Attracting Talent in Spikes and Firms

If you want to create wealth, find and address scarcity. Chris Anderson proclaims the economics of abundance, but abundance in certain areas inevitably generates relative scarcity in others.

Emerging Scarcities
I have posted in the past about the growing relative scarcity of attention. This is a key factor in the growing power of customers and their ability to squeeze margins of firms, especially in times of great abundance. There’s another scarcity that will also squeeze margins of firms, at least in the near-term. That’s the relative scarcity of talent. In times of great abundance, the ability to stand apart from all the others becomes increasingly valuable and this in turn depends upon the ability to mobilize talent. In more and more domains, talent is capturing growing premiums. Between pressure from customers and talent, corporations will find it increasingly challenging to capture economic value in times of great abundance because they have not yet mastered the techniques required to address the new scarcities.

These two scarcities are related at multiple levels. As just one example, the growing power of customers resulting from the relative scarcity of attention increases the need for sustained innovation which in turn increases the relative value of talent.

Talent in Spikes
Richard Florida recently did a great post summarizing the role of talent in driving regional economic development (by all means, don’t miss the study by Edward Glaeser on “Cities, Information and Economic Growth" cited in Richard’s post). Reading this account, I couldn’t help but think about the role of talent in driving value creation for the firm. One of the most important observations Richard makes is:

While most economists . . . continue to conceptualize human capital as a “stock” or “endowment” of a given place – either you have it or you don’t. But the reality is that human capital is a flow. The key question thus becomes: What factors shape that flow and determine the divergent levels of human capital across regions?

Human capital, or talent, is definitely not a stock, especially in rapidly changing times. Talent flows readily across geographies (immigration laws permitting – for a fascinating comparison of trends in immigration laws in seven high income countries, check out this report and then this discussion of "brain drain" from rural to metropolitan areas in the US), attracted by opportunities to realize greater economic value. Talent similarly flows across institutional boundaries.

But talent also flows in the sense of more rapidly evolving and developing in times of great change. Today’s talent is tomorrow’s incompetence, unless the talent is continually refreshed. People with talent generally realize this. They increasingly seek out geographic and institutional homes that will help them to refresh their talent more rapidly. This is one of the reasons that the spikes – geographic concentrations of economic activity, innovation and talent - Richard talks about will become more rather than less important. They provide fertile ground for refreshing talent more rapidly.

Talent in Firms
Firms are a different matter. They may or may not do a good job of refreshing talent. There’s a reason that people keep citing General Electric for its talent development practices – most corporations are not very good at it. Unfortunately, certain management mindsets tend to limit the success of many firms. I’ll briefly mention five of these mindsets:

Attract and retain vs. develop. When management focuses on talent, it tends to emphasize the challenges of attracting and retaining talent, while paying much less attention to the need to develop talent aggressively. Unfortunately, many executives view the war for talent as being won upon acceptance of offers to join the firm. From my experience, the firms that focus on developing talent more rapidly do the best of attracting and retaining talent. Word spreads and talented individuals seek out these companies. Once in the firm, these individuals are less vulnerable to offers from other firms because they realize that their value will increase more rapidly if they stay with the firm that develops them more rapidly.

Training vs. learning. When companies do focus on developing talent, they often emphasize formal training programs. While these programs certainly have a role in talent development, they pale in comparison to the rapid learning that occurs when employees are put in situations that challenge them to get better faster on a daily basis. Toyota does a remarkable job of this, expecting all of their employees, especially the front-line factory workers, to push the boundaries of performance. For Toyota, talent is far from a static concept. It is continually refreshed by defining and tackling performance issues throughout the company.

Attract and retain vs. access and motivate. Talent strategies of companies often focus too narrowly on the talent that resides within the enterprise. One of my favorite quotes is from Bill Joy, a founder of Sun, who noted that “there are always more smart people outside your company than within it.” Few companies make a systematic effort to map the relevant talent that exists outside the company. Even fewer companies develop effective strategies to access and motivate that talent through networks of relationships, including positioning in relevant spikes around the world. Internal talent will develop more rapidly when it interacts with relevant talent outside the firm through these networks. Don’t just focus on developing your own talent. Find ways to accelerate talent development in your business partners as well by defining challenging performance targets and then mobilizing your own talent to help these business partners become successful. Companies
that do this well will find leading companies approaching them to become business partners, creating a virtuous cycle in talent development.

Automation vs. amplification. Too many companies have concentrated their IT investment on initiatives to automate processes – removing people wherever possible – rather than exploring how IT might be better used to amplify the talent of the people left. New generations of collaboration tools, supported by new IT architectures, could help firms to more rapidly develop talent. Flexible e-learning platforms and collaboration on demand platforms represent just some of the opportunities available to harness IT for talent development.

Strategic importance of growth. Growth offers many benefits to the firm, but one of the most overlooked is the value in terms of talent development. I have written about this here and here. Talent develops a lot more rapidly when firms grow rapidly because individuals are more frequently placed in new and challenging roles relative to individuals working with lower growth firms. A low growth firm is often vulnerable to talent erosion.

At the most fundamental level, the rationale for the firm is shifting. As JSB and I have written, the rationale for the firm articulated by Ronald Coase back in the 1930s – that firms exist to economize on transaction costs - is diminishing in importance as continued innovation in IT systematically drives down transaction costs. In its place, we are seeing a new rationale for the firm emerge – firms exist to accelerate talent development. This is increasingly the reason why people choose to affiliate with firms. They believe they can get better faster by working with others within the firm, as well as with others across firms, through the privileged relationships built by the firm. If firms can’t find ways to deliver on this promise, talent will exit and Tom Malone’s e-lance economy will flourish.

In a perverse way, geographic spikes and firms face opposite challenges. As spikes form and achieve critical mass, network effects begin to take over and a virtuous cycle emerges – the more people that participate in the spike, the more valuable the spike becomes as a source of talent development. In contrast, the larger the firm becomes, the more difficult it is to sustain high growth rates and the more likely that inertial forces will take over and limit the potential for talent development, setting in motion a vicious cycle – talent tends to leave to seek out more hospitable homes and growth slows even further. The winners in the global economy will be the firms that can find ways to break this vicious cycle and harness network effects for talent development both within and across firms.

Posted by John Hagel on November 29, 2006 | Permalink
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Comments

Hi --

What is in-play is a transformation of the firm from TCE (transaction-cost economics) to the KBV (knowledge-based view.)

In KBV the firm is a unique social construct. It is a set of potent networks that create and monetize knowledge. These value networks are irreproducible and sustain mighty competitiveness.

As noted, with the KBV, talent and leadership development is intensely collaborative and flow centered. This usurps traditional talent and leadership development models, measures, offerings and their proponents. It unnerves the typical command-and-control TCE mangers. KBV talent methods include conversation, network analysis, value visualization, complexity science, individuated social media and knowledge markets.

The leadership goal for KBV talent is mastery of distributed phronesis -- wisdom in determining ends and the means of attaining them.