8
ORGANIZING FOR TALENT MANAGEMENT

The talent management systems and practices that fit the new world of work, workers, and organizations require compatible organization designs. They cannot be managed and used by organizations and human resources (HR) functions that are designed to operate with traditional talent management systems, and many of them are not likely to be effective in traditional hierarchical organizations.

The key issue here is system fit. The classic “star” model of organization design that is shown in figure 8.1 makes this point. It shows that for an organization to operate effectively, its five key systems must fit each other. The implications of this for organization design and talent management are clear. Both the talent management practices of an organization and how the HR function is organized and managed need to be changed to fit the new world of organizations, with their new management processes, talent, organization structures, and work processes. System fit is the key to successfully reinventing talent management for the new world of work.

HR functions that are not strategically oriented, value standardization over individualization, and are not based on modern information technology simply cannot design, implement, and operate talent management principles and practices that fit the new world of work. To implement and operate many of the principles and practices that have been discussed thus far, a very different kind of organization structure is needed for the HR function as well as the total organization: one that is agile, can offer multiple systems and segmentation, is strategically driven, and in which talent is one of the most important contributors to its operation and effectiveness. In such a structure, talent needs to be managed strategically from top to bottom. It needs to include technology that until recently has not been used by HR functions and needs to be driven by agile business strategies and organization designs that enable talented individuals to do complex knowledge work.

Figure 8.1

HR functions are required that differ from those of traditional bureaucratic organizations in how they are structured, staffed, and operated. Important changes in how the top management and boards of organizations operate and are staffed are also needed. Organizations need to be able to make talent management decisions that fit their overall structure and strategy and that are based on data and talent management expertise.

THE CORPORATE BOARD

Corporate board members, like chief executive officers (CEOs), often say that talent is an organization’s most important asset, but in most cases their boards are not structured, operated, and staffed with this as a guiding principle. Quite to the contrary, they do not know what constitutes good talent management and practice and what that looks like in the type of complex organizations they govern. They also do not get the information about their organizations’ talent management operations and effectiveness that they need to make good talent management decisions.

The problems with boards start with their membership: they typically have at most one member who has in-depth expertise in talent management, and most boards do not have even one such member. They make the incorrect and all-too-common assumption that they know how to manage people. They often do not ask for or get reports on the condition of the talent in the organization. They also, all too often, do not operate effectively as decision-making teams. The one talent management aspect in which they do spend a considerable amount of time and hire experts for help with is hiring outside senior executives and sometimes for recruiting new board members. They also get outside expertise and help with board and executive compensation matters. But in the talent management areas that involve the organization’s operations (e.g., engagement, development, performance management) all too often they do not have or seek expertise.

Boards need help to make informed decisions about what talent management practices should be like throughout their organizations. They also need help in gathering and interpreting data about how effectively the human capital part of their organization is functioning, and in making changes and corrections to the human capital operations of it so that it will be agile and be able to change and provide a competitive advantage.

What is required for boards to have adequate knowledge in the area of talent management? First, each board needs at least one member who is an expert in the field; this is the only way to be sure that there is someone in board meetings who has the necessary power, expertise, and credibility to support an organization having the right human capital management practices.

Boards can and should utilize consultants and draw on the expertise of the internal HR staff for advice. This is a good practice for an organization to adopt, but it is not enough. It is quite unlikely that the best decisions about talent management can be reached by boards on a regular basis without somebody actually on the board who can suggest, validate, and vote for them. There is simply no substitute for having a board member who is a knowledgeable talent management expert.

Second, boards should have a source of expertise in the area of human capital and talent management in the form of a chief human resource officer (CHRO) who regularly attends board meetings. All too often this does not happen even in large corporations. This is just the opposite of what happens with respect to the chief financial officer (CFO), who is almost always present at board meetings alongside many members of the board who are also knowledgeable in finance because they are from the investment community.

In many respects, what boards need to make good talent decisions is similar to what they need to make good financial decisions. The CHRO, like the CFO, needs to be present at most board meetings, and board members are needed who are knowledgeable in talent management. Only with this combination will boards be able to intelligently discuss options and arrive at the right decisions with respect to the talent of an organization and its management systems. This is particularly true with respect to understanding and acting on the kind of talent management effectiveness data that an organization’s board should review on a regular basis.

Just as they review quarterly earnings statements and in some cases monthly statements, boards need to regularly review the human capital data for their organization. The information reviewed should include not just traditional absenteeism, turnover, and recruiting data but also data about engagement and satisfaction, as well as a skills-based strategic inventory of the talent their organization has. Finally, there should be information about the agility of the organization.

How often should talent data be reviewed by boards? In most organizations this should happen at minimum on a quarterly basis. With the rate of change that exists both in the business environment and the mobility of talent, a quarterly assessment is likely to be the right option for most organizations. In some more stable traditional organizations, a semiannual assessment may be enough.

All corporate boards have multiple committees that meet regularly to review operations in specific areas; for example, every board has an audit committee and finance committee. Yet few boards have a talent committee. Again, this is a case where organizations and boards say one thing, “talent is our most important asset,” but behave differently.

A corporate board should have a talent committee that reviews the condition of the organization’s talent on a regular basis and regularly reports to the full board on its condition and the condition of its talent management systems. The talent committee needs to focus on more than just the executive talent in the organization; it needs to look at the condition of all the talent, with a particular focus on key talent. Only by doing this can it inform the board about what should be done when talent is discussed in board meetings.

The challenge that boards face is acting like they talk when it comes to talent. They need to stop just saying talent is our organization’s most important asset—and start “walking the walk” when it comes to talent. In many cases this means structuring and behaving with respect to how talent is managed at the board level in a way that is very similar to the way financial assets are handled. The boards need to have expertise, get regular data, review the data, and act when there are problems.

THE EXECUTIVE TEAM

The top executive team of every corporation needs to be involved in the making of key talent decisions. It needs to understand the design of the talent management systems, assure that design is operating effectively, and in the case of key appointments be sure that the right individuals are chosen. To make the executive team function effectively when it makes talent decisions, a high level of talent management expertise is required. Such expertise is rarely present in the CEO.

The CEOs of most organizations have little or no background in talent management. Yes, they have experience in making talent management decisions as a result of their previous management jobs, but rarely have they had a job in HR or talent management or any kind of formal training or education with respect to talent management. The top executive team of an organization needs to include at least one individual who is a talent management expert and who is able to detail and strategically clarify how talent management is related to business strategy and operations.

One obvious candidate for the role of talent expert on the top management team is the CHRO. Yet in about half of U.S. corporations the CHRO does not report to the CEO; instead the reporting relationship is to the chief operating officer (COO). In a significant number of organizations, the CHRO does not have a background in talent management and HR. This may be appropriate in those situations where talent is not a key source of competitive advantage, but in most organizations that is not the case. When the CHRO does not have a background in HR, it may be appropriate to have the chief talent officer (CTO) involved in all top management decisions about talent.

There are several organization design approaches that can be used to be sure that a top executive team has the expertise and input it needs to make effective talent management decisions. The most obvious one has already been mentioned—a CHRO with experience in HR and talent management as a member of the executive team. In situations where indepth expertise with respect to talent is needed, a CTO can be included as an adviser and contributor to talent decisions. Often even CHROs who have experience in HR do not have in-depth expertise in talent management because their job combines managing both the administrative and strategic sides of HR and, as a result, they may not have time to delve deeply into some talent management issues.

It clearly does not make sense to have the CHRO report to the COO in situations where talent is a key source of competitive advantage for an organization; in these situations reporting should be to the CEO. One option here is to split the HR function into two functions: an administrative one and a strategic performance one. This is much like what happened with finance, where accounting was separated from finance, and also what happened with marketing and sales. With the split, the operational side of HR will report to the COO while the strategic elements of HR and talent management will report to the CEO.

There are multiple ways to structure the top management levels of an organization to ensure that talent gets the proper strategic and operational consideration. The one thing that always needs to happen is that key business strategic decisions consider and are influenced by talent management factors, and that talent management decisions are influenced by key business and strategy decisions and factors. This can only occur if business decision-making forums have a strong talent management perspective. This in turn is only likely to happen if, at a minimum, the CHRO or the CTO plays an active role in business strategy development and in major strategy implementations. It also, of course, requires that the CTO or CHRO has a good knowledge of the business and understands the relationship between talent management practices and policies and the development and implementation of business strategies.

THE CHIEF ORGANIZATIONAL EFFECTIVENESS OFFICER

Some organizations may be best structured by having a chief organizational effectiveness officer (COEO) who is a member of the senior management team and reports directly to the CEO. This position should have reporting to it the traditional HR function, organization design, organization development, business strategy, and talent management. The key to effectiveness here is finding someone to fill the COEO role who can bring together the multiple types of expertise and disciplines that influence an organization’s effectiveness. This person needs to understand talent management, and also the operation of an HR function, the basics of organization design, change management, and business strategy.

As organizations become increasingly complex in today’s economy, a design that is based on a COEO makes particularly good sense. It puts someone clearly in charge of the management systems of an organization. The COEO can participate in business decision making at the top level and can provide expertise about the capabilities of the organization and what it takes to make that organization operate effectively, including conversations about business strategy and competitive advantage.

One organization that has implemented a COEO type organization structure is Jack in the Box. This fast food restaurant business has a top management position that it calls chief people, culture, and corporate strategy officer. This executive vice president position reports to the CEO and attends all board meetings.

THE CHIEF TALENT OFFICER

As already suggested, most organizations need to have a chief talent officer. This position should be the human capital counterpart to the financial capital part of an organization. The latter, of course, is typically called the CFO and reports directly to the CEO. The CFO usually attends board meetings and is a critical member of the top management team. The same kind of role needs to be played by the CTO and/or the CHRO. As already noted, either the CHRO or the CTO needs to regularly attend board meetings and committee meetings to be sure that human capital is given proper consideration when strategic decisions are made.

At this point there is no single, universally right answer to the question of whom the CTO should report to. It depends in part upon the degree of criticality that human capital has to an organization and, of course, how the job is defined and filled. In an organization in which talent is unquestionably the major asset, the CTO and CHRO should in most cases report to the CEO and be a part of the senior management team. In cases where talent is not as pivotal for the success of the organization, it may make sense to have the CTO report to the CHRO, and have the CHRO be the overall representative of the talent side of the organization.

Interesting organization design possibilities exist when organizations have both a CEO and a COO. In this case, it is possible to create a split reporting relationship for the roles of the CHRO and CTO. One option is to have the CTO report to the CEO while having the CHRO report to the COO. With this design, much of the strategic talent management and HR work would be controlled by the CEO with input from the CTO, while the operations side of HR would be controlled by the CHRO and the COO. The advantage here is that the human capital management strategy of the organization and the systems that support it can be created and managed in a strategic manner. Frequently they are criticized, and often correctly so, for being too operational and failing to take a business strategy–driven approach to human capital management. Having the CTO report to the CEO is particularly likely to be appropriate when the CHRO reports to the COO. In this case the CHRO may not have the key strategic involvement that is necessary to make critical decisions about how the talent management system should be managed and talent positioned.

Overall, it is clear that there is not one right organization design for talent management that fits all talent critical organizations. It is clear that they need a strong focus on talent, and having a CTO is a positive way to make this happen. How the CTO position fits into the larger organization depends on the type of business, its strategy, and the kind of competitive advantage that the organization seeks. This may be quite different, for example, in a talent-intensive business than it would be in one that is driven by financial capital. In all cases, however, simply having an HR function with the usual administrative departments of compensation and benefits, training, and selection and placement is no longer the right way to go. Organizations need to be designed with talent management structures that determine and are determined by an organization strategy and that integrate and prioritize the effective management of talent.

WORKFORCE ANALYTICS

Organizations need to have a talent analytics function. Admittedly it cannot be very large in smaller organizations because of the associated cost. But smaller organizations can get valuable help from consultants, gig talent, and professional associations. In major corporations, however, talent analytics can and should be a well-funded and well-staffed group that reports to the CTO (or in the absence of a CTO, the CHRO) and focuses on gathering, analyzing, and translating data into action. A talent analytics group should be staffed by individuals who can gather, analyze, and convert data into evidence-based talent management decisions and actions.

Gathering and analyzing data is, of course, just the first step in having a successful talent analytics process; data have to be correctly interpreted, and practices and operational changes that are based on them must be implemented. This requires keeping those who have to manage and implement change informed on a continuous basis about what data are being gathered and how they should be interpreted, and then getting them involved in developing and implementing the solutions that are suggested by those data. This, of course, means that an organization has to have an effective organization development function that is paired with the talent analytics function. Left by themselves, groups that simply analyze talent data can be out of touch with the reality of an organization, and although they do good research, they do research that is not implementable or implemented. One key to gathering data that is useful is to have the users participate in determining which data are collected.

For decades, AT&T, General Electric, IBM, and other large organizations have had analytics groups that gather and analyze data on talent behavior and costs. Google has a major talent analytics group that has had a significant impact on its talent management strategy. One area where it has been particularly active and effective is attrition. Google has developed models that predict and practices that help prevent turnover.

The major challenge that talent-driven organizations face is managing their talent in a way that reflects the growing complexity of the world of work. Analytic data can help with this, but only if they are collected on the right issues and in a way that leads to the individuals who have to implement talent management systems understanding them, being motivated to utilize them, and being able to implement what they suggest. Creating this kind of situation requires an organization that is talent driven, talent sensitive, and organized to effectively manage talent.

CONCLUSION

The design of an organization is critical to its being able to properly manage its talent. Because of the changes in the nature of talent management, HR needs to be structured in a way that allows it to be strategy driven. As is shown in Table 8.1, this requires the corporate board to have a knowledgeable talent management member. The presence of the CHRO, COEO, or CTO of the organization at board meetings can be a key resource for boards. Their presence can facilitate the development of a business strategy that is aligned with what happens in the talent management area and can help design talent management practices and operate systems that effectively implement that strategy. In many cases this means bringing a skills-based orientation to the design of talent management systems. Simply stated, strategy needs to drive the competencies an organization has because the right skills are needed in order to execute an organization’s strategy.

Table 8.1 Organization design

Copyright © Edward E. Lawler III and Center for Effective Organizations at USC.

To be performance based, the organization design of talent management activities needs to be driven by the type of performance that is required by the organization. It needs to influence the analytics activities of the talent management part of the organization, and talent management needs to be measured on the basis of its impact on the overall performance of the organization.

As is shown in Table 8.1, agility comes into play when the strategy changes and talent management practices need to change and be adapted. This is the reason behind putting the CTO into the strategy discussion and for having him or her report to senior management. The strategy of the organization should also be partially determined by and determine the type of segmentation that exists in the organization’s HR systems. Understanding the type of segmentation that is needed should be facilitated by having talent management executives involved in discussions and decisions about business strategy and operations.

Overall, a new design of the HR function is clearly needed for talent management to operate effectively. The traditional organization design of the HR function was never intended to have talent operate as a strategic driver of the business nor to respond to a rapidly changing world of work, workers, and organizations. Merely giving HR a “seat at the table” is not the answer; it must be a major force in developing and implementing talent management principles and practices that are major drivers of organizational effectiveness.