Mediocre people occupying senior leadership positions is one of the chief reasons for the fiasco and humiliation that organizations like Enron and WorldCom faced. The practice of recruiting average people at the top is omnipresent and often goes unnoticed until the results begin to surface, which is typically too late for any intervention.
Smart people decisions matter a lot in achieving profitability. Research indicates that a return on average human asset of 5% is typical in many industries. However, a senior executive selection of 2 standard deviations below the average yields -15% return on asset. An executive selection with 2 standard deviations above average causes +25% return, which is 5 times the average. Increased investment in finding and hiring the best senior executives fetches returns to the magnitude of 1000%.
Attracting and selecting the best people for senior leadership positions isn’t a small feat. The future of organizations depend on it. However, the Human Resource Management function at most organizations fail in getting the right people at the top. The decision to hire at the senior positions necessitates deliberate effort and commitment. Identification and onboarding of right people at these levels can create a substantial competitive advantage and profitability for the organizations. Leading companies invest a lot of time in these decisions and conduct careful assessment of a pool of candidates. They evaluate the opportunity costs associated with onboarding wrong people at critical senior positions and those associated with performance that could not get delivered due to selection of incompetent individual(s).
To prevent the disasters caused by psychological barriers and biases and to onboard competent executives, organizations need to religiously follow these 8 guiding principles:
- Outline requirements
- Prepare a large candidate pool
- Benchmark rationally
- Appraise systematically
- Overcome resistance in decision making
- Keep the evaluation team small
- Finalize the deal in time
- Support assimilation of new hires
Let’s discuss the 4 guiding principles in detail, for now.
Defining the job requirements clearly before initiating the executive search process is an imperative for finding and appointing the right persons at senior positions. The board should take out time to hold meetings to sift through the organizational strategic objectives and prioritized initiatives. The outcome of these sessions help the recruiters develop a list of critical skills and behavioral competencies.
Prepare a large candidate pool
Restricting executive search to specific geographies or industries limits the chances of finding the most suitable candidate(s). For instance, to hire the country head for a computer hardware firm in Asia, a company may identify all C-level executives at specific large hardware and software providers in the region; target former top executives of all relevant companies; consider senior executives outside the hardware sector; and shortlist about 10-12 top candidates to be interviewed.
Having a fair comparison of shortlisted candidates is possible by creating consistent benchmarks. This helps all the appraisers to follow a defined approach and rating criteria. External and internal candidates should be assessed without any biasness. Likewise, comparison of soft skills—which are obvious to internal candidates but unknown to outsiders—should be done on equal footing.
After shortlisting potential candidates, it’s time to evaluate their suitability on the required competencies through rigorous interviews using behavioral-based questions. The evaluation should constitute in-depth reference checking—through the nominees as well as those who have worked with the candidates in the past—internally or through executive search firms.
Interested in learning more about the other guiding principles critical for selection of competent senior executives? You can download an editable PowerPoint presentation on Executive Selection here on the Flevy documents marketplace.
Are you a Management Consultant?
Mediocre people occupying senior Leadership positions is one of the chief reasons for the fiasco and humiliation that organizations like Enron and WorldCom faced. The practice of recruiting average people at the top is omnipresent and often goes unnoticed until the results begin to surface, which is typically too late for any intervention.
Smart people decisions matter a lot in achieving profitability. Research indicates that a return on average human asset of 5% is typical in many industries. However, a senior executive selection of 2 standard deviations below the average yields -15% return on asset. An executive selection with 2 standard deviations above average causes 25+% return, which is 5 times the average. Increased investment in finding and hiring the best senior executives fetches returns to the magnitude of 1000%.
Attracting and selecting the best people for senior leadership positions isn’t a small feat. The future of organizations depend on it. However, not too many organizations succeed in getting the right people at the top. The reason for this failure is attributed predominantly to 3 critical obstacles that hinder in making the right recruitment decisions at such a crucial level. Wrong Executive Selection decisions due to these 3 obstacles bring about losses and negative returns:
- Obstacle of Rarity
- Obstacle of the Unknown
- Obstacle of Psychological Traps
Let’s talk about these obstacles in a bit of detail.
Obstacle of Rarity
The first barrier to finding outstanding executives for senior positions is their scarcity, as excellent executives are a rare breed. Sophisticated skills that make an executive standout aren’t common. They are distributed in a given sample.
Outstanding people perform at a much higher level than that of their peers, particularly at the top positions. A blue-collar executive with 1 standard deviation above the mean translates to 20% more productive individual than an average executive. With increasing complexity of job, the difference between the top performer and an average performer increases considerably.
Appointments at the senior positions do not go without assessment errors, which can prove to be extremely costly. Even an accuracy level of 90% in executive assessment isn’t satisfactory. This results in a number of mistakenly categorized top performers and rejection of outstanding candidates.
Obstacle of the Unknown
Another barrier to the Executive Selection process is the predictive assessment of candidates on the skills and attributes required and the actual delivery capabilities of the individuals. It is difficult to assess the unknown.
Competencies at the junior levels are easier to define, but it gets difficult to pinpoint the skills required at the top level. The skills required at the top keeps on changing due to the evolving political, technological and economic landscape. The skills required today get obsolete over time. In case the exact requirements for a position are fully known, it isn’t certain whether a candidate meets the requirements in their entirety.
Accurate assessment of the candidates’ behavior and competencies is difficult but worth investing efforts and resources. “Soft” skills—e.g., leading people, coaching and developing teams, teamwork, and managing Business Transformation—are what differentiate the senior leaders, but gauging these skills necessitates thorough evaluation and considerable time, which is difficult at senior levels.
Obstacle of Psychological Traps
A number of psychological traps are associated with cognitive biases in humans that hinder the decision making abilities in people and incapacitate the hiring process. 8 types of psychological traps are most common in individuals:
- Assuming incorrectly
- Impulsive judgment based on first impressions
- Discounting the warning signs
- Covering mistakes
- Bonding with familiarity
- Emotional anchoring
- Tendency to follow the majority
Interested in learning more about the 3 critical obstacles that hinder right Executive Selection? You can download an editable PowerPoint presentation on Executive Selection here on the Flevy documents marketplace.
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Traditional Talent Management practices fail to meet the high-potential talent requirements imperative to compete in the digital world today. In fact, they disappoint the key talent available in the market.
A 2016 Digital Business research by MIT Sloan Management Review and Deloitte on 3700+ executives reveals attracting and retaining talent as the most pressing concern for organizations large or small. The study indicates that organizations that are still using traditional approaches to manage Talent face a number of pressing challenges, including:
- Building new competencies within limited resources.
- Alignment of culture, strategic initiatives, human capital, and hierarchies with organizational objectives.
- Attracting, selecting, and retaining key talent.
- Creating robust Performance Management, compensation, and benefits systems.
- Finding and developing talent with critical capabilities—such as forward thinking, transformative vision, and change focus—alongside technical skills.
- Providing opportunities that require digital skills, to attract and keep critical Talent engaged in the organization.
One of the findings of the 2016 digital business study demonstrate that it’s both the younger as well as middle management people who tend to look elsewhere in case they don’t find opportunities to develop digital skills in their existing organizations. Such results call for senior management to identify, evaluate, and implement more immediate and appropriate digital technologies methods to attract and retain key talent. Leading organizations are now incorporating these Talent Transformation efforts into their Digital Transformation programs.
Research on 3700 plus Digital-native respondents further reveals leading organizations to be using a combination of 2 distinct models to manage their Talent:
- Talent Markets for Contractors
- Digital Tools for Employees
Let’s discuss the first approach to Talent Management in detail, for now.
Talent Markets for Contractors
Acquisition of right talent necessitates fostering linkages with on-demand talent markets for the timely availability of required talent. Many organizations seek help from on-demand Talent Markets to attract and sustain talent in the digital business environment. These organizations pursue a flexible recruitment model using digital platforms to attract skilled contractors and consultants. Digital talent markets can be expanded or contracted depending on the quantity of work and skillsets required.
Digital talent markets can coordinate the work of full-time employees as well as cover live activities of contractors more nimbly and reliably. Digital platforms offer superior talent markets to assess and manage large talent pool of contractors. A few organizations are experimenting with developing their own on-demand talent markets while some have cooperated with other organizations to share talent markets. It’s up to senior management to decide if they want to leverage existing on-demand talent markets or cultivate their own to ensure availability of required skills when needed. Talent markets can be nurtured using 3 best practices:
- Manage on-demand talent markets as a community
- Strike a balance between full-time and part-time talent
- Create an environment where the best people want to work
Manage on-demand talent markets as a community
To make the availability of required key talent certain:
- On-demand talent markets should be considered strategic resources and cultivated carefully with future talent requirements in mind.
- Companies should devote resources and efforts to develop their own talent pool.
Strike a balance between full-time and part-time talent
Talent markets are meant to manage freelancers. However, a few organizations have also begun collaborating with them and deploying their full-time employees to project work that is critical to build new competences. A few considerations in this regard include:
- Companies need to strike an equilibrium between full-time and part-time talent.
- Some people prefer full-time employment while others fancy flexibility or work from home options.
- Some workforce providers even offer services of retired people with expert skills, who have proved to be a valuable asset.
- Firms can choose on-demand workforce providers to have full-time employees to maintain a steady employee base, or pick part-time contractors to handle workload surges.
Create an environment where the best people want to work
Setting up the right environment is central to attracting and retaining the best flexible, on-demand talent. A majority of companies consider freelancers or independent contractors inferior to their permanent employees. Organizations that want to attract great talent should think of contractors as valuable resources and treat them as such. To get top talent, organizations need to:
- Nurture an Organizational Culture conducive to support on-demand workers.
- Devise remuneration and reward systems that value contractors and full-time employees equally.
- Create an atmosphere that offers attractive work experiences for the employees.
- Deploy people on interesting projects and allow them to experience job rotations to improve their skills sets, problem solving abilities, cross-departmental team collaboration, and improve their engagement levels.
Interested in learning more about the 2 distinct approaches to Talent Management through Digital Transformation? You can download an editable PowerPoint on Digital Transformation: Talent Management here on the Flevy documents marketplace.
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Enterprises worldwide face problems selecting, staffing, developing, compensating, motivating, and sustaining their key talent. Building a sustainable Talent pipeline is quite strenuous even for large multinationals.
Replicating best practices from somewhere and applying them alone isn’t sufficient for organizations to build a Talent pipeline and achieve Competitive Advantage. This warrants overcoming arduous challenges associated with this digital age, including:
- Adjusting to varying dynamics in global markets
- Handling the expectations of varied customer segments in different geographies
- Managing the preferences of key Talent
- Acquiring new technologies
- Building novel capabilities
- Achieving Operational Excellence by streamlining operations and improving processes
- Exploring new markets
- Devising strategies to attract, select, develop, assess, and reward top Talent.
Developing Talent Management practices helps the organizations build and retain talented people available in the job market. The term was first used by McKinsey & Company in 1997, and it pertains to planning and managing strategic Human Capital through activities, i.e. attracting, selecting, developing, evaluating, rewarding, and retaining key people.
Executives use diverse Talent Management strategies and career pathways based on various departments, levels, and roles in their Talent pool. Multi-year research on Talent Management practices conducted by an international team of researchers from INSEAD, Cornell, Cambridge, and Tillburg universities studied 33 multi-national corporations, headquartered in 11 countries. The study revealed that successful Human Capital practitioners and workforce planners adopted 6 core principles. These principles act as the 6 pillars to effective Talent Management implementation:
- Alignment with Corporate Strategy
- Consistency of Talent Management Practices
- Integration with Corporate Culture
- Involvement of Leadership
- Global Strategy with Localization
- Branding and Differentiation
Let’s discuss the first 3 pillars in detail, for now.
Alignment with Corporate Strategy
Integrating Talent Management with Corporate Strategy is imperative as the need for future Talent depends on the company’s long-term strategy. Corporate Strategy should guide the identification of Talent required to accomplish organizational goals, since it’s the right Talent that drives the key strategic initiatives rather than strategic planning.
For example, GE’s Talent Management practices have been a great assistance in implementing their strategic initiatives. The organization regards its Talent Management system as their most potent execution tool and has integrated TM processes into their strategic planning process. To sustain its image as an innovation leader, GE targets technical skills as a priority in its annual Strategic Planning sessions. Individual business units lay out their business as well as the Human Capital objectives in GE’s annual strategic planning sessions. Significant time is spent on reviewing its Innovation pipeline, its engineering function’s structure, and Talent requirements. To achieve its vision, GE promotes more engineers in its senior management than its rivals.
Consistency of Talent Management Practices
Talent Management practices must be consistent and synchronous with each other. It is critical not only to invest in advancing the careers of key Talent but also to invest in processes to empower, compensate, and retain them. Human Capital practitioners utilize various tools to ensure consistency of Talent Management practices, including Human Resources satisfaction surveys and qualitative and quantitative data on TM practices implementation.
For example, the success of Siemens is based on consistent monitoring of its systems, processes, and key performance metrics across its subsidiaries. Every element of Human Capital Management is connected, continuously assessed, and linked to rewards. This goes from recruitment of graduates each year, to their orientation, to mentoring and development, to performance evaluation and management, and compensation and benefits.
Integration with Corporate Culture
Corporate culture is regarded as important as vision and mission by renowned global organizations. These companies hold their core values and behavioral standards very high and promote them among their employees through coaching and mentoring. They strive to embed this into their hiring, leadership development, performance management, remuneration, and reward processes / programs. So much so that they consider cultural adaptability a crucial element of their recruitment process—as personality traits and mindsets are hard to develop than technical skills—and evaluate applicants’ behaviors and values rigorously.
For example, among other leading companies, IBM has a special emphasis on values while selecting and promoting people. To ensure consistent values across the board, it organizes regular values jam sessions and employee health index surveys. These sessions encourage open communication and debate on values and organizational culture and their importance among employees.
Interested in learning more about the other pillars of Talent Management, the various approaches to TM? You can download an editable PowerPoint on 6 Pillars of Talent Management here on the Flevy documents marketplace.