Realizing the Value of People Management

Realizing the Value of People Management

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Realizing the Value of People Management

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  • The People Advantage Triad

    Taking into account the findings of our interviews with leading business and HR executives across the globe, we focused on three of the outstanding six topics identified above: leadership development, talent management, and performance management and rewards. These three topics encompass more (and more varied) people-management activities, thus offering companies more levers for boosting their performance advantage. Our quantitative survey results confirmed the importance of these topics, revealing significant differences in the concrete actions taken by high- versus low-performing companies. (See Exhibit 3.)

    Leadership: Making People Development Part of the Job Description

    High-performing companies recognize that leadership is about more than just steering the business. It’s about nurturing, energizing, and challenging the people who help make it run—and who keep it competitive. To sustain success, a company needs leaders who care about and develop their people—leaders who understand that building a talent pipeline should extend beyond successors to top management to include everyone whose contributions are essential to the company’s future.

    Specifically, what do high-performing companies do differently?

    • They are 1.5 times more likely to have in place a leadership model that describes expected contributions and behavior and that is grounded in company values. Such models go beyond clichés, offering actionable guidelines that inspire leaders—and that leaders aspire to—daily.

    • Their leadership model guides talent selection and promotion decisions—1.7 times as often as low-performing companies. In high-performing companies, the performance management system is tied to the company’s business strategy and includes leadership objectives and talent development activities. Managers are thus promoted on the basis of their individual performance as well as their people-development activities—both of which are linked to company strategy and objectives.

    • They make leadership planning an integral part of their people-planning efforts 2.2 times as often as low-performing companies. Ensuring a leadership pipeline is seen as an ongoing practice and not an ad hoc effort. High-performing companies embed their leadership planning in their comprehensive strategic workforce planning. They divide their entire workforce, from leaders to entry-level personnel, into job families and conduct long-term supply-and-demand analysis, which they use to plan concrete actions for their recruitment and training and development efforts.

    • They make leaders’ compensation and career advancement dependent in part on leaders’ people-development efforts—3.4 times as often as low-performing companies do. High-performing companies do not relegate people development to the HR function. Instead, they view their leaders as the frontline developers of talent. Leaders are best positioned to see people in action and to recognize, shape, and inspire potential talent. They are also best positioned to cultivate in their direct reports the kind of leadership traits valued by the company (and those necessary for success in the twenty-first century, such as the adaptive leadership qualities we’ve observed in today’s best-run companies). As Jordi Gaju, chief development officer at the Chilean retailer Falabella, says, “Every boss must become a human resources manager.” To make sure their leaders embrace this responsibility, high-performing companies link career advancement, performance bonuses, and other rewards to leaders’ people-development activities.

    Talent Management: Proactive, with a Broad Development Repertoire
    Excellence in one critical HR area won’t compensate for shortcomings in another. Having an attractive employer brand might help you nab the talent, but it’s not enough to help you hold on to it. High-performing companies understand this well; they distinguish themselves from the rest in the sheer extent of their talent-development efforts. (For an example of the multifaceted approach to talent management, see “How L’Oréal Is Building a Talent Advantage.”)

    How L’Oréal Is Building a Talent Advantage

    With 27 global brands and €20.3 billion in 2011 sales, L’Oréal Group dominates the global beauty-products market. And it has every intention of remaining number one, with a growth target for the next decade of more than 1 billion new customers.

    The linchpin of its growth strategy is building what the company calls its “talent advantage.” L’Oréal has adopted a strategic approach to developing its talent portfolio and allocating resources. Its purpose: to support growth by ensuring a steady supply of leaders and key competencies in critical geographies.

    Using quantitative models, HR and business leaders analyze anticipated business needs—such as sources of growth or expanded production—to identify the company’s future talent needs. They also examine HR’s needs; for example, how much onboarding will be required as a result of recruitment efforts? Projecting out five years, leaders then calculate the number of people needed by geography, function, and managerial level. The modeling pinpoints oversupplies and gaps, enabling L’Oréal to take preventive action. For example, it allows the company to modulate the career pace of certain employee groups early enough to avoid frustrating talent in the event of a slowdown—or to accelerate it to fill any talent or experience gaps that might arise. HR also projects the costs and potential return on investment of various scenarios. “Talent planning helps us to strategize growth and to support our ongoing transformation,” says Jean-Claude Le Grand, global senior vice president of executive talent.

    This supply-and-demand methodology helps L’Oréal to efficiently leverage its multifaceted talent system, which is designed to boost executive talent development. The system involves the following:

    • Incentivizing leaders to identify and develop talent on their team. This measure helps embed the talent culture while promoting mentoring.

    • Motivating talent to migrate to strategic, high-growth zones by linking career development opportunities to these areas, through proactive rotation and international mobility.

    • Appointing talent managers in critical markets to reinforce local recruiting, promote the employer brand locally, and optimize onboarding. This initiative is also designed to minimize the high turnover common in emerging markets.

    • Establishing talent incubators to help feed the pipeline. Through special yearlong assignments, talent development is accelerated, and people are placed in management roles quickly.

    • Enhancing career visibility and leadership expectations by establishing clear, uniform definitions of talent and performance standards.

    Among its many benefits, L’Oréal’s talent-planning program reinforces the business-HR partnership by creating a common understanding of the company’s major business priorities and their HR implications. As Jérôme Tixier, group HR director, observes, “The focus and involvement of our managers and HR is what makes our company a true talent builder.”

    They know, for example, that global talent risk is soaring, and they therefore realize the importance of building—rather than just “buying”—talent. As we discussed in the December 2011 BCG article “Make Talent, Not War,” relying too heavily on external talent often leads to bidding contests that can diminish the quality of new hires, yield bad matches, increase turnover, and raise expenses. Mindful of the urgency of the talent shortage, high-performing companies also accelerate critical activities wherever possible.

    According to our survey, high-performing companies capitalize on a broad array of strategies, initiatives, methodologies, and programs to ensure they have the talent they need, now and in the future. These efforts include the following:

    • They are 1.8 times as likely as low-performing companies to try to attract international employees. High-performing companies recognize the strategic and practical importance of diversifying the talent base. As companies’ operations and customer bases each become more globalized, local talent that understands local markets will give companies greater long-term competitive advantage. Furthermore, high-performing companies’ interest in international talent applies across the experience spectrum. These companies are 40 percent more active in managing an international talent pool for senior leaders.

    • High-performing companies are 1.4 to 2.7 times more likely to provide development programs for “emerging” as well as “high” potentials. They actively work to leverage and retain existing talent at both ends of the talent development chain. They systematically define development requirements for high-potential employees; for example, they maintain a list of critical assignments appropriate for the development of high potentials much more often than low-performing companies do. High-performing companies also define talent more broadly—not just in identifying emerging potentials but also in seeking and nurturing diverse, complementary thinkers and those with deep functional expertise, rather than just management track candidates.

    • High-performing companies are 1.7 to 2.1 times more likely to offer career advancement opportunities with clearly defined career tracks. High-performing companies provide a broad menu of horizontal as well as vertical opportunities. Doing so keeps employees satisfied and professionally fulfilled while also helping companies retain the full range of talent necessary for enterprise success.

    • High-performing companies are 2.9 times as often better than their competition in offering a change of work location. Moreover, the number-one reason for workforce relocation for high-performing companies is personal development—unlike low-performing companies, which use relocation primarily to fill local knowledge gaps. High-performing companies actively foster employees’ individual development, and relocation and job rotation are among the development opportunities they provide. They recognize that beyond job stability and a good salary, today’s employee seeks a fulfilling work experience as well as the opportunity for personal growth. In particular, those employees from the so-called Millennial generation have greater expectations and are more willing to leave employers that can’t meet them. As the vice president of HR at a major media company says, “We believe that creating a fast-paced, stimulating environment that fosters individuals’ growth is a much more engaging environment to work in than one that is purely profit-oriented.”

    Together, these quantified findings highlight what employee surveys tell us: a variety of enriching talent-management programs and practices are the main reason people stay with their employers—compensation alone won’t do.

    See Global Talent Risk – Seven Responses, a report published by the World Economic Forum in collaboration with BCG in 2011.
    “Make Talent, Not War,” BCG article, December 2011; derived from Creating People Advantage 2011: Time to Act—Certainties in Uncertain Times, BCG report, September 2011.
    Performance Management and Rewards: Clear Norms, More Precise Incentives

    Many high-performing companies link managers’ bonuses or other incentives with business KPIs to ensure managers are aligned with company strategy and goals. But these companies also know that performance management goes beyond ensuring employee alignment. High-performing companies understand the importance of a well-constructed, balanced performance-management system in motivating and developing employees.

    To foster—and sustain—excellent employee performance, companies need to create the right incentives. Developing a culture of meritocracy is key. High-performing companies recognize the value of fair, transparent measurement and rewards systems in promoting such a culture.

    • They have clear norms that drive performance—2.6 times as often as low-performing companies. Employees understand clearly what constitutes superior performance and, just as clearly, what is unacceptable. A performance management system that is overly complicated or obscure, however, can hamper employee engagement. Organizations that don’t clarify unacceptable performance—and then surprise employees with repercussions—may engender ill will and risk tarnishing the company’s reputation. And those that don’t clearly explain their rewards system undermine workforce cohesiveness and even risk losing valuable talent.

    • High-performing companies have global performance-management standards in place 2.2 times as often as low-performing ones. Although many corporate HR departments provide guidance on performance standards throughout their organizations, units continue to follow localized standards at most companies. High-performing companies use state-of-the-art performance-management methods and systems and ensure that these are adopted on a global basis.

    In all the activities we studied, high-performing companies reward behavior, not just results, to a greater degree than low-performing companies. And while they put greater stock in performance management systems, they do not get mired in process. They avoid bureaucratic or protracted review processes that can actually allow problems to worsen. High-performing companies emphasize feedback and open discussion, as well as more frequent, often informal, reviews. These have the added benefit of motivating employees.