Characteristics of Effective Leadership: Talent Selection

In a previous newsletter, we described WJM Associates' Leadership Point-of-View by highlighting seven characteristics of effective leadership: Authenticity; Decisiveness; Strategic Acumen; Vision; Humility; Talent Selection; and, Coaching & Feedback. Subsequent newsletters featured an article written by a WJM Faculty Member on each of the individual characteristics. In this issue we address the sixth of the seven: Talent Selection.

Its official...the War for Talent is over! Or, is it? The current global economic downturn has created a false sense of security regarding executive turnover and availability of high performing talent.

In February 2009, Personnel Decisions International published findings from its annual "Pulse on Leaders" survey conducted from December 2008 to January 2009. The study asked leaders of 500 global organizations to rank their top eight (8) business challenges. Not surprising in this economic climate, 83% cited "financial pressure to cut costs" followed by 54% citing "rapid market decline" as the top business challenges they are facing. What is surprising, however, is that given the need to refocus business initiatives and to re-energize individual and collective effort around those initiatives (a function of Leadership), the challenge "loss of leaders in key areas or insufficient talent to quickly adapt to change", which ranked first in each of the previous three years' surveys, dropped to dead last on the list, cited by only 5% of the respondents.

Based on this report, one can only assume that business leaders may be under the impression that there is a glut of top talent readily available on the market. They may think that the business can easily replace anyone. In that mindset, talent management loses its focus and employees are commoditized. But, the loss of intellectual capital and leadership skills so critical to business success has severe quantifiable impact on an organization's financial success Research and indexes kept by Hewitt, McKinsey, Watson Wyatt, and The Hackett Group amongst others have shown that mindset as a road to failure and supports the business case for a rigorous Talent Selection and Management process.

Immediate, short-term thinking is important to recovery, but so is clearly thinking about the future. High performance organizations are in a constant war to recruit and retain talented executives. Although massive lay-offs and bankruptcies may have produced a talent glut in certain industry sectors (vacancies in the financial sector were down 65% last year according to Morgan McKinley, a leading financial executive recruiting firm), this is not true in all. Many senior executives in other sectors are reporting a shortage of skills needed to put new processes and structures in place to direct the organization's response to the economic situation and lead it into economic recovery. But the issue isn't simply about recruiting; it's about putting in place a robust, integrated approach to Talent Management.

Talent Management is complex. It is not a simple application of the law of supply and demand. Turnover costs are real (some experts put the cost of turnover at 150% of the compensation of the executive to be replaced factoring in time/cost to hire and the cost/productivity void created when business and remaining executives are stressed to fill the role on an interim basis). The crux of the issue isn't simply about selection of talent...it's about the CEO being committed to building not buying. ..it's about bench-strength and filling the pipeline with home-grown employees who can step up to fill pivotal roles at times of critical need.

In the not too distant past, HR/Leadership Development Executives had difficulty being heard in the Board Room on this subject. Management Development was too often viewed as "touchy/feely" and a cost factor as opposed to a value driver. In the past ten years, this mindset has been reversed in high performance organizations as metrics and indexes have directly correlated profitability to well-executed talent management processes. According to Watson Wyatt, "Companies with superior human capital management practices create more than double the shareholder value than companies with average human capital management practices" (Watson Wyatt Human Capital Index Study 2008).

Last year, The Human Capital Index Study of over 1000 firms found that "Organizations that apply talent management practices demonstrate higher financial performance compared to industry peers". In fact, that impact has been validated in a similar study by Hewitt of 1000 organizations with a total of 20 million employees applying The Talent Quotient Factor (TQ). The TQ is a human capital metric that quantifies the financial impact of pivotal employees on an organization's business results. The study found that for the average Fortune 500 Company with about $10 billion in sales, a ten-point improvement in TQ retained could improve a company's Cash Flow Return On Investment by 0.7 to 1.6 percentage points on average over three years. That equates to approximately $70 million to $160 million in cash flow improvement.

What can you as a Leader do to implement an integrated approach to building talent? You need to implement a rigorous, Top-driven integrated approach to Talent Management that includes:

1. A competency-based selection process for New Hires and promotions based upon clearly defined Leader skills and competencies linked to current and future needs;
2. A talent management process that allows you to assess and develop talent in critical roles through periodic review of bench strength and focused, custom-personal development plans for key managers & professionals;
3. Metrics to measure how well the system is working and impacting business results;
4. A variable pay component tied to achievement of talent development objectives.

Each organization's needs, priorities, and focus are different. There is no one-size fits all, off-the-shelf program to build organizational talent management capability. For information about how WJM Associates, Inc can help you to develop and implement a sustainable Talent Management process customized to your needs, call Scott Litchfield, SVP Sales at 212.972.7400.

WJM Faculty Member Paul Zapka has over 30 years of human resource and business improvement leadership experience in leading companies such as Unilever Foods and Tomra North America.