and Business Professionals’ Orientations to Work and Family Life,” and Moen and Roehling, The Career Mystique 19. Eric Richert and David Rush, “How New Infrastructure Provided Flexibility, Con- trolled Cost and Empowered Workers at Sun Microsystems,” Journal of Corporate Real Estate 7, no. 3 (2005) pp. 271-279 20. James Goodnight, “Ask James Goodnight: The Founder of SAS Explains How to Be Progressive on a Budget,” Inc., June 2006, http://www.inc.com/magazine/20060601/ handson-ask-the-big-wig.html 21. See e.g. Lotte Bailyn, Joyce K. Fletcher, and Deborah Kolb, Unexpected Connections: Considering Employees’ Personal Lives Can Revitalize Your Business, in Inventing the Organizations of the 21st Century, edited by Thomas W. Malone, Robert Laubacher, and Michael S. Scott Morton (Cambridge, MA: The MIT Press, 2003); Richard B. Freeman and Joel Rogers, What Workers Want (Ithaca, NY:Cornell University Press, 1999); Catalyst, Two Careers, One Marriage: Making it Work in the Workplace (New York: Catalyst, 1998) 22. American Institute of Certified Public Ac- countants, Work/life & Women’s Initiatives
63 Talent The Corporate Lattice A strategic response to the changing world of work
By Cathy Benko, Molly Anderson and Suzanne Vickberg > Illustration by Dan Page
64 The Talent Paradox: A 21st century talent and leadership agenda
he corporate ladder has been the de facto in nonroutine tasks outpacing routine tasks Tstandard shaping the way companies— by 20 percentage points since 1960.3 Project sometimes consciously and sometimes not— work, one example of nonroutine activity, has have operated for the past century. But deeply increased 40-fold over the past 20 years, mak- held ladder assumptions are limiting our ing collaboration and teamwork more impor- ability to respond to the changing corporate tant than ever.4 landscape. Continuing to invest for the future The workforce isn’t what it used to be either. using yesterday’s blueprint is futile. What’s Family structures have changed markedly, with By Cathy Benko, Molly Anderson and Suzanne Vickberg needed is a new model for driving agility and a mere one in six U.S. families mirroring the > Illustration by Dan Page high performance in today’s world of work. “traditional” structure upon which the ladder The corporate ladder model took hold at model was built, where Dad works and Mom a time when the central business goal in the stays at home. Women now constitute half the emerging industrial economy was achiev- U.S. workforce and are the primary breadwin- ing economies of scale. The ladder proffers ners in 40 percent of U.S. households.5 Men a worldview in which power, rewards and in dual-career couples now report one-third access to information are tied to the rung each greater work-life conflict than women.6 employee occupies. Its hierarchical structure Younger generations are bringing different governs how information flows and whose attitudes about what it takes to motivate them ideas matter. It defines career success as a at the same time older workers are looking for linear climb to the top. Ultimately, the ladder’s flexible options to stay in the labor market. one-size-fits-all approach assumes employees In just about every way, employees are more are more alike than different, and want and diverse than ever – including their very defini- need similar things to deliver results. tions of success. But the workplace isn’t what it used to be. The convergence of these trends, summa- While 60 percent of corporate value creation rized in Figure 1, irreversibly alters the corpo- once depended on hard assets, now more rate landscape. than 85 percent relies on the intangible assets 1 of brand, people and intellectual property. From Ladder to Lattice Organizational structures are, on average, 25 percent flatter than they were 20 years ago.2 he corporate lattice model, in contrast to Technological advances, globalization and Tthe traditional ladder, is more adaptive, the rise of knowledge work have resulted in and therefore better suited to align with the work and workers being less bound to physical changing needs, norms and expectations of locations or set hours; teams are often dis- today’s workplace. In mathematics, a lattice persed across locations and time zones. And is a three-dimensional structure that extends the work itself is less routine, with the growth infinitely in any direction. In the real world,
Figure 1. Forces driving the changing world of work
Rise in nontraditional families Converging expectations of men and women Flattened hierarchies Changing Shortage of critical talent world Evolving needs of generations of work Virtual, connected workplace Multicultural workforce
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lattice structures are evident everywhere from employees more versatile, increasing strategic Figure 3. Comparison of ladder and lattice career paths a garden’s wooden trellis to the metalwork flexibility. Ladder progression Lattice pathways of the Eiffel Tower to the emerging matrix Changes in how careers are built are structures and network models companies benefitting workers as well. People know that are adopting. The corporate lattice metaphor keeping their skills relevant in a fast-changing signals a shift in mindset and outlook as we marketplace is a key to job security. And of cross the chasm from the Industrial Age to the employees who are looking to change jobs, knowledge economy. It represents the multi- almost half cite a desire for better career directional, flexible and expansive nature of growth, making a strong focus on development how successful organizations work today. And and expanded career options critical levers it marks an inflection point in the ways careers in attracting and retaining today’s talent.8 are built, work is done and participation in Expanded career options also enable people to organizations is fostered. Collectively, we call find more ways to fit their lives into their work these changed ways of thinking and acting the and their work into their lives—what we call “lattice ways” as shown in Figure 2. “career-life fit”—another way employees across Figure 2. Three lattice ways both genders and generations benefit. Examples of linear Examples of more varied paths for The global law firm Orrick, Herrington, career paths growth and development Sutcliffe LLP illustrates how lattice ways to build careers is playing out. Orrick realized that launching a new career model could help address two key issues: client dissatisfaction with the price-value ratios of legal service pro- rs ree viders and significant changes in the expecta- ca tions of law school graduates who want flexible uild B rk ate career options. Orrick’s model now provides a Wo ip variety of career options rather than a single, rtic Pa linear path to partner.9 “The model recognizes that moving forward in one’s development is not limited to moving upward on the traditional career ladder. There are many ways of progressing Lattice ways to build careers. one’s career and contributing meaningful value The U.S. Department of Education esti- to the organization,” says Laura Saklad, chief 10 mates that 60 percent of all new jobs in the lawyer development officer. Advancement is early 21st century will require skills that only now performance-based rather than tenure- 20 percent of the current workforce possesses.7 based with specific core competency criteria to Keeping pace with today’s rapid rate of change guide decisions. By aligning promotions and and skills needed to succeed is an important corresponding billing rate increases with the way companies become more agile. It requires lawyer’s skill set and level of experience, client a continual focus on growth and development. value is better aligned with fees. And, by basing Yet today’s flatter organizational structures promotions on competency development, the mean companies have fewer options for pace at which each career develops is indi- developing their people by moving them “up.” vidualized since people attain various levels of In response, lattice organizations are broaden- proficiency at different rates. A custom career ing career pathways (shown in Figure 3) to track allows individuals to tailor their devel- include lateral and diagonal directions and opment based on their career interests and planned descents along which people can grow. goals as well as their life needs. Compensation Career moves across organizational silos make also has changed to enable the new approach.
66 The Talent Paradox: A 21st century talent and leadership agenda
employees more versatile, increasing strategic Figure 3. Comparison of ladder and lattice career paths flexibility. Ladder progression Lattice pathways Changes in how careers are built are benefitting workers as well. People know that keeping their skills relevant in a fast-changing marketplace is a key to job security. And of employees who are looking to change jobs, almost half cite a desire for better career growth, making a strong focus on development and expanded career options critical levers in attracting and retaining today’s talent.8 Expanded career options also enable people to find more ways to fit their lives into their work and their work into their lives—what we call “career-life fit”—another way employees across both genders and generations benefit. Examples of linear Examples of more varied paths for The global law firm Orrick, Herrington, career paths growth and development Sutcliffe LLP illustrates how lattice ways to build careers is playing out. Orrick realized that launching a new career model could help Rather than base bonuses on billable hours or Thomson Reuters’ transformation of the address two key issues: client dissatisfaction firm profitability, bonuses are based on what decentralized finance functions of more than with the price-value ratios of legal service pro- matters most to clients – quality, efficiency and 40 companies in their portfolio is a good viders and significant changes in the expecta- contribution. All of these changes improve the example of lattice ways to work in action. tions of law school graduates who want flexible value clients receive. Dubbed the “FinancePlus” transformation, career options. Orrick’s model now provides a this effort redesigned work to be performed variety of career options rather than a single, Lattice ways work is done. in shared service centers around the world 9 linear path to partner. by global teams rather than individuals. As The lattice also represents the transforma- “The model recognizes that moving a result, knowledge must be transparently tion from work being a place you go during forward in one’s development is not limited shared on common platforms that everyone set hours each work day to something you to moving upward on the traditional career can access. In the past, there were seldom more do in a dynamic, increasingly virtual work- ladder. There are many ways of progressing than a few select people who had the total place. Technology has enabled new possibili- one’s career and contributing meaningful value picture of any particular business. Now entire ties for the where, when and how of work. to the organization,” says Laura Saklad, chief teams understand how things work, leading to 10 Globalization, virtualization, modular job and lawyer development officer. Advancement is greater job modularity. Projects can be staffed process designs, and team-based project work, now performance-based rather than tenure- in multiple ways based on the needs of the among other workplace advances, leverage based with specific core competency criteria to moment, making finance more agile. ubiquitous and expansive technologies from guide decisions. By aligning promotions and While beneficial, these new ways of work- broadband to Web 2.0 in innovative ways. corresponding billing rate increases with the ing were foreign to many managers and some These technologies both respond to and drive lawyer’s skill set and level of experience, client challenges did surface. For example, manag- the changing world of work. The benefits of value is better aligned with fees. And, by basing ers in Thomson Reuters’ U.K.-based sales and virtual work are significant and range from promotions on competency development, the trading division were accustomed to having the lower real estate costs to greater workforce pace at which each career develops is indi- people who reported to them sitting together productivity and retention to shorter cycle vidualized since people attain various levels of in the same office, in the line of sight, but now times, improved business continuity and even proficiency at different rates. A custom career 40 percent of staff live outside the country in a “greener” footprint from less commuting. track allows individuals to tailor their devel- which their manager works.11 Individuals gain too with increased flexibility opment based on their career interests and Says David Turner, executive vice president and more choices for when and where they do goals as well as their life needs. Compensation and chief financial officer of Thomson Reuters their work. also has changed to enable the new approach. Markets: “At first it didn’t make sense to people
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that managers could lead people in other loca- approach to innovation featuring a Web site Table 1. Connections between lattice ways tions or that we could build a team culture across that allows anyone to contribute an idea, geographies. Over time, employees realized if become a collaborator on someone else’s idea, Careers Work Participation you utilize technologies and different ways of provide encouragement and critical feedback, communicating, people can be just as effective assess a concept’s marketability, challenge its Changes to work and New forms of participation remotely as they can sitting next door to you.”12 engineering and affordability, and the like. Careers careers propel a shift offer more options to learn, toward results and build relationships, and The FinancePlus transition to service Each employee is able to vote on the caliber away from face time build personal brands bureaus has thus far yielded approximately $50 of the insights and rate additional postings of 13 million in annual savings. The transforma- suggestions and comments, earning the con- Career-life options Virtual collaboration and tion has helped leaders make better decisions, tributors reputation points. Work expand along with networks enable redesigned delivered improved forecasting and planning, “This is meritocracy at its best – a highly anytime, anywhere work processes work options and strengthened regulatory compliance func- diverse set of people, in every sense of the tions as well. Employee surveys also show that word, crowdsourcing and crowdstorming,” says Transparency enables Work increasingly relies a clear majority (80 percent) rate the com- Donovan. Individuals can customize their on flexible teams that Participation more candor about pany’s flexibility efforts favorably – that’s five level of participation – from merely being a career options and how need to collaborate points higher than the average at other high- spectator to actively participating and racking they fit with life choices transparently performing firms.14 up reputation points. And, as Donovan says, “In an American Idol–type fashion, unknown Lattice ways to participate. talent is revealed and great innovations can see the light of day.” With its strong horizontal as well as diago- By the end of its third quarter, the site nal and vertical supports, the visual image of had more than 24,000 members, 2,000 ideas, a lattice reflects organizational relationships, and over a million page views – and it’s still interactions and communications that func- growing.16 Such results are a strong measure tion in a network-like fashion unconstrained of participation’s role in generating greater by top-down hierarchy. Lattice organizations recognition for individuals and greater engage- are sharing information transparently, creat- ment in the business overall. The first season’s ing communities and providing more col- winners have been funded and are moving laborative, inclusive and meaningful options from PowerPoint to prototype. for employees to contribute regardless of their level on the organizational chart. New ways of fostering participation are helping orga- Why Lattice Thinking Matters nizations meet a new challenge – the rise of hile efforts to advance a company in nonroutine and project-based work, which Wany one of these lattice ways are requires greater collaboration and is more beneficial, the power of the lattice is amplified difficult to achieve as teams become more by the compounding effect that occurs when dispersed and virtual. Lattice organizations are these ways of thinking and acting reinforce one finding ways of working across the invisible another to improve productivity, innovation borders of geography, hierarchy and function. and the ability to develop, retain and engage As they realize that good ideas can come from the right kinds of talent. Table 1 illustrates the anywhere, these organizations are reaping the connections between the lattice ways, and the rewards of increased innovation. case of Cisco illustrates how all three lattice That’s what AT&T found with one of its ways work in tandem. CEO John Chambers social media experiments. John Donovan, became a fervent believer in reinventing the AT&T’s chief technology officer, was look- company after the dot-com boom went bust, ing for a nonhierarchical approach to harness and while he didn’t expressly set out to create a 15 knowledge and creativity. Leveraging social lattice organization, Cisco became lattice-like media, Donovan created a mass participation in both its structure and culture.
68 The Talent Paradox: A 21st century talent and leadership agenda
approach to innovation featuring a Web site Table 1. Connections between lattice ways that allows anyone to contribute an idea, become a collaborator on someone else’s idea, Careers Work Participation provide encouragement and critical feedback, assess a concept’s marketability, challenge its Changes to work and New forms of participation engineering and affordability, and the like. Careers careers propel a shift offer more options to learn, toward results and build relationships, and Each employee is able to vote on the caliber away from face time build personal brands of the insights and rate additional postings of suggestions and comments, earning the con- Career-life options Virtual collaboration and tributors reputation points. Work expand along with networks enable redesigned “This is meritocracy at its best – a highly anytime, anywhere work processes work options diverse set of people, in every sense of the word, crowdsourcing and crowdstorming,” says Transparency enables Work increasingly relies Donovan. Individuals can customize their on flexible teams that Participation more candor about level of participation – from merely being a career options and how need to collaborate spectator to actively participating and racking they fit with life choices transparently up reputation points. And, as Donovan says, “In an American Idol–type fashion, unknown talent is revealed and great innovations can see the light of day.” From me to we. was given the needed focus and commitment, By the end of its third quarter, the site The cornerstone of Cisco’s transformation reward systems for executives were changed had more than 24,000 members, 2,000 ideas, was its move from an individualistic culture to to recognize collaboration – Chambers and over a million page views – and it’s still one based on collaboration, which lies at the announced that 30 percent of senior execu- growing.16 Such results are a strong measure heart of lattice ways to work and participate. tives’ bonuses would be based on how well of participation’s role in generating greater In 2002, Cisco began to implement a system of they collaborated with others, a structural recognition for individuals and greater engage- cross-functional councils and boards designed change in the reward system designed to sup- ment in the business overall. The first season’s to both speed up the company’s responsiveness port the larger cultural change already going winners have been funded and are moving 18 to market conditions and push decision-mak- on. Within a few years, the culture began from PowerPoint to prototype. ing down to lower levels of the organization. to change. “If you look at how most companies are “We really started to see the benefit after Why Lattice Thinking Matters organized, they are built around an informa- our initial improvements,” says Randy Pond, executive vice president of operations, systems hile efforts to advance a company in tional discontinuity where just a few people at the top are presumed to have access to vast and processes. “We were starting to cross- Wany one of these lattice ways are pollinate knowledge and appropriately drive beneficial, the power of the lattice is amplified amounts of knowledge,” says Brian Schipper, senior vice president of human resources. “In a broader thinking. We began to get a relevant by the compounding effect that occurs when marketing comment out of the manufacturing these ways of thinking and acting reinforce one world where most people can access informa- tion about any subject in less than five minutes, guy or a supplychain comment out of an engi- another to improve productivity, innovation 19 this notion is outdated.”17 neering person.” And the councils and boards and the ability to develop, retain and engage are expanding leaders’ capabilities too. the right kinds of talent. Table 1 illustrates the But Cisco quickly learned that it was not enough to simply put smart, capable leaders “People have opportunities for natural connections between the lattice ways, and the leadership and development in ways that we case of Cisco illustrates how all three lattice on the councils and boards. They needed to identify clear processes and outcomes in order couldn’t provide before,” says Susan Monaghan, ways work in tandem. CEO John Chambers former vice president of employee engagement. became a fervent believer in reinventing the to be successful. So they created a “taxonomy” for councils, defining a process for develop- “Through experience, we are changing the way company after the dot-com boom went bust, people lead. People are learning something and while he didn’t expressly set out to create a ing a vision, a strategy and an execution plan for each. It stressed mutual accountability that they can never unlearn. Over time, this lattice organization, Cisco became lattice-like changes the face of the culture.”20 in both its structure and culture. and teamwork. And to make sure this shift
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Lattice leadership development. organization. And to make its model scalable As collaborating in this way became the and repeatable, Cisco learned that it needs to norm, Cisco realized it needed to develop teach leaders how to do a better job of talk- leadership talent differently. It began to make ing with their people about career growth and lateral moves an important part of executive development. A starting point was to define development to build the breadth of business a set of leadership competencies so that there perspectives that collaboration requires. The would be a common language for talking about story of Ana Corrales, vice president of global career options – choices to move horizontally business operations, provides an example.21 as well as vertically. The system pushes hard to She joined Cisco in 1996 as a manufacturing make sure personalized career conversations planner to leverage her expertise in operations are effectively discussing career interests and research. She then made a series of horizon- exploring potential moves in all directions. tal moves that gave her a broad portfolio of experience. Her move to manufacturing plant Rethinking the workspace. operations netted her people leadership skills Cisco’s focus was not limited to executive to add to her already formidable analytical levels – it has also changed its workplace to strengths. Additional moves took her to mate- enable global operations with virtual, dispersed rials acquisition at the front end of the supply teams and, in the process, give employees chain, to finance, to customer service, and to more choice in how they work. In 2003 it working with sales taking customer orders began introducing what it calls the collabora- and processing them. Today Corrales is a vice tive, connected workplace, which gives all president in charge of business models, a role employees a greater ability to customize how that requires a cross-functional perspective. they accomplish work through a broad choice As Corrales’ experience illustrates, Cisco of workspaces and virtual work options. Cisco, is engineering custom development paths as a manufacturer of an array of cutting-edge for its high-potential employees that include tools to catalyze mass participation, employs a lateral moves to build future skills. Top leaders rich set of technologies to enable collaboration now conduct an annual review identifying – including wikis, video blogging and social who is ready to move and which positions networking. The collaborative, connected would most benefit the individual and the workplace has increased transparency, an
In one high-technology company with a lattice career model, lateral moves are common and the company works hard to value contributions regardless of which rung on the ladder an employee occupies. But the CEO only sends out recognition communications to celebrate vertical promotions rather than a mix of promotions and significant accomplishments.
70 The Talent Paradox: A 21st century talent and leadership agenda
ongoing emphasis in Cisco’s effort to broaden reactive solutions designed to address a few how participation happens. of the trends – and often in point-solution “If you don’t drive transparency, you create fashion. This approach has increased the prolif- blockages for the knowledge flow in the busi- eration of programs while falling short of the ness, and then collaboration does not work,” desired results. says Pond. “Collaboration fundamentally can’t Flexible work arrangements, for example, work without transparency.”22 are typical program investments designed to Cisco emerged from the recession of the retain valued employees – but they often fail early 2000s more profitable than ever, and it is to do so. Studies by the American Institute of now one of the top 100 largest companies in Certified Public Accountants have found that the world in terms of market capitalization and while the majority of public accounting firms revenue. Beyond changing a formerly top- have been aggressive in implementing flexible down culture and providing more avenues for work arrangement policies over the years, the employees to engage, Cisco estimates that its two most prevalent reasons why employees efforts to increase collaboration have generated leave are still working conditions (schedule, a business impact of close to $700 million, a hours, assignments) and work-life issues.26 significant amount even for such a large com- Why? Studies show individuals who initiate pany.23 Efforts to help workers be more mobile flexible work arrangements often feel stigma- have generated an extra hour of productivity tized as an “exception to the corporate ladder per day per employee. A 2008 study of approxi- norm.” For such programs to really work, the mately 2,000 teleworkers at Cisco in five global norm itself needs to change. The corporate regions estimated $277 million in annual lattice model opens up the aperture of what productivity savings, more than 47,000 metric comprises acceptable norms. tons of greenhouse gas emissions avoided, and The importance of making connections employee savings in gasoline costs of more between workplace trends further reinforces than $10 million.24 The company is also widely why Cisco’s move toward a more collaborative regarded as an employer of choice.25 culture couldn’t stop at just creating councils and boards. To be successful, these bodies Thriving in the Changing needed guidance on how to develop and oper- ate collaboratively, as well as aligned reward World of Work mechanisms, transformed leadership devel- he lattice model reframes workplace opment methods, and even reconfigurable Tsuppositions, providing a framework to workspace arrangements. organize and advance a company’s existing Organizations also must ensure that they incremental efforts into a comprehensive, are connecting the dots between messages and strategic response—and mindset shift—to actions, modeling the change they want to see. the changing world of work. To advance For example, in one high-technology company a lattice posture, leaders can adopt the with a lattice career model, lateral moves are following strategies: common and the company works hard to value contributions regardless of which rung on the Connect the dots. ladder an employee occupies. But the CEO only sends out recognition communications Many organizations recognize the individ- to celebrate vertical promotions rather than ual impact of workplace and workforce trends a mix of promotions and significant accom- that are transforming the business world, but plishments. This action makes employees until now the convergence of these trends has unclear what the company really values: ladder been obscured. The result has been a mix of or lattice?
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Adopt an options orientation. organizations customize the workplace. Figure 4. Lattice ways and engagement The name of the game in this new world Companies define the parameters of choice Those experiencing lattice ways are far more likely to be engaged of work is options. In financial investments, and let employees choose from defined % who options. When employees have a greater say in options provide a hedge against market are engaged No Yes uncertainty, providing flexibility to buy or what their work experience is, they are more 100% sell at a later time when more is known about engaged and perform better. market conditions. Similarly, the lattice model Deloitte has seen a great payoff from 80% employs an options orientation to give busi- adopting a lattice mindset. Investing in its 60% nesses a hedge against future uncertainty. development has affirmed the power of offering structured options in lattice ways to Options range from when, where and how 40% work is performed to various ways in which build careers, to work, and to foster participa- tion as it relates to engaging our people. Our people can access information, offer input and 20% collaborate across geographical, hierarchical results show that those experiencing lattice and functional boundaries. The fast-paced, ways are twice as likely to be engaged as those 0% who are not, as shown in Figure 4.28 technology-driven, information-heavy nature Build careers Work Participate of work today means that organizations must have the agility to react and respond to the Measure what matters. changing landscape – and options create such As the when, where and how of work strategic flexibility. The Thomson Reuters expands to accommodate an increasingly finance organization example illustrates how virtual and global workplace, it is rendering the virtualization of work processes on com- “face time” less relevant. While time clocked mon systems paired with changes to physical “in the office” has never been a particularly office workspace provided more flexibility for effective performance metric, it has been a way both the organization and its people. to account for people’s time and whereabouts. An options orientation also benefits the But it is fast becoming an irrelevant proxy for bottom line. Corporate performance increas- contributions. Instead, organizations need to ingly depends on how much discretionary provide their managers with the training, tools effort individuals put into their work, often and mindset to value productivity and contri- referred to as employee engagement, as shown butions – not just activity. 27 in Table 2. Yet people’s motivations—what “In many organizations, time put in at the drives them to put in discretionary effort—are office is seen as a valid measure of commit- more varied than ever, as are their views of ment and competence,” notes Lotte Bailyn, what success means for them. How can a professor at the MIT Sloan School of companies respond to this high level of Management. “There can also be deep-seated variability? Similar to the way mass product beliefs about what is considered real work. customization lets companies cost-effectively And these beliefs often overemphasize techni- offer tailored options to customers, lattice cal tasks and underemphasize relational tasks.”
Table 2. Engagement and bottom line benefits
Companies with higher • Earnings-per-share growth is 160 percent higher engagement deliver better • Return on assets is 100 percent higher results than those with • Revenue growth is 150 percent higher lower engagement • Profitability is 40 percent higher • Productivity is 78 percent higher
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organizations customize the workplace. Figure 4. Lattice ways and engagement Companies define the parameters of choice Those experiencing lattice ways are far more likely to be engaged and let employees choose from defined % who options. When employees have a greater say in are engaged No Yes what their work experience is, they are more 100% engaged and perform better. Deloitte has seen a great payoff from 80% adopting a lattice mindset. Investing in its development has affirmed the power of 60% offering structured options in lattice ways to build careers, to work, and to foster participa- 40% tion as it relates to engaging our people. Our 20% results show that those experiencing lattice ways are twice as likely to be engaged as those 0% who are not, as shown in Figure 4.28 Build careers Work Participate
Measure what matters. As the when, where and how of work expands to accommodate an increasingly She adds that another common challenge is the of traditional assumptions about what it takes virtual and global workplace, it is rendering practice of never presenting a problem until to achieve strategic flexibility and sustain high “face time” less relevant. While time clocked someone has a solution. “Then people aren’t performance. The corporate lattice model both “in the office” has never been a particularly concerned ever with preventing problems, but accelerates this transformation and illuminates effective performance metric, it has been a way just with heroically solving problems, even if the road ahead. to account for people’s time and whereabouts. they cause them by themselves. These assump- But it is fast becoming an irrelevant proxy for tions about very basic things get in the way of Originally published in contributions. Instead, organizations need to changing how work happens.”29 Deloitte Review #8, 2011 provide their managers with the training, tools Companies shifting to a corporate lattice and mindset to value productivity and contri- model are redefining meaningful contribu- About the authors butions – not just activity. tion. Orrick provides a good example. The “In many organizations, time put in at the firm shifted from evaluating attorneys on Cathy Benko is a vice chairman and chief talent office is seen as a valid measure of commit- quantifiables like billable hours—a measure officer, Deloitte LLP, and best-selling author. She is co-author of The Corporate Lattice and Mass ment and competence,” notes Lotte Bailyn, of input—to items like quality, efficiency and Career Customization: Aligning the Workplace a professor at the MIT Sloan School of client satisfaction – measures of output. And with Today’s Nontraditional Workforce. Management. “There can also be deep-seated AT&T’s use of “reputation points” to represent beliefs about what is considered real work. people’s level of participation also illustrates Molly Anderson is a director with And these beliefs often overemphasize techni- the redefinition of contribution. Deloitte Services LP and co-author of The cal tasks and underemphasize relational tasks.” The level of competitive intensity has Corporate Lattice. doubled in recent years. Typical careers now Suzanne Vickberg, Ph.D., is a senior manager zig and zag. Work has shifted from where with Deloitte Services LP. Table 2. Engagement and bottom line benefits you go to what you do. And participation in organizational life has gone from top-down to Companies with higher • Earnings-per-share growth is 160 percent higher all-in. Together these changes signal the end engagement deliver better • Return on assets is 100 percent higher results than those with • Revenue growth is 150 percent higher lower engagement • Profitability is 40 percent higher • Productivity is 78 percent higher
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Endnotes
1. Douglas Elmendorf, Gregory Mankiw, and division, by Cathy Benko, August 18, 2009, Lawrence H. Summers, Brookings Papers on with follow-up interview on August 29, 2009. Economic Activity: Spring 2008 (Washington, 12. Interview with David Turner, executive vice DC: Brookings Institution Press, 2008). president and current chief financial officer, 2. Raghuram Rajan and Julie Wulf, “The Flat- Thomson Reuters Markets, by Cathy Benko tening Firm: Evidence from Panel Data and Molly Anderson, September 29, 2009. on the Changing Nature of Corporate 13. 2006 ThomsonPlus and Q2 Financial Hierarchies,” National Bureau of Economic Review including Finance Plus. Research Working Paper Series, Working Paper #9633, April 2003, http://www.nber. 14. Thomson Reuters 2008 Employee Survey. org/papers/w9633 (accessed March 2, 2009). 15. Interview with John Donovan, chief technology 3. Gene Grossman and Esteban Rossi-Hansberg, officer, AT&T, by Cathy Benko, July 23, 2009 “The Rise of Offshoring: It’s Not Wine for and follow up interview on August 20, 2009. Cloth Anymore,” Proceedings (Kansas City: 16. Marc Bien, spokesperson, AT&T, correspon- Federal Reserve Bank of Kansas City, 2006). dence with Cathy Benko, December 29, 2009. 4. F. Warren McFarlan and Cathy Benko, 17. Interview with Brian Schipper, senior vice “Managing a Growth Culture: How CEOs president of human resources, Cisco, and Susan Can Initiate and Monitor a Success- Monaghan, vice president of employee engage- ful Growth-Project Culture,” Strategy & ment, Cisco, by Cathy Benko, Thomas Galizia, Leadership 32, no. 1 (2004): 34–42. and Molly Anderson, September 28, 2009. 5. Heather Boushey and Ann O’Leary, eds., The 18. Peter Burrows, “Cisco’s Comeback,” Shriver Report: A Woman’s Nation Changes BusinessWeek, November 24, 2003, http:// Everything (Washington, DC: Center for www.businessweek.com/magazine/ American Progress, 2009), 32; Bureau of content/03_47/b3859008.htm. Labor Statistics, Current Employment Statistics 19. Interview with Randy Pond, executive (National), October 2009, tables B-3 and B-4, vice president of operations, systems and ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb3.txt. processes, Cisco, by Cathy Benko, Molly 6. Families and Work Institute, Nations Study of Anderson, and Thomas Galizia, July 29, 2009. the Changing Workforce 2008; US Department 20. Interview with Brian Schipper and of Labor, Quality of Employment Survey, 1977 Susan Monaghan, July 29, 2009. as cited in Ellen Galinsky, Kerstin Aumann, and James Bond, Times are Changing: Gender 21. Interview with Ana Corrales, vice president, and Generation at Work and at Home (New global business operations, by Molly Anderson York: Families and Work Institute, 2009), 19. and Thomas Galizia, December 22, 2009. 7. Norman R. Augustine, Is America Falling Off 22. Interview with Randy Pond, July 29, 2009. the Flat Earth? National Academy of Sciences, 23. Marisa Chancellor, “Web 2.0 Collaboration National Academy of Engineering, Institute in the Enterprise” (keynote address, N2Y4 of Medicine (Washington, D.C.: National NetSquared conference, San Jose, Academies Press, 2007), http://www.nap.edu/ California, May 26, 2009), http://www. openbook.php?record_id=12021&page=37. netsquared.org/blog/amy-sample-ward/ 8. Anne Fisher, “Want a New Job? Give Your Old n2y4-marisa-chancellor-cisco-systems-keynote. One a Makeover,” Fortune, January 5, 2007, 24. ”Cisco Study Finds Telecommuting Significantly http://money.cnn.com/2007/01/03/news/ Increases Employee Productivity, Work-Life economy/annie_newjob.fortune/index.htm. Flexibility and Job Satisfaction,” Cisco press 9. Internal document, “Orrick’s Tal- release, June 26, 2009, http://newsroom. ent Model: Your Future,” 2009. cisco.com/dlls/2009/prod_062609.html. 10. Interview with Laura Saklad, chief lawyer 25. “100 Best Companies to Work for 2009,” development officer, Orrick, Herrington, Fortune, 2009, http://money.cnn.com/ Sutcliffe LLP, by Cathy Benko and Molly magazines/fortune/bestcompanies/2009/ Anderson, December, 17, 2009. full_list/; “The DiversityInc Top 10 Global Diversity Companies List,” DiversityInc, 11. Interview with Matthew Burkley, chief financial 2009, http://diversityinc.com/content/1757/ officer, Thomson Reuters sales and trading
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article/5862/?The_DiversityInc_Top_10_Glob- Stories of Success (Brisbane, Australia: JRA, al_Diversity_Companies_List; “Working Mother November 2008), http://www.jra.co.nz/storiesof- 100 Best Companies 2009: Cisco,” Working success.aspx; “Tough Decisions in a Downturn Mother, 2009, http://www.workingmother.com/ Don’t Have to Lead to Disengaged Employees,” BestCompanies/work-life-balance/2009/08/ BusinessWire, August 14, 2009, http://www.busi- cisco; “Best Places to Launch a Career 2009,” nesswire.com/news/google/20090812006251/ BusinessWeek, 2009, http:// bwnt.businessweek. en: “Understanding the True Cost of Dis- com/interactive_reports/career_launch_2009/. engagement,” Hewitt Quarterly Asia Pacific, 26. American Institute of Certified Public Accoun- July 2007, http://www.hewittassociates.com/ tants, Work/Life & Women’s Initiatives Executive Intl/AP/en-AP/KnowledgeCenter/Magazine/ Committee, AIPCA Work/Life & Women’s Initia- HQ_18/articles/cost-disaggrement.html. tives 2004 Research (New York: American Insti- 28. Statistical analysis of Deloitte’s annual tute of Certified Public Accountants, 2004), 8. personnel survey, March 15,2010. 27. Bryant Ott, “Investors Take Note: Engage- 29. Interview with Lotte Bailyn, professor of ment Boosts Earnings,” Gallup Management management, MIT, by Molly Anderson, Anne Journal, June 14, 2007, http://gmj.gallup.com/ Weisberg, and Laura Stokker, July 15, 2009. content/27799/investorstake-note-engagement- boosts-earnings.aspx; Employee Engagement:
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76 The Talent Paradox: A 21st century talent and leadership agenda Culture and the Myth of the Black Box Why you can—and should— manage your company’s culture
By Stephanie Quappe, David Samso-Aparici and Jon Warshawsky > Illustration by Anthony Freda
Why Culture Matters including adaptability, consistency, mission and involvement, deliver better results when ulture tends to be something of an it comes to return on assets, sales growth and enigma in the study of companies. C increased value to shareholders.1 This find- Everyone agrees over cocktails that culture ing builds on J. Kotter’s and James Heskett’s is important and hopes their company has a landmark 1992 study,2 which found that, over “good” culture versus a “bad” culture. For all a 10-year period, companies that intention- of its implied significance, however, cultural ally managed their cultures outperformed change tends to rate alongside tarot card similar companies that did not. Their find- reading and astrology in terms of credibility. ings included revenue growth of 682 percent It lurks in the unfortunate category of “soft” versus 166 percent; stock price increases of issues that leaders can’t quite discard for the 901 percent versus 74 percent; net income nagging sense that there may actually be growth of 756 percent versus 1 percent; and something there, something that may hold too job growth of 282 percent versus 36 percent.3 much importance to dismiss out of hand. Additionally, companies listed on Fortune’s 100 Best Companies to Work For further demon- The Hard Truth strate that those with well-managed cultures In fact, culture is not a “soft” issue created significantly outperform the S&P 500. by cheerleading, posters or picnics. Culture can Culture similarly can take on increased be explicitly defined, and it generally devel- importance in large corporate mergers and ops out of tangible (and controllable) actions acquisitions, where an estimated 30 percent of within a company, not in a murky black box. integrations get stuck or fail outright as a result Moreover, its implications for corporate of cultural issues. Disparities in corporate performance are real and can be substantial. culture, as well as the tendency for one culture Research from Denison Consulting concludes to become dominant, create a “win-or-lose” that companies demonstrating higher levels of mindset that injects a good dose of mistrust 4 performance in key areas of corporate culture, into an already complicated process.
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Culture as a Driver of trust-all qualities that are either squelched Business Results or nurtured by an organization’s climate.”5 Moreover, they add, people are increasingly Beyond the hard numbers, culture can play looking for more from their employment a prominent role in several issues that top than a paycheck. Some “sense of purpose” and business leaders’ agendas. Ethics, which has camaraderie, even joy, fit into many workers’ become something of an obsession in the wake notion of a great job, and projected demo- of the Enron fiasco and the resultant Sarbanes- graphic trends suggest that retaining top talent Oxley Act, hinges on effective controls, proper will become increasingly important as the tal- systems, and, most important, a culture that ent pool, and working-age population as a per- values ethical behavior and discourages dis- centage of the total population, diminishes. If honesty. If ethics can be defined as what one a company wants to attract and retain the best chooses to do when no one else is watching, and the brightest, culture once again emerges then culture can be a significant predictor of as something that truly matters. ethical or unethical behavior. Building systems And as for the genius of innovation, clearly and controls as a sort of scaffolding around a the one percent spark of inspiration is nurtured dysfunctional company can be an (expensive) by a positive culture. But the 99 percent exercise in futility. perspiration ingredient comes from employees Business publications also are replete with who love what they do, as well as where they stories about the war for talent and innova- do it, and who invest in that Holy Grail of tion as a driver for growth. Jeff Rosenthal productivity called “discretionary effort.” We and Mary Ann Masarech put a finer point on believe that the spark and commitment of it: “Organizations depend on innovation for employees in these “good” cultures are a big growth and high performance, which in turn part of what creates extraordinary results. depend on employee initiative, risk taking and
Figure 1. Expressions of a high-performance culture (outer circle)
• Decisions of senior leaders and key influences • Daily interactions of employess and managers (i.e., one-on-one, in teams, and in larger forums) • Messages to peers, internal customers, and suppliers • Individual decisions regarding “discretionary effort” • Statements and practices
BEHAVIORS
• Resources invested (i.e., • Goal setting and time, money, and budgeting VALUES emotional labor) • Reporting and measuring • Office layout AND • Human resources • Span of control BELIEFS policies/practices • Informal rewards and • Communication and
recognition employee feedback • Branding • Compensation SYMBOLS SYSTEMS • Organization Business Strategy
78 The Talent Paradox: A 21st century talent and leadership agenda
Not a Roll of the Dice among all of these elements-inherent values and beliefs, visible systems, behaviors, and The crux of it is this: A high-performance symbols-set against the backdrop of business culture can be a competitive weapon that strategy represents a company’s culture. leaders can actively manage. Culture should not be something that simply happens and through a fortuitous roll of the dice turns out Do As I Say... in a way that works for us. It is the product In a high-performance culture, values and of behaviors, symbols and processes which their visible expression in behaviors, symbols should be controllable and contribute to or and systems are inextricably connected. It detract from a company’s performance. is not enough to focus on systems in isola- tion or print more posters about values with Anatomy of a High- no credible incentive for behavioral change. Performance Culture Symbols are equally integral to establishing and maintaining culture. How many employees veryone wants a high-performance cul- get mixed messages when the company’s new Eture that gets the job done while attracting cost-savings initiative is promoted during an the best and the brightest. But just what is it? expensive corporate event? Or worse, during Not all definitions agree, but behaviors, sym- an event they are not invited to attend! bols and processes are visible manifestations of The actual culture of a company is most a company’s culture. often revealed when observing how indi- A high-performance culture is “an inte- viduals approach and complete tasks and grated set of management processes focused activities. This depends on decisions made on extraordinary performance,” according to in line with business strategy and can some- Dr. John Sullivan, professor at San Francisco times differ from officially declared values. State University and noted strategic human As discussed above, how employees choose resources author. What it’s not, Sullivan to expend discretionary effort on behalf adds, is a corporate culture in the traditional of the company is a direct reflection of the sense, encompassing such things as values culture, either high-performing or not. 6 and beliefs. Consider another common scenario: When Kotter and Heskett examined the A company implements the latest human causality of corporate culture and perfor- resources information system (HRIS) or enter- mance in the late ‘80s, they divided culture prise resource planning (ERP) system only to into two parts: (1) the pattern of shared values find employees resisting the new way of doing and beliefs that helps individuals understand business. The clash becomes much easier to organizational functioning (invisible) and understand when viewed in light of the inher- (2) those conventions that provide them with ent behaviors and symbols of the company, 7 norms of behavior (visible). In the authors’ which, unless they were actively changed, are view, because behaviors manifest themselves in (surprise!) still supporting and rewarding the such decisions as how to invest the company’s old organizational structure. This is where resources, it makes sense to add symbols and systems and process change need to go hand- systems (processes and infrastructure) to the in-hand with intended behavioral change. equation as visible expressions of culture. In Efforts to change culture solely through short, the model used here (Figure 1) combines recruiting or a flashy communications cam- Sullivan’s description of a high-performance paign often miss the point, as do the frequent culture with Kotter’s model while focusing horror stories about companies implementing on the expression of culture as a direct result performance-tracking software to “solve the of shared values and beliefs. The interplay culture problem.” There’s usually more to the
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But Which Type Of Culture? Given the connection between culture and strategy, it is easy to overlook the most basic decision: Which type of high-performance culture makes sense for a company? Which type of culture best supports the business strategy?
No one believes that an innovative, collegial culture would work in the military. Yet esprit de corps is synonymous with the word “military,” just as initiative and creativity on the battlefield often are essential to victory. Corporate leaders often fall into the trap of designating every positive attribute as one to strive for without thinking about context, purpose or overall strategy. Choosing everything is effectively a non-decision. (Everyone prefers a nurturing, collegial, responsible, zealous culture over a conniving, clock-watching, distrustful one.) Or leaders might specify incompatible attributes which will cause implementation problems as a result of again ignoring context, purpose, and strategy.
Much as professional athletes focus on one sport, companies that achieve real cultural change focus on a few key attributes instead of chasing them all. Given the different positive aspects of culture that can position a company to achieve its goals, the question is how they can be integrated into day-to-day use. How can employees “do” the new culture? Leaders must first define the desired culture in terms of values and aspirations and then further describe it in terms of real behaviors that drive role clarity and accountability within the company.
For example, if a company’s culture aspires to be more collegial, employees need to know exactly what that means. If this is an aspirational behavior, then employees must not be good at it today. The company should describe what it means to be collegial through behavioral examples, both positive and negative. If an employee calls a meeting and distributes materials and an agenda in advance so team members can be prepared to discuss and interact, that may be viewed as collegial. Blindsiding the same people with a spur-of-the-moment meeting and no advance materials might not be seen as collegial.
Abstract values that cannot be measured cannot be part of a cultural change program. Inconsistent values, or ones that fly in the face of recognized and tolerated behaviors, can undermine the credibility of a culture change program.
mix and companies must use the ingredients of culture is most in line with the company’s they have at their fingertips-behaviors, sym- strategy and, as important, how does this com- bols, and systems. pare to the way things are done now? How do we understand where we are today? Unlocking the Black Box As an example, at a Medicaid agency in the Northeast, a survey found employees giving e believe that a high-performance cul- low marks to virtually every cultural attribute, Wture that meshes with business strategy marking the distance between actual and ideal will result from consistent and appropriate as quite large. Culture assessment tools can decisions on those aspects of the company that help to map present and desired-state culture are anything but “soft”: behaviors, symbols, as a way to identify a list of desired behaviors. and systems. A comparison of today’s cultural attributes to those desired is often used to indicate where 1. Link Before You Leap the biggest bang can come from when chang- ing a company’s behaviors and culture. Before diving into the churning waters of But companies don’t get paid for finish- cultural change, it’s important to take a step ing at the top of the annual culture awards: back and question the purpose. What sort
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They meet or exceed their business objectives business. And for culture to be competitive, it by gaining market share and becoming more must find its source in this strategy. profitable. And while culture can be influenced by outside factors (competition, industry 2. Gather Strength and structure technological change, for example), Reinforcement From it also is an aspect of the company that should Symbols and Behavior be managed with an eye toward improving the company’s ability to meet or exceed its A possibly apocryphal story relates the business objectives.8 tale of a woman who shows up at an upscale In one case, Deloitte Consulting LLP department store and demands a refund for provided a national bank with survey research a set of defective tires. Of course, this store results on banking industry “success” factors. doesn’t sell tires and never has. Legend has The information was used to help the bank it, though, that the salesperson authorized assess its current culture and how it worked the refund. with its business strategy. Tangible metrics Whether this story is true hardly matters were identified, among them attrition and because it is widely told, having taken on a life acquisition numbers, data that can help pro- of its own, and the symbolism is clear: While vide important insights into deficient processes almost every retailer has placards saying that and/or strategies. This information can help the customer is always right, this particular suggest which cultural attributes have a direct department store embraced the idea in an correlation to how effectively a company is extreme way. Reverence for all customers at reaching its strategic goals. this retailer requires sales associates offering In the banking survey above, those custom- handshakes following any sale, coming around ers whose attitudes toward their bank were the counter to hand customers their purchases, ambivalent, and those who were vulnerable to and providing their personal business cards to switching, listed such items as “high switch- customers. Handshakes aren’t expensive, but ing costs” and “location and access” as leading their meaning is clear. reasons for remaining with their bank. At first Say It and Show It blush, these seem good enough reasons and Great cultures aren’t e-mailed into existence may even reflect an advantage in real estate and poster campaigns portraying the joys of and breadth of service. At the same time, collegiality aren’t much better. Symbols and however, the third group, the loyal custom- behaviors, however, do speak loudly. In effect- ers, rated “customer service” as the overriding ing cultural change, top-down and tangible attitudinal factor. This has clear ties to behavior are the bywords. Executives who embody the that reflects underlying culture. Moreover, performance culture have license, in the minds such advantages as fees and locations are fairly of employees, to expect the same throughout easy for a competitor to emulate. But culture their organization. Leaders should speak and change doesn’t occur overnight, and a bank do openly what supports the desired culture whose culture is conducive to a better cus- and be heard and seen in the process. tomer experience has a competitive advantage Is the company president sitting behind his not easily copied.9 or her desk and reading status reports on cus- As even this brief example suggests, culture tomer service issues, or visiting the call center is an issue that extends well beyond the HR and handling the occasional call? Did the com- department. There is a danger in confusing pany acquire an inline skate division because culture with morale or any other narrow mea- the accountants thought it made sense, or is sure. We believe that culture has an enormous the head of marketing a weekend inline hockey influence on how a company does business and player? Does the company sponsor a league? in defining how a company should conduct its
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Are employee ideas slipped into a suggestion So symbols can be negative, with unintended box and forgotten or does the company hold consequences, or positive and inspiring. Both are live meetings to argue about the ideas? Are powerful and capture attention. Positive symbols offices reserved for executives and cubicles for can be sincere and real or humorous hyperbole. junior employees? Is someone part of a team of Both kinds have their place and both work to build three, or do he and several hundred coworkers and sustain culture change. report to one manager? To some degree, every aspect of the work 3. Build Support Through experience expresses the culture of the com- Organizational Systems pany. Context is essential and annual photo ops with the rank and file are nothing compared to The way a company conducts business can executives’ behavior modeling in real business play a fundamental role in defining its culture. situations. Big-production rollouts or cafete- Among the worst mistakes any company can ria style culture-building that throws in three make is to focus on the benefits of a business months of coaching to solve the “accountability process and the information system that imple- problem” are both common and superficial. ments it in isolation. There is an inextricable Reality is what people touch, see and hear, and link between the design of the steps involved in there is no campaign that can override a visible the collective tasks of a company and the way executive role model or a thoughtfully-designed people work together, or apart. environment that shows junior employees We have found that in well-run compa- are valued. nies hiring takes place with an eye toward When misused, symbols can offer a attracting people who will support and tempting shortcut, but any change in culture thrive in the company culture. These com- requires time, effort and a learning process. panies have performance management The notion that a “culture change” team, even and reward systems designed around spe- with executive backing, can impose a mindset cific behaviors that complement the busi- on employees is flawed. Real change, cultural ness strategy, not around a generic list of or otherwise, involves real debate and leader positive accomplishments. advocates. It has been said that disagreement is Systems can aid leaders in governing a com- the key to getting agreement; without disagree- pany and include these important categories: ment, there is no testing. Employees may fall Performance Management Systems into line, but there will be only compliance to What is rewarded gets done. Period. directions given, with no commitment to the Performance ratings and compensation remain programs or their strategic intent.
Mergers: Matches Made in Heaven—or Not Mergers present a unique set of challenges on many levels, but it is cultural compatibility that is often overlooked or underestimated. Kell and Carrot “found a greater incidence of successful mergers between companies in which employees displayed similar leadership styles or where the cultures tolerated different ones.” They went on to note that while a company’s culture can be changed at least slightly, vast change may depend on the ongoing “hiring of people who represent the direction in which you are headed.” Source: Thomas Kell and Gregory T. Carrot, “Culture Matters Most,” Harvard Business Re- view, Volume 83, Issue 5; p. 22, May 2005.
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the fundamental rewards mechanism. We have a certain way is not arbitrary or mandated by found that compensation is unfortunately also IT but because the company values the result. among the most sensitive areas to change in If smart, independent decision-making is a key many companies. As a result, the tight links new behavior, for example, coaching in this between performance and adoption of new skill can both help employees develop better desired behaviors are often deferred. Badly skills in this area and serve as a visible symbol calibrated or disconnected performance and of this new emphasis for the company. rewards systems can override virtually any The converse is also true: Work systems other cultural imperative. that are implemented without regard to cul- ture can undermine much of what leadership Talent Management Systems hopes to achieve. An ERP system imple- The talent management life cycle encompasses mented at an oil company, as an example, recruiting, developing, deploying and connect- resulted in cost savings in data processing. ing employees within a company. Each aspect However, it imposed customer-facing pro- helps to create and foster the attributes of the cesses that reduced the company’s ability to company’s culture. For example, a company can tailor the product to customer needs and con- actively recruit new hires based on culturally strained what had been a productive culture. consistent, desired behaviors and reinforce these Systems are so fundamental to culture that when people join the company. Among exist- it is hardly a stretch to suggest that cultural ing staff, who are the high-potential employees change in the absence of in-depth process based on the new attributes? Which experienced knowledge and experience is an exercise in employees were on board with the new culture futility. The converse also seems to hold: pro- even before it became the new culture? It is cesses contorted to fit the latest information possible, and helpful, to identify both near- and systems are usually a disaster-in-waiting as long-term role backups based on new attributes; they affect culture. often this may involve looking to other divisions We believe this interplay among symbols, or functions. If the criteria are based on attri- infrastructure and behavior is the key to cul- butes and behaviors, then functional experience tural change. Deloitte Consulting experienced becomes a part of the equation, as opposed to this firsthand at the Medicaid agency described the entire equation, for succession planning. above, where we helped to develop a Cultural Top-down behaviors (not e-mails, but vis- Action Plan that focused on changing sym- ible actions!) can have a significant impact, bols and systems to help shape and sustain an as noted. Culture change should be linked to improved culture. The plan helped the agency leadership assessment and development pro- in its efforts to: grams because leaders have the biggest impact. • improve its performance management After all, that’s why companies spend so much system to increase accountability, customer time seeking the right candidate for the CEO service, and staff involvement spot. If it’s important that the customer sup- port and order-handling teams support the • institute a simpler process for hiring new culture, it is crucial for the management new employees team to serve as a constant role model. • use a behavioral interview guide that guides interviewers to ask candidates how they Work Systems have demonstrated the desired values and Assuming that systems support the focus of behaviors in previous roles the new culture, they can be helpful to explain the rationale behind the processes. They can • create performance expectations at all lev- corroborate that the reason things are done in els, signed by employees at each level and posted in a public place
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• restructure reporting lines to produce a flat- two staff members came to him with a concern ter, more accountable organization that he had not done something according • train staff and supervisors in the skills to policy, demonstrating their willingness to needed to do their jobs and to provide bet- hold him accountable. This represented a clear ter guidance and direction to their staff behavioral change from the earlier, dysfunc- tional culture at the agency. • hire a communications director to improve “Our culture has traditionally not been both internal and external communications. very performance-focused,” the agency direc- Beyond recruiting with an eye to the new tor said. “The cultural transformation that we culture, the agency made tangible changes are undergoing now will not only improve to core characteristics, right down to its employee engagement, but I also anticipate structure. While it may seem like a footnote, that it is going to drive employees to achieve the public posting of performance expecta- results. For example, our claims unit has been tions across levels represented a dramatic battling a backlog that seemed insurmount- change in openness and accountability able. We were able to reduce the backlog by 65 in an organization where these had been percent over the last two and a half months by notable weaknesses. focusing on performance metrics. This would never have been possible in the past. The 4. Measure Outcomes Repeatedly cultural transformation has brought a shared sense of mission.” Even with supportive symbols in place and Measurement also is worth attention systems properly aligned, a company’s culture because human behavior is notoriously dif- can be buffeted by competitive and technology- ficult to predict. Even in a company that related pressures, making it periodically neces- astutely manages cultural change, it’s rare to sary to determine whether the company is on have addressed everything the first time out. track. Measurement is essential, and it also can Measurement allows for course correction and be difficult, as anyone who has administered any reinforcement as needed. kind of “corporate happiness survey” can attest. In a high-performance culture, the most accurate metrics should be associated with out- Not a Black Box comes. For example, suppose a company was ommitment matters. Companies whose striving for a culture that supported and shared Ccultures generate commitment and sup- innovation rather than one that ceded product port their strategies win in the marketplace. and service ideas to the hoarding that can hap- They use their talent more fully than their pen in a competitive environment. One (bad) competitors, where cynicism, confusion, frus- way to measure this would be to survey every- tration, and echoes of “what’s in it for me?” sap one to find out whether they felt good about energy and motivation. sharing ideas. A better approach, however, Companies and leaders who inspire their would be to assess how the company had done employees find that their employees in turn in terms of producing ideas and how those inspire their customers. And just as companies ideas had generated income for the company. that delight their employees can expect signifi- Sometimes anecdotal evidence can serve as cant “discretionary effort” from their workforce, confirmation. At the Medicaid agency, symbols so, too, can these same companies expect to and systems were changed to support the new see significant “discretionary revenue” from culture, and behavioral change occurred over customers willing to pay more for excellence time. But even early indications pointed to in their interactions with a business. Positive positive behavioral change. During a supervi- culture leads to positive cash flow. sor training session, a supervisor told of how
84 The Talent Paradox: A 21st century talent and leadership agenda
The goal in revisiting and augmenting Endnotes Kotter and Heskett’s model with the concepts 1. ANN ARBOR, Mich., Jan. 25, of symbols, behaviors, and systems has been 2006/PRNewswire. to focus attention on the visible manifestations 2. J. Kotter and James L. Heskett, Corpo- of a high-performance culture. While recruit- rate Culture and Performance, The Free ing the right people remains important, and Press, Simon & Schuster, 2005. a charismatic leader can be an asset, the best 3. Jeff Rosenthal and Mary Ann Masarech, “High- results have most often come in companies that Performance Cultures: How Values Can Drive Business Results,” Journal of Organizational consider their symbols, behaviors and systems Excellence, Spring 2003, Volume22, Issue 2, p. 3. in concert with their desired culture. Moreover, 4. Isaac Dixon, “Culture Management and that desired culture is one that fits the com- Mergers and Acquisitions,” Society for Human pany’s competitive strategy in its market. These Resource Management case study, March 2005. companies do not see their culture as static, 5. Rosenthal and Masarech, see fn 3. but rather as a part of the business model that 6. “Performance Improvement-What Is a Per- helps them achieve their strategic objectives formance Culture and How Can You Foster and financial goals. One in Your Firm?”, Managing Training & In the coming years, companies will have no Development, Copyright (c)2004 The Institute choice but to rethink their company culture and of Management & Administration (IOMA). whether it can help them achieve their business 7. Kotter and Heskett, see fn 2. vision in the face of global competition and talent 8. Rob Goffee and Gareth Jones, “What scarcity. Opportunities to seize culture as a com- Holds the Modern Company Together?”, Volume 74, Issue 6, December 1996. petitive weapon will become apparent to some and remain a mystery to others. In the meantime, 9. “Loyalty Quest: Enhancing the Retail Bank- ing Experience to Drive Growth.” A joint it is important to recognize that culture happens, white paper by Deloitte Consulting LLP and but not in a black box. Consumer Bankers Association (CBA), 2005.
Originally published in Deloitte Review #1, 2007
About the authors
Stephanie Quappe is a consultant with Deloitte Consulting LLP in New York, specialized in organizational culture transformation and intercultural communication.
David Samso Aparici is a senior manager with Deloitte, S.L., currently on assignment in Barcelona, Spain. He specializes in strategic change and organizational transformation.
Jon Warshawsky is a senior manager with Deloitte Research, Deloitte Services LP. He is editor of The Deloitte Review.
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86 The Talent Paradox: A 21st century talent and leadership agenda
A world of talent
87 Talent Headwinds, Tailwinds and the Riddles of Demographics
By Jorrit Volkers and Ardie van Berkel > Photography by David Clugston
ne by one, a 4-year-old arranges a cluster and retaining an ample workforce now and Oof wooden blocks on a table top, hoping in the future will likely require innovative to win a token prize. The contest isn’t happen- recruiting techniques. ing in a classroom or a living room, but rather, Germany is not the only country facing in a board room at KSB, a €2 billion German stiff demographic headwinds. Recent research manufacturer of pumps and valves and pro- shows that demographic trends and their vider of related services. A company recruiter influences on workforces vary widely between carefully watches his every move. He’s looking countries and regions.5 Different regions— for a winner, but more importantly, he’s eyeing even countries within regions—are in different the future of the company. KSB hosts contests stages with regard to current and future labor and workshops with 4-year-olds to attract forces, suggesting that labor strategies should them to industrial careers and measure their be tailored to local situations. But variance in aptitude for jobs within the company. KSB required strategies between regions and coun- will follow the paths of children with poten- tries also presents important opportunities for tial in an attempt to eventually add them to companies with a presence in several regions. its workforce.1 Recognizing and anticipating demographic Unorthodox recruiting practices at German differences in disparate parts of the world may companies like KSB are the product of an help companies replenish otherwise shrinking uphill battle against demographics being talent pools.6 fought by many organizations. Siemens’ CEO Peter Löscher has said that “the demo- Regional picture: growth, graphic shift will be an extreme challenge for Germany’s economy.”2 A dearth of qualified shrinkage and life in the city engineers and a shrinking population are ccording to the U.S. Census Bureau, expected to make economic growth harder Athe global population is anticipated to to come by.3 Employees at German industrial grow from 6.9 billion in 2010 to 9.3 billion in companies, including Siemens and Porsche, 2050. Nearly 5.6 billion people live in what is are enjoying bonuses and increased wages to currently described as the developing world keep them from seeking greener pastures else- (Africa, all of Asia except Japan, all of the where.4 Companies like KSB that may not have Pacific except Australia and New Zealand, and the brand recognition of Siemens or headquar- Latin America), and approximately 1.3 billion ters in a big city have recognized that attracting live in the developed world (North America,
88 The Talent Paradox: A 21st century talent and leadership agenda
By Jorrit Volkers and Ardie van Berkel > Photography by David Clugston
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Figure 1. Overview of population and potential labor force1 for global regions Europe, Japan, Australia and New Zealand). number of people (mio) The population in the developing world is expected to grow at a compound annual ‘00 ‘10 ‘20 ‘30 ‘40 ‘50 growth rate (CAGR) of close to 1 percent POPULATION through 2050, while the developed world will World 6.089 6.853 7.597 8.259 8.820 9.284 likely show almost no growth.7 asia 3.447 3.842 4.197 4.469 4.645 4.739 Yet, a closer look reveals demographics that africa and near east 976 1.229 1.511 1.816 2.139 2.473 differ across regions (see figure 1). Africa europe 802 812 815 807 790 765 experienced the highest growth in population and potential labor force—the population that north america 313 344 378 412 446 480 is 15–64 years of age—both in certain terms South america 520 591 657 712 754 779 and as relative numbers in the period 2010– oceania 30 35 39 43 46 49 2050. Asia’s population growth, on the other hand, is expected to slow down, and its POTENTIAL LABOR FORCE potential labor force will begin to shrink in the World 3.845 4.503 4.999 5.385 5.640 5.824 period 2040–2050 with –0.1 percent CAGR. asia 2.213 2.602 2.859 3.009 3.029 2.999 If growing populations are the rule in the africa and near east 540 705 896 1.113 1.339 1.562 near future, Europe is the exception. The popu- europe 538 555 538 511 482 448 lation in Europe is expected to start declining north america 208 231 242 252 270 290 South america 326 387 439 473 491 494 oceania 20 23 26 28 29 31
CAGR2 ’00-‘10 ’10-’20 ’20-‘30 ’30-‘40 ’40-‘50 POPULATION World 1.2% 1.0% 0.8% 0.7% 0.5% asia 1.1% 0.9% 0.6% 0.4% 0.2% africa and near east 2.3% 2.1% 1.9% 1.7% 1.5% europe 0.1% 0.0% -0.1% -0.2% -0.3% north america 0.9% 0.9% 0.9% 0.8% 0.7% South america 1.3% 1.1% 0.8% 0.6% 0.3% oceania 1.4% 1.2% 0.9% 0.7% 0.5%
POTENTIAL LABOR FORCE World 1.6% 1.1% 0.7% 0.5% 0.3% asia 1.6% 0.9% 0.5% 0.1% -0.1% africa and near east 2.7% 2.4% 2.2% 1.9% 1.5% europe 0.3% -0.3% -0.5% -0.6% -0.7% north america 1.0% 0.5% 0.4% 0.7% 0.7% South america 1.7% 1.3% 0.7% 0.4% 0.1% oceania 1.5% 1.0% 0.8% 0.6% 0.5%
1Potential labor force means the population in age group 15-64 years 2CAGRs > 1% are marked with green; negative CAGRs are marked with redSource: U.S. Census Bureau
90 The Talent Paradox: A 21st century talent and leadership agenda
Figure 1. Overview of population and potential labor force1 for global regions Europe, Japan, Australia and New Zealand). in the coming decades, implying a shrinking number of people (mio) The population in the developing world is potential labor force. This trend is not isolated expected to grow at a compound annual to a single country; virtually all regions in ‘00 ‘10 ‘20 ‘30 ‘40 ‘50 growth rate (CAGR) of close to 1 percent Europe are expected to experience declining POPULATION through 2050, while the developed world will potential labor forces with stronger declines World 6.089 6.853 7.597 8.259 8.820 9.284 likely show almost no growth.7 occurring in eastern and southern Europe.8 asia 3.447 3.842 4.197 4.469 4.645 4.739 Yet, a closer look reveals demographics that In addition, around the world, people are africa and near east 976 1.229 1.511 1.816 2.139 2.473 differ across regions (see figure 1). Africa migrating to cities in unprecedented numbers. europe 802 812 815 807 790 765 experienced the highest growth in population In 2010, 70–80 percent of the population in and potential labor force—the population that North America, Latin America, Europe and north america 313 344 378 412 446 480 is 15–64 years of age—both in certain terms Oceania lived in cities, and urbanization is South america 520 591 657 712 754 779 and as relative numbers in the period 2010– expected to reach 80–90 percent by 2050. oceania 30 35 39 43 46 49 2050. Asia’s population growth, on the other Similarly, in Africa and Asia, urbanization hand, is expected to slow down, and its is experiencing a significant uptick, from 15 POTENTIAL LABOR FORCE potential labor force will begin to shrink in the percent in 1950 to around 40 percent today. World 3.845 4.503 4.999 5.385 5.640 5.824 period 2040–2050 with –0.1 percent CAGR. Approximately 60 percent of the population is asia 2.213 2.602 2.859 3.009 3.029 2.999 If growing populations are the rule in the expected to live in cities by 2050, suggesting africa and near east 540 705 896 1.113 1.339 1.562 near future, Europe is the exception. The popu- that an even larger percentage of the future europe 538 555 538 511 482 448 lation in Europe is expected to start declining workforce will be located in cities than is north america 208 231 242 252 270 290 South america 326 387 439 473 491 494 Figure 2. Potential labor force development of key countries oceania 20 23 26 28 29 31 Index (Expected) year of declining 1995 = 100 potential labor force CAGR2 200 ’00-‘10 ’10-’20 ’20-‘30 ’30-‘40 ’40-‘50 India NA POPULATION World 1.2% 1.0% 0.8% 0.7% 0.5% asia 1.1% 0.9% 0.6% 0.4% 0.2% africa and near east 2.3% 2.1% 1.9% 1.7% 1.5% 1 150 United States NA europe 0.1% 0.0% -0.1% -0.2% -0.3% north america 0.9% 0.9% 0.9% 0.8% 0.7% South america 1.3% 1.1% 0.8% 0.6% 0.3% 2 oceania 1.4% 1.2% 0.9% 0.7% 0.5% United Kingdom NA France 2012 POTENTIAL LABOR FORCE 100 Netherlands 2011 China 2015 World 1.6% 1.1% 0.7% 0.5% 0.3% Belgium 2011 asia 1.6% 0.9% 0.5% 0.1% -0.1% 1995 Germany 1999 africa and near east 2.7% 2.4% 2.2% 1.9% 1.5% europe 0.3% -0.3% -0.5% -0.6% -0.7% Japan 1996 north america 1.0% 0.5% 0.4% 0.7% 0.7% 50 South america 1.7% 1.3% 0.7% 0.4% 0.1% 2000 2010 2020 2030 2040 2050 oceania 1.5% 1.0% 0.8% 0.6% 0.5% 1 U.S. potential labor force growth is mainly driven by immigration (Population Reference Bureau, 2007: “new immigrants and their children will account for all of the growth in the U.S. labor force between 2010 and 2030”) 1Potential labor force means the population in age group 15-64 years 2 Potential labor force in the UK shows decrease in 2029, followed by a stable period and growth in 2037 2CAGRs > 1% are marked with green; negative CAGRs are marked with redSource: U.S. Census Bureau Source: U.S. Census Bureau
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currently the case.9 Companies with offices Robots and automation outside of cities that struggle to attract a prop- Fertility rates and immigration are the erly skilled workforce could consider establish- primary drivers of these waning numbers. ing offices in big, popular, growing cities where Countries suffering the sharpest drops in talent may be more willing to live and work. labor force have already sustained low fertility We have already seen strategic responses to rates—the number of births per woman—for this trend. Vodafone Netherlands, for example, a long time. A stable population requires 2.1 opened a second head office in Amsterdam births per woman in developed countries. in addition to its office in the far south of the Japan fell below this number around 1970, and Netherlands. The company relocated most of as of 1990, the birth rate had dropped below its commercial and management functions 1.5 births per woman—with a further decline to its Amsterdam office. In addition to being to 1.4 in 2000 and 1.3 in 2010. Japan is turn- closer to its customers, which are located ing to technology to offset its ongoing demo- mostly in the large cities in the west of the graphic challenges. With more than a fifth of country, Vodafone made the decision based on its population in the 65+ age group, the coun- the fact that it wanted to be closer to critical try is banking on robots to replenish its work- talent. Vodafone discovered that online mar- force and care for its elderly. Robots—already keting and sales talent and workers with inter- a staple in Japanese factories, rice paddies and national ambitions were typically unwilling to sushi bars—are now working as receptionists, move to the south of the country, prompting janitors and caretakers for the elderly.12 the company to relocate closer to its desired China’s fertility rate, which hovered above talent pool.10 5.5 live births per woman in 1970, fell below the required 2.1 births for a stable population Shortfalls and solutions as of the early 1990s13 due to the implementa- tion of the one-child policy. Immigration levels he potential labor force development of have not kept pace with this decline, help- key countries depicted in figure 2 suggests T ing to explain the country’s ebbing potential that with the exception of India, the United labor force. States and the United Kingdom, the remain- ing countries shown expect a decline in their potential labor force. India’s ongoing growth Recruit thy neighbors is introducing opportunities for companies Immigration is another key driver of the trying to supplement their workforce. Porsche, potential labor force. This is especially true for for example, started to search in India and the United States where the growing potential other emerging countries because the company labor force is driven primarily by immigra- could not find enough qualified engineers for a tion as its fertility rate is 2.1 (the number 11 planned plant expansion in East Germany. needed for a stable population). Countries In Germany, the potential labor force such as Japan and Germany, on the other started shrinking in 1999 after an ongo- hand, have far lower levels of immigration ing population decline, and Japan’s potential that cannot compensate for their relatively low labor force, which has been declining for 15 fertility rates. years, is anticipated to continue its downward German companies are developing strate- trajectory for the foreseeable future. In several gies to strengthen their workforces by attract- other countries, a decline appears imminent. ing foreign talent. More than 50 German For example, China’s potential labor force is high-tech companies and schools are plan- expected to dwindle by 2015. ning to launch a project in Poland next year. The aim is to recruit dropouts from Polish schools and train them to work in Germany.
92 The Talent Paradox: A 21st century talent and leadership agenda
Given a lack of qualified German applicants a week. Given the shortage of engineers in for their skilled positions, German compa- Germany—a skill shortage that, in all prob- nies are increasingly looking east to coun- ability, will grow as a result of the declin- tries like Poland to supplement their waning ing labor force—the proximity and similar workforce numbers.14 languages of the two countries could spur While Germany and the Netherlands’ German companies to start recruiting aggres- declines look quite similar (see figure 3), the sively in the Dutch market. Higher wages and German decline appears to be much steeper. excellent career opportunities can be very Germany’s forecasted shortage of employees in attractive for the talent involved, but it would 2050 is estimated at 8.2 million or 19 percent leave companies in the Netherlands struggling of their current labor force, compared to only to find employees with technical skills and 275,000 or 3 percent in the Netherlands.15 The incite them to take appropriate measures to main reason for this differing decline is counter the potential talent drain. The ripple Germany’s lower fertility rate of 1.4 compared effects of demographics, therefore, are far more to 1.7 births per woman in the Netherlands. To intricate than the macro-level trends alone envisage the magnitude of the implications, the would suggest. forecasted German labor shortage in 2050 will be higher than the total current workforce in Respect thy elders (and keep the Netherlands. them on the payroll) As the Netherlands and Germany are neighboring countries, a severe employee When it comes to demographics, death is shortage in Germany might have implications as significant as birth rates. Life expectancy is for the Netherlands. A young, talented Dutch growing and is projected to continue growing engineer could easily live in the middle of in the coming decades. This increases popula- the Netherlands and travel east several days tion but not the potential labor force, which is
Figure 3. Comparing five countries more in depth
Netherlands
Germany China India United States
Fertility rate (est. 2011)1 2.1 1.7 1.4 2.6 1.5
(Expected) year of declining NA 2011 1999 NA 2015 potential labor force2
20102 19% 22% 31% 8% 12% 65+ age group as % of 15-64 years old (Expected) 20502 33% 44% 53% 22% 45%
1The replacement fertility rate for a stable population is approximately 2.1 births per woman. For developing countries it ranges 2.5–3.3 because of higher mortality rates. Source: CIA World Factbook 2Source: U.S. Census Bureau, 2010 measurement Source: CIA World Factbook, Eurostat, United Nations, 2010
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currently defined as people in the 15–64 age plans to introduce it to more plants in the range. In the developed world, the number of coming years.19 people in the 65+ age group as a percentage of 15–64-year-olds is expected to grow signifi- Influence choices at a young age cantly between now and 2050.16 Countries with an aging population and a A dearth of young people also implies a shrinking potential labor force will most likely smaller pool from which companies can select show only small GDP growth through 2050. A employees, magnifying the importance of declining labor force implies that a country can matching educational backgrounds with work- only boost its GDP by improving labor pro- force needs. German companies, for example, ductivity per person. Consequently, the heavy have begun to focus on aligning education burden of healthcare and retirement costs with the needs of its industries. will be placed on fewer shoulders and lead to “In Germany, I consider it a duty for lower net income for the working population, companies in particular to promote interest in suggesting reduced spending power among technical occupations through active interac- consumers in the 15–64 age range to drive tion with children and youth,” said Wolfgang consumption and the economy. However, a grayer population can have a silver lining. The 65+ age group could become a large addition to the labor force if coun- tries and companies can provide appropriate incentives and, in some cases, redesign how work gets done. Flexible work arrangements, greater support, and recognition from manag- ers can help companies retain older employ- ees.17 Making it financially attractive for 65+ employees to continue working may require new government policies in many countries that allow people to work beyond the current retirement age and incentivize this with, for example, adjusted tax rules. The average age of BMW’s plant workers is on the rise and expected to hit 47 years of age by 2017.18 As a result, the company piloted Malchow, former board member for human a production line in Germany consisting of resources at Bosch. “This is the only way we employees with an average age of 47 years. can win over qualified junior staff for tomor- 20 The carmaker improved the ergonomics of row and beyond.” assembly lines based on requests from work- The Bosch Solar Energy business division ers and introduced workstation changes every and Staatliches Gymnasium, a public high four hours, fitness exercises during work time, school in Arnstadt, Germany have realized and even a relaxation room for short naps. the need to promote interest in technical BMW made 70 relatively small alterations occupations at an early age. They recently that reduced errors on its assembly line and signed an agreement to offer early career physical strain on its workforce. Absenteeism orientation for students within the context declined, and the defect rate on the assem- of the KnowledgeFactory (‘Wissensfabrik’ bly line dropped to virtually zero. BMW in German), a cooperation between compa- expanded the pilot to several other plants and nies and schools in Germany. This associa- tion—founded by German giants including
94 The Talent Paradox: A 21st century talent and leadership agenda
BASF, Bosch and Thyssen-Krupp—tries to youngest population of the representative kindle enthusiasm for technology and business countries, India’s demographic picture bodes among school-aged children.21 well for talent-strapped companies trying to expand their workforce. For example, Infosys Emerging countries and the started the Campus Connect initiative to help long arm of recruiting increase India’s competitiveness. Infosys and engineering institutions collaborate to deepen The prospect of a declining labor force the pool of IT talent. The initiative targets col- and an aging population looms over China’s lege campuses that feed the IT industry and longer-term circumstances, but the country’s fuel its growth. It includes, for instance, train- current problem is precisely the opposite. The ing sessions at colleges, aligning curriculums college-educated Chinese workforce is expand- with industry requirements and publishing ing faster than its economy, adding more than Infosys courseware on the Web.25 6 million graduates each year. China’s economy (However, in the “Nothing good lasts is growing, but it is not producing enough pro- forever” department, India’s fertility rate has fessional jobs, so nearly a quarter of its gradu- been declining since 1970 when the fertility 22 ates fail to find work. This may turn around rate was 5.5. This, coupled with a longer life in the current decade, but the abundance expectancy, will add to India’s percentage of of college graduates from China and other people aged 65+ relative to people aged 15–64. emerging countries provides opportunities for This percentage is expected to almost triple in companies seeking college-educated workers. the next 40 years.) The Japanese arm of the Boston Consulting Dutch companies are also exploring Group (BCG) is responding to China’s surplus innovative ways to develop an ample skilled of aspiring talent by recruiting many of China’s workforce. IHC Merwede, one of the largest best and brightest graduates to supplement ship building companies in the Netherlands, the workforce in its Japanese office. Although recently invested heavily in a new technical Japanese companies have long been recruiting education organization to anticipate future in China for their Chinese affiliates, recruiting shortages of specialized, technical employees. for positions in Japan is a new development. IHC Merwede brings in employees as teachers, For Chinese students, this means a chance at and metal study objects are, if made success- much higher pay and professional develop- fully by the students, actually used in the end ment. This strategy is spurred by more than a product (ships). By bringing theory to prac- declining labor force in Japan: Chinese person- tice, IHC Merwede hopes to attract motivated nel are a critical part of the marketing strate- students to the metal sector.26 gies at Japanese companies trying to foster a foothold in China. (“Sales pitches by Japanese Recruiting and retaining women staff in China have their limits,” according to an official with a major food company.)23 The Many companies are devising creative goal is to cultivate Chinese talent that can solutions that take demographic realities into eventually develop new markets in China for account, including deliberate steps to make this Japanese company. 24 better use of countries’ entire potential labor forces by creating more professional opportu- Big business on campus nities for women. In South Korea, for example, only 60 percent of female graduates in the Collaborating with universities and voca- 25–64 age group are employed, making col- tional training schools has yielded additional lege-educated South Korean women “the most paths around the demographic walls. India underemployed in OECD countries,” according provides some telling examples. With an to The Economist.27 South Korean women often expected fertility rate of 2.6 in 2011 and the
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encounter social pressures to trade profes- work spaces. At the headquarters of a large sional life for parenthood, making it difficult Dutch company, for example, designers created to maintain an upward career trajectory. Many a space without assigned work stations, and the companies, as a result, fill their senior-level company allows employees to work “anywhere, positions exclusively with men, leaving large anytime.”32 numbers of talented females professionally eclipsed. Goldman Sachs uses this otherwise Looking Ahead unfortunate trend as an opportunity to recruit underutilized female talent, and it now has he numbers can be discouraging, but more women than men in its office in Seoul.28 Tcompanies operating in countries with So too at Siemens, which expands its declining populations are not powerless in the talent pool by recruiting women, includ- face of demographic headwinds. In some cases, ing mothers. It established 400 day care they have turned these challenges into compet- centers for employees’ children and plans to itive opportunities. Understanding the poten- double that figure. Furthermore, the com- tial challenges and opportunities a company pany created a science camp for talented high might encounter in the coming decades begins school-aged female mathematics and physics with three fundamental considerations: students and started a mentoring program for • The demographic realities that female undergraduates.29 define the major countries where a company operates. Flexible careers and flexible hours • The potential talent-related problems and opportunities a company may encounter Companies may not be able to alter the when operating in a specific country. demographics of the countries in which they operate, but adapting their talent strategies to • The bigger picture—possible solutions and the needs of their workforces can go a long way opportunities across countries and regions. in offsetting demographic pressures. Cisco is Demographics may be destiny, but they pursuing a new model for career development don’t have to be doomsday. An ounce of demo- that accommodates lateral as well as verti- graphic foresight can yield insights as to where cal moves to cultivate its next generation of a company’s customers and its workforce will leaders. The corporate lattice model is a more likely live. Knowing the future whereabouts of flexible approach to performing work, building its workforce and its customer base can help careers and developing talent.30 More flexible a company decide where to establish facto- career paths can help retain employees with ries, offices and headquarters. Multinational young children and older employees who want companies can use shifting populations to their to continue working but at a slower pace. advantage by allowing abundance in one loca- In the Netherlands, 75 percent of women tion to offset scarcity in another. work part time. Job sharing is the norm, especially in female-dominated sectors like healthcare and education. Part-time work has Originally published in Deloitte Review #10, 2012 become a powerful tool to attract and retain talent—male and female—in a competitive About the authors Dutch labor market. Part-time work isn’t the sole province of the female workforce; 23 Jorrit Volkers is a partner in the tax practice of percent of Dutch men work reduced hours, Deloitte Netherlands. and 9 percent work a full week in four days.31 Ardie van Berkel is a partner and Human Dutch companies are accommodating this Capital practice leader of Deloitte Netherlands. trend by allowing for flexible hours as well as
96 The Talent Paradox: A 21st century talent and leadership agenda
Endnotes
1. “Vergrijzingsproblematiek, Personeel uit ‘Kin- 16. “International data base—Midyear Popula- dergarten’,” Financieel Dagblad, March 19, 2011. tion, by Age and Sex for Region Summary,” 2. “Germany pays price of labour shortages,” US Census Bureau, December 2010. Financial Times, November 24, 2010.
97 Talent Talking About Whose Generation? Why Western generational models can’t account for a global workforce
By David Hole, Le Zhong and Jeff Schwartz > Photography by David Clugston
98 The Talent Paradox: A 21st century talent and leadership agenda
t is 8 pm in Shanghai, and Kan, a marketing assumptions about a homogeneous workforce, Imanager for a large global retailer has just global companies often oversimplify their gotten off of another call with a headhunter. “I talent strategies. They ground decisions in an like this company. I’m rewarded as a top per- incomplete picture of their global workforces former and being considered for a promotion,” by assuming the same generations exist across he thought. “But my creativity and drive for the countries where they operate. The charac- taking the business to the next level are simply teristics of generational cohorts in the Western not appreciated here. My bosses are nice but countries where talent strategies originate do old-fashioned, too conservative to promote my not necessarily address the core aspirations best ideas or work with Global to implement and drivers of behaviors in other parts of the them. I know they see this as a safe approach, world. Gaining a more complete picture of a By David Hole, Le Zhong and Jeff Schwartz but my former colleagues who took my ideas talent pool requires companies to understand > Photography by David Clugston to other firms have been hugely successful.” He the generational composition of their entire stepped back into his office and looked at the global workforce. pile of files on his desk. “Should I stay and be Throughout the West, organizations tend to comfortable or look somewhere else for a more divide their workforces into three generational fulfilling future? I’m only 29 – lots of opportu- groupings: Baby Boomers (born between 1943 nities. I know others on my team feel the same and 1964), Generation X (born between 1965 way. Maybe some of them would love the idea and 1980) and Generation Y (born between of going to a new company with me.” 1981 and 2001). Each group tends to have Meanwhile, the Beijing-based head of predominant, common traits. For example, R&D for a global pharmaceutical company is Boomers are commonly defined as demon- contemplating her talent challenge. “We are so strating a strong work ethic and expecting hard strong in developing new talent; our programs work to be rewarded; Generation X as tending are second to none, and that is my problem. to favor work-life balance and flexibility; and People come to us, scientists and medical Generation Y as embracing social technology professionals straight out of university, because and diversity. Organizations can bolster their we have a reputation for professional develop- talent management approaches by determin- ment. They stay with us for two years, and then ing recruitment, retention and development they are off. I am the finishing school for our strategies that cater to the various needs of competitors.” She explains that while the U.S. each generation. parent company has the development process But perhaps these divisions aren’t as nailed, they are failing to deliver retention straightforward as they appear. After all, why strategies that have resonance to young profes- should the same generational lines and cultural sionals in China.1 norms apply to workforces that exist in other- Each generation that enters the workforce wise disparate countries, histories and cul- introduces a unique set of motivations and tures? In and of themselves, the definitions that strengths to the workplace. A successful tal- drive talent strategies are too broad. Consider, ent strategy can hinge on an organization’s for example, the application of these genera- understanding of what makes its employees tional divisions in the United Kingdom. At tick in the same way that broader business the tail end of the Boomer generation are the strategy relies on an understanding of differ- so-called “Thatcher’s Children” who entered ences between its myriad customer groups. higher education or the workforce at the outset Differences between generations can affect of the market liberalization. Are they really the way organizations recruit and build teams, likely to share the same attitudes as those who deal with change, motivate and manage people, were born, raised and employed under societal and boost productivity and service effective- conditions informed by the post-War social- ness. But despite their best efforts to shed false ist consensus? Likewise in France, the student
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riots and the general strike of 1968 profoundly significant differences in a business setting. the globe? Can we assume similarities in the influenced the world views and aspirations of Claiming that “millennials are millennials” ways they make career decisions or perform those of college age (the “soixante-huitards”). wherever they are in the world is tantamount their jobs? These two examples raise an important to blithely saying that “customers are custom- Much of the literature on these issues question about the generally accepted Western ers” the world over. oversimplifies and overstates the extent and business view of generational differences: even Global businesses need to shed the ten- depth of generational convergence. While the assuming that the designations of Boomers, dency to average out generational differences concept of generational differences is universal, Gen X and Gen Y are useful across North in favor of a more complex and complete how those generations are defined remains America and Europe, the socioeconomic and picture of their workforces. Does the fact that specific to a given society. As a consequence, a political events that drove societal transforma- professionals in New York, London and Beijing workforce’s ambitions, aspirations and behav- tion—and hence, influenced attitudes—were display similar outward material characteris- iors manifest themselves in the labor market significantly different. tics reflect a convergence in the aspirations, and the workplace. This should be of interest to If the Western definition of generations is ambitions, values and attitudes that drive all business leaders who seek to enter a market, so broadly stated, then how useful are these talent strategies? Put simply, does the fact that build global business operations or maxi- definitions in driving business related people workers from New York, London and Beijing mize the productivity of a workforce across strategies on a global basis? Companies that walk the city streets listening to their music national borders. merely transplant U.S.-centric notions of of choice, wearing designer jeans and drink- Boomers, Gen X and Gen Y tend to aver- ing lattes indicate anything deeper than the 1945 and All That age out similarities between generations outward appearance of convergent characteris- across geographies and thereby lose sight of tics between contemporary generations across et’s start with an observation that is at Lonce obvious and overlooked by most Western framers of the concept of the three Figure 1. Global generation overview generations (Boomer, X and Y). Year Zero for 1950 1960 1970 1980 1990 2000 baselining the modern era is not universally held to be 1945. That may be true in North Post-50s Post-60s Post-70s Post-80s Post-90s China generation generation generation generation generation America, across Europe, in Japan and the (1950-1959) (1960-1969) (1970-1979) (1980-1989) (1990-1999) original British Commonwealth, but it is “Non-Traditional” certainly not true elsewhere. This is important India “Traditional” generation generation Gen Y (1948-1968) (1969-1980) (1981-onward) because generational differences in any society are shaped by the political, socioeconomic and South “475”generation “386”generation Gen X and Gen Y Korea (1950-1959) (1960-1969) (1970-onward) cultural events that have a transformative impact on the body politic. If the defining 1st Baby 2nd Baby Shinjinrui Shinjinrui seismic event that heralds the modern era Boomer Danso generation Boomer Post Bubble Junior Yutori Japan (1946- (1951-1960) generation (1971- (1976-1987) (1987-2002) (1961-1970) (1986- varies from country to country, then by 1950) 1975) 1995) extension, the definition of generations starts from the principle of variable geometry. Figure Russia Baby Boomers Gen X Gen Y (Gen “Pu”) (1943-1964) (1965-1983) (1983-2000) 1 illustrates how this variability plays out across selected geographies. Post War generation Communist generation Democracy generation Bulgaria (1945-1965) (1965-1980) (1980-onward)
Czech Baby Boomers Generation X-“Husak’s Children Generation Y Asia’s Many Faces Republic (1946-1964) generation” (1983-2000) (1965-1982) he four powerhouse economies of Asia— South Baby Boomers Gen X Gen Y TChina, India, Japan and South Korea—can (1943-1970) (1970-1989) (1990-2000+) Africa be used to illustrate the way generational dif- Baby Boomers Gen X Gen Y ferences play out in the workforce. For busi- Brazil (1946-1964) (1965-1980) (1981-2001) ness leaders to make sense of the generational differences in each country, it is essential to U.S. Baby Boomers Gen X Gen Y (1943-1964) (1965-1980) (1981-2001) start with a brief overview of the defining
100 The Talent Paradox: A 21st century talent and leadership agenda
the globe? Can we assume similarities in the political and socioeconomic events that shaped ways they make career decisions or perform generational attitudes. their jobs? The defining date of the modern era for Much of the literature on these issues China was the foundation of the People’s oversimplifies and overstates the extent and Republic in 1949. This was followed by almost depth of generational convergence. While the 30 years of economic and political turmoil concept of generational differences is universal, that had a significant impact on the attitudes, how those generations are defined remains aspirations and fears of the population. specific to a given society. As a consequence, a From the economic catastrophe of the workforce’s ambitions, aspirations and behav- “Great Leap Forward” in 1960 through the iors manifest themselves in the labor market Cultural Revolution that lasted until 1976, and the workplace. This should be of interest to values in China were based purely on com- all business leaders who seek to enter a market, munism and Maoism. This changed gradually build global business operations or maxi- and significantly with the economic reforms mize the productivity of a workforce across launched by Deng Xiaoping in 1978. Since national borders. then, China has experienced nearly continu- ous growth and relative market liberalization. 1945 and All That Beneath these headlines, however, are other significant social and political developments. et’s start with an observation that is at China’s adoption of the One-Child Policy Lonce obvious and overlooked by most in 1980 radically impacted the traditional Western framers of the concept of the three family structure in many unforeseen ways Figure 1. Global generation overview generations (Boomer, X and Y). Year Zero for and resulted in a generation that grew up in a 1950 1960 1970 1980 1990 2000 baselining the modern era is not universally family environment of high expectations and held to be 1945. That may be true in North minimal competition for attention. Post-50s Post-60s Post-70s Post-80s Post-90s China generation generation generation generation generation America, across Europe, in Japan and the In 1998, another round of economic (1950-1959) (1960-1969) (1970-1979) (1980-1989) (1990-1999) original British Commonwealth, but it is reform was introduced by Premier Zhu “Non-Traditional” certainly not true elsewhere. This is important “Traditional” generation generation Gen Y RongJi, which led to a restructuring of State India (1981-onward) (1948-1968) (1969-1980) because generational differences in any society Owned Enterprises (SOEs) that trimmed are shaped by the political, socioeconomic and South “475”generation “386”generation Gen X and Gen Y the workforce by 20 percent nationally and Korea (1950-1959) (1960-1969) (1970-onward) cultural events that have a transformative phased out state-provided free housing and impact on the body politic. If the defining healthcare to all workers. Around the same 1st Baby 2nd Baby Shinjinrui Shinjinrui seismic event that heralds the modern era Boomer Danso generation Boomer Post Bubble Junior Yutori time, college graduates acquired the right Japan (1946- (1951-1960) generation (1971- (1976-1987) (1987-2002) (1961-1970) (1986- varies from country to country, then by 1950) 1975) 1995) to choose their own jobs, and multinational extension, the definition of generations starts corporations (MNCs) started recruiting on from the principle of variable geometry. Figure Chinese campuses. Russia Baby Boomers Gen X Gen Y (Gen “Pu”) (1943-1964) (1965-1983) (1983-2000) 1 illustrates how this variability plays out This history of accelerated and, at times, across selected geographies. cataclysmic change profoundly influences the Bulgaria Post War generation Communist generation Democracy generation (1945-1965) (1965-1980) (1980-onward) definition and characteristics of generations in the workplace. Due to the accelerated cultural Czech Baby Boomers Generation X-“Husak’s Children Generation Y Asia’s Many Faces Republic (1946-1964) generation” (1983-2000) and economic transformation, each decade (1965-1982) he four powerhouse economies of Asia— introduced a generational cohort with distinct South Baby Boomers Gen X Gen Y TChina, India, Japan and South Korea—can Africa (1943-1970) (1970-1989) (1990-2000+) characteristics. As a result, the U.S.-centric be used to illustrate the way generational dif- model of Boomer, Gen X and Gen Y is mean- Baby Boomers Gen X Gen Y ferences play out in the workforce. For busi- Brazil (1946-1964) (1965-1980) (1981-2001) ingless in a Chinese context. Instead, four dis- ness leaders to make sense of the generational tinct generational groupings currently co-exist Baby Boomers Gen X Gen Y differences in each country, it is essential to in the workplace: post-‘50, post-‘60, post-‘70 U.S. (1943-1964) (1965-1980) (1981-2001) start with a brief overview of the defining and post-‘80 generations. The characteristics
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of each generation and the manifestation of 1980. As a group, they have a reputation of the differences between them in the workplace being individualistic and confident but also is a hot topic that sparks discussions across self-centered and rebellious. Compared to Chinese magazines, newspapers, websites and preceding generations, they are regarded as MBA seminars. innovative, open-minded toward new ideas Consider, for example, just two of the four and approaches. groupings: the post-‘70 and post-‘80 genera- The collectivist post-‘70 generation in tions. The post-‘70 generation (born between China’s workplace is often faced with the 1970 and 1979) is more Western in outlook challenge of managing the individualistic than preceding generations, reflecting the fact post-‘80 generation. In this context, post-‘70 that it includes the first college graduates who managers have found that, unlike themselves, chose their own careers and benefited from their post-‘80 subordinates typically have little on-campus recruiting from multinational respect for authority, actively seek to manage companies. It also was the first generation that their own careers instead of having faith in the stopped receiving free housing from employ- organization’s system, and are far more likely ers. Meanwhile it is also the last generation to leave their job if the environment does not raised in a collective family and educational satisfy them. Furthermore, a recent survey environment; members of this cohort are shows that the ‘80s generation considers the typically willing to sacrifice self-interest for the ‘70s generation to be overly conservative, greater good of the collective group. lacking in creativity and reserved to the point In comparison, the post-‘80 generation of appearing fake.2 These generational differ- (born between 1980 and 1989) is the first ences introduce new challenges pertaining to generation of single children to emerge after talent management, and companies are facing the introduction of the One Child Policy in unprecedented attrition rates among their post-‘80 talent. While Western talent manage- ment best practices will be helpful in address- africa emerging ing many of these issues, it is essential to understand a country’s unique local dynamics. The leading economy in Africa is that of South Africa, a As the head of commercial development for a country that has gone through tumultuous change, from the establishment of apartheid by the nationalist government leading MNC noted, “We need to get smarter in 1948, the Sharpeville Massacre, and the 1976 Soweto in recognizing that one size fits all doesn’t Uprising to the constitutional changes of the early 1990s work for my talent needs. To recruit, retain and the first democratic election under universal suffrage. and get the best out of sales and marketing This emergence from the apartheid era had an impact on professionals I need Corporate to acknowledge the composition of the workforce and the attitudes of that ‘think global, act local’ should translate those participating. One of the byproducts of apartheid into ‘plan local and connect global’. Not only was an employment environment in the public sector that do my young professionals not think like the gave preference to white South Africans in certain areas. As Americans at Corporate – they don’t think South Africa entered the democratic era, affirmative action like me!”3 Reflecting the sentiment behind was introduced to hold companies to strict employment quotas aimed at making the workforce more reflective of the that observation, global companies such as population as a whole. Motorola, P&G, Unilever and IBM are already considering ways to address the needs of the As a result, the South African Gen X tends to be more new generation of workers in China.4 entrepreneurial, displaying skepticism of corporations and hierarchy while looking for an outputs-driven workplace. Generational differences in China are Gen Y, meanwhile, has no memory of apartheid and seeks a unique among its Asian neighbors in addi- relaxed, informal workplace that differs from the command tion to their stark contrast to the Boomer- structure that shaped the boomers. X-Y model that permeates the United States. Japan’s post-war history includes the upheaval
102 The Talent Paradox: A 21st century talent and leadership agenda
of student activism throughout the 1960s, to employers in Japan as they adapt to the the economic impact of oil crises in 1973 and workplace. The product of a more liberal edu- 1978, and the bubble economy of 1986–1991. cation due to Yutori education reforms, they This was followed by an “Employment Ice Age” are perceived to lack the focus and discipline that lasted from 1993 until 1999. Changes to of earlier generations.7 Within the workplace, the education system in the 1980s have also they typically demonstrate greater individu- created divergence between generations. alism that can be a source of friction with As Figure 1 illustrates, shifting social sands older generations brought up to accept group in Japan since the end of World War II resulted thinking. While technically competent, many in seven discrete generational cohorts that believe that the Yutori need more coaching cannot be aligned with the Boomers, Gen X and guidance. and Gen Y, their contemporaries in the West. Meanwhile the years that followed the The Shinjinrui Korean War were Generation (1961- filled with tumultu- 1970)also known as ...shifting social ous change, including the “Bubble a military coup in Generation” spent its sands in Japan since 1961 that heralded adolescence in the nearly three decades bubble economy of the the end of World of autocratic rule in 1980s.5 The first South Korea. At the generation to show War II resulted same time, a focus on clear signs of individu- exports and the role of alism, members of this in seven discrete the Chaebol conglom- cohort benefited from erates resulted in rapid a shortage of skilled generational cohorts economic growth until labor and tended to the 1980s. The transi- move quickly up the that cannot be tion to representative corporate ladder, often democracy in 1998, lacking the requisite aligned with the coupled with the leadership skills for fallout from the IMF the positions they Boomers, Gen X crisis nine years later, held. Their children, has further altered the aptly named and Gen Y, their the attitudes of the Shinjinrui Junior younger generation. Generation, mean- contemporaries For South Korea, while were born the 475 Generation— toward the end of the in the West. so titled in the 1990s bubble economy to denote those who (1986-1995).6 Also were in their 40s, went known as Generation Z, their attitudes toward to University in the 1970s and were born in the employment were shaped by their parents’ 1950s, thus 4-7-5—was the backbone of the struggle with recession. As a result, they corporate workforce during a period of rapid typically demonstrate a clear bias toward stable economic growth. Shaped by the deprivations corporate jobs and have benefited from that followed the Korean War, this genera- opportunities created by economic recovery tions’ workers value hierarchy, tenure and and the retirement of the first Baby Boomers. responsibility and now constitute the leader- The most recent entrants to the work- ship of many corporations. Their successors, force—the Yutori—will be of particular interest comprising the 386 Generation—in their 30s,
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attended University in the 1980s and born in public investment and infrastructure develop- comparatively collectivist generation is less the 1960s—were the first to come of age during ment. This generation of “Traditionals” typi- inclined to initiate and share ideas.9 this period of rapid growth and prosperity. cally aspires to lifetime employment and offers On the other hand, Russia’s Gen X entered That comfort, in turn, led to challenges of more a high degree of loyalty to their employers in the workforce at a time when society was in an traditional values as part of a general reac- return. Favoring a cash-low, benefits-heavy apparent freefall as the oligarchs carved up the tion to the autocratic regime that culminated rewards model, the Traditionals favor promo- spoils of the former Soviet Union, people over in 1998. tion based on tenure. extended themselves with loans and the country Interestingly, their successors grew up Members of the succeeding “Non- descended into hyperinflation. Into this frenzy in a booming economy, with the exception Traditional” generation experienced the impact came a new generation that was more inter- of the IMF crisis. They are characterized as of market liberalization very early in their ested in generating wealth than in developing being somewhat spoiled but tend to have careers and benefited from the initial boom in a career. Rejecting the constraints of organi- more center-right leaning views than the 386 outsourcing. As a consequence, they are often zational loyalty, Gen Xers gravitated to roles Generation. They are, however, usually more more entrepreneurial than the Traditionals and where they could be their own boss, becoming selective about their careers and far more likely favor career progression based on merit rather self-taught on modern—but not necessarily the than the 475 to switch employers. As a result, than tenure. The economic boom presented an best—business techniques. Beginning in 1983, companies in South Korea have to adopt cre- explosion in opportunities that has resulted in this group was followed by the first truly post- ative new talent strategies. rapid career advancement, a decrease in loyalty Soviet generation to enter the workforce under From an economic perspective, outward to employers and increased demand for wage the presidency of Vladimir Putin, the so-called similarities between India and China abound. inflation. As one senior executive of a technol- Generation Pu. Over the last two decades, both countries ogy company explained: “Even with the recent This group is far more focused on profes- experienced significant growth and benefited shocks to the economy, it is pointless to have sional development than Gen X. Members from globalization. In reality, these two coun- corporate HR in the United States talk about of this generation typically demonstrate a tries house profound differences, so looking retention strategies unless they can understand for similar traits within generational groups that I have to redefine my retention strategy is an exercise best approached with a degree every quarter. Things change that fast, and all of caution. these younger folks share full details of com- The defining moment for India in the pensation. Nothing is secret.”8 second half of the Twentieth Century was These trends of employee aspiration con- Independence from British rule in 1947. While tinued with the Indian Gen Ys who have fully the Chinese post-war experience was one of embraced a career model of rotation between authoritarian rule under the CCP, India main- employers as they pursue career advance- tained the institutions of democracy and a legal ment. Furthermore, they typically value talent system that protected individual rights. Due to programs that speak to their development the comparative stability of steady economic needs and opportunities for advancement and progress, those who entered the workforce in enrichment (for example, through opportuni- the first 30 years of independence gravitated ties to work globally). to companies associated with manufacturing,
the south american giant Despite a very different history, the generational grouping in Brazil closely mirrors those in the United States. Gen Xers display greater entrepreneurial mindedness than the preceding Boomer generation. They tend to look for a basket of rewards that provide incentives, including personal time and development opportunities.
Meanwhile, Gen Yers are even more development-oriented, placing a premium on work that provides greater personal freedom. They seek mobility and display a preference for international work.
104 The Talent Paradox: A 21st century talent and leadership agenda
New Europe and Generation Pu comparatively collectivist generation is less inclined to initiate and share ideas.9 he limits of the Western model of Boomer, On the other hand, Russia’s Gen X entered Gen X and Gen Y are also evident in the T the workforce at a time when society was in an former Soviet Union and satellite nations of apparent freefall as the oligarchs carved up the Central and Eastern Europe. Sitting next door to spoils of the former Soviet Union, people over Western European societies where the concept extended themselves with loans and the country of three broadly defined generational groupings descended into hyperinflation. Into this frenzy is widely accepted, countries that emerged from came a new generation that was more inter- communist rule in 1989 have been through a ested in generating wealth than in developing sociopolitical and economic transformation that a career. Rejecting the constraints of organi- is unparalleled among their Western neighbors. zational loyalty, Gen Xers gravitated to roles In turn, this transformation had a profound where they could be their own boss, becoming impact on the attitudes and aspirations of self-taught on modern—but not necessarily the the workforce. best—business techniques. Beginning in 1983, In Russia, the Boomers entered the work- this group was followed by the first truly post- place while the state controlled the economy. Soviet generation to enter the workforce under They tend to exhibit strong professional knowl- the presidency of Vladimir Putin, the so-called edge but often lack the business skills needed to Generation Pu. succeed in a liberalized marketplace. Having This group is far more focused on profes- lived with the reality of Soviet communism sional development than Gen X. Members where standing out was unwelcome, this of this generation typically demonstrate a
the south american giant Despite a very different history, the generational grouping in Brazil closely mirrors those in the United States. Gen Xers display greater entrepreneurial mindedness than the preceding Boomer generation. They tend to look for a basket of rewards that provide incentives, including personal time and development opportunities.
Meanwhile, Gen Yers are even more development-oriented, placing a premium on work that provides greater personal freedom. They seek mobility and display a preference for international work.
105 Talent
willingness to sacrifice work-life balance early This becomes especially important in the in their careers in exchange for quick advance- context of the existing gulf between employers ment. Having less interest in self employment and employees on talent priorities. There is “a than Gen X, they tend to find opportunities tale of two mindsets” when it comes to under- presented by multinational corporations allur- standing which employee groups are leaving ing. Interestingly, Generation Pu is uniquely and why they seek to leave. Furthermore, our nationalistic compared to its generational con- research indicates that corporate leaders often temporaries in other countries. How this plays fail to understand the non-financial priori- out is yet to be seen. ties of their employees, such as the need for Similar trends emerged elsewhere in strong leadership, effective communication Central and Eastern Europe after the collapse and career advancement opportunities, while of communism and the Soviet empire; but even the degree of importance younger employees here, generational nuances are as numerous as place on these non-financial priorities varies the histories that shaped these various coun- across geographies. tries. For example, the Boomers in the Czech As a consequence, although there is a grow- Republic and Bulgaria are, like Russia’s, the ing recognition that in order for companies product of post-war communism and embrace to build effective retention strategies they will more collectivist working styles. However, the need to tailor their tactics to account for gener- impact of the Prague Spring of 1968 and the ational differences, there remains the problem Velvet Revolution of 1989 directly shaped the that many corporate leaders may be misread- attitudes of the Czech Republic’s Gen X (also ing the priorities among different generations, known as “Husak’s Children”). This generation leading employers to offer the wrong incentives is profoundly focused on compensation and to the wrong employees.10 career development opportunities. Meanwhile, Effectively addressing these challenges Gen Y in the Czech Republic and their begins with a more complete understanding Bulgarian contemporaries, the Democracy of the local workforce, its various segments Generation, are more inclined to seek work-life and what makes each group tick. Rather than balance than their immediate predecessors. standardizing talent management, companies For Bulgaria’s Democracy Generation, open- should devise country-specific talent strate- ness to the opportunities created by globaliza- gies with the involvement of local leaders who tion is a clear trait, and opportunities to work are as versed on the different aspirations of the abroad are regarded as a standard part of generations that make up a workforce as they career experience. are on other aspects of their business. Such an understanding could help companies: Bringing it All Back Home • Better address key issues for global expan- sion and enhance ROI on talent programs ompanies seeking to enhance their through the design of customized programs global success need to figure out how to C that speak directly to employees’ aspira- maximize business performance in the geog- tions, ambitions and attitudes (based on the raphies they choose to operate in. As they generational cohorts that comprise a given expand globally, they will encounter several country). salient challenges: • Attracting talent (especially leadership) to • Enhance leadership capabilities for man- successfully navigate the market. aging and collaborating across borders and generations, and thereby enhanc- • Maximizing the performance of local talent. ing management effectiveness and • Retaining employees in markets with high business performance. turnover rates.
106 The Talent Paradox: A 21st century talent and leadership agenda
• Create competitive advantages by helping Endnotes them stay current on expected workforce 1. From conversations with the au- composition, employee benefits options and thors: Beijing, March 2009 preferences, and other competitive offerings 2. Translated from: Sohu (2007). Report to determine the best plans to attract, retain on life of the post-’80s generation in the and motivate top talent. workplace. Retrieved from http://news. sohu.com/20070820/n251683497.shtml For those companies that embrace the 3. From conversations with the au- concept of “plan locally, connect globally,” thors: Shanghai, March 2009 understanding and connecting with the 4. Translated from: Yidaba (2007). Power aspirations of the demographic groups they struggles between the post-’70 and post-’80 are targeting can help them in their efforts to generations. Retrieved from http://manage- reduce cost and optimize performance on a ment.yidaba.com/rlzy/232295.shtml global basis. The recognition that customers 5. Translated from: President Online are a heterogeneous bunch emerged as one “Understanding Employees from Bubble Era” (2000, December 19) of the important ideas for marketers in the last century. With increasing importance of 6. Translated from: President Online “Truth about “Generation Z” (2008) talent as a competitive factor, the recognition that generations differ around the world may 7. Translated from: Weekly Diamond Online “Three Key Characteristics of the “Yutori be one of the important strategic avenues for Generation”” (2008) and Nikkei BP Online decades to come. Associate “Yutori Generation is Com- ing to the Workplace” (2008, April 1) 8. From conversations with the authors: Originally published in Hyderabad, November 2007 Deloitte Review #5, 2009 9. Groznaya, Elena. Conflict of generations: Business culture of contemporary Russia. June About the authors 2009. TCWorld Magazine. Retrieved from David Hole is a senior manager with Deloitte http://www.tcworld.info/index.php?id=36. Consulting LLP and leads the Globalizing Work 10. Deloitte Consulting LLP survey: Managing service offering. Talent in a Turbulent Economy: Keep- ing your team intact, A Special Report Le Zhong is a manager with Deloitte Consulting on Talent Retention, September 2009 LLP and the deputy lead for Globalizing Work.
Jeff Schwartz is a principal with Deloitte Consulting LLP and leads the Global Talent market offering.
107 Talent Smarter Moves Improving the value of global mobility by aligning strategy, investments and operations
By Jeff Schwartz and Gardiner Hempel > Photography by Matt Lennert
or many organizations, growth and even value, but only if leaders can effectively harness Fsurvival hinges on penetrating and scaling a company’s global mobility efforts to pursue operations in rapidly growing and emerging strategic priorities. markets unlocked by globalization. That’s a So what can leaders do to better man- tough challenge, especially when the critical age—and improve—the return on their global market and production opportunities and criti- mobility investment? In our experience, com- cal talent are often not in the same country. panies that gain the most value from global Yet a surprising number of companies con- mobility show a high degree of alignment tinue to handle international assignments in between global mobility and the larger busi- ways remarkably similar to how they operated ness in three areas: decades ago. 1. Business and talent strategies The traditional, and still the most wide- spread, approach to international assignments 2. Expected assignment value The changing face of global typically handles each case as a special event 3. Mainstream HR and talent operations mobility with expectations for comprehensive, high- Achieving greater alignment in these areas The results from a Top emerging destinat ions for 2010 survey highlight international assignments1 touch service. This one-size-fits-all approach, can go a long way toward helping companies however, increasingly overshoots the mark for the increasing reach China 7% drive business value through global mobility at of global mobility. many situations, unnecessarily raising costs. Singapore 6% manageable cost levels. Respondents reported Additionally, it often fails to meet the specific that they expected United states 5% needs of both the business and the assignee, countries such as India 5% leaving key business goals unfulfilled and key Strategic alignment China, India and the United Arab Emirates 4% talent development priorities unaddressed. ligning global mobility strategy with United Arab Emirates to emerge as important Canada 4% More broadly, many executives are uncer- business and talent strategy means A assignment destinations tain that they are receiving an appropriate United kingdom 4% designing a global mobility strategy that – taking assignees far Saudi Arabia return on their global mobility investment, or supports both the organization’s business afield from the more 4% even that they can measure that return in a goals—what it wants to accomplish in the traditional destinations Brazil 3% meaningful way. And global mobility is a sig- marketplace – and its talent development in the United States Australia 3% nificant investment – one that, in our experi- goals—what it wants its key talent to learn and Western Europe. ence, can easily top $1 million per assignment. about working in a global environment. Figures represent the percentage of respondents identifying that country as an emerging destination It’s an investment that can drive tremendous In this way, global mobility evolves from a
108 The Talent Paradox: A 21st century talent and leadership agenda
value, but only if leaders can effectively harness a company’s global mobility efforts to pursue strategic priorities. So what can leaders do to better man- age—and improve—the return on their global mobility investment? In our experience, com- panies that gain the most value from global mobility show a high degree of alignment between global mobility and the larger busi- check-the-box exercise to a key enabler of ness in three areas: business and talent development strategy. We 1. Business and talent strategies know of several companies that are starting to 2. Expected assignment value use global mobility as a strategic tool, not only The changing face of global to advance business goals in different areas of mobility 3. Mainstream HR and talent operations the world, but to give future leaders the global Achieving greater alignment in these areas experience and perspective that they will need The results from a Top emerging destinat ions for 2010 survey highlight international assignments1 can go a long way toward helping companies to run a world-spanning enterprise. (Some of the increasing reach China 7% drive business value through global mobility at these companies even require that all of their of global mobility. Singapore 6% manageable cost levels. top executives have prior experience working Respondents reported outside their home countries, a requirement that they expected United states 5% that we expect more companies will adopt in countries such as India 5% Strategic alignment China, India and the coming years.) Employees themselves are often United Arab Emirates 4% ligning global mobility strategy with United Arab Emirates coming to view international assignments as to emerge as important Canada 4% Abusiness and talent strategy means a way to develop their skills and deepen their assignment destinations United kingdom 4% designing a global mobility strategy that experience, creating a demand for assignment – taking assignees far Saudi Arabia 4% supports both the organization’s business opportunities that an organization can use to afield from the more goals—what it wants to accomplish in the its advantage. traditional destinations Brazil 3% marketplace – and its talent development Instead of occurring in an ad hoc, case- in the United States Australia 3% and Western Europe. goals—what it wants its key talent to learn by-case manner, assignments guided by a about working in a global environment. Figures represent the percentage of respondents identifying that country as strategically aligned global mobility strategy an emerging destination In this way, global mobility evolves from a take place in the context of an overarching
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plan that considers how each move will help and capabilities. By categorizing assignments further the organization’s overall business into the four quadrants shown in Figure 1, the and talent development objectives. Leaders framework can help leaders: can then articulate the specific benefits that • Articulate the nature and extent of the value they expect each assignment to deliver to the they expect to gain from the company’s enterprise, as well as the specific learning and global mobility efforts, making it easier development objectives that they expect each to set clear expectations for assignees assignee to pursue while abroad. This, in turn, and measure their performance against allows leaders to give each assignee clear direc- expected results. tion on what he or she must accomplish – and to compare each assignment’s actual results • Decide what proportion of the company’s with the expected results, an essential part of assignments should fall into each category, measuring the global mobility program’s return depending on the organization’s current on investment. and anticipated future business and talent One tool that can help leaders better align development needs. global mobility strategy with business and tal- • Determine what kinds of employees would ent strategy is the global mobility framework be most appropriate to send on which types shown in Figure 1. The framework is built of assignments. around two key dimensions—business value This framework can help a company avoid a and talent development value—which reflect “seat of the pants” approach to global deploy- the fact that different assignments can have dif- ment in favor of a deliberate process that views ferent value for the business, as well as different each assignment as an opportunity for the value for helping employees develop new skills
Figure 1. Global mobility framework HIGH
Learning experience Strategic opportunity
TARGET EMPLOYEES: Target employees: • Rising stars • Future leaders – “superstars” • Employees looking for GLOBAL MOBILITY APPROACH: diversity in experience and • “Expat plus” personal growth • Focus on development, GLOBAL MOBILITY APPROACH: experience and retention • “Expat light” • Enhanced future opportunities • Focus on development • Expect participants to bear some of the burden Development value Commodity job Skilled position (management or technical)
TARGET EMPLOYEES: TARGET EMPLOYEES: • Volunteers • Demonstrated performers • Low-cost talent • Deep, specialized skill sets GLOBAL MOBILITY APPROACH: GLOBAL MOBILITY APPROACH: • Minimal perks and support • Short-term or “local plus” • Local transfers • Project-based assignments • “At risk” assignment • Rapid deployment
LOW HIGH Business value
110 The Talent Paradox: A 21st century talent and leadership agenda
Figure 2. From strategy to execution
Global mobility portfolio framework Execution framework
Global employee Learning Strategic rewards experience opportunity
Global mobility ▲ ▲ Global mobility and workforce service delivery strategy Skilled
Development value Commodity position (management job Technology or technical)
Business value
Once the global mobility strategy has been aligned with business and talent strategy, companies can use four building blocks – global mobility and workforce strategy, global employee rewards, global mobility service delivery and technology – to execute the global mobility strategy. organization to further its overall strategic be important, they also realized that they were objectives. One global consumer products not the most effective way to either develop company, for example, used the framework to future leaders or transfer capabilities to the understand how its global mobility program host country’s workforce. The company there- could better support two of the company’s key fore created a new global mobility strategy talent management goals. The first goal was to that specified that half of the company’s total develop future leaders with the international number of assignments should be distributed perspective and experience needed to effec- among the “strategic opportunity,” “learning tively manage a global business. The second experience” and “commodity job” categories. was to build stronger capabilities in various Each of these assignments would be offered to countries and regions where executives felt that specific types of employees, and each of them the company’s talent bench was weak. would carry a different set of performance Historically, the majority of the company’s expectations as well as receive tailored support international assignments had been “skilled from the company to support the assignment’s position” moves – short-term reactions to an specific talent and business objectives. immediate skill gap in the destination coun- By developing and communicating this try. These assignments met a critical business strategy, leaders were able to give the com- need for a specific type of talent but did not pany’s managers effective guidance on how to necessarily help develop the assignee’s skills or use the global mobility program to support enhance the local workforce’s capabilities. Little the company’s key talent development goals. thought was given to the impact of a move on Business leaders and hiring managers can an assignee’s career or which individuals could now take a more strategic approach on which best capitalize on the development opportuni- employees to consider for assignment, where ties presented by international assignments. to send them, and what the company expects Moreover, assignees were rarely chosen with an from them while abroad – all of which had eye to the skills they could teach local talent. previously been decided based on more limited Although leaders recognized that skilled tactical considerations. position moves were and would continue to
111 Investment alignment uch of a company’s investment in Mglobal mobility consists of the cost of assignee rewards—typically the largest expense in a global mobility program’s budget—plus the cost of the services and support (such as language training and relocation assistance) offered to assignees before, during and after the move. Thus, aligning global mobility invest- ment with expected assignment value is largely a matter of tailoring the cost of each assignee’s rewards and support package—the assignment policy under which he or she travels—to the value he or she is expected to generate while on assignment. Many companies maintain only a few types of assignment policies to deliver rewards and support packages to employees. Typically, these policies classify assignments by their duration so that, for instance, one policy covers short- term assignments, another covers long-term assignments, and a third covers permanent transfers. The problem with this approach, Case study: Reallocating the work however, is that it fails to align the amount of One life sciences company’s global mobility function was drawing criticism from both business managers and the company’s investment with the potential international assignees for unsatisfactory service. Business managers felt that they lacked guidance on how to value an assignment can generate. For exam- effectively select assignees, plan assignments and choose assignment policies. Many assignees reported that in the initial conversations about assignment, expectations had not been appropriately set regarding the impact of the ple, to use the terminology of Figure 1, both a assignment on themselves and their families. “strategic opportunity” and a “commodity job” assignment may require an assignee to spend Upon investigation, the company found that the global mobility function was spending almost all of its time three to four years abroad. Under the tradi- coordinating assignee services, with very little effort going toward offering business managers the advice they tional approach, both of these assignees would needed. Further, the global mobility function was often not even notified about assignments until the assignment was planned, the candidate selected and expectations already established. be transferred under the same long-term policy, even though the two assignments would The company realized that many of the coordinating activities that were being performed in the global mobility be expected to deliver very different kinds of function could actually be done more effectively elsewhere. For instance, certain administrative tasks, including the value to the business. recharging of assignment costs, could easily be taken over by resources in the company’s HR and finance shared services organization (SSO). This would not only free up global mobility function staff to focus on advising the To help avoid mismatches between invest- business and counseling assignees, but also improve administrative service delivery quality: The HR and finance ment and prospective return, companies can professionals in the company’s SSO would bring function-specific skills to their tasks that global mobility staff had create a wide range of global mobility policies, historically lacked. each of which offers assignees a unique set of rewards and support packages. Leaders can The company reorganized roles and responsibilities in the global mobility function and its SSO to move a number of transactional HR and finance activities to SSO staff. In addition, leaders hired outside vendors to perform some then choose which policy would be appropri- specialized activities formerly housed in the global mobility function. Meanwhile, to address the business’sww ate for a particular assignment based on the needs for global mobility advisory services, several global mobility staff were reassigned to business support roles value the assignment is expected to generate. that would work with business managers and HR personnel to plan and help manage assignments from a strategic In particular, companies may wish to cre- perspective. And the company redefined the global mobility director’s role as an “ambassador for international ate policies that align rewards and support assignments,” focused on educating and communicating with business leaders about global mobility and driving program innovation.
112 The Talent Paradox: A 21st century talent and leadership agenda
Investment alignment packages with the four different types of value depicted in Figure 1: uch of a company’s investment in Mglobal mobility consists of the cost of • “Strategic opportunity” assignments assignee rewards—typically the largest expense have a significant and lasting impact on in a global mobility program’s budget—plus a company and should be reserved for a the cost of the services and support (such as company’s most valuable employees – the language training and relocation assistance) next generation of leaders. Policies for these offered to assignees before, during and after the types of assignments should make every move. Thus, aligning global mobility invest- effort not only to provide participants with ment with expected assignment value is largely a satisfying international experience, but a matter of tailoring the cost of each assignee’s also actively work to maximize develop- rewards and support package—the assignment ment and retention. These policies are policy under which he or she travels—to the expensive, but rightly so – after all, they value he or she is expected to generate while focus on delivering high business value on assignment. activities and developing a company’s most Many companies maintain only a few types promising talent. The good news is that, of assignment policies to deliver rewards and for most companies, their existing global support packages to employees. Typically, these mobility infrastructure probably provides policies classify assignments by their duration a solid foundation for this type of assign- so that, for instance, one policy covers short- ment. They simply need to increase their term assignments, another covers long-term emphasis on development and retention. assignments, and a third covers permanent • “Learning experience” assignments are transfers. The problem with this approach, Case study: Reallocating the work most appropriately suited for rising stars: however, is that it fails to align the amount of employees with long-term potential who One life sciences company’s global mobility function was drawing criticism from both business managers and the company’s investment with the potential are worth investing in, even if the immedi- international assignees for unsatisfactory service. Business managers felt that they lacked guidance on how to value an assignment can generate. For exam- ate payoff is relatively low. Global mobil- effectively select assignees, plan assignments and choose assignment policies. Many assignees reported that in the initial conversations about assignment, expectations had not been appropriately set regarding the impact of the ple, to use the terminology of Figure 1, both a ity policies for these types of assignments assignment on themselves and their families. “strategic opportunity” and a “commodity job” might best be viewed as a scaled-back assignment may require an assignee to spend version of the current high-touch model. Upon investigation, the company found that the global mobility function was spending almost all of its time three to four years abroad. Under the tradi- Although assignees would be well cared for, coordinating assignee services, with very little effort going toward offering business managers the advice they tional approach, both of these assignees would needed. Further, the global mobility function was often not even notified about assignments until the assignment they would be expected to shoulder part of was planned, the candidate selected and expectations already established. be transferred under the same long-term the burden and costs as a personal invest- policy, even though the two assignments would ment in their own capabilities and value. The company realized that many of the coordinating activities that were being performed in the global mobility be expected to deliver very different kinds of Hence, participants should expect fewer function could actually be done more effectively elsewhere. For instance, certain administrative tasks, including the value to the business. relocation benefits than with a traditional recharging of assignment costs, could easily be taken over by resources in the company’s HR and finance shared services organization (SSO). This would not only free up global mobility function staff to focus on advising the To help avoid mismatches between invest- foreign assignment or strategic opportunity. ment and prospective return, companies can business and counseling assignees, but also improve administrative service delivery quality: The HR and finance • “Skilled position” assignments center on create a wide range of global mobility policies, professionals in the company’s SSO would bring function-specific skills to their tasks that global mobility staff had filling workforce gaps with deep, specialized historically lacked. each of which offers assignees a unique set of talent for a limited period of time. They are rewards and support packages. Leaders can The company reorganized roles and responsibilities in the global mobility function and its SSO to move a number well suited for demonstrated performers then choose which policy would be appropri- of transactional HR and finance activities to SSO staff. In addition, leaders hired outside vendors to perform some with highly specialized skills – people who ate for a particular assignment based on the specialized activities formerly housed in the global mobility function. Meanwhile, to address the business’sww are already performing at or near their full needs for global mobility advisory services, several global mobility staff were reassigned to business support roles value the assignment is expected to generate. potential. Policies for these assignments that would work with business managers and HR personnel to plan and help manage assignments from a strategic In particular, companies may wish to cre- need to support the company’s ability to perspective. And the company redefined the global mobility director’s role as an “ambassador for international ate policies that align rewards and support assignments,” focused on educating and communicating with business leaders about global mobility and driving deploy people rapidly, enable stress-free program innovation. moves that let assignees focus on the job at hand, and repatriate assignees as quickly
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and painlessly as possible. One example To this end, the company created two new of such a policy might be a commuter assignment categories—a “strategic opportu- arrangement in which an employee lives in nity” assignment and a “high-support client one country but works in another, either need” assignment—to take the place of its physically moving from country to country traditional long-term policy. Both of these or collaborating virtually with his or her new policies offered assignees a similar level out-of-country colleagues. of financial support, but the career develop- • Finally, “commodity job” assignments are ment support and justifying criteria for each assignment type differed significantly. Strategic targeted at individuals who are interested opportunity assignments were meant for in working abroad for personal reasons future company leaders, and assignment goals but do not need or expect much in terms would emphasize gaining leadership skills and of business perks and support. Relocation experience in addition to meeting immedi- benefits and support for a “commodity job” ate business needs. In contrast, high-support would generally be minimal, with employ- client need assignments were to be used for ees expected to handle most or all of their subject matter specialists sent abroad to fill moving expenses. urgent skill gaps, whose goals would focus The experience of one global consulting on fulfilling business needs rather than on company shows how an organization can skill development. tailor its global mobility investments to match The company also created categories for expected assignment value, driving down costs “capability building” assignments and “mid- and improving talent development as a result. support skill need” assignments to take the This company originally handled international place of its traditional short-term policy. moves through a handful of policies, of which Capability building assignments were to be by far the most heavily used were the com- used for high-performing employees who pany’s “traditional long-term” and “traditional could benefit from international experience; short-term” policies. Both of these offered the goals for assignees deployed under this assignees a relatively high level of support in policy would emphasize skill development. terms of home leave, relocation assistance and Mid-support skill need assignments were to be other services, but many assignments fell short used for mid-career specialists sent to fill mod- of leaders’ and employees’ expectations. The erately urgent skill gaps; these assignees’ goals company also had a “short-term light” policy would focus on meeting business needs. designed to send people abroad for short peri- To help managers select the appropriate ods of time at moderate cost, but only a small policy for particular assignments, the company percentage of the company’s total number of developed criteria for what types of employees assignees traveled under that policy. and what kinds of assignments were eligible for To better align costs with value and each type of policy. A decision guide was then enhance talent development, the company’s developed to match the appropriate category leaders rethought the way they defined and with each assignment opportunity, starting selected the policies under which their assign- with the assignment’s business and talent ees traveled. They redefined their universe development objectives and drilling down of assignment policies to discriminate more to specific policy options. By encouraging precisely among assignments with different managers to plan assignments based on value levels of business and talent development rather than assignment length, the tool allowed value. Rewards and support packages could the company to greatly expand the propor- then more closely match each assignment’s tion of assignees traveling under the more expected value. cost-effective categories of assignment, with a corresponding reduction in the proportion of
114 The Talent Paradox: A 21st century talent and leadership agenda
employees traveling under the more expensive as for mainstream HR activities can increase policy types. efficiency, reduce costs, streamline assignees’ By allowing the company to allocate invest- service experience and improve leaders’ ability ments more appropriately among assignments to track and manage globally mobile talent. that created different types of value, the new The following are four areas in which com- set of policies and the accompanying guid- panies could benefit from integrating global ance on policy selection helped reduce global mobility more closely with mainstream HR mobility costs by 15 percent of the total annual and talent operations: program cost within six months. Moreover, by identifying “strategic opportunity” and Employee rewards administration “capability building” assignments as such, the company has been able to set goals for these Although expatriate rewards programs assignees specifically aimed at enhancing require specialized business insights to design, their development. they can often be administered through the same HR processes and systems that serve Operational alignment nonmobile employees. We have encountered many situations where the global mobility lobal mobility is often perceived as a function maintains processes that parallel or Gniche activity that requires expert han- even duplicate those already in place for local dling in everything it touches. Because of this, benefits administration. By leveraging its exist- the global mobility function has historically ing investment in local rewards administration been asked to both oversee and deliver all ser- to deliver services to assignees, an organization vices to expatriates. However, in recent years, can reduce costs as well as potentially improve many companies have adopted global HR the quality of service. For example, one com- service delivery and talent management mod- pany’s global mobility function had a dedicated els that include HR groups—such as regional process for handling benefits enrollment for or global HR service centers—that already do assignees working in the United States – a pro- much of this type of work as their full-time cess that essentially duplicated what HR was job. In an age when many organizations have already doing for local employees. By focus- made substantial investments in HR infra- ing on better integration, the company and its structure and operations, the time is ripe to outsourcing vendor were able to modify the begin integrating global mobility into core HR process to accommodate enrollment for both service delivery models. Although the details U.S. and non-U.S. employees. This significantly of moving employees from country to country reduced the amount of work performed by the may still require specialized guidance from global mobility function, as well as streamlined the global mobility function, the HR function the enrollment process for assignees. at most larger companies today has sufficient capabilities to take on much of the day-to-day HR service delivery work of executing global moves. Many companies can find a number of Transferring the global mobility function’s opportunities for integrating global mobility routine responsibilities to HR can yield ben- service delivery more fully with broader HR efits in two ways. By relieving global mobility processes and infrastructure. For example, staff of many administrative duties, it can help apart from relocation, most international refocus the global mobility function on higher- assignees have essentially the same basic HR value activities, such as advising business man- service needs as other employees in the host agers on how to apply the company’s global country. Rather than handling assignees’ mobility strategy. At the same time, using day-to-day inquiries and requests through the the same infrastructure for global mobility
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global mobility function, a company can both Technology reduce costs and improve assignees’ service Companies may need to deploy specialized delivery experience by allowing assignees to global mobility technology to satisfy unavoid- use the same resources and tools that local able requirements specific to mobile employ- employees use. ees, including complying with certain types of taxes and regulations or managing multiple Talent management performance reviews for managers in multiple At many companies, assignees essentially countries. But they should also try, whenever drop out of the company’s standard talent possible, to leverage the HR technology being management processes during their time used by other employees to deliver services to abroad. The frequent result is that companies the mobile workforce. For instance, a company must scramble to find assignees a position could build integrated online self-service appli- when they return home – and the position that cations that allow mobile employees to manage the assignee eventually winds up with may not work/life events (such as childbirth or illness) use his or her new skills to their full potential. in the same way that local employees do. To combat such issues, we suggest setting up Using the same systems to deliver services mechanisms that allow international assign- to assignees as to the nonmobile workforce ees to stay appropriately plugged in to their can reduce the need for manual processing by home country talent management processes. the global mobility function, thereby reducing One way to do this is to designate an assign- costs and freeing the global mobility func- ment sponsor or assignment supervisor in the tion to focus on more strategic issues. It can assignee’s home country who would represent streamline service delivery to assignees, reduc- the assignee in the talent management process ing their administrative hassles and provid- (e.g., performance reviews and end-of-year ing a more pleasant assignment experience. evaluations). The assignment sponsor would And it can give leaders a more complete view also be responsible for working with the home of the global workforce, helping the business country’s talent management group to find an more effectively deploy returning assignees to appropriate position for the returning assignee, appropriate positions. as well as for monitoring the assignee’s prog- ress toward development goals. Why align? The benefits It’s also important to make sure that assign- n our experience, companies that take steps ees stay on the radar of the enterprise’s overall to better align their global mobility programs succession planning and long-term talent man- I in the ways described above can enjoy a num- agement processes. Ideally, the talent manage- ber of benefits: ment and succession planning processes would • Aligning a company’s global mobility strat- have full visibility into the total population of egy with its business and talent strategies assignees—the countries each has worked in, allows leaders to use the global mobility their performance at home and while abroad, program as a focused tool to pursue both their probable career paths—so that inter- business and talent management value. It nationally experienced talent can be quickly can help the company define and effec- identified and deployed as necessary. An tively pursue specific business and talent enterprise’s talent management and succession development goals for each assignment, management processes should not only be able improving leaders’ ability to understand the to find an assignee an appropriate role imme- value global mobility delivers and the global diately upon his or her return, but proactively mobility program’s return on investment. plan for how the assignee might be deployed three, five or 10 years in the future.
116 The Talent Paradox: A 21st century talent and leadership agenda
• Aligning a company’s global mobility Endnote investments with the value each assignment 1. “Global Relocation Trends: 2010 survey is expected to yield can help keep costs report,” Brookfield Global Relocation, 2010. in line with the global mobility program’s business and talent development returns, while still meeting assignees’ needs during and after their deployment abroad. • Aligning global mobility operations with mainstream HR and talent operations can help reduce costs, give assignees a smoother service delivery experience, and refocus the global mobility function from administra- tion to helping the business think through strategic talent issues. It can also help com- panies take better advantage of its mobile talent by improving visibility into assignees’ performance and career development. Given the central role of global growth across all aspects of business in the coming decade, we think that global mobility should be a priority for any internationally active company. And to do global mobility well, it is vital to achieve alignment in all three of these areas. Such alignment, in our view, is key to a company’s ability to make smarter moves.
Originally published in Deloitte Review #8, 2011
About the authors
Jeff Schwartz is a principal with Deloitte Consulting LLP and U.S. leader for all talent services and solutions.
Gardiner Hempel is a partner with Deloitte Tax LLP and leader of the Global Mobility Transformation practice.
The authors gratefully acknowledge Jonathan Pearce, Michael Gretczko, Angelo Tierno and Richard Wildt for their contributions to this article.
117 118 Deep Talent, Vast Distances Realizing the full value of global knowledge workers
By Frederick D. Miller, Bhushan Sethi and Vivek Sethia with Ryan Alvanos > Illustration by Josh Cochran
ompany leaders are often quick to result, the pursuit of the almighty employee Cacknowledge, even revere, the importance leads many organizations overseas: by 2010, of human capital in their organizations. “Our offshoring knowledge work will become a $17 growth depends on people” and similar sound billion industry.1 After finding an abundance bites echo through many CEO speeches and of available workers on another continent, litter corporate homepages like the last refrain however, many companies encounter perfor- in a many-versed ballad. Yet, catchphrases and mance shortcomings that seem to undermine buzzwords offer little clarity when it comes their hopes of easing workforce shortages by to the ins and outs of building and keeping a going overseas. Even as talent management workforce. Fast-paced, global markets often mantras become cliché, making knowledge pin growth strategies on knowledge work— work productive may represent the first great from complex analytics to product design— management challenge of this century, just as and these aren’t always easy jobs to fill. As a manual labor was to the last.2
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Figure 1. The global operating model
Creates challenges in Limits the Allows organization to aligning authority independence of manage coordination with responsibility regions to perform problems that arise their work between regions and head office CENTRALIZED MANAGED BY CENTRALIZED GROUP
Supports effective Establishes balance Provides disruption decision-making in decision- in workflow if and provides making between different regions independence the regions and have alternate SHARED to the regions head office solutions MANAGED BY H.O. & REGIONS
DECSION-MAKING STRUCTURE Creates challenge in Causes barriers in Causes coordination the regions to the regions to follow
PERFORMED BY STANDALONE LOCATIONS PERFORMED BY STANDALONE challenges among the comply with the the overall HANDS OFF FROM ONE LOCATION TO ANOTHER TO HANDS OFF FROM ONE LOCATION
various regions WITHIN SINGLE PHASE COLLABORATE LOCATIONS overall organizational business strategy strategy DECENTRALIZED MANAGED BY REGIONAL CENTERS INDEPENDENT SEQUENCED INTEGRATED
WORKFLOW
Opportunities for growth can buckle under answers to two structural questions. First, how the profound challenges of enabling a global will companies manage decision-making—the workforce. Among the most vexing are: assignment of responsibilities and roles in a • Management and staff resistance to working project—across geographically and culturally across borders diverse operations? The second question con- cerns workflow: How will global organizations • Underutilization of staff capabilities in move information, activities and products developing countries from one location to another, and how will this • Ineffective handoffs between organizations impact an organization’s effectiveness? • Staff turnover and rapidly escalating wages In the absence of formal frameworks or in developing countries3 guidelines for managing these issues, com- panies have taken a variety of approaches. • Lack of shared goals and objectives to drive Some acquire businesses that already conduct effective collaboration knowledge work in emerging markets. Others • Negative impacts on staff morale and hire people in developing countries in hopes working climate of cultivating a talent pool that will eventually assume middle management positions. Others Addressing these challenges and improving have opted to move in-house knowledge work the effectiveness of global organizations require to external global service providers. Each of
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these alternatives can flounder without atten- company might organize independent research tion to decision-making and workflow because centers in different locations, each focused on they lack a formalized structure for addressing a specific drug or disease family. All research challenges as they arise. on hypertension drugs might take place in a Companies beginning offshore operations developing country, research on cancer drugs soon discover that there are more than oceans in Europe, and so on. Because each entity is dividing their workforce. Cultural and working a stand-alone unit, companies often find this norms, motivational factors, types of incentives structure comparatively easy to manage – as and rewards, and attitudes toward new pro- long as they can also find sufficient talent at cesses or tools can hinder talent management each location. One trade-off involves cost, as across borders. Complications abound. As this model requires duplicated functions at Western interests exhaust the supply of avail- each location. able knowledge workers, ambitious employees embrace an up-or-out mantra, forcing compa- Sequenced workflow nies to renegotiate salaries frequently in order Here, each location performs one part of to retain their workforce. Additionally, the an overall process and then hands projects off deeply ingrained Asian cultural sense of hier- to the next location. This model could work archy can stifle dialogue with remote manag- well for a pharmaceutical company. Genetic ers. Just the same, companies tend to overlook research to identify prospective drugs might formal integration and governance of workflow happen in one country, then an office in a across geographic locations. They need to con- second country would assume drug develop- sider the interplay between decision-making ment tasks. A third location might conduct and workflow to address the various facets of early-stage testing, and a fourth would com- organizational design, including the alignment plete subsequent trials. Work tends to be uni- of incentives and rewards, the development of directional, with a small number of definable knowledge work capabilities, the management handoffs. This value chain model can be more of intercultural differences, and the utilization economical than the independent work model, of communication processes and tools. but it requires a higher degree of collaboration across locations. Two Dimensions model for framing governance and Integrated workflow Aworkflow across global operations would This approach allows knowledge workers in look something like figure 1. different locations to collaborate within single The first dimension of managing knowl- phases of a project, even working around the edge work across borders involves workflow, clock as employees pass projects to collabora- the horizontal axis of the model. Effectively tors in different time zones. Companies gener- dealing with globalization requires an under- ally find this to be the most challenging model standing of how to apportion knowledge because it requires the most coordination, work across different locations. Most effective which often calls for sophisticated collabora- global operations use one of the following tion and version control tools. three approaches: These varying approaches to workflow represent ideals for describing how work is Independent workflow organized on paper. Combinations and accom- modations among these models improve their With this approach, standalone, vertically effectiveness in the real world. It is also worth integrated organizations perform work in dif- noting that these approaches are not a hierar- ferent locations. For instance, a pharmaceutical chy or a maturity model. There is no reason
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to believe that organizations should pursue Workflow at Work increasing interdependency over time. Instead, North American hardware and soft- the nature of the work and the scope of the ware developer decided to move most of relationships between locations should deter- A its entry level engineering workforce over to mine which will be most effective. Asia in an attempt to reduce costs. The existing The second dimension of the model deals U.S.-based workforce remotely managed and with the governance that structures decision- developed their colleagues overseas. Workflow, making responsibilities pertaining to knowl- in this example, was integrated across levels edge work. These responsibilities include of U.S. management and the Asian workforce, financial and capital investment decisions, and decision-making was centralized in the managing human resources, setting perfor- United States. mance expectations, and monitoring qual- In practice, however, things did not go ity requirements. Three structures seem to well. Morale suffered and turnover became an encompass most effective endeavors pertaining expensive problem. Asian employees plugged to decision-making: along with the same work as their U.S. coun- terparts, but began to wonder when they Centralized decision-making would ever be able to manage their own work. This structure refers to governance com- They also believed that their inability to inter- ing from a single country, usually the com- act with clients stunted their personal develop- pany’s home country. Most decisions come ment. At the same time, Western managers from a centralized decision-making group, saw the ranks they climbed now operating at such as a head office or a virtual decision- a fraction of the cost from across the ocean. making committee. With good reason, they began feeling insecure about their own positions. Rather than trying Shared decision-making to integrate with the Asian office, Western workers tried to improve relations with their In this model, governance and knowledge bosses at the expense of their offshoring work occur at the same location. The company operations. Time difference and language then organizes the decision-makers to direct barriers became ongoing problems that were the project with a single voice. never really addressed, so frustration rather than opportunity prevailed in their offshoring Decentralized decision-making program. Workers on both sides of the pond Governance occurs on-site here as well. began asking the obvious questions about Unlike shared decision-making, however, career paths, and the company couldn’t come these decision-makers act independently of up with a good answer. one another. A second Western technology company The many facets of workflow and gov- wanted to grow its global presence and main- ernance go a long way in determining the tain cost competitiveness, so it developed an outcome of an offshoring program. Companies offshoring program in India that used an inte- have to balance the integration of people grated model for product design and coding and resources across cultural and geographic projects. Interestingly, they developed a rigor- divides and maintain the ability to control an ous talent model that divided workers across organization across several fronts and manage geographic locations into product-focused performance. It’s all in the structure. teams. Rather than organizing its workforce based on function (teams of coders working with teams of designers), the company created teams based on the needs of a specific project.
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Managers simply needed to specify which and cleansing clinical data and creating reports work tasks were required by a given project, to support clinical trial evaluation. Its approach and staff with the necessary skills would be combined a sequenced workflow structure and assigned, which improved their ability to centralized decision-making – a head office develop several products simultaneously. The issued requirements to teams. Several challenges company divided job domains into a detailed arose due to insufficient investments and inade- list of tasks and requisite skills. Staffing deci- quate consideration of cultural differences among sions could then consider cost requirements. the workforce. Most notably, work produced in Overall, the company reports that this staffing the offshore location did not always satisfy the model has worked well. expectations of the home office, and challenges By spreading work across many countries, were not communicated or resolved in a timely the second company reduced the opportunity manner, resulting in significant delays. Failure for animosity along specific geographic lines. to provide training programs, international Yet, much of the discontent among Asian experience and defined career opportunities workers in the first company focused on a lack to the center’s employees hindered productiv- of opportunities for promotion. The second ity and morale. It also failed to align salary company didn’t use straightforward promo- structures with the local expectations. Workers tional paths; instead, it left career progression realized that “low-cost centers” imply they’re undefined, accepting a high level of turnover working for less than their Western counter- among its lower-cost workers. Working for a parts. At the same time, rewards, bonuses and big, brand name company carries a great deal other perks like cars and accommodations of cultural and professional weight in India. are a big deal when determining compensa- Many employees agree to lower salaries in tion. The operation did not deliver against its exchange for strong résumé lines and prestige. expected outcomes, resulting in high turnover, This made it easy for the company to recruit loss of quality and credibility, and an eventual replacements using their well-known brand, management decision to close the facility and but harder to retain the talent they already had. outsource its operations. Combining sequenced or integrated work- In another example, a major European flow with centralized decision-making may pharmaceutical company also sent its drug have many advantages, including being easier development operations offshore, but with to launch, but it appears to raise many ques- different results. It opened two centers in Asia tions in the area of career paths. This combina- to cut costs and address critical talent gaps. It tion can lead to perceived professional dead gave these centers responsibility for preclinical ends for offshore employees and Western man- and post-drug-development support. Based on agers alike: offshore employees bemoan limited employee skill sets, the centers adopted three prospects for climbing the Western corporate different approaches: sequenced workflow for ladder, while Western managers worry about statistical analysis, integrated workflow activi- shipping career paths overseas. ties across preclinical trials, and independent workflow for medical writing projects. All were Governance at Work governed by centralized decision-making from Western headquarters. To date, the results he divergence of decision-making models from all three operations have been good. Thad interesting implications for two pharma- The contrast between the two pharma- ceutical companies. The first, a North American ceutical companies is striking. The second, pharmaceutical giant, saw India as an opportu- more effective approach paid substantial nity to reduce costs and deepen its talent pool, so attention to how different types of work were it relocated its clinical data management center. organized. The first company’s sequenced The center’s responsibilities included analyzing approach may have been appropriate, but
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its decision-making—too tightly controlled Closely connected workflow requires more from the center—did not allow the offshore active and consistent leadership. organization to flourish. As the second com- • Shared decision-making seems desirable, pany’s situation shows, central control is not but it requires more time and effort. a prescription for failure. However, care- ful attention must be paid to how control is • Centralized decision-making works in shared across locations. Spreading control of some cases but not in others. Proximity to decision-making too thin across a company end-product markets and customers should compromises its efficiency and organization. determine governance models. For exam- At the same time, tight, centralized control can ple, if the end users of a product or service constrict the development of offshore opera- are based in the United States, centralized tions. Ultimately, companies need to strike a decision-making in the United States is balance between these two extremes so that likely the most effective approach because offshore operations are governed enough to it’s most connected to the consumer base. perform and flexible enough to develop. If markets are more diverse, decentralized governance can add flexibility and under- standing of consumer needs to address a Planning Structure and broader set of expectations. Considering Talent rom these four case studies, the mixed Offshore Flow Fresults of globalizing knowledge work are very evident. These representative effec- he financial success of a global organiza- tive and ineffective approaches to com- Ttion may well hinge on the ability to man- plex offshoring programs shed some much age knowledge work across national borders needed light on a few important points about and navigate a diverse set of personal and organization models: professional expectations. Formalizing work- • The independent model appears easiest to flow and governance structures across offices operate if the requisite talent exists in one can help knowledge work become more effec- location because it requires less interaction tive and give multinational companies oppor- across borders. However, this is usually the tunities for expansion while addressing the most expensive approach. challenges and growing pains that inevitably arise. Organizations trying to design effective • Sequenced and integrated workflows global knowledge work should consider the require greater degrees of management following actions: over the assigned tasks and handoffs • Analyze how much interaction the off- between locations. Sequenced workflows shored work requires, and design an organi- require clear break points at which one zation to support that interaction effectively. phase ends and another begins; integrated workflows do not. To make either approach • Take the time to clearly define the roles and work, management must address how responsibilities of organizations, functions career paths will operate in all locations. and jobs and the time to help all partici- This issue is critical to morale, retention pants understand those definitions. and cooperation. • Think through the governance model that • Independent workflow can coincide with is in use. Has it been modified appropriately decentralized decision-making. However, for the new global structure? it is difficult to imagine how decentralized • Build recruiting, retention, performance decision-making could provide adequate management, and career development governance over an integrated workflow. policies and procedures that recognize both
124 The Talent Paradox: A 21st century talent and leadership agenda
local requirements and the inevitability that Endnotes employees in different locations will need to 1. 2006 Report by GlobalSourcingNow – Offshore collaborate and will share information. Outsourcing Research Firm by Evalueserve • Align existing incentives and rewards across 2. Drucker, Peter. Age of Discontinuity. the global knowledge workforce. This does (Transaction Publishers, 1992) not mean that all people in all geographies 3. Annual labor costs for a senior engineer range from $150,000 to $200,000 in the United are treated exactly the same, but the system States, compared with $30,000 to $40,000 for should be perceived as equitable. equivalent talent in India, or one-fifth of the U.S. • Proactively monitor working relation- cost, according to Ayan Mukherjee, Wipro Ltd.’s North American vice president for R&D services ships across borders and hand-offs in the value chain to determine how effectively they are working, and make any necessary changes quickly. • Provide opportunities for face-to-face inter- action between workers in different geogra- phies to promote relationship building. With this perspective, we believe global knowledge work can rise from being “a good idea on paper” to one that delivers real ben- efits. The world is ripe with talent, and offshor- ing work remains an immensely rewarding strategy. It is up to management teams world- wide to put in place the workflows that fully utilize their hard-won talent.
Originally published in Deloitte Review #3, 2008
About the authors
Dr. Frederick D. Miller is a director with Deloitte Consulting LLP in their Organization and Change service line.
Bhushan Sethi is a senior manager with Deloitte Consulting LLP in their Organization and Change service line, and deputy lead of Deloitte’s Organization Strategies service offering.
Vivek Sethia is a senior consultant with Deloitte Consulting LLP in their Organization and Change service line.
Ryan Alvanos is a writer and editor in Deloitte Research, Deloitte Services LP.
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126 The Talent Paradox: A 21st century talent and leadership agenda
Decisions: Numbers, human nature and performance
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128 The Talent Paradox: A 21st century talent and leadership agenda Irrational Expectations How statistical thinking can lead us to better decisions
By James Guszcza and John Lucker > Illustration by Sterling Hundley
Behind door #1… about whether to switch from door #1 to door #2. eaders of a certain age who grew up But this common answer turns out to be watching U.S. television fondly remem- R wrong: if you switch from door #1 to door ber—well let’s just say remember—the game #2, you double your chance of winning. Few show Let’s Make a Deal, hosted by Monty Hall. people—these authors included—can cor- At a key point in each episode, a contestant was rectly solve problems like this in real time, and asked to guess which of three doors—#1, #2, or most people have difficulty with such prob- #3—concealed a valuable prize (say, a wood- lems even given unlimited time. In fact, when paneled station wagon). To build suspense, this problem was popularized by Marilyn vos Monty would first open one of the two doors Savant in Parade magazine in 1990, thousands that the contestant didn’t choose. Pointing out of readers, hundreds of whom were math- that the door he opened had not concealed the ematicians, wrote back to Parade, chiding vos prize, Monty would offer the contestant the Savant for publishing the wrong answer. Even option to change his or her guess. the eminent mathematician Paul Erdös report- Suppose you are a contestant and you have edly pondered the Monty Hall problem on guessed that the car is behind door #1. Monty his deathbed.1 then opens door #3, revealing not the car The Monty Hall problem is significant but a barnyard goat. Monty then gives you a beyond being a mere brain teaser. In all areas choice: you can stay with your original guess, of business, people must constantly process or change your guess to door #2. What should information in real time to arrive at decisions. you do? Should you switch to door #2, or stick To avoid becoming overwhelmed, decision- with door #1? makers inevitably rely on intuition, heuristics If your answer is that it does not matter, and other mental short-cuts when weighing you are not alone. Most people intuit that after various factors. Unfortunately, as the Monty Monty revealed the goat behind door #3, the Hall problem so vividly illustrates, our unaided probabilities of the car being behind doors #1, intuitions are quite capable of leading us astray. #2, and #3 go from 1/3-1/3-1/3 to 1/2-1/2-0. This happens much more regularly and Therefore Monty’s opening door #3 should severely than people realize. Recent advances have no bearing on your subsequent decision in cognitive science and behavioral economics
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have taught us that in a surprising array of man—the notion that each of us thinks domains, human decision-makers need statis- and chooses unfailingly well, and thus tical tools just as badly as nearsighted people fits within the textbook picture of human beings offered by economists. need eyeglasses. The human mind simply did not evolve to make the kinds of decisions we are called on to make every day in business set- If you look at economics textbooks, you will learn that homo economicus can tings. Statistical analyses and predictive models think like Albert Einstein, store as much are the necessary correctives. The business memory as IBM’s Big Blue, and exercise implications of these insights are considerable. the willpower of Mahatma Gandhi. Really. But the folks that we know are not like that. Real people have trouble Ecce homo with long division if they don’t have ntil recently, much of the economic a calculator, sometimes forget their spouse’s birthday, and have a hangover theory underpinning business practice U on New Year’s Day. They are not homo has paid little heed to the sorts of cognitive economicus; they are homo sapiens.2 limitations exemplified by the Monty Hall problem. Indeed a central tenet of much When considering the efficiency of various modern economic theory is the assumption markets, it is useful to remember that these of rational expectations. This is the notion that markets are run by fallible homo sapiens, not people’s guesses, or expectations, about the idealized homo economicus. This insight was future are—on average—the best ones possible not lost on Monty Hall and the producers of because they take into account all available Let’s Make a Deal. information. Of course individual people make incorrect guesses all the time. But according A new ballgame to rational expectations, their guesses should diverge from the truth in random ways that his is the theme—either implicit or average out to zero. Texplicit—underlying a spate of recent To the extent economic actors are rational, books about the growing ubiquity of analytic it should be impossible to profit from relevant and predictive modeling applications in fields information that is widely available: some- such as business, law, medicine, education body else would have already used it to make and even professional sports. In his 2003 book a profit. Hence the old joke about the Chicago Moneyball, Michael Lewis described a new economics professor who refused to pick up way to think about managing the business of the $20 bill on the sidewalk on the grounds Major League Baseball. Lewis related how the that if it were real, someone else would already Oakland A’s general manager Billy Beane was have picked it up. In a phrase, the doctrine able to take his cash-strapped team to the top of rational expectations implies that markets of the American League through the use of 3 are efficient. statistical analysis. In their new book Nudge, University of Beane’s problem was that wealthier teams Chicago behavioral economist Richard Thaler such as the New York Yankees, with many and law professor Cass Sunstein attempt to multiples of the A’s salary budget, could outbid debunk the assumption of rational expecta- the A’s when scouting for new talent. Beane tions as a distracting myth: addressed this problem with a crucial insight: baseball scouts often use flawed reasoning Whether or not they have ever stud- and fallible “gut feelings” or “professional ied economics, many people seem at judgment” when selecting baseball players. least implicitly committed to the idea Beane realized that by using a more objective of homo economicus, or economic approach, he could identify excellent players
130 The Talent Paradox: A 21st century talent and leadership agenda
Beane’s problem was that wealthier teams such as the New York Yankees, with many multiples of the A’s salary budget, could out-bid the A’s when scouting for new talent. Beane addressed this problem with a crucial insight: baseball scouts often use flawed reasoning and fallible “gut feelings” or “professional judgment” when selecting baseball players.
ignored by the richer teams and lure them to college baseball players went on to perform the A’s at bargain salaries. better than high school recruits. Based on this As recounted by Lewis, Beane’s insight finding, Beane decided to let the richer teams was borne of personal experience. As a high spend their time recruiting players out of high school player, Beane was singled out by the school while he and DePodesta used their sta- scouts as a future baseball star. The scouts’ tistical analyses to select the excellent college judgments were based mostly on appearances players ignored by the scouts. and intuitions and hardly at all on baseball In short, Beane realized that the market statistics. When the scouts evaluated him, they for baseball players was inefficient because it saw a fit athlete, a fast runner and strong bat- was dominated by scouts making decisions ter: somebody who simply looked the part of a based on intuition rather than objective, data- good baseball player. They didn’t have to think driven analyses. To borrow a phrase from the hard about the statistics; it was simply obvious medical profession, you might say he took an to them that Beane had the makings of a top “evidence-based” approach to player selection. baseball player. Because of this, Beane was able to, as Lewis put But the scouts turned out to be wrong. Billy it, “run circles around taller piles of cash.”4 Beane failed to thrive as a big league player and ultimately quit to become a scout for the A’s. Analyzing analytics By the time he made general manager he was determined not to repeat the mistakes of the hy do Bill James’ simple formulas scouts who had singled him out in high school. Wpredict things that baseball scouts can’t Beane turned to the writings of the baseball predict even after years of experience? In statistician Bill James in order to take a more an insightful review of Moneyball, Sunstein scientific approach to evaluating baseball and Thaler discuss the clues that Lewis offers. players. For example, James had constructed They write: a formula that could predict the number of Why do professional baseball execu- runs a hitter is expected to create as a func- tives, many of whom have spent their tion of his on-base percentage. Taking his cue lives in the game, make so many colos- from James, Beane hired Paul DePodesta to sal mistakes? They are paid well, and statistically analyze players’ performances. One they are specialists. They have every incentive to evaluate talent correctly. So of Beane’s and DePodesta’s findings was that why do they blunder? In an intriguing
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passage, Lewis offers three clues. First, a false analogy between tossing a coin and the those who played the game seem to door #1-door #2 decision. overgeneralize from personal experi- As Sunstein and Thaler point out, the ence: “People always thought their own problem is not that professionals are foolish experience was typical when it wasn’t.” Second, the professionals were unduly or uneducated; it is that they are human. Out affected by how a player had performed of necessity, they rely on fallible intuitions, most recently, even though recent per- mental heuristics, and tribal wisdom when formance is not always a good guide. processing information to make decisions. The Third, people were biased by what they problem, as behavioral economics teaches us, saw, or thought they saw, with their own is that such systematic biases in human cogni- eyes. This is a real problem, because the human mind plays tricks, and because tion as anchoring, the availability heuristic, there is “a lot you couldn’t see when you and herd behavior can prevent markets from watched a baseball game.”5 becoming more efficient. As Sunstein and Thaler write, “even when the stakes are high, Sunstein and Thaler then point out that rational behavior does not always emerge. It Lewis is describing a central finding in cogni- takes time and effort to switch from simple tive psychology: people tend to use what is intuitions to careful assessments of evidence.”7 known as the “availability heuristic” when Viewed in this light, Moneyball therefore making judgments: constitutes a case study in behavioral econom- As Daniel Kahneman and Amos ics: despite vast quantities of data available and Tversky have shown, people often assess money at stake, pre-Billy Beane scouts relied the probability of an event by asking on fallible mental heuristics and rules of thumb whether relevant examples are cogni- to make very large decisions. A die-hard tively “available”. Thus, people are likely believer in efficient markets might bemoan to think that more words, on a random page, end with the letters “ing” than such departures from the theoretical ideal. But have “n” as their next to last letter—even a pragmatist can view non-rational and inef- though a moment’s reflection will show ficient markets as business opportunities. that this could not possibly be the case.6
Perhaps this is also why so many people From moneyball to get the Monty Hall problem wrong. It’s easy workforce intelligence to think of cases where “complete ignorance” he story of how Billy Beane used analytics means “equiprobability”: tossing a coin, roll- to identify undervalued baseball players ing a die, or spinning a roulette wheel. Many T has far-reaching implications for many indus- of Monty Hall’s contestants—and Marilyn vos tries. The most obvious parallel is the war for Savant’s readers—were perhaps led astray by talent. Baseball is not the only domain where
132 The Talent Paradox: A 21st century talent and leadership agenda
the stakes are high when it comes to attracting and retaining talented employees. Consider the It is obvious that living far following facts: Most companies must devote anywhere between 40 and 70 percent of their from the office, frequently operating expenses to compensation, benefits and other employee-related expenses.8 In many working weekends, and domains, a rule of thumb estimate of the cost of replacing an employee is 1.5 times that working for a problematic employee’s salary. Finally, the business press is replete with warnings that as the popula- or poorly rated manager are tion ages, the competition to attract and retain talented workers will intensify. Yet most large all risk factors indicative organizations still make their hiring decisions using a highly labor-intensive and subjective of a valued employee’s approach often centering on subjective evalu- ations of candidates’ performances at inter- likelihood to quit. But views. Potentially useful sources of data are ignored, and the data that are considered are unlike a human decision- weighed in subjective and inconsistent ways. Therefore, while the market for talent has maker, a predictive model grown increasingly competitive, it has not necessarily grown more efficient. This creates has the ability to optimally opportunities for far-sighted organizations similar to the opportunity that Billy Beane combine these and many saw 10 years ago. Moneyball can be read as an early example of what we call “workforce other factors to efficiently intelligence”: the use of analytics to bridge the gap that often exists between workforce-related estimate the employee’s data sources and the business issues to which they should be applied. relative likelihood of leaving. For example, predictive models are being built to help HR managers make better hiring combination of inputs rather than in purely decisions. In detail, this involves construct- subjective judgments. ing a database about a company’s current and Similarly, models are being built to predict previous employees in which high-performing which employees are most likely to voluntarily employees are flagged. A predictive model resign. For example, it is obvious that living is then built by optimally combining a set of far from the office, frequently working week- leading indicators—predictive variables—of ends, and working for a problematic or poorly high performance. The model is built and vali- rated manager are all risk factors indicative dated on past data, but used to rate the applica- of a valued employee’s likelihood to quit. But tions of incoming job candidates. unlike a human decision-maker, a predictive In this way, the model serves as a “scoring model has the ability to optimally combine engine” used to triage resumes on the fly. HR these and many other factors to efficiently personnel can then focus on evaluating those estimate the employee’s relative likelihood candidates that the model identifies as poten- of leaving. And unlike the human decision- tial top performers. The model doesn’t usurp maker, the predictive model will arrive at the the decision-making process, but can help same answer before and after lunch, takes anchor the decision in a predicatively optimal
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virtually no time to draw conclusions, and is analyses that can be used to guide human deci- not affected by prejudices, pre-conceived ideas sions.9 The sheer breadth of the examples Ayres or cognitive biases. discusses is compelling, and comports well In short, predictive models can help us with our own experience applying predictive better approximate the ideally rational homo analytics to a variety of domains. economicus. As Billy Beane demonstrated, Many of Ayres’ examples are valuable in these tools can transform the process of select- that they encourage one to think creatively ing and managing talent into a key component about new ways in which predictive analytics of an organization’s core strategy. can be applied. Everyone knows that credit scores outperform loan officers at assess- Enter the super crunchers ing mortgage default risk. But consider these examples: Ayres’ colleague, the Princeton he strategic potential of workforce economist Orly Ashenfelter, has built regres- Tintelligence is the most obvious lesson sion models that have proven more effec- of Moneyball, but the full implications of the tive than wine critics at identifying excellent book are even broader. In our work as consul- vintages of Bordeaux wine. Neural net models tants providing services that involve multi-dis- have been built to predict movie box office ciplinary data mining and predictive modeling, returns using features of the movies’ scripts. we have helped decision-makers in their efforts Karl Rove has repeatedly used consumer to perform analyses and build predictive segmentation and target marketing techniques algorithms in a wide variety of domains. The to win elections by strategically contacting parallel of our work to Moneyball has not been swing voters. lost on us, and we have even recommended the Another compelling example comes from book to many of our HR and non-HR clients. Malcolm Gladwell’s book Blink. Cook County For example, the chief underwriter of a major Hospital has a representation of a decision tree U.S. insurance company used the Moneyball algorithm on a wall of its emergency room. story to motivate his colleagues to embrace the The decision tree is used to triage patients underwriting predictive model that we were in complaining of chest pain based on their likeli- the process of helping them build. hood of suffering heart attacks. Despite—or Ian Ayres, a law and economics professor perhaps because of—its simplicity, the decision at Yale, picks up on this theme in his recent algorithm outperforms doctors relying solely book Super Crunchers. By discussing applica- on their intuitions and professional judgment tions of predictive analytics in a number of in the heat of the moment. (Incidentally, the disparate domains, Ayres continues where story actually undercuts Gladwell’s own thesis Lewis, Sunstein and Thaler leave off. “Super that highly intuitive snap judgments and Crunching” is Ayres’ umbrella term for the “thinking without thinking” are more reliable various types of data mining, predictive mod- than deliberative reasoning.)10 eling, and econometric, statistical, or actuarial
Despite – or perhaps because of – its simplicity, the decision tree algorithm outperforms doctors relying solely on their intuitions and professional judgment in the heat of the moment.
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We can add several examples, from our own • Member retention: We have helped hos- work, to Ayres’ list of cases in which analytics pitals build models to better predict which are used to make better decisions. Medicaid beneficiaries are at highest risk • Insurance underwriting and pricing: We of dis-enrolling from their Medicaid health and our colleagues have helped hundreds plan. The resulting scores provided the of underwriters build multivariate scoring hospitals’ outreach personnel with a tool for models to better select and price insurance better focusing their retention efforts. risks. These models find gaps in traditional risk assessment methodologies and thereby provide novel ways for insurers to better distinguish between seemingly similar or identical risks. Unlike the “experts versus equations” tenor of Moneyball and Super Crunchers, our goal has never been to replace human decision-makers, but rather to help them develop a tool that enables them to make better decisions. Just as analytical methods outperform traditional methods of scouting baseball players, we have seen that underwriters consistently do a better job of selecting risks with predictive models in hand. The implications of these observations have proven very valuable to insurance companies that have adopted analytical methods. • Talent management: We have helped employers use psychometric data to better predict employee performance. In one study, we found that employees with certain combinations of behavioral traits had twice the chance of being promoted, whereas • Consumer business: We have helped employees lacking a different combination companies use analytics to better under- of traits had virtually no chance of being stand their customers and sales patterns. promoted. Workforce intelligence findings While it is true that some companies make such as this are useful when making hiring extensive use of their data to segment, and talent management decisions. target and cross-sell to their customers, we • Medical malpractice prediction: We have have found that many others use their data helped physicians—both general practitio- only to generate business metrics and fairly ners and specialists—build models to better stale management reports. The situation is predict whether they are more likely to be to a surprising degree similar to what we sued for malpractice. We have found that, have found in the emerging field of work- as with the talent management example force intelligence: the data exist but are not above, behavioral as well as other factors are being used to refine decisions rooted in predictive. Predictive models using psy- intuition and mental heuristics. Analytics chometric data could be used to selectively and predictive models can therefore be reach out to physicians and ultimately lower brought to bear to exploit the resulting the incidence of medical malpractice suits. market inefficiencies.
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• Mortgage triage: We are assisting mortgage identification of those cases that are likely lenders to use predictive modeling to better to become high-severity or long-duration. identify potentially troubled loans before We have helped companies build models borrowers fall behind on their payments or that combine medical, biographic, demo- default. In these tumultuous times, tradi- graphic and psychographic information to tional reactive and subjective loan manage- better predict which cases are more likely to ment methods are proving unsatisfactory. exceed industry standard norms for sever- We are helping to bring predictive analyt- ity and duration. With this improved case ics to bear for mortgage lenders to design management tool, workers can be helped to proactive loan and credit-line portfolio return to work more efficiently and abusers management strategies. Loans can be of the system can be more easily identified. saved—and mortgagees can be kept in their • Medical insurance customer relationship: We have been working with health insur- ance contact centers to combine medically based analytics with reengineered business processes to better identify those medical insurance customers who have complex treatment issues and experience difficulty navigating the treatment approval and claims handling process. By segment- ing these customers and directing their needs to a specially trained servicing team, outbound calls are being placed to custom- ers to offer upfront assistance and guid- ance for streamlining their treatment and claims management. This combination of advanced analytics and improved customer experience has resulted in higher levels of customer satisfaction and reduced medical and claims expense. As Ayres points out, the surprising abil- ity of equations to help experts has been the subject of psychological research for over fifty years. The subject originated in 1954 with the publication of the psychologist Paul Meehl’s 11 homes—by strategically offering mitigation book Clinical Versus Statistical Prediction. strategies before borrowers default. Meehl’s “disturbing little book”, as he called it, documented over 20 empirical studies com- • Claims and medical case management: paring the predictions of human experts with Medical case management for workers’ those of simple actuarial models. The types compensation and disability cases has of predictions ranged from how well schizo- traditionally been managed primarily as phrenic patients would respond to electro- medical events. Thus a case worker helps shock to how well prisoners would respond to an injured worker return to his or her parole. Meehl concluded that in none of the job through a prescribed medical treat- 20 cases could human experts outperform the ment process. Rarely has the portfolio of actuarial models.12 cases been managed analytically with early
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Behavioral economists such as Richard Thaler and Dan Ariely help us better appreciate the strategic implications for businesses, hospitals, governments, and other organizations. A recipe for success is to use analytics to exploit market inefficiencies resulting from intuitionist decision-making.
Near the end of his life, surveying the field to exploit market inefficiencies resulting from he initiated in the fifties, Meehl wrote: intuitionist decision-making. The revolution in predictive analytics is There is no controversy in social science already with us; cognitive science teaches which shows such a large body of quan- us why this is so; and behavioral econom- titatively diverse studies coming out so ics teaches us that we can use this insight to uniformly in the same direction as this one. When you are pushing over 100 exploit market inefficiencies. Unfortunately, investigations, predicting everything building and executing predictive analytics from the outcome of football games to strategies is not as easy as picking up a $20 bill the diagnosis of liver disease, and when on a sidewalk. Predictive modeling is a highly you can hardly come up with half a complex and multi-disciplinary undertaking. dozen studies showing even a weak ten- This is a major reason predictive analytics isn’t dency in favor of the clinician, it is time to draw a practical conclusion.13 even more ubiquitous than it already is. On the plus side, many opportunities remain. Ayres quotes two other cognitive psy- chologists who put the matter even more Synthesizing analytics starkly: “Human judges are not merely worse than optimal regression equations; they are redictive analytics is now coming into worse than almost any regression equation.”14 Pits own both because of the findings of The business implications of this statement cognitive science and behavioral econom- are huge. ics and also because of a recent and rapid Cognitive scientists such as Meehl, proliferation of huge databases, cheap com- Kahneman, and Tversky help us understand puting power, and advances in data visualiza- that the increasing ubiquity of predictive ana- tion, applied statistics and machine learning lytics is in large measure due to fundamental techniques. Any business process that calls on limitations in human cognition. Thus there is human decision-makers to repeatedly weigh good reason to expect that analytical methods multiple factors to arrive at decisions could will continue to gain traction in an ever widen- more likely than not be improved through ing field of endeavors. predictive analytics. Furthermore, if these Behavioral economists such as Richard decisions are central to a company’s core Thaler and Dan Ariely15 help us better appreci- strategy (such as underwriting for an insur- ate the strategic implications for businesses, ance company, or hiring dependably friendly hospitals, governments and other organiza- and motivated workers for a restaurant chain) tions. A recipe for success is to use analytics much more is at stake than improvements in
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business process efficiencies. Analytics and Executive sponsorship can do an end-run predictive models can help companies win by around this “blind men encountering the exploiting market inefficiencies. elephant” problem by ensuring that appropri- But basing competitive strategies on analyt- ate investments are made up front in the multi- ics is by no means ubiquitous. We have often disciplinary array of skills needed. been surprised by the modest extent to which Finally, enlightened executive sponsorship analytics is embraced even at prestigious is also needed to ensure that the fruits of ana- companies. One probable reason: analytics lytics projects are embraced by the larger orga- is difficult and often misunderstood. Aside nization. This can be its own challenge. Some from the obvious entry barrier of master- organizations face initial indifference or even ing advanced “super crunching” techniques, hostility to analytics-based strategy. This was analytics is multi-disciplinary in ways that are certainly the situation Billy Beane faced when not always made clear in academic or journal- he undertook the difficult process of trans- istic discussions. Indeed, modeling is not often forming the Oakland A’s into an analytically the dominant phase of an end-to-end predic- oriented team. As Lewis describes, instilling tive modeling project. A full-blown predictive culture change was a major—and difficult— analytics project calls on a broad range of skills part of Beane’s job. Other organizations, such that includes business strategy, subject-matter as insurance companies or large retailers, will experience and knowledge, project manage- be more naturally inclined to embrace analyt- ment, knowledge of statistics and machine ics-based strategies. In such organizations, the learning techniques, programming, technolog- challenge is to ensure that the ultimate users ical and business implementation, and orga- are engaged in the design and construction of nizational change management. Furthermore, the analytical tools that they must eventually all of these ingredients must be leavened with embrace. In either scenario, executive spon- the tacit knowledge of experienced predic- sorship is needed to ensure that the analyt- tive modelers who know what complexities ics project becomes more than a back-office to avoid and ways to attack the complexities technical exercise. that remain. Full-blown predictive analytics In Competing On Analytics, Thomas projects are therefore team efforts that require Davenport and Jeanne Harris discuss this time, investment, and a multi-disciplinary theme and relate that one well-known CEO range of skills. kept a sign on his desk quoting Edwards In our experience, this important fact is Deming’s famous aphorism, “In God we trust; often overlooked by companies that intend to all others bring data.”16 We find it rational to embark on analytics or predictive modeling expect that this CEO will find himself in good projects. Perhaps influenced by breezy jour- company in the coming years. nalistic accounts of analytics, managers often underestimate the array of resources and level Postscript of investment needed to pull off an end-to-end modeling project. For example, IT managers till haunted by the Monty Hall problem? often think that point-and-click analytics tools SHere is a heuristic that might help. First let can do the job; statisticians often revel in the us clarify the rules of the game: Monty knows purely technical aspects of the project, while which of the doors conceals the car; he must downplaying other project phases and required open a door with a goat; and if the car really is skills; actuaries often view modeling projects behind the door you chose (#1), he will open as pure-play actuarial projects; and business one of the other two doors (#2 or #3) with analysts often think that spreadsheet-based equal probability. Clearly at the beginning analyses suffice. of the game, it was equally likely that the car was behind doors 1, 2, and 3. In particular, it
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follows that the probability of the car being Endnotes behind door #1 was 1/3 and the probability of 1. John Kay, Financial Times, August 16, 2005 it being behind either doors #2 or #3 was 2/3.
139 Talent Beyond the Numbers Analytics as a strategic capability
By James Guszcza and John Lucker > Illustrations by 2face
The central concern of administrative theory “is with the boundary between rational and nonrational aspects of human social behavior. —— Herbert Simon, Administrative Behavior ” Uncovering the realities that lie about. Precisely because they are hidden to the behind the data is what business casual observer, they lend competitive advan- analytics is all about. Precisely tages to the organizations that discover and because they are hidden to implement them in business first. Ironically, the casual observer, they lend something like this very process is needed to competitive advantages to the make sense of the mountains of literature that organizations that discover and have accumulated around the field of business implement them in business first. analytics itself. Writings in the business and popular press, blog postings, and conversations with execu- What’s in a name tives reflect many seemingly contradictory ideas. While it is often touted as one of today’s nalytics typically involves sift- most important business—and even cultural— ing through mountains of data—that A trends, analytics has been around in one form often send confusing or seemingly conflict- or another for many decades and, in a few ing signals—in search of nuggets of insight cases, for well over a century. Depending on that can be used to make better decisions. whom you speak with, analytics projects are Though irksome, initially confusing analyti- technology projects, actuarial projects, applica- cal situations are often the ones that reveal tions of the latest developments in machine deeper truths, valuable predictive patterns or learning, exercises in applied statistics and/ competitive insights. Perplexity often breeds or operations research, or nothing more than discovery; surface inconsistency can yield to Business Intelligence (BI) clothed in fresh mar- deeper consistency; and challenge can unseat keting or journalistic spin. Even the generic convention. Uncovering the realities that lie nature of the newly fashionable term “analyt- behind the data is what business analytics is all ics” itself might invite skepticism: After all,
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techniques that claim to apply to everything seemingly airy generality of “analytics” might often end up solving nothing. distract from the subject’s deep roots and Yet there are important messages that the technical and managerial sophistication should not get lost in the hype. While many needed to master it. subdisciplines and core techniques of analytics Davenport and Harris correctly point out are not new, the competitive and operational that using data to build statistical models is necessity of analytics is. Hundreds of terabytes central to analytics. And indeed one of the of information are now produced each day in earliest instances of business analytics was forms as diverse as unstructured text, transac- performed by an important figure in the his- tional records, Internet clicks, digital multi- tory of statistics. The 18th-century mathemati- media, and RFID and geospatial GPS signals. cian and Unitarian minister Richard Price is Analytically adept organizations are able to best known for his early role in promulgating use all of this data to make refined operational what is today known as Bayesian statistics, decisions more economically, objectively, the science of using probabilities to quantify consistently and in greater quantities than uncertain knowledge in the light of data. Less ever before.1 Organizations not so adept are at often recognized is the fact that Price applied risk of drowning in all of this data and falling his quantitative expertise by working as a con- behind competitively. Today’s business land- sultant to the Equitable Life Assurance Society scape has therefore changed in ways that put in London.3 By analyzing historical mortality analytics “have-nots” at a substantial disadvan- patterns, Price was able to appropriately link tage relative to analytics “haves.” the society’s insurance premiums to the age But to form an effective strategy around of the insured, thereby ensuring that it could analytics, it is first necessary to hear beyond adequately meet its future commitments. As a the chatter surrounding analytics, develop a result, the Equitable flourished during the suc- clear understanding of what analytics is fun- ceeding decades while a string of competitors damentally about, and then to structure and came and went due to inadequate premium prioritize analytics strategies in a way appro- and loss reserves. priate to one’s larger business objectives and We are not historians, but Price’s work— competitive situation. The use of information performed a quarter of a millennium ago— technology to convert raw data into action- gets our vote as the first example of business able information is an important part of the analytics in action. Not coincidentally, it is also story. But as we will see, it is only a part: Data an early example of actuarial science. Price and information technology account for only trained his nephew William Morgan who went two dimensions of what is ultimately a three- on to become the Equitable’s actuary and is dimensional topic. The third and crucially today regarded as the founding father of the important dimension of analytics is the human actuarial profession. and social one. A similar story comes from Victorian Britain. Charles Babbage is best known as Price was right the inventor, along with his associate Lady Lovelace, of the earliest prototype of the mod- n Competing on Analytics, Tom Davenport ern computer. (Because Babbage and Lovelace Iand Jeanne Harris help clarify the multifac- predated Edison, their computer was powered eted concept of analytics. According to them, by a hand crank.) A man of protean talents, analytics is: “the extensive use of data, statisti- Babbage was also an early pioneer in opera- cal and quantitative analysis, explanatory and tions research. By analyzing data, Babbage predictive models, and fact-based management demonstrated that varying the price of mail 2 to drive decisions and actions.” This defini- delivery by the distance traveled was in fact tion is excellent. Still, the sudden ubiquity and more expensive than the cost of transporting
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Information technology is also crucial to analytics ... the best algorithm in the world provides no value sitting on a shelf. It must be implemented.
the mail. The post office acted upon Babbage’s resource—on the predictive insights hidden analysis and became more efficient by charg- in the depths of oceans of data. ing a flat rate based on weight. The so-called • Algorithms and software: Increasingly “penny post” idea was subsequently adopted powerful tools and methods for analyz- 4 around the world and persists even today. ing data and making predictions are being discovered and promulgated at an unprec- Moore, Moore, Moore edented rate. To take but one example, Thomas Bayes’ 200-year-old ideas have hile the term “analytics” is a new entry recently undergone a striking renaissance in the business vernacular, the subject W thanks to clever simulation techniques that itself is certainly not. So what accounts for its have been implemented in open source sudden ubiquity? The short answer is informa- software packages.7 Indeed one of the pre- tion technology. The availability of computing miere statistical computing packages, the power and data storage capacity have expanded open source R package, has experienced its at an exponential pace, and this trend seems own version of Moore’s Law: The number of unlikely to abate anytime soon.5 data analysis subpackages contributed to R Several consequences of Moore’s Law col- from scientists and practitioners around the lectively account for the newfound ubiquity of globe has grown exponentially, and many analytics. Most notably: dozens of new routines are added to the R • The data deluge: As noted earlier, we now system each year.8 gather, store and transmit unimaginable • Increased awareness: Farsighted leaders in quantities of data each day. As Herbert a variety of domains are increasingly aware Simon astutely observed nearly 40 years of the competitive and operational advan- ago, this changes the fundamental econom- tages that analytics can bring. We will say ics of business management and decision- more about this below. making. Simon wrote that: Advances in information technology have In an information-rich world, the therefore dramatically magnified both the wealth of information means a dearth practical availability and business necessity of something else: a scarcity of what- of data and analytics tools and methods. As a ever it is that information consumes. result, novel applications of analytics are taking What information consumes is rather obvious: it consumes the attention of its root at an impressive clip. But it is important recipients. Hence a wealth of informa- to remember that the core ideas and methods tion creates a poverty of attention and a of modern analytics are rooted in fundamental need to allocate that attention efficiently statistical and optimization ideas that have among the overabundance of informa- been in wide use for decades. tion sources that might consume it.6 Information technology is also crucial to Simon’s foresight is today’s reality: Analytics analytics for a second reason: The best algo- is increasingly regarded as a necessity to rithm in the world provides no value sitting on focus decision-makers’ attention—a scarce a shelf. It must be implemented. A common goal of analytics projects is to create predictive
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models or other types of algorithms intended • Human resources: As Michael Lewis to improve key business processes and/or help recounts in Moneyball, the Oakland A’s human experts make more effective decisions. general manager Billy Beane adopted In practice this means that once the algorithm analytical methods to select baseball players has been developed and validated by a team who were systematically undervalued by a of analysts, it must be implemented in the market for talent dominated by intuition- organization’s information systems and used to based decision-making on the part of automatically generate business rules, recom- seasoned baseball scouts.9 And this story is mendations or messages tailored to individual not unique to professional sports. We have cases. Without an effective IT plan in place, seen firsthand the effectiveness of statistical the ROI of such an analytics project is likely to analysis and predictive modeling in helping be negative. guide hiring and talent management deci- Because of its substantial IT component, sions in a variety of industries. people sometimes mistake analytics for a • Medical triage: Cook County Hospital in variety of IT or a software implementation Chicago, best known as the setting for the project. But this confuses the delivery vehicle television show ER, tested the effectiveness with what is being delivered. Predictive mod- of a three-factor decision tree versus the els, collaborative filtering algorithms, busi- unaided judgment of its emergency room ness process optimizations, pricing solutions staff in evaluating which patients were at and analytically driven collections of business highest risk of suffering heart attacks. By rules are generally not off-the-shelf software cutting through cognitive clutter, the deci- products. Rather, they are developed by data sion trees proved effective and have likely scientists with expertise in fields such as statis- saved lives.10 tics, operations research, computer science and machine learning, linguistics, actuarial science, • Safety analytics: Not unrelated is the 5 marketing science and psychology. The reason Million Lives campaign, which has sought the general term “analytics” is such helpful to use analytics, in the form of evidence- shorthand is because of the huge variety of based medicine studies, to identify prac- methods and applications that it encompasses. tices that result in preventable medical 11 In short, while IT is indispensible to analytics, harm. We have had opportunities to analytics projects should not be conceived as perform analogous safety analytics proj- IT projects. ects for such diverse clients as a household name retail chain and a prominent hospi- tal group. Our experience A universal acid comports with published ll of this background still doesn’t explain industry reports: Aone of the most notable aspects of analyt- Analytics can help ics: its impressive range of applicability. In the identify employees past decade, analytical methods have been at risk of workplace adopted in fields as disparate as consumer injury and iden- business, human resources and talent manage- tify cases in need of ment, insurance, banking, entertainment, pro- prompt remediation. fessional sports, medicine, education, telecom, • Insurance: In the past automotive, manufacturing and government. decade, insurers have Consider these cases, culled from the popular implemented predictive and academic literature as well as our own models to help under- project experience. writers more accurately underwrite and price complex commercial and
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professional liability risks. These algorithms This is because analytics is the science of better identify additional risk criteria that dif- decision-making; and decision-making is the ferentiate seemingly identical insurance heart of business.14 exposures and allow underwriters to more granularly set prices that offset associated Analytics with a human face costs and expected risk. lbert Einstein famously wrote that • Audits and claims management: Statistical “the whole of science is a refinement of fraud detection techniques are effective in A everyday thinking.”15 This insight contains the prioritizing investigation and audit work- key to understanding the broad applicability of flows. Insurance claim triage is a similar analytics and is an excellent thought for leaders application. In both cases, analytic methods to keep in mind as they guide their organiza- outperform humans’ ability to spot and act tions in cultivating analytic competencies. To upon outliers and suspicious patterns. paraphrase Einstein, analytic initiatives are • Case management: Case management systemic refinements of an organization’s core problems arise in a very broad array of operational decision-making processes. business situations and are classic predictive To illustrate, consider the case of a human modeling applications. Among the many resources manager who is faced with the task dozens of applications include identifying of making offers to a small subset of a large Medicaid members likely to attrite from group of applicants. Perhaps they are recent insurance plans, identifying high school graduates applying for internships at a bank or students at highest risk of dropping out, applicants for flight attendant positions with an predicting which college applicants will airline. How does the hiring manager go about accept offers of admission, identifying peo- choosing? In essence he combines the avail- ple in need of healthier lifestyles, and iden- able information (from sources like resumes, tifying noncustodial parents at highest risk interviews, references and perhaps even of lapsing on their child support payments. external sources like professional networking This list could easily go on for pages.12 But Web sites) about each candidate in a way that the diversity represented even in this short list enables him to compare each candidate’s likely should be enough to drive home the point that success on the job. How does the HR manager analytics is the ultimate transferable skill. In a decide which factors to consider and how to striking array of domains, intelligent applica- combine them? Ideally, he generalizes from tions of analytics have provided organizations his prior experience as well as that of his col- with enormous opportunities for effi- leagues and mentors. These professionals have ciency gains, rationalized operational perhaps made hundreds of hiring decisions decision-making processes, expense and, ideally, know which factors are more or containment and profitable growth. less important and by how much. Put another Borrowing an image from philosopher way, they generalize from examples: They use Daniel Dennett, analytics can usefully inductive reasoning. be thought of as a sort of “universal Predictive modeling is a refinement of acid” in that it has the poten- the very human process of inductive reason- tial to eat through a virtually ing. It is not necessary for business leaders to unlimited variety of decision understand the finer points of multivariate and operational regression, classification and regression trees, problems.13 artificial neural networks or support vector machines. It is important for them to under- stand that these are all tools that “learn” from large databases of cases to arrive at general
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conclusions—in an analogous way that the HR the Nobel laureate Daniel Kahneman and the manager in our story learned from his and his late Amos Tversky are considered the founding colleagues’ experience. figures of behavioral economics, a discipline Our story could easily be retold, changing that describes how human decision-makers the protagonist to a marketing professional, predictably deviate from the rational ideal. an insurance claims adjuster, a fraud inves- Dozens of surprising, yet utterly pre- tigator, an emergency room doctor, a movie dictable, decision-making biases have been studio executive selecting scripts, a psycholo- discovered. For example, the anchoring phe- gist, a social services case manager, a retail nomenon teaches us that people’s estimates of store executive or a university admissions an unknown quantity can be affected in often officer going about their daily decision-making comical ways by arbitrary reference points. For business. When such professionals use prior example, if a group of people are first asked to experience to arrive at decisions, they infor- add 200 to the last three digits of their phone mally “build predictive models in their heads.” numbers and then asked when Attila the Hun Analytics uses large databases containing both invaded Europe, their answers are correlated traditional and novel sources of information to with their phone numbers.18 Loss aversion is formalize, improve and scale up this process. the well documented fact that the pleasure of Business analytics is therefore widely applica- gaining an item is less intense than the pain ble for precisely the same reason that everyday of giving it up. In Predictably Irrational, Dan inductive reasoning is widely applicable. The Ariely illustrated this by studying a group former is a scientific refinement of the latter. of basketball fans who had won tickets to a Duke Blue Devils game in a random lottery. All too human Ariely found that the winners were will- ing to part with their tickets for an average o far we have discussed predictive model- of $2,400, while the losers were willing to Sing in relation to Herbert Simon’s picture of pay only $175 on average. Not a single ticket a business decision-maker who makes “satisfic- changed hands.19 Many such cognitive biases ing” rather than optimal decisions due to his have been repeatedly demonstrated in easily or her bounded rationality. Simon pointed out replicated experiments. that real-life decision-makers are not the ideal- The fact that human cognition is not merely ized rational calculators—homo economicus— bounded but predictably biased has an impor- 16 from classical economics. Predictive models, tant strategic implication: Humans’ predictable operations research solutions and analytically cognitive biases result in inefficient markets. motivated business rules are therefore needed Decision-making anchored in the analysis to serve as decision-making prostheses. Just of data rather than (biased) intuitions can as eyeglasses help correct myopia, predictive therefore be used to profit from such markets. models can help correct bounded cognition. Thaler and Sunstein make this point in a dis- But it turns out that actual decision-makers cussion of Moneyball: fall short of even Simon’s more realistic picture of satisficers making complex decisions in Why do professional baseball execu- tives, many of whom have spent their uncertain environments. In their recent book lives in the game, make so many colos- Nudge, the behavioral economists Richard sal mistakes? They are paid well, and Thaler and Cass Sunstein likened homo they are specialists. They have every economicus to Mr. Spock from Star Trek. incentive to evaluate talent correctly. So According to Thaler and Sunstein, not only do why do they blunder? In an intriguing real-life decision-makers fall short of this ideal, passage, Lewis offers three clues. First, those who played the game seem to they in fact have more in common with the overgeneralize from personal experi- 17 cartoon everyman, Homer Simpson! Thaler, ence: “People always thought their own
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experience was typical when it wasn’t.” Sunstein and Thaler comment, “Even when Second, the professionals were unduly the stakes are high, rational behavior does affected by how a player had performed not always emerge. It takes time and effort to most recently, even though recent per- switch from simple intuitions to careful assess- formance is not always a good guide. 22 Third, people were biased by what they ments of evidence.” saw, or thought they saw, with their own “Switching from simple intuitions to careful eyes. This is a real problem, because the assessments of evidence” is not a bad working human mind plays tricks, and because definition of business analytics. With its funda- there is “a lot you couldn’t see when you mental postulate of the perfectly rational homo watched a baseball game.”20 economicus, classical economics has long abet- Sunstein and Thaler point out that the ted the belief that real-life markets are efficient. phenomena Lewis describes are not unique to The recent discoveries of scientists like Simon, the culture of baseball scouts; indeed they are Kahneman, Tversky and Thaler teach us that central to behavioral economics. Sunstein and “it ain’t necessarily so.” The implication is that Thaler connect Lewis’ discussion to another those organizations early to adopt predictive central finding of behavioral economics: the analytics can profit from market inefficiencies availability heuristic. resulting from traditional decision-making practices that are infused with cognitive biases. As Daniel Kahneman and Amos Tversky have shown, people often assess the probability of an event by asking Analytics as strategy whether relevant examples are cogni- here tively “available.” Thus, people are likely is therefore more to analytics than to think that more words, on a random Tsoftware, data and models. Successful ana- page, end with the letters “ing” than lytics projects do not begin with data and end have “n” as their next to last letter—even with models; rather, they begin with strategy though a moment’s reflection will show and end with models and analytic insights that this could not possibly be the case.21 driving improved operational decision-making Sunstein and Thaler’s point is not that and business processes. The implication is professionals are foolish or uneducated; it is that analytics projects require strong execu- simply that they are human. Of necessity, they tive leadership along a number of avenues. rely on fallible intuitions, mental heuristics and In particular: tribal wisdom when processing information • Clarity of strategic vision: Executive to make decisions. The problem is that cogni- leadership is needed to articulate which tive biases such as anchoring, the availability applications of analytics—pursued in which heuristic, loss aversion and herd behavior can order—will provide the greatest benefit to prevent markets from becoming efficient. the organization. It is therefore important
Sunstein and Thaler’s point is not that professionals are foolish or uneducated; it is simply that they are human. Of necessity, they rely on fallible intuitions, mental heuristics and tribal wisdom when processing information to make decisions.
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to consider how to measure the ROI of an highly multidisciplinary. analytics project. Measuring the segmenta- Executive-level sponsor- tion power of predictive models on holdout ship can help ensure data is often a useful input in this process. that the differ- • Information capital: Good data is an ent business obvious prerequisite for analytics projects. units and Data is indeed an asset, but it can provide stakehold- value only if it has been properly organized, ers work cleansed and documented in a way that is together in suitable for analysis. This requires investing harmony. in data warehouse technology and sophisti- The most cated data analysis software. Furthermore, effective analyt- an IT implementation plan should be ics project managers crafted in parallel with the design of each are at ease speaking with people in multiple analytics solution. Waiting until after the domains, functioning as “translators” and analytical phase has been completed to “interpreters.” Finally, seasoned domain begin the process of IT implementation experts—insurance underwriters, social planning can be a recipe for cost overruns service case workers, marketing specialists, or worse. fraud investigators and so on—will ideally be recruited to collaborate with statistical • Human capital: Viewing analytics as a experts and project managers in the design type of technical, software or BI project and day-to-day execution of the analytics would be like buying building tools and project. Doing so helps ensure that their materials and expecting a fine house to domain and institutional knowledge is result without the services of an architect reflected in the resulting analytical data- or master builder. Textbook knowledge of bases and predictive models. Also, it goes a IT, programming and statistical theory are long way toward promoting the acceptance all prerequisites. But the abilities to insight- of evidence-based decision-making within fully create predictive variables, explore and the organization.23 visualize high-dimensional datasets, and reflect domain knowledge into the design of Because of its inherently technical nature, a predictive model are all examples of tacit it is easy to underestimate the importance of knowledge: They can only be learned by the human and social dimensions of analytics. doing. Such skills must be cultivated within But recall that the true drama of Moneyball the organization, perhaps in the form of centered around culture change. The most an analytics center of excellence, or else challenging part of Billy Beane’s job was not sought externally. hiring Paul DePodesta or overseeing his data • Social capital: Resistance to change is part analysis; it was convincing his recalcitrant of human nature. Therefore, especially for scouts to trust DePodesta’s analysis rather than organizations steeped in traditions of intu- their unaided intuitions about which players ition-based decision-making, a significant to recruit. commitment to training, culture change Two other principles of behavioral econom- and even simple persuasion is required. ics are relevant in this connection: Status quo Echoing Sunstein and Thaler, it takes bias (the tendency to stick with the current time and effort—in the form of executive situation even when better ones are available) sponsorship—to switch from a culture of and optimism bias (the tendency to be overly intuition-based to evidence-based decision- optimistic about one’s own abilities and the making. A related point is that analytics is outcomes of one’s actions). Such cognitive
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biases—together with garden-variety turf wars What is an opportunity for analytically and organizational politics—are major rea- sophisticated organizations is simultaneously sons why organizations’ traditional, intuitive a threat to their competitors. The nature of decision-making cultures often resist analytics insurance is such that analytically impaired initiatives. Executives should not let their own insurance companies are not long for this “optimism bias” lead them to underestimate world: Analytically sophisticated competitors such risks. Generally speaking, a vigorous will use their deeper understanding of risk organizational acceptance of analytics does not factors to skim the cream and select against just happen. Well-conceived strategies must them. Progressive Insurance’s use of personal be properly communicated, incentivized and credit scores to more accurately price auto executed in order for cultures of evidence- insurance is a recent chapter in this decades- based decision-making to take root. old story.24 Stories such as Billy Beane exploit- ing an inefficient market for talent and Netflix We are all actuaries now using analytics to challenge traditional retail business models illustrate that this data-driven s computing power and data sets have phenomenon is no longer specific to insurance. Aincreased exponentially, so has the Because data is now everywhere, so is analyt- embrace of analytic methods in business, ics. This fundamentally changes the competi- government, medicine, education, entertain- tive landscape in a way that makes analytics ment and beyond. The revolution is here, and central to competitive strategy. it has been a long time coming. As discussed One, therefore, does not need a predictive above, analytics first took root in the insurance model to foresee that ever more organizations industry for a very good reason. Insurance is in ever more sectors will realize that analytics the rare business in which the producer does must be as essential to their core operations not know the cost of production at the time of as it has always been to insurers. Paraphrasing sale. Two seemingly identical risks can in fact Milton Friedman speaking in a much different present the insurer with much different risks. context, “we are all actuaries now.” Without actuarial science and advanced ana- lytics, insurers can easily fall prey to adverse selection resulting from the information asym- Originally published in Deloitte Review #8, 2011 metry of policyholders and competitors pos- sessing a superior understanding of the drivers About the authors of insurance claims. Two centuries after Richard Price consulted James Guszcza is a senior manager with Deloitte Consulting LLP and the national for the Equitable, the world is a different place. predictive analytics lead for its Advanced The business landscape is rapidly changing Analytics & Modeling practice. thanks to big computing, big data and cor- respondingly robust machine learning and John Lucker is a principal with Deloitte optimization techniques. Forward-thinking Consulting LLP and the leader of its Advanced organizations that are the first to embrace ana- Analytics & Modeling practice. He is also the Advanced Analytics & Modeling Global Human lytics can change the competitive dynamic by Capital Leader for Deloitte Touche Tohmatsu executing their core competencies and strate- Limited. gies better than their competitors.
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Endnotes a large body of quantitatively diverse studies coming out so uniformly in the same direction 1. “Data, Data Everywhere”, The Econo- as this one. When you are pushing over 100 mist, February 27, 2010. investigations, predicting everything from the 2. Thomas H. Davenport and Jeanne G. outcome of football games to the diagnosis of Harris, Competing on Analytics: The liver disease, and when you can hardly come up New Science of Winning (Harvard Busi- with half a dozen studies showing even a weak ness School Press, 2006), page 7. tendency in favor of the clinician, it is time to 3. Ian Hacking, The Taming of Chance, Cam- draw a practical conclusion.” – “Causes and bridge University Press, 1990, page 49. Effects of My Disturbing Little Book,” Journal of Personality Assessment 50, pp. 370-375. 4. George Dyson, Darwin Among the Machines: the Evolution of Global Intel- 13. Daniel Dennett, Darwin’s Danger- ligence, Basic Books, 1998, page 42. ous Idea: Evolution and the Meanings of Life, Simon & Schuster, 1995. 5. New York Times, August 30, 2010 “Ad- vances Offer Path to Further Shrink 14. Herbert Simon, Administrative Behavior: A Computer Chips,” http://www.nytimes. Study of Decision-Making Behavior in Adminis- com/2010/08/31/science/31compute.html. trative Organizations (4th ed), page xi: “Deci- sion-making is at the heart of administration.” 6. Simon, H. A. (1971), “Designing Organizations for an Information-Rich World,” in Martin 15. Albert Einstein (1936), “Physics and Greenberger, Computers, Communication, Reality.” http://www.kostic.niu.edu/Phys- and the Public Interest, Baltimore, MD: ics_and_Reality-Albert_Einstein.pdf The Johns Hopkins Press, page 40-41. 16. Herbert Simon, Administrative Behavior: 7. The technique is Markov Chain Monte Carlo A Study of Decision-Making Behavior in (MCMC), which was first developed at Los Administrative Organizations (4th ed), page Alamos to solve high-dimensional integration 118: “Administrative theory is peculiarly the problems. The Bayesian renaissance was sparked theory of intended and bounded rationality – of in 1990 by the publication of “Sampling-based the behavior of human beings who satisfice approaches to calculating marginal densities” because they have not the wits to maximize.” by Alan Gelfand and Adrian Smith in the 17. Richard H. Thaler and Cass R. Sunstein, Nudge: Journal of the American Statistical Association. Improving Decisions about Health, Wealth, and Before Gelfand and Smith’s application of Happiness (Yale University Press, 2008) page 22. MCMC, Bayesian methods were practical only 18. Ibid, page 23. for simplified problems. http://home.gwu. edu/~stroud/classics/GelfandSmith90.pdf. 19. Dan Ariely, Predictably Irrational: The Hidden Forces that Shape Our Decisions 8. Editorial, R News, Volume 8/2, Octo- (HarperCollins 2008), Chapter 7. ber 2008. http://www.r-project.org/ doc/Rnews/Rnews_2008-2.pdf. 20. Richard H. Thaler and Cass R. Sunstein, “Who’s on First,” The New Republic, Sep- 9. Michael Lewis, Moneyball: the Art of Winning an tember 1, 2003. http://www.law.uchicago. Unfair Game (W. W. Norton & Company, 2003). edu/news/susntein/2003/moneyball.html. 10. Malcolm Gladwell, Blink: The Power 21. Ibid. of Thinking without Thinking (Little Brown and Co, 2005) p. 134. 22. Ibid. 11. See http://www.ihi.org/IHI/ 23. In “Pricing as a Strategic Capability”, Shantanu Programs/Campaign/. Dutta, Mark Bergen, Daniel Levy, Mark Ritson, and Mark Zbaracki similarly discuss the need 12. The University of Minnesota psychologist Paul to invest in three types of capital: Human Meehl was a pioneering figure in the academic Capital, Systems Capital, and Social Capital. study of what has come to be called “actuarial MIT Sloan Management Review, Spring 2002. versus clinical prediction.” Towards the end of his career, Meehl commented, “There is no 24. See Competing on Analytics by Dav- controversy in social science which shows such enport and Harris, page 26.
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The Talent Paradox: A 21st century talent and leadership agenda A Delicate Balance Organizational barriers to evidence-based management
By James Guszcza and John Lucker > Illustrations by Anthony Freda
The most difficult subjects can be explained to “the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him. —— Leo Tolstoy ”
Future Present about the power of statistical thinking to help experts make better decisions and businesses ver a hundred years ago, H. G. Wells improve their operations. And a stream of stated that statistical thinking would one O best-selling books, movies and podcasts on the day be as necessary for efficient citizenship as topic has piqued societal awareness of analytics the ability to read and write.1 Wells’ prescient as a catalyst for fresh thinking and change.2 comment is equally true of management and However, in our many years as consultants, organizational behavior in the age of big data we have found that the realized benefits of and business analytics. In domains as varied business analytics are unevenly distributed as professional sports, medicine, consumer across domains, and even among different business, financial services and government organizations within the same domains. One operations, a consensus has rapidly developed might chalk this up to the fact that intelligently
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working with data and doing statistical analysis and processes in the domain at hand. For is hard work, involving specialist skills. Fair example, in medicine this might mean making enough. But this turns out to be only part of more reliable diagnoses and triage decisions. the problem. In insurance this might mean making bet- Generally speaking, data analysis is only ter underwriting, pricing or claim settlement part of an “analytics” project; and ironically it decisions. In a human resources context this often isn’t the hardest part. It is not uncom- might mean making better hiring and talent mon for sophisticated technical work to end management decisions. up on the cutting room floor—resulting in A common challenge in such applications unrealized value—for reasons having more is achieving a realistic compromise between to do with human and organizational behav- a current-state business or decision process ior than the finer points of data quality or and an envisioned ideal that could in theory statistical methodology. be achieved with perfect data and the best available analytics. We have encountered many organizations that, often out of a combination of inertia, competing priorities and culture of skepticism about the effectiveness of business analytics, spend years deliberating before tak- ing the first step toward embracing analytical methods. Others eagerly embrace the notion of analytics but treat it as an “all-or-nothing” proposition requiring data or algorithmic perfection before actions can be taken. Some organizations swing from one extreme to the other. Of course the preferred point is somewhere between these extremes: in many business settings, analytics is best viewed as an iterative process of continued improvements and data- driven refinements of core business operations. In such settings, either extreme skepticism leading to inaction or extreme aspiration lead- ing to analysis paralysis is suboptimal. Such extreme attitudes and approaches are often borne both of sketchy notions of how analyt- ics works and poor communication between the technical people who analyze data and the In previous articles, we have discussed the decision-makers for whom the fruits of their ways in which business analytics is more than efforts are intended. a story about arcane statistical algorithms, big The legendary statistician John Tukey data management and information technol- memorably characterized large-scale data ogy.3 Certainly the newfound prominence of analysis as “the collision between statistics and business analytics owes much to Moore’s Law computing.” Similarly, if not properly planned and its corollaries. But business analytics is not and managed, business analytics projects can ultimately about technology and technique feel like a “collision between data analysis any more than architecture is about blueprints and business decision making.” If they are and drafting tools. Well-conceived analytics to enjoy the benefits of analytical methods, projects are directed at the central problems organizations should strive to avoid collisions
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and promote evolutions, syntheses and col- laborations among people with differing skills A connecting theme of and perspectives. To that end we humbly offer a taxonomy— our observations is that based on our observations in the field—of what can go wrong. A connecting theme of our analytics projects are often observations is that analytics projects are often stymied because of failures to appreciate that stymied because of failures both data-driven analytics and expert decision making have strengths as well as limitations to appreciate that both and that the strengths and limitations of each much be counterbalanced with those of the data-driven analytics and other. The image of “data mining” should give way to the image of “data dialogues.” expert decision making have strengths as well as A Middle Path n intriguing aspect of business analyt- limitations and that the Aics is its near-universal applicability, yet this also accounts for why it can be such a strengths and limitations of slippery topic to discuss. Analytics projects take on vastly different aspects in differ- each much be counterbalanced ent contexts. For example, the authors have built credit-scoring models using tens of with those of the other. millions of data points as well as analyzed collaborative filtering algorithms to suggest human resources databases containing mere new titles based on a customer’s viewing his- hundreds of data points. Size matters, but tory.5 In each case an algorithmic, data-driven it’s not decisive. Similar comments can be approach both refines and scales up a tradi- made about data quality and completeness, tional mode of doing business: Savvy booksell- the relative appropriateness of “supervised” ers and video store clerks can be very adept at versus “unsupervised” learning techniques, the recommending books and movies to their loyal relative appropriateness of experimental versus customers. But even Quentin Tarantino in observational data, appropriate validation his video store heyday could not make movie methodologies and so on.4 Such considerations recommendations on the scale of Netflix’s are context-dependent and can vary in veracity recommendation engines. and business significance in real-world set- At the other extreme, consider an executive tings. To bring order to the kaleidoscopic—and at a global reinsurance company recommend- ever expanding—variety of applications and ing how much capital to set aside in reserves methodologies, a classification scheme might as a cushion for adverse events. Any such be helpful. manager worth her salt will make the decision One way to classify analytics projects is in the light of highly sophisticated analyses of by the degree to which decision making can past loss trends, correlations among the risks be outsourced to computer algorithms. Some in a portfolio, and stochastic simulations of of the more prominent examples of business future economic conditions and other macro analytics hinge on computer algorithms that factors. But the decision remains solidly with serve as decision-making “robots” whose the executive and is unlikely to be left up to the day-to-day functioning involves a minimum indications of a purely automated algorithm. of human intervention. Think of Netflix using
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The term “business analytics” is broad evidence too subtle and complex to turn over enough to apply equally well to each of these to a purely automated decision process. extreme instances. In each case, data analy- Yet one could also argue that, precisely sis is used to guide a business decision, and because the stakes are so high and the evi- the result is decisions that are—on average dence so subtle and complex, the opposite and in the long run (think the Law of Large strategy of entrusting medical decision mak- Numbers)—better than those that would ing to the unchecked professional judgment result from unaided judgment. In the book of doctors is similarly suboptimal. In Blink, and movie examples, the machine learning Malcolm Gladwell provides a memorable algorithms and induction rules simply replace example that illustrates the point.7 Gladwell’s human decision-makers (the store clerks); in anecdote begins in the late 1990s at the the reinsurance example, the analytical results resource-strapped Cook County Hospital serve as inputs to a decision that remains fully emergency room. (As it happens this was the under the purview of a human decision-maker. very emergency room that inspired the televi- Our focus in this article is the broad swath sion show E.R.) Brendan Reilly, the chairman of analytics applications falling at various of the hospital’s Department of Medicine points on the spectrum bounded by these two faced 250,000 patients visiting the Emergency extremes. It is in this “middle realm” that the Department (ED) each year. An average of 30 success of business analytics can be most sur- arriving patients per day complained of chest prising and sometimes downright counterin- pains and worried they were having heart tuitive.6 Medical decision making offers a good attacks. This presented ED physicians with the paradigm example. Here, highly trained pro- formidable problem of rapidly deciding which fessionals—medical doctors—regularly make patients to send to intensive care, which to decisions under uncertainty. Which of two send to intermediate care, and which to send patients arriving in full crisis at the emergency home. In a controlled experiment, Reilly found room complaining of chest pains should be that a computer-driven decision-rule protocol admitted first? Given a positive outcome of an was markedly more accurate than the unaided imperfect test, should a patient be treated for a judgment of physicians. In a JAMA article rare disease? Should a risky operation be rec- summarizing his work, Reilly reported that 84 ommended to a patient? It is hard to imagine percent of the physicians he surveyed believed such decisions being turned over to a purely that the decision-rule approach improved algorithmic process similar to the ones used to patient care.8 Reilly himself concluded that recommend movies or make targeted market- the analytics-driven rules approach improved ing decisions. The stakes are too high and the efficacy without compromising patient safety.
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More generally, there is now considerable education to make various decisions serving evidence that Computerized Decision Support citizens, customers, employees and students. Systems (CDSS) can improve both practitioner While the march of business analytics performance and patient outcomes.9, 10 And will not replace professional judgment, it can Atul Gawande has written eloquently about continually transform, enhance and refocus the power of simple checklists—which in other professional judgment. This is a major reason domains would be called business rules—to it would be a mistake to view business analyt- improve the delivery of medical care.11 In a ics as a technical domain beginning with data New York Times op-ed, none other than Billy analysis and ending with computer algorithm Beane joined the chorus of medical, political implementation. Professional judgment enters and business leaders who prescribe a data- this process at two crucial points. First, pro- driven, evidence-based approach to medical fessional judgment and domain knowledge care analogous to the evidence-based methods should be used to frame, prioritize and inform he famously used to bring the Oakland A’s up in specific steps in the process of analyzing data the ranks.12, 13 to build predictive models or craft rule sets Obviously none of this work suggests that and checklists. Second, no predictive model or physicians could or should be replaced with decision rule is complete or infallible: Human purely automated decision protocols. What it judgment is needed to decide when to use, does suggest is that purely “clinical” decision temper or simply ignore model indications. making—one extreme end of our spectrum—is There is no simple recipe for doing this. The likely a sub-optimal model for much medical process is typically a pragmatic blend of art, decision making. In many situations, physi- science and case-specific business strategy. In cians make better decisions armed with data- short, both analytical methods and the tradi- driven predictive models, decisionrule sets tional decision processes they are intended to and checklists than they do relying on unaided improve have strengths and weaknesses that professional judgment. should be pragmatically counterbalanced.15 What can be applied to medical decision making can also be applied to decision prob- Angels And Demons lems in domains as diverse as human resources and talent management (Moneyball has Scott Fitzgerald famously wrote that “the become a classic example), risk management, Ftest of a first-rate intelligence is the abil- insurance and loan underwriting, fraud detec- ity to hold two opposing ideas in mind at the tion, caseworker deployment, retail pricing same time and retain the ability to function.” and understanding the organizational driv- A similar comment applies to an organization’s ers of employee resignations. In each of these ability to execute on analytics. A prerequisite domains—and many others—evidence-based for achieving organizational buy-in of analytics methods have been shown to outperform the is understanding, forming a strategy around, unaided judgment of trained professionals.14 and communicating the required interplay We believe that, as with medical decision between analytical methods and the best avail- making, the rise of data-driven decision mak- able domain knowledge and judgment. ing does not presage the end of professional The biggest challenges of executing on judgment in any of these fields. There will analytics are often found where algorithmic always be a need for HR managers and tal- indications should be integrated with human ent scouts to make hiring decisions; risk and professional judgment. Because of the range insurance professionals to make risk manage- of personnel involved, this is an inherently ment, underwriting and investment decisions; organizational issue. Unsurprisingly, chal- and caseworkers in government, business, and lenges often arise from such sources as office politics, inertia, principal/agent issues and
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organizational dynamics. Such generic project decisions in the face of uncertainty. Business implementation issues often take on added analytics is therefore as much about human force because business analytics may often be psychology as it is about data and algorithms. poorly or inconsistently understood by the As an example, take a moment to form a various stakeholders within the organization. mental image about Linda. Linda is 31 years As a result, one often encounters extreme old, single, outspoken and very bright. She or overly simplistic attitudes about predictive majored in philosophy. As a student, she was analytics. At one end of the continuum is the deeply concerned with issues of discrimina- sort of extreme skepticism and hostility to ana- tion and social justice, and also participated in lytical methods dramatized in such books as anti-nuclear demonstrations. Now that you’ve Moneyball and Super Crunchers.16 At the other, formed your mental image, rank these three models are tacitly regarded as repositories of scenarios in order of likelihood: truth rather than provisional, imperfect deci- • Linda is active in the feminist movement. sion aids that should be continually monitored and subjected to critical thinking. Models are • Linda is a bank teller. either demons or angels. We believe that such • Linda is a bank teller and is active in the extreme conceptions are at the root of many of feminist movement. the organizational biases that we have observed The pioneering psychologists Daniel over the years. Kahneman and Amos Tversky posed precisely this question to groups of students at several Point: Equations Trump Experts major universities. Kahneman discusses this experiment in Thinking, Fast and Slow.19 Not We tell ourselves stories surprisingly, most of the students felt that being active in the feminist movement was “in order to live. the most likely scenario given what we know of Linda. But at each university, between 85 —— Joan Didion ” percent and 90 percent of them also felt that being a bank teller was the least likely of the usiness analytics is typically viewed three scenarios. In other words, they judged as a “techy” or “geeky” subject because B that Linda’s being a feminist bank teller is more of its statistics and machine learning subject likely than Linda’s being a bank teller. But a matter as well as the need for such IT-heavy moment’s reflection reveals that this cannot contributions as data warehousing, systems possibly be the case: Feminist bank tellers are implementation and dashboard reporting. We a subset of all bank tellers! The probability tend to regard business analytics in the context of being a feminist bank teller must there- of what economists call “human capital.” After fore be lower than the probability of being a all, decision making and decision makers— bank teller. a.k.a. people—are central to all enterprises, In this example, our intuitions can lead and decades of academic research and business us badly astray in a way that is as surprising experience suggest that data-driven methods as it is straightforward. Kahneman attributes can help even highly trained domain experts phenomena such as the Linda story to a certain make better decisions.17, 18 type of mental process that he called “Type 1.” This is not just because our databases are Type 1 mental processes are fairly automatic, now so deep and rich or that we now possess effortless and place a premium on “associative powerful analytical tools and techniques. It is coherence.” In contrast, “Type 2” mental pro- also because we human beings are so sur- cesses are controlled, effortful and place a pre- prisingly bad at weighing evidence, juggling mium on logical coherence. Although we fancy probabilities and making consistent, coherent ourselves primarily Type 2 creatures, many of
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our mental operations are Type 1 in nature. it is senior leaders and decision-makers who And—here’s the rub—Type 1 mental processes are skeptical about the economic value of are very poor at statistical reasoning.20 This is a predictive models. In light of Kahneman’s major—and, in business, too often neglected— observations, this makes sense. After all, such reason why analytical methods are taking root individuals have had the longest time to form in broad swaths of business, government and an “associatively coherent” body of narratives medicine. Models can serve as correctives for pertaining to their domains: which draftees the bounded ratio- will make the best nality and biased baseball player; cognition of human So far are we from being which student to decision-makers. admit; which intern Ironically, the naturally statistical to hire; which insur- dominance of Type 1 ance risks will profit thinking can also lead thinkers and rational the company; which to the organizational medical protocols can resistance to the very decision-makers that be cut short. Perhaps analytics initiatives their eminence has that can help organi- Kahneman characterizes resulted, in part, from zations become more their skill at weaving “Type 2” in nature. A the mind as a convincing narratives major culprit is the that impress their so-called “overcon- “machine for jumping colleagues. Their fidence bias.” So far seniority lends them are we from being to conclusions.” He an air of authority, naturally statistical and indeed part of thinkers and rational comments that “neither their success might be decision-makers that attributable to their Kahneman charac- the quantity nor the charisma and ability terizes the mind as a to convince their “machine for jump- quality of evidence colleagues with their ing to conclusions.” narrative accounts.21 He comments that counts for much in Unfortunately, given “neither the quantity the authority that nor the quality of subjective confidence. such individuals evidence counts for enjoy within their much in subjective confidence. The confidence organizations, their resistance can seriously that individuals have in their beliefs depends hinder the progress of analytics projects. mostly on the quality of the story that they can We have witnessed situations in which a tell about what they see, even if they see little.” few well-positioned skeptics have wielded (Italics added.) This is why human experts’ disproportionate influence over the fate of confidence in their own judgments system- predictive modeling projects. Consistent with atically exceeds those judgments’ accuracy. Kahneman’s discussion, such people tend to Kahneman calls this phenomenon “the illusion disbelieve models and be most confident in the of validity.” It is no wonder that the corrective accuracy of their own judgments. In conversa- power of predictive models is so counterintui- tion and in meetings, they often emphasize tive to people making decisions in the field. a relatively small number of instances where This helps explain a phenomenon we have a model makes counterintuitive predictions, long noticed in our consulting work: Often and deemphasize the unproblematic majority
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of instances. We have seen convincing “anti- COUNTERPOINT: ALL modeling” narratives wrapped around memo- MODELS ARE WRONG rable cases where a model appears to make a novice error that no competent human expert would ever make. The appropriate response is Any sufficiently advanced to analyze such cases with the perspective that “technology is indistinguishable (a) models combine the information that they from magic. are presented with and (b) no model is per- fect, and analyzing anomalies and outliers is a —— Arthur C. Clarke standard way to improve a model. In analyti- ” cally minded organizations, this is the natural e have just discussed an organiza- response. But in cultures where anti-model Wtional bias that might be called “model skepticism dominates, such narratives can take accuracy neglect”—the tendency to overesti- on a life of their own.22 mate the accuracy of one’s own judgments and Another key finding of behavioral econom- regard predictive models with undue skepti- ics is the surprising prevalence of the so-called cism. It is also worthwhile to explore a set of “availability heuristic:” One’s estimate of an organizational biases that tends to the opposite event’s likelihood is affected by how easily direction: undue deference to analytical tech- it comes to mind. For example, people fear niques and practitioners, and lack of critical perishing in an airplane accident more than thinking in model design and execution. perishing in an auto accident even though the George Box, one of the world’s preemi- former is actuarially less likely; in academic nent statisticians, is widely known outside the studies, people have been willing to pay more statistical community for his aphorism, “all for terrorism insurance than insurance that models are wrong, but some are useful.”23 It is a covers multiple perils including terrorism; sign of the times that one now hears academic and people tend to estimate that words end- statisticians regularly quoted at business con- ing in “ing” are more frequent than words ferences and in the popular press. Box’s motto whose penultimate letter is “n.” We have seen expresses a subtle idea in a mere eight words. examples of apparent model failure lead to But perhaps this idea is too subtle. For Box’s conclusions that the model in question is not message is often distorted (as in “it’s not too to be trusted. In these situations, offering bad to bend the rules”) in ways that lead to this statistical evidence of high model accuracy second type of organizational bias. and segmentation power on out-of-sample Two themes are important. First, it is validation data is only weakly effective against important not to lose sight of the practical such “cognitively available” stories. The irony context of modeling projects: The goal is not is amusing and frustrating in equal measures: “absolute truth” of the sort sought in fields The very types of cognitive biases that the like mathematics and physics. Rather, it is model is intended to ameliorate are themselves improved decisions. Second, it is important responsible for institutional “organ rejection” to have a realistic conception of what models of the model. can and cannot do. At the opposite end of the Such problems are cultural rather than spectrum from “model accuracy neglect” lies technical in nature and therefore do not lend another type of organizational bias that might themselves to easy answers. Achieving proper be called “magical thinking about analytics.” communication, unbiased assessments and Business analytics practitioners are often organizational buy-in are often no less chal- motivated by the sheer pleasure of using math- lenging than achieving technical excellence. ematics and scientific reasoning to arrive at useful facts and insights. The authors remem- ber hearing about a prominent executive of
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a major insurance company—an actuary by We have found that, more often than not, training—who was spotted reading one of something useful can be gleaned even from Einstein’s original essays on relativity theory highly imperfect data. Indeed, analyzing while traveling on the corporate jet. The scien- provisional or imperfect data can help focus tific motivation is both admirable and valuable the organizations’ thinking about what new and should be encouraged by organizations data elements to collect or how to improve wishing to become more analytically oriented. the collection of existing data elements.25 At the same time it is important to remember Furthermore, incomplete data can often be that the goal of any business analytics project augmented by publicly available or third- is not “Truth with a capital T” but converting party data sources. raw data into insights, • The super-model inferences or predictive syndrome: An analogous models that can lead to organizational bias is better decisions. The goal failing to distinguish is not “Truth” but “true between a good-enough, enough to be useful.” “satisficing” model and This is the essence a theoretically ideal of Box’s motto, one that model. As with hold- becomes clearer in one ing out for perfect data, of its less quotable ver- significant benefits sions: “Remember that are often sacrificed by all models are wrong; engaging in a snark hunt the practical question for model perfection or is how wrong do they failing to account for the have to be to not be use- opportunity cost of striv- 24 f u l .” The thought seems ing for greater degrees transparent to the point of accuracy. We believe of requiring no com- that this organizational ment. Yet in practice we tendency results at least see it violated frequently in part from a “magi- and in a variety of ways. cal” view of models as Examples include: repositories of truth • The data perfection syndrome: rather than inherently imperfect but (in Organizations often defer analytics projects varying degrees) useful decision tools. until such time as an elaborate analytics • Outsourced critical thinking: A related data warehouse has been constructed. One organizational bias is a naïve belief that often hears comments like “first we need to “the answers are all in the data” or “the get our data house in order.” Fair enough, quants have figured this out for us.” These but in many situations this can amount are perhaps not bad guiding principles to leaving on the table millions of dol- in data-rich, low-risk situations such as lars of savings that could be realized from recommending books and movies. But in imperfect and provisional—yet practically cases where the data are messy, incomplete, effective—models built with imperfect data. ambiguous and/or of limited quantity, con- A common sentiment is that one’s data siderable institutional knowledge, domain needs to be in excellent shape in order to expertise and common sense is needed to begin analysis. This is typically a mistake. effectively make sense of it. Popular phrases Just as “all models are wrong,” one could such as “data mining” might be partly to also say that “all databases are incomplete.”
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blame here. Mining for nuggets of gold is ramifications of an outright modeling a helpful metaphorical image for a certain blunder. As was widely reported in the kind of algorithmic-powered knowledge wake of the 2008 market downturn, at least discovery. But real-world data analysis one rating agency used a model of home more often resembles a dialogue between price changes that could not accept negative indications from data and the active numbers.28 In such cases the damage can hypothesis formation and critical thinking be mitigated or avoided by injecting critical of the data analyst. Furthermore, there is no thinking, checks and balances, and com- way to guarantee that the people within an munication among people with a variety organization best equipped to analyze the of perspectives into the process. Analytics data (analysts) are also in the best position should be viewed neither as an “ivory to interpret the results. We have been privy tower” nor a “back room” exercise. to a number of predictive modeling projects • Glamorous models: Here another George that ended badly because the business Box quote is apropos: “Statisticians, like people outsourced necessary critical think- artists, have the bad habit of falling in love ing entirely to analytics personnel who, with their models.” A common manifesta- while skilled, did not have the appropriate tion of this tendency is continuing to refine perspective to properly design the analysis an analysis or model past the point of and interpret the results. In more than one diminishing returns. A less obvious mani- case, we have witnessed the results of ana- festation is failing to appreciate—or failing lysts who actually built models to predict to communicate—a model’s limitations, the wrong quantity—a decision that should assumptions or inherent risks. Once again, have been discussed and signed off on near a dramatic example came to light after the the beginning of the project! market downturn. The statistician and • Over-confident analysts: Analytics experts Wall Street quant David X. Li, at one time are humans, too.26 And just like the deci- called “the world’s most influential actuar,” sion-makers whom models are intended became famous for a model that greatly to help, analytics experts can be overly simplified the complex relationships among confident both in their abilities and in the various securities underlying collateral- the accuracy of their judgments. This can ized debt obligations.29 Li’s model seemingly be exacerbated by the fact that analytics offered its users the ability to price complex experts possess uncommon skills that many securities that had been considered too dif- consider advanced or esoteric. However, ficult to price. Unfortunately, the model was specialist quantitative skills are not the too simple to support its widespread use. same thing as critical thinking ability. To Box’s aphorism notwithstanding, it was not take one example, we encounter arguments Li himself who fell in love with his model; from authority with unfortunate regular- it was the larger derivatives pricing world. ity. This has manifested itself (for example) Well before the 2008 crash, Li both articu- in analysts stonewalling or rejecting useful lated the limitations of his model and nicely methods that do not conform to textbook captured a type of organizational bias in the assumptions; electing to predict an easy adoption of models: “The most dangerous (such as a binary) quantity that conforms to part … is when people believe everything textbook assumptions rather than attempt- coming out of [the model].”30 ing to predict a more complex (for example Li’s comment speaks to the dangers of highly skewed) quantity that would yield “magical thinking” about analytics and mod- more powerful results; or mistaking statisti- els: the notion that models are repositories 27 cal significance for business significance. of truth rather than inherently provisional More generally, we have nearly all felt the
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and imperfect—but useful—tools for helps reduce the chances of nasty downstream guiding actions. surprises, expensive implementation snags and In an interview, economist and Financial unmet expectations that manifest themselves Times columnist John Kay provided a clear only at the close of a project. Conversely, such statement of this position, one that is perhaps dialogue can help achieve organizational buy- less open to misinterpretation than Box’s in of analytics in an organic, incremental way concise motto. Kay was asked why invest- rather than via a collision between data analy- ment models, built by people with quantitative sis and traditional judgment-driven modes of PhDs from elite universities, appeared to fail. decision making. In many organizations, pro- Kay replied: moting such communication is as important an executive function as articulating a strategic Put simply, people made the mistake of vision for analytics in the first place. believing the model. The people who Above all such dialogue can help the built them—the mathematics PhDs— organization avoid the extremes of skepticism- didn’t know very much about the world. The people who knew about the world induced inaction and delay resulting from didn’t understand the mathematics. pursuing unnecessary degrees of perfection. Both groups had inappropriate confi- Both extremes are expensive places to reside. dence in the value of these models. They aren’t useless—but models can only illu- minate the world, never be a substitute Originally published in for judgment.31 Deloitte Review #10, 2012
About the authors
Achieving Balance James Guszcza is the national predictive rganizations wishing to be first-rate analytics lead for Deloitte Consulting LLP’s Oanalytical competitors should therefore Advanced Analytics & Modeling practice. He is cultivate the ability to function without losing also an assistant professor of Actuarial Science in the School of Business at the University of sight of two opposing ideas about business Wisconsin–Madison. analytics. On the one hand, in domain after domain, many models have been shown to be John Lucker is a principal and the Advanced effective in helping human specialists make Analytics Human Capital market leader in decisions more consistently, accurately and Deloitte Consulting LLP. He is also a U.S. leader economically. Models are useful. On the other in Deloitte Touche Tohmatsu Limited’s Deloitte Analytics group. hand, models in these domains often tend to be not repositories of “truth” but rather inherently provisional decision tools that benefit from Endnotes continual improvement. The goal is therefore 1. Wells actually wrote, “The time may not be not so much to choose between specialists and very remote when it will be understood that equations but rather to set up a virtuous cycle for complete initiation as an efficient citizen of one of the new great complex world wide states whereby one continually works to improve the that are now developing, it is as necessary to functioning of the other. be able to compute, to think in averages and While there is no simple recipe for achiev- maxima and minima, as it is now to be able to ing this, promoting dialogue between groups read and write.” H. G. Wells, Mankind in the Making (1904). Wells is commonly paraphrased with different perspectives and skills is a good as having written “statistical thinking.” way to begin. Modelers can do more effec- 2. A recent example: Michael Lewis’ book Money- tive work when they are in continuous dialog ball, a book which we view as popularizing the with the decision-makers for whom their concept of “actuarial versus clinical judgment,” work is intended. Not incidentally, this also has recently been turned into a major Brad Pitt
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movie. (A landmark academic article in this 9. See “Effects of Computerized Clinical field is “Clinical versus Actuarial Judgment” by Decision Support Systems on Practitioner R.M. Dawes, D. Faust, and P.E. Meehl, Science, Performance and Patient Outcomes,” 31 March 1989
164 The Talent Paradox: A 21st century talent and leadership agenda
Organizations (4th ed), page xi, the that contributors to top journals—distinguished polymathic scholar and proto-behavioral political scientists, area study specialists, econo- economist Herbert Simon writes: “Decision- mists, and so on—are any better than journalists making is at the heart of administration.” or attentive readers of the New York Times in 18. The University of Minnesota psychologist Paul ‘reading’ emerging situations.” For an informa- Meehl was a pioneering figure in the academic tive review of Tetlock’s book, see “Everybody’s study of what has come to be called “actuarial an Expert” by Louis Menand in the December versus clinical prediction.” Towards the end 5, 2005 New Yorker.
165 This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or its and their affiliates are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. None of Deloitte Touche Tohmatsu Limited, its member firms, or its and their respective affiliates shall be responsible for any loss whatso- ever sustained by any person who relies on this publication.
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