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Talent Management in an Economic Crisis : A Paradigm Shift ?
published by , on 26/08/2009

We are living through events most of us thought we would never see. The financial and economic crisis has profound effects on every world citizen. It becomes clear that ‘business as usual’ will probably not return. In all disciplines a rethinking of the foundations of their models is going on. Although Human Resources won’t escape this exercise, very little attention is given to this at this moment. The ‘Mc Kinsey’s Leaders in Crisis Global Survey Results’ (08/09) and data from other surveys one can find on the Human Capital site, point out that HR is using the crisis to reposition its role with titles such as “Global Economic Crisis Has Made Integrated  Talent Management A Business Priority” .

According to a recent Watson Wyatt study (05/09), the key questions that keep HR Managers awake  are :
• What can we do to motivate and retain the categories of employees that are most critical to us?
• How do we continue to develop, engage, and retain our top performers and leaders in this season of uncertainty?
• How do we preemptively spot and address managerial problems before they lead to productivity problems?
• How do we conduct effective succession planning, given retirements and outplacement, and ensure a strong, diverse leadership pipeline for the future?
Notwithstanding the importance of these questions, they show that human resources is trying to put old wine in new sacs.
The self defined HR  focus is in sharp contrast with how CEO’s experience the HR contribution. Nine out of ten chief executives believe people issues are at the heart of the problem (Management Issues, 04/09). A very minority of CEO’s experience ‘help’ from HR with these people issues. The answers HR is providing on the above questions is only of partial help in executing the company’s strategy.
Sullivan from The Economist (11/08) even predicts that the HR function will be the biggest loser in the crisis : “The “war for talent”, which companies have fought tooth and nail, will be over in 2009, neither lost nor won: there will be a ceasefire brought on by lack of funds and exhaustion of the troops. An old truth will be whispered by the brave: most workers are not terribly talented and most of them don’t need to be, as most jobs don’t require it. In 2009 a more elitist shift will occur: companies will worry about the performance of those at the top of the pyramid, while everyone else will be managed like a commodity. “Talent” will be a word we wave goodbye to. In 2009 the word “staff” will make a comeback, as will “headcount”.  In this new world the HR director might just cling on to his title, but his job will be downgraded to personnel and in particular to payroll.”

Bassi, on the other hand,  from the Human Capital Lab (06/09) argues that “Organizations cannot compete effectively – at least for long – without aligning their people with results. And yet the decision-making processes for optimizing the people side of the business remains rudimentary in most organizations – often amounting to little more than guesswork and gut feel. At a minimum, this state of affairs results in lost opportunities: a failure to attract, motivate, and retain a talented and diverse workforce; unnecessary escalation in health care costs; lackluster sales; or disappointing result from mergers and acquisitions.”  HR-professionals are eager to try to find solutions for attracting and retaining people, but often neglect the systems in which people work.
My recent talks with some CEO’s confirm that they expect human resources to move towards the centre stage in organizational strategy and businesses development. They are also convinced that they  need to move away from the traditional HR centric approaches as the crisis grows. However, it is NOT the human resources function that is doing the “thinking out-of-the-box. New approaches in Human Resources will probably be introduced by CEO’s, senior managers, financial managers and risk managers.

A good example is what happened at the Itau Unibanco (financial) Group in Brazil. It is Brazil’s second-largest private-sector bank and one of Latin America’s most profitable institutions. The bank has been growing up to 25 % a year for more than ten years. Its stock price increased by 13 % in the last year. Roberto Setubal, the companies CEO recently gave an extensive interview which has been published in the Mc Kinsey Quarterly (06/09). Where did he focus on that is relevant to HR ?
Decision making authority & risk management

A first point he looked at were the systems and structures in which their people work, ensuring that each role had role unique accountabilities and decision authorities, so that it became clear what the added value was of each individual contributor. Most classical HR approaches keep focusing on clarifying tasks through function descriptions, layers and span of controls, without looking at the real accountability, nor decision making authority.
Even business process reengineering focuses on activities in every professional discipline. They do look at decision making, but are putting decision making authorities in procedures and neglect the process through which decisions are negotiated and agreed upon. Setubal describes what led him to the conclusion the a higher-quality decision process was the only way to prepare themselves for a more demanding future : “Because the management model hadn’t changed as the company grew bigger and bigger, I ended up having more than 20 direct reports, creating an impossible situation. At the same meeting, we could discuss big issues, like a large investment for expanding our operations, and small ones, such as very basic product problems. What we really needed was to delegate decisions and create forums for different types of issues—forums with the right people present and with enough time for everybody to bring their own ideas to the table and engage in open and creative discussion.”
The point for Human Resources is that, if they overview 70 % of the organizational capital, HR is asset management of human beings AND human relationships. How this is done can make or break the companies viability.
The key is not to focus on activities, but to look at the decision making at each level in the organization so that “wins” are created for the organization and society. The focal point of Human Resources will probably shift from ‘Performance Management’ to ‘Risk Management’. It is the human process in applying procedures that will make a difference between companies. Although it is always seen as soft, HR is always hard and requires insight in processes, the business model and risks linked to non compliance with what needs to be decided at each level in the organization. The risk for HR is that if they do not see themselves as those managing the greatest assets, they can cause the bankruptcy of a company. The risk for the business, if they see HR as separate from the business, is they are outsourcing the key of their business to incompetent professionals (by which I mean people who only look at their own logic). If HR doesn’t want to focus on decision making, probably asset managers and risk managers will do !
Role-role relationships & trust

A second theme that caught my attention was that a lot of energy was spend in clarifying the role-role relationships, looking at the cascading of accountabilities and decision authorities through the hierarchy, mostly by analyzing the contribution of someone, his/her boss and the manager once removed (boss of the boss) . The design of roles in classical HR approaches has an individual focus, whereas in the Itau Unibanco  case role design was interwoven with looking at organizational gaps and jam ups in the structure, starting with the question how each role adds value in relationship to each other.
The traditional focus on individual roles leads to individual “objective setting systems” and the induction of a culture of fear. The very heart of performance management is ‘reward’ and ‘punishment’. This focus neglects the importance of building relationships. People stopped to speak-up because they fear losing their bonuses. Sometimes bell-ringers got fired. This became highly obvious in the current financial meltdown, which was already identified in most large banks by auditors as early as 2006. But they did not speak up, fearing to lose their bonuses.
At Itau Unibanco the reconceptualisation of the decision making structures would “only work when we changed the way people thought and act”. Setubal : “So the first part of the transformation was to work on culture, particularly how our people voice their ideas and concerns. I believe it is very important to have all the information and ideas on the table before we make a decision, and I was looking for a more open environment for discussion.”
The point for HR is that it needs to  start to invest in building ‘trust’ and ‘hope’, looking at the heart of role-role communication. Many HR professionals overlooked the emotional aspects of distrust which characterize performance management systems and how this led to non-sharing, filtering  or repacking of information so that the role-role collaboration became inherently difficult and eventually lead to the disconnection between hierarchical levels . The immense dissatisfaction of middle managers with their senior managers, as pointed out in the recent Mc Kinsey study,  illustrates this ‘disconnection’ between the different levels in the organization.
Coping with complexity & crisis readiness

A third interesting point was that the focus of training and people development was to prepare people to cope with complexity jumps as the scope of their roles changed.  Their main focus was developing the ‘size of the person’ in relationship to the ‘size of roles’. ‘Participants’ are put in situations where they are invited to share experiences and examine those experiences using different angles and emphasizing multiple perspectives. Facilitators encourage meta-cognition, question categorical thinking by challenging labels and conclusions, emphasize the size of the ‘learners’ story, help learners to value approximization over precision. In so doing, they can dwell in fuzzy situations. This is in sharp contrast to the competency based approaches which assume that ‘developing behavioral strengths’ is the key to success. The failure of this last approach, focusing on ‘strengths building’, is illustrated by the bankruptcy of a number of companies that were described in Jim Collin’s books ‘Good to Great’ and ‘Build to Last’.
The importance of helping  mangers to deal with complexity was acknowledged in the latest Mc Kinsey’s Leaders in Crisis Global Survey Results’ (08/09). The “ability to deal with uncertainty, ambiguity was identified by the participating managers at all levels as being the most important ability to cope with the current crisis.
An important consequence of being able to deal with complexity is the ability of a manager allowing himself  to be challenged and questioned by others. Setubal puts it this way : “It was hard for many midlevel executives who were used to being powerful and not having their decisions questioned. Here we were, proposing an environment where people should offer their frank opinions and where executives could no longer hide in their big offices but had to engage in open debate with their teams. “
Felt Fair Pay
Although I have no evidence from the Intau Unibanco case, an element returning in other cases is that the remuneration policy is based on the principles of felt fair pay. This means that the pay structure is based both on external benchmarks and internal pay differentials.  Performance, risk , delegated decision authority and judgment, and pay are all inter – related. The current remuneration approaches are mainly based on job factors with unclear relationships to how these job factors contribute to realizing added value.

The above example  foreruns  an upcoming paradigm shift in Human Resources and Talent Management.  According to Van Clieaf (2009), it will be  accompanied by a whole new set of analytics and tools. How asset managers and risk managers handle HR issues can inspire each of us to rethink the HR and talent management practices in our own company !

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