Forces in Play: Smart companies realize a competitive advantage by measuring their talent efforts to help them improve. Shareholders, analysts, and business leaders factor new talent measurements into investment strategies and policy decisions. State and local governments explore talent-oriented economic programs.
What if we told you that excellence in recruiting and retention could increase your organization's market value by 8 percent?
Here's what that would look like:
Market Value | Market Value Improvement Opportunity |
|---|---|
$250K | $20K |
$500K | $44K |
$1M | $80K |
$10M | $800K |
$100M | $8M |
$500M | $40M |
$1B | $80M |
$5B | $400M |
$15B | $1.2B |
Not a bad improvement for your shareholders, is it? Of course, the vast majority of businesses are worth less than the amounts in this chart. But improving recruiting and retention offers an opportunity to create value in businesses of any size.
To some, the value of Q-Talent is common sense—a company filled with tenured, satisfied, productive, hardworking, and smart people is going to perform better and eventually be worth more than a company filled with bitterness, indolence, and rampant turnover. This is true whether you are a multinational corporation or a barbershop.
Although the notion that business competitiveness is tied closely to talent may seem intuitive, social scientists have spent a great deal of time proving it. The decade from 1993 to 2003 saw many studies from researchers, such as Yeung and Berman, Pfeffer, and Ostroff, that used complex statistics to paint a mathematical picture of the correlation.
The 8 percent figure in the chart at the beginning of this chapter came from one of the more dramatic demonstrations of talent valuation, the Watson Wyatt Human Capital Index Study. This study compared a comprehensive Human Capital Index score—a rating of a company's human capital management practices—against financial performance and market value from 1999 to 2001. More than 750 companies from across the United States, Canada, and Europe participated, each with 1,000 or more employees and more than $100 million in revenue or market value.
According to the study, “a significant improvement” in the category “recruiting and retention excellence” accounted for an 8 percent increase in market value. The study defines its standard for “significant improvement” as one point on a five-point scale. Considering that many of the companies in the study were worth between $4 billion and $8 billion, that one-point improvement could presumably be worth $40 to $80 million.
So why don't more businesses rank talent capital as their top priority for success? Why don't business leaders treat their talent with the same sense of urgency they give to raw materials, infrastructure, technology, and other business-critical assets? Why do CEOs say, “Talent is the most important thing in our company,” and then not make anyone inside the organization responsible for a strategic competitive model that ensures they have the right talent, in the right place, at the right time?
The answer to these questions is, in part, because most companies do not measure talent. It is paradoxical. Businesses love data. Most are swimming in it. Every viable business has a budget and a balance sheet. Its leaders know how much the organization earns and how much it spends. Many have committed to memory the amount of this year's technology investment, this month's price increase in a key raw material—to the penny—or the offer extended in a recent negotiation. Some carry around “scorecards” with regularly updated business indicators. The numbers help them gauge the health of the organization and can be an early warning system for problems and opportunities.
Why don't more companies measure their hiring and retention effectiveness and report and improve on it? Some organizations do, including professional sports teams and companies in the entertainment industry. For the former, ticket sales, wins and losses, hits and flops, strikeouts and home runs provide all the Q-Talent measurements the industry needs. Reflecting the importance of these metrics, most talent scouts for professional sports are paid huge sums. A book published by Michael Lewis in 2004, Moneyball: The Art of Winning an Unfair Game, has generated controversy by proposing a new set of metrics by which to predict a baseball team's chances for success. Teams that adhere to Lewis's metrics are said to be playing “moneyball,” whereas others dismiss his approach and sabermetrics in general.
For most businesses, innovation in talent capital management represents one of the last great business opportunities, a chance to get ahead and give your company something that your competitors do not have. As indicated in Chapter 2, “Talent Market Demands,” accurately measuring an organization's talent represents a major trend that is already beginning to unfold.
Talent measurement can help businesses operate more nimbly. It can generate immediate and substantial cost savings. It can return value. And most important, over time, it can help you put the best talent force in place for the future of your business.
Talent measurement is an extension of business management. This concept has been around for decades. After World War II, W. Edwards Deming took his manufacturing philosophies to Japan and, by measuring productivity, was able to move a motivated business environment and talent force to the forefront of global economic success.
Talent metrics require that the base components of the business model are measured first. If a company knows what it takes to produce a product, they can then align these business metrics with the appropriate talent metrics. The talent leader must understand this sequence to tie talent metrics to real business needs or purposes:
First, establish clear business goal(s).
Then, define business measurements: What does it take to reach the goal?
Create talent measurements: What is needed from each position to succeed?
Studies, such as the Watson Wyatt Human Capital Index Study described in the previous section, will create more pressure to measure talent capital and human resources effectiveness as a way to provide another key indicator of financial success (or the potential for it). Companies will find that there is increasing value—market value—in being able to articulate how they are going to attract better people, how the people they already have in place are superior, how they are going to retain those people, and what their succession plans are. If a company can show that it has better talent, which in turn means it is in a better position for success, how could an investor ignore that?
But on the other side, how can a company articulate those things? What measurements set one company apart from another when it comes to something as intangible as “talent”?
Let's look more closely at how specific talent metrics can help businesses plan for upcoming challenges and opportunities and prevent talent-driven disasters, such as unhealthy turnover or egregious employee behavior.
As you read in Chapter 3, “Building a Competitive Talent Organization,” the talent leader needs to be closely aligned with other senior managers in your organization. We suggested holding senior managers accountable for this partnership by measuring their participation and contributions in the talent arena. Here are five ways that senior managers can contribute to your organization's talent goals:
Plan vigorously. Senior managers should partner with the talent leader and hiring managers in their division to create a written plan for how they will meet your current and long-term talent needs. Planning for the talent agenda should be as thorough and as vigorous as any other planning in the company (for instance, strategic, annual operating, material, and financial planning). Chapter 3 covers talent planning at length.
Be accessible. Senior managers should schedule regular meetings with their talent organization counterpart and be available and responsive when the talent leader contacts them. All senior managers should be accessible to meet prospective talent anywhere and anytime.
Sell. With a plan in place, senior managers are responsible for “selling” the plan within their division. How will the talent plan help the division succeed? How should people participate? How will they be measured and rewarded for their participation? Senior managers need to emphasize the importance of Q-Talent and back up their words with concrete plans and metrics. They also need to always wear their “selling shoes” when talking and meeting with prospective talent. If a hiring manager or other employee cannot sell his own company to a candidate, then leave that person off of the interview or meeting schedule.
Benchmarking. Know how effective your talent efforts are today and continue to measure these efforts using the metrics outlined next to gauge your efforts over time. Are they working? Also, continuously benchmark internal and external talent. The grass is hardly as green on the other side as you want to believe. Still, knowing who is out there, what they are doing, and how your internal talent stacks up is an essential element of strategic talent planning.
Make movement happen. Don't let open positions stagnate while hiring managers churn through reams of resumés from unqualified candidates. The framework provided in this book shows you how to be proactive in assessing and meeting your talent needs. Put the time and resources behind this framework to make it happen in your organization. And be willing to open up positions and make churn happen within the organization to accommodate new candidates and grow existing talent. Keeping the place moving will add the extra adrenaline needed for all talent to see a future in front of them in the current organization.
What talent metrics can help you in your efforts to find and acquire Q-Talent? Short term, it starts with every hiring manager and recruiter tracking their talent inventory and process: how many open positions they are responsible for, how many resumés they have reviewed, how many informational and formal interviews they have conducted, how many upcoming interviews are scheduled, and time-to-hire for each position. Senior managers need to follow up and manage this information for the open positions in their divisions to make sure that hiring managers and recruiters are actively working to fill open slots and to get a sense of the quantity and quality of talent available for various types of positions—just like they would for an important product delivery.
If certain positions take an unusually long time to fill, recruiters should be closely partnering with the hiring managers for these positions and discussing why this is happening and what to do about it. You might need a separate talent plan (see Chapter 3) for targeting and attracting candidates with difficult-to-find skill sets. Remember, your goal is to move from “reacting” to open positions to proactively cultivating relationships so that the right talent is available to you when you need it, or just before.
To this end, in addition to short-term metrics about current open positions, you need to measure your long-term progress toward building relationships and establishing a pipeline of Q-Talent for future openings. To get to 10 Q-Talent hires, you need to find 1 new person who is not in your pipeline, recruit 6 people from your existing pipeline quickly, and continue to manage relationships with 3 people who will fill your future pipeline and be great hires for future openings. Beyond the 10 people who you hire, you will decide not to hire countless others who express interest in your organization.
Let's look at these four categories and ways to measure your progress in each:
New Talent That You Must Find (About 10% of Your Pipeline)
Question
Metric
How many new candidates do you need?
Number of new candidates you need to find by level (for example, entry level, middle-management, executive), role (for example, marketing manager, engineer, quality assurance, finance), and skill set (for example, programming languages, years of management experience).
Which methods for finding new Q-Talent are most effective?
Response rates for all recruiting tactics: Web site, advertising in all media and direct-mail pieces, job fairs, or other recruiting events, referrals, and so on.
How long is it taking you to find the types of talent you need?
Rate of talent acquisition by level, role, and skill set.
How can you become a “magnet” for the type of talent you seek?
Make sure that any new recruiting initiatives include relevant metrics, including long-range initiatives to nurture talent relationships at an early stage (for example, talent development partnerships with colleges or high schools).
Talent That Finds You and That You Want to Hire Immediately (About 60% of Your Pipeline)
Question
Metric
How does this talent find you?
Response rates for all recruiting tactics: Web site, advertising in all media and direct-mail pieces, recruiting events, referrals, talent community registration, and so on.
How quickly do you respond to qualified talent?
Turnaround time for candidate inquiries received via Web site, e-mail, phone, snail mail, referrals, and events.
Are you capable of managing qualified candidates from first contact to hire?
Time-to-hire and possibly candidate satisfaction (via surveys given to new hires).
Talent That Finds You and That You Want to Hire, Not Now but for Future Openings (About 30% of Your Pipeline)
Ask the same questions as number 2, above, plus the following:
Question
Metric
How long will you cultivate the relationship?
Length of relationship from first contact (while the relationship is underway).
Length of relationship from first contact to hire or first contact to disengagement (due to the candidate finding another new job, growing impatient or losing interest).
How will you balance the candidates' timing versus your timing?
Readiness to turn on spigot when the timing is right.
Talent That Comes to You—Who You Do Not Want to Hire
Question
Metric
How do you decline these candidates while ensuring that they send you referrals? How can you decline them graciously?
Time-to-decision and time-to-follow-through communication.
Can you manage/handle their referrals?
Conversion rate.
Number of repeat referrals.
Remember, all candidates, even people you do not hire, have value to your organization as referrers of talent, customers of your products and services, market influencers, and stockholders. Therefore, through your talent practices, you should treat each candidate with respect and care. Chapter 8, “Relationship Recruiting (Still) Rules,” talks more about the importance of gracious recruiting.
After talent is on board, additional metrics can help your organization track its talent management practices, including succession planning and identifying potential talent-related issues, such as turnover and serious employee misbehavior.
Planning for future talent gaps at the executive level requires special consideration because these positions are both highly strategic and high-profile. We provided an example of solid succession planning at the beginning of Chapter 1, “The Quality Talent Imperative,” by describing how GE prepared for former CEO Jack Welch's retirement.
Other times, CEO succession becomes an issue when a company is in trouble or is preparing for change. When Disney Corporation was in turmoil, for example, the company's longtime lead director sent an open letter to shareholders, announcing that the board of directors would begin more earnest discussions on succession candidates for CEO Michael Eisner.
It might sound as if Disney's Board was being proactive but, in fact, they were behind the curve. In January 2005, BusinessWeek's “The Best and Worst Managers of the Year” feature listed Eisner among the worst. At the time, after dealing publicly with the question of succession for nearly a year, he still had only one legitimate internal candidate to replace him.
Ultimately, by choice (or maybe by necessity), the only internal candidate, Bob Iger, got the job. Contrast this to the example provided in Chapter 1, where GE had half a dozen executives primed to replace Welch. Disney had one. After Iger was named CEO, how many Disney executives left the company to become CEOs at other companies, as so many GE executives did after their new CEO was named?
Why would a company go all the way to the brink of such a major change without a plan for dealing with it? What would an investor think if a manufacturer treated its core raw materials that way, waiting until the last possible moment to source a critical supply, for example? Why don't more companies see talent management and, more specifically, succession planning as an opportunity to create value not just now, but for years to come?
Think of the value that businesses have reaped from analyzing, benchmarking, streamlining, and automating their supply chains for production materials and other business processes. The same is true of the talent supply. The only difference is that most companies have not yet figured it out.
The importance of succession planning at these levels is obvious, and Eisner's handling of Disney is an easy target. But again, it is not just executives. Succession planning for key positions, such as experienced corporate buyers, floor managers, engineers, cabinetmakers, account sales, accountants, and drivers is important to avoid devastating talent gaps and imbalances in a company.
Succession plans are a hot topic, and this issue will receive increased scrutiny. The Institutional Shareholder Services (ISS) now considers whether a company has a succession plan as a determining question in whether ISS will support proposed measures by public companies. As the ISS goes, so go many institutional shareholders who look to the ISS for an independent opinion.
Sometimes, rather than a single executive leaving the company, talent at one or more levels begins to leave, increasing the organization's turnover. Turnover is not necessarily a bad thing. Many companies experience good, productive, predictable turnover, which is necessary for a company's long-term growth. Procter & Gamble, for instance, has groomed executives internally, moved them up when the time is right, and seen shareholder value increase for years. GE, as shown earlier, follows a methodical approach for identifying and grooming its bench of executive talent.
Other companies, however, seem to turn executives over haphazardly. And analysts can tell the difference in the impact on the business. For example, Excite@Home, a former darling of the Internet world, experienced turnover at executive levels and eventually found itself bankrupt and searching for a buyer in 2001.
At the beginning of 2002, retail giant Kmart was facing bankruptcy after a period in which it appeared to burn through several high-profile executives and managers. The headlines of Kmart's press releases from March 1999 through January 2002 revealed extensive executive turnover at the company. Over that 35-month span, Kmart issued more than 40 announcements regarding executives moving in, out, or up, most describing multiple moves.
High turnover of great talent can be a problem that shareholders and business leaders should be concerned about and monitoring systematically. Analysts, shareholders, and company leaders would benefit from a more streamlined, transparent, and timely method of seeing turnover by having an opportunity to assess its impact in time to do something about it, if necessary. Ultimately, exposing executive turnover via standard reporting would allow stakeholders to find out whether the company's talent capital—and success—might be affected.
Turnover can harm a business, but so can the wrong talent inside your organization that does not leave. All of the great recruiting, development, and management practices are meaningless if the raw materials in the supply chain are fundamentally flawed.
A successful talent plan and set of actions depend on the fact that you are hiring the best talent for the business, people with the right set of values and principles. During the “dotconomy” bust, the business landscape was littered with the broken shells of failed businesses with unseasoned, inexperienced management teams. These were examples of hiring at the right time but not the right talent. If these firms had been using talent metrics, could they have done a better job of hiring the right talent, thereby saving their businesses?
There is one example in this category that no businessperson will forget. It changed the way for the rest of us, and we continue to have to manage through the sins committed. Enron catalyzed an overhaul of the financial-reporting system in the United States. Enron did not sow the seeds of doubt about corporate leadership—it watered, fertilized, nurtured, and harvested them. The Enron case caused investors, shareholders, and regulators all over the world to sit up and take notice. The accounting industry will never be quite the same.
The “Enron scandal” could just as easily be called the “Arthur Andersen catastrophe.” Arthur Andersen, the founder, started the firm decades ago on the principle that doing the right thing was more important than doing the easy thing. Arthur Andersen, the business, had long been known for resigning clients that it felt had questionable accounting ethics. The founder and his colleagues built a talent force that was respected and set industry standards. They thought of themselves as the best of the best, and they were great at sourcing the right talent and ensuring that they had the right talent in place for the future. But somewhere along the way, priorities shifted at Arthur Andersen, and they lost their footing.
In the 1990s, it is said that the firm hired executives who were more focused on growing the business than on maintaining the firm's standard of excellence. They allowed the talent brand to be compromised, and as a result, the culture shifted, becoming more oriented toward sales, billing, and revenue than toward the quality, objective work for which the firm had been known. The firm's audit practice became compromised by financial pressures from its lucrative consulting arm. The company was no longer willing to stand up to clients with substantial consulting revenues, fearing the loss of that money.
As a result of this shift in priorities, which had its roots in the company's executive talent base, the legacy that Arthur Andersen left behind will be images of paper shredding, lost retirement savings, and heightened regulation of the audit industry. Arthur Andersen will forever be associated with the catastrophic demise of one of the biggest U.S. corporations—and for allowing Enron to abuse its stewardship of vital public utilities at a cost to the American public that may never be fully understood. Arthur Andersen was a company that lost sight of its heritage, its culture, the things that made it successful, and ended up losing one of the most important assets for any company—its reputation.
How could Arthur Anderson have employed talent measurements, providing early indicators of a growing problem in the way the company's people were conducting business? Tracking the performance of new hires for their first 6 to 12 months (and then regularly thereafter) is one way for managers to identify and address issues early. Keep in mind that this method and others that occur post-hire might help you identify poor performers, but they will not save you from hiring the wrong talent in the first place.
Hiring right depends on your hiring managers understanding the organization's core principles, values, and make-up and hiring talent that reflect these factors. Ultimately, like it or not, we hire in the likeness of ourselves. We like people who are like us. It is human nature. We would rather surround ourselves with people that we like and can relate to than with those who differ from us. The culture of a company is most quickly changed by the talent that enters the door and the people who sway the hiring decisions. Stop and think about it—who are the “gatekeepers” for your organization?
Without performance metrics and active performance management, culture changes and performance degradation can sneak up on an organization as it might have at Arthur Anderson. One person who does not embody the company's values hires people in his or her likeness, and before long, the company is comprised of talent that no longer embodies the original core principles and values. That is a position no organization wants to find itself in.
Talent management technology will eventually allow companies to tie talent sourcing to the brand and messaging elements that attracted each candidate to the company. This is parallel to the tracking that companies do for product sales; applied to talent sourcing, it will help companies target their recruiting efforts in the areas that produce not the most candidates, but the highest-quality candidates who prove to be strong long-term contributors.
So far, rather than hearing much about company-driven metrics to proactively identify and solve talent-based problems, we have heard a lot about government oversight and regulation. Make no mistake; government oversight and regulation are certainly important, and the sanctions imposed on offending companies would be severe. But ultimately, it was the loss of reputation—damage to the brand images evoked by “Enron” and “Arthur Andersen”—that rendered those companies powerless to recover and doomed them for all time. Who would now be proud to have either of these companies on their resumé? Arthur Andersen's damaged reputation and credibility led to the subsequent loss of hundreds of clients around the globe who could no longer afford the risk of associating with the troubled auditor.
The consequences for Enron were similar. Even after Enron wrote down its revenues drastically, the company reported more than $800 million in 2000. It still had a company to run and talent to attract and retain. It still owned Portland General Electric, the Transwestern Pipeline Co., and the Northern Plains Natural Gas Co., among other companies. It had sizable assets that could have formed a healthy nucleus of operating revenue for a legitimately run energy firm. After the scandal broke, however, nobody wanted to do business with Enron, fearing it would either collapse or otherwise fail to fulfill its end of the deal.
Despite the company's asset portfolio, its credit rating was downgraded to junk status and its stock price fell to pennies. And Enron's talent—both good and bad—fled as fast as their customer base. You can imagine the uphill battle of trying to recruit anyone to either of these companies going forward. We will never know what the future would have held for Arthur Andersen. The crisis brought about its demise.
Since the collapse, some economists at the University of Washington and elsewhere have argued that the importance of reputation, credibility, and protecting the value of the brand was demonstrated so dramatically by Enron and Arthur Andersen that it will end up providing as much natural market incentive for companies to walk the “straight and narrow” as any new regulatory effort.
Perhaps regulatory efforts will point the way to new talent-force metrics. During the congressional hearings for the Corporate Responsibility Act, sponsors Senator Paul Sarbanes of Maryland and Congressman Michael G. Oxley of Ohio convinced the legislature that the SEC needs to examine what makes a good auditor, a good accountant, and a good board member. (In fact, they were deciding what makes up a good talent force.) When this was debated in Congress, some were asking, “Should we open up the windows or open up the door to the house?” If any one sentence sums up the attitude of the financial community after Enron, it was Sarbanes and Oxley's famous reply, “You should take the roof off.”
Their point? The more visibility, the better. The more you can see inside a company and glimpse how it works and addresses its challenges, the better. All interested parties want to ensure that they have a handle on a company's leadership, talent base, culture, character, and future.
Beyond the benefits to individual business leaders, talent metrics are important to analysts, accountants, consultants, and investors, all of whom make at least a part of their living from understanding what makes one company different from another. Individuals in these roles, burned by Enron's smoke and mirrors, will find new ways to measure the true health of an organization. It will not be long before they also start looking at a company's talent management and talent capital for a reading on its organizational health.
The financial industry can fairly value just about any tangible or intangible business asset. Goodwill can be fairly estimated. Stock options are moving toward true valuation. All of these items appear on a company's financial statements.
How is talent measured and reflected on financial statements today? It isn't. Talent capital—the people and skills that a business brings to bear against challenges and opportunities—has become the last frontier for this kind of analysis and valuation.
More and more, cautious investors want to know about the leaders who are running a company—where they come from, how they manage, what makes them unique. Human resources executives are being asked to sit on the dais during shareholder meetings to address these issues. CEOs are being given talent-management objectives and asked to report on their progress—a solid precursor to more formal talent metrics.
European financial services conglomerate Allianz is one prime example of a company taking concrete steps to measure its talent practices. With 174,000 employees and 456 member companies worldwide, Allianz is decentralized, but runs its talent management programs in a centralized fashion. The CEOs of each member company have broad latitude to run their businesses, and each one must report annually on his or her talent management practices, demonstrating measurable results.
Uniquely, Michael Diekmann, chairman of the board of Allianz, took over the group's HR function and still leads it in 2005. His overall position and that of the entire conglomerate is that if a member company does not have a solid talent management philosophy and methodology, then it does not have a sustainable business model.
Allianz is not alone in this belief. Companies all over the world that realize the competitive value of great people are starting to take concrete steps to measure how this talent affects the business. Progress in this area is seen in books, such as The ROI of Human Capital: Measuring the Economic Value of Employee Performance by Jac Fitz-Enz, the “father of human capital benchmarking and performance assessment” and founder and chairman of the Saratoga Institute, a PricewaterhouseCoopers service offering that helps organizations optimize their HR processes.
Analysts will find a way to estimate and identify the value that companies, such as Allianz, have brought to their bottom line through great recruiting and retention. These analysts are looking for numbers that consistently correlate to success—besides the number of gray hairs on the CEO's head. What is the value of one person versus another? What is the value of a strong human resources organization? What is the value of high retention rates or the kind of deep management bench that companies, such as GE, have developed? What numbers can practitioners use to measure effectiveness inside their own company?
Methods and measurements will be found to rate companies head-to-head in this arena. More and more, analysts and shareholders want to know what the company is doing to attract the best talent and what they are doing to retain and develop their employees. The inevitable breakthrough will represent new intellectual property for analysts, who make money from selling this information.
After one company's talent management and talent capital have been valued, it will not be long before they all are. Then, an entity, such as the Financial Accounting Standards Board, might look for a way to codify the value and create a talent-based asset in much the same way that goodwill rules quantify value for corporate brands and reputation. If that happens, the Securities and Exchange Commission might well start to ask for it as part of public company proxy statements.
Taking it a step further, corporate flameouts, such as we have seen with Kmart, could spur the next generation of the Sarbanes-Oxley Corporate Responsibility Act, requiring even more talent measurement. If solid, objective measurements can be found and agreed upon, Congress or the SEC could eventually mandate talent capital reporting as part of the proxy in the annual report.
Analysts and shareholders can already access the information to start identifying companies that have great talent management practices. Many early warning signs and red flags indicate talent-related problems, and these indicators are too obvious to ignore much longer. When this information is provided to broader audiences, by the time the annual proxy hits the Web or arrives in the mailbox, it will not be too late to act on the information. Sure, there are press releases and updates, but when was the last time you saw a press release announcing, “This is the second CFO we have turned over in the past nine months?”
The real value of great talent management is not on the compulsory, regulatory, compliance side. The real value comes when companies realize that talent measurement is one of the greatest business opportunities over the next decade and beyond. Why wouldn't a company want to use real data to improve in one of its most strategic areas?
Smart companies will quickly realize that they can improve today and create a competitive advantage that returns value to the company, or do nothing, get nothing, and quite possibly be forced to create these practices anyway through government regulation. If the same issue can either be an opportunity or a challenge for your business, why not take the opportunity and leave your competitors to grumble about the challenges?
One simple measurement would be tying executives (public “Section 16B” positions) to tenure and turnover rates.
All of this public interest in talent could have another intriguing side effect on economic stimulus programs. Nations and communities alike work hard to “sell” their locales to businesses. This phenomenon creates a chicken-or-the-egg question. Should state and local leaders follow the traditional path, working to lure businesses to their area and then counting on talent to show up? Or would it be more cost-effective, especially in smaller communities, to create incentives that lure talent to the region first, and then use that new community asset to attract businesses? Tackling economic incentives from the talent perspective might allow smaller communities to pull together existing people and resources and become more competitive in the hunt to attract business and jobs. And in the global economy, those jobs can come from just about anywhere.
Switzerland, long known for its creative tax-planning provisions, has made itself and some of its cantons (municipalities) attractive for multinational companies, some of whom have moved their European headquarters there. By providing the lowest corporate tax rates, Switzerland has brought thousands of new jobs into the country; many are filled by expatriates who bring in new currency for upgraded schools, new housing, and other beneficial projects. These companies provide new work and new jobs for the locals and add to the country's talent base, many who might never leave.
As another example, consider the community of Marquette, Kansas. This town of about 600 took a page from nineteenth-century homesteading programs, offering free land to folks for relocating there. As part of the program, Marquette divided 50 acres of farmland into 80 lots. As of February 2004, 21 of them had been given out, 20 of which went to newcomers. Four three-bedroom homes had been built, and construction was beginning on six more, with each home expected to add about $1,000 of tax revenue to the town's $350,000 annual budget. In a town with 127 school-age kids, six more had been added to the mix.
A similar program is in place in Paducah, Kentucky. The city's Artist Relocation Program provides a package of business, tax, financial, and cultural incentives in an effort to attract artists from across the United States into this formerly troubled spot between St. Louis and Nashville. The community gives artists the opportunity to buy affordable housing, along with gallery and studio space and other incentives. The program is breathing new life into Paducah, helping to attract visitors, expand the tax base, and increase property values. Perhaps, after all, there is some truth to the oft-quoted line from the movie Field of Dreams: “If you build it, they will come.”
Could the same principles be utilized to attract doctors, teachers, and firefighters to a local community? Absolutely. It does not have to be land grants, although land is one area where smaller communities have an advantage. It could be tax incentives, college tuition assistance, even country club memberships—whatever works for the area and appeals to the talent it wants to attract. For example, loan repayment programs are already available for U.S. doctors who choose to relocate to certain underserved rural areas.
In November 2004, California voters approved Proposition 71, which provides unprecedented support for stem cell research. Freed from federal reluctance to provide stem cell lines or funding for the research, doctors in California will be in a much better position to make advances in this new science. New York magazine captured the broader potential talent market repercussions in its January 3, 2005, edition, under the headline “The California Stem-Cell Gold Rush: Will New York Lose Its Best Medical Minds to the Lure of Unfettered Research and the Promise of Biotech Billions?”
Doctors who have dedicated their lives to stem cell research elsewhere will now at least consider moving to California, where their work can enjoy much higher levels of investment and public support. Can it be long before a new ecosystem of stem cell biotech companies emerges in California? In this example, the state did not go out and woo companies to relocate in California, leaving the companies to recruit doctors and find investors. Instead, the state merely created an environment where all of those parties can come together and do the work they are all passionate about.
Another idea is to reach out to information workers, who are able to use technology to escape geographic boundaries. Could a consortium of writers and graphic designers be attracted to a small town in Georgia? If they were offered affordable housing, beautiful surroundings, and could continue to sell their services across the world via the Internet, then why not? Perhaps the community could start by upgrading its technology infrastructure, even offering Wi-Fi throughout the downtown area. The next step would be to launch an information campaign and invite the information workers to the town. Working together with the talent, the community could identify new ways to make the arrangement work.
This approach could also be used to help address some of the problems of offshoring discussed in Chapter 2. In rural America, for example, many towns have experienced unemployment rates of 9 or 10 percent.
These places have people ready to work. Presumably, it would also cost much less to run certain operations in, say, Moses Lake, Washington, than it would in San Francisco. In addition, the same technology that has enabled companies to use radiologists and call center workers from overseas can enable similar, domestic operations.
For companies, of course, decisions about where to locate often come down to cost. But offshoring is no panacea of free labor. It is a major expense, and many executives, when asked, say that if the costs were more competitive, they would much rather relocate jobs inside their home country than outside. Smaller communities are in a position to capitalize on that sentiment if they can make themselves more competitive.
To become even more competitive, what if the state of Washington and the city of Moses Lake took steps to lower those location costs even further? Perhaps they could develop a program, such as the one in Marquette or Paducah, to help subsidize worker salaries at a new plant in Moses Lake, exempting the workers from local property taxes, or even providing them with a lower state income tax. Maybe the state could help subsidize the employees' insurance and benefits costs.
Possibly, like Marquette and Paducah, communities will start looking for more creative ways to put themselves on the map. By using their ingenuity and resources, and by working together with talent, businesses, and state and federal government, communities where jobs are needed and the cost of living is lower might find that they can compete effectively in today's global talent market.
Not convinced that a real city could draw a viable talent base with the right incentives? For more proof, look no further than one of the fastest-growing city in the United States at the beginning of the twenty-first century. Decades ago, the city changed laws, rewrote rules, and designed and distributed incentives to create a city around an industry. Las Vegas was built to see whether they would come. And come they did, and they still do today—consumers, developers, financiers, knowledge workers, and working-class talent.
The idea of “free talent zones” is not so far-fetched. Are these our next competitive fields of dreams that communities should be taking a hard look at now to remain competitive?