Can a Talent Market Work Inside the Organization?

“I'm free to do what I want any old time. I'm free to do what I want any old time. So love me, hold me, love me, hold me. I'm free any old time to get what I want. I'm free to choose what I please any old time. I'm free to choose what I please any old time. So hold me, love me, love me, hold me. I'm free any old time to get what I want, yes I am.” Lyrics from “I’m Free” - (M. Jagger/K. Richards)

Lately, I’ve been hearing this old Rolling Stones standard from the Sixties as a part of a T.V. commercial for some brand of financial services targeted at Boomer’s with bloated bank balances (regretably only a half-accurate description of me). While this ad is aimed at helping people achieve their retirement dreams, it also aptly describes the attitude of talented individuals that many HR and business executives are increasingly facing within their organizations. Talent is freer to do and get what it wants “any old time” than it has been in many years. Some companies find this hard to take – exhibiting a “let ‘em leave” attitude while many just shell out more money and perks to keep top performers. But maybe what many talented people really want isn’t necessarily more money (although it doesn’t hurt) but to move to new roles and learn new things. If they can’t do this within their existing employer then they’ll find a new job that suits them better. So if you want to keep ambitious workers then why not let them change jobs more freely inside the company?

Indeed, consultants McKinsey & Company have recently published a paper, “Making a Market in Talent” which argues for establishing open markets for talent inside of organizations. It argues that internal markets will lead to better allocation of skills and knowledge than traditional hierarchies.

Freeing Up Talent

Despite all of the attention that many companies pay to recruiting ‘top talent’, it’s amazing to see how little some of them pay to how that talent is used once they are on board. Millions are spent on recruiting efforts, but relatively little is allocated to making sure their skills and knowledge are continuously developed and agilely deployed to the most appropriate opportunities throughout the organization. Instead, people get stranded on functional islands – finance, IT, marketing, or out in a business division or regional unit. Little information is shared across these boundaries; indeed no one at all may have an enterprise view. As a result, talent get stuck where they are or poorly redeployed. Performance drags and people leave throwing the ball back to that well-oiled but costly recruiting process.

McKinsey argues (as do others) that a different approach to talent should be taken, one that frees up people from many of these constraints. By implementing internal talent marketplaces, companies can give managers the best opportunity to mobilize the talent they need for success while giving the most talented people better opportunities to utilize and develop their talent. In their view, relying on individual self-interest rather than top down mandates and job rotations is a better away to achieve productive enterprise-wide collaboration and resource synergy. The company gets work done more efficiently while individual workers expand their company-specific knowledge.

Top-down talent development and deployment models are often ineffective especially in today’s talent intensive businesses. Worker mobility is constrained to within departments and business units. Information about opportunities and skills is limited and not widely accessible. Too much development focus is on moving people vertically up the ladder into leadership positions rather than laterally across the organization. Attempts by HR departments to develop ‘high potentials’ are usually confined to grooming a small group of people for specific management positions rather than applied to a wide group of talent to take on a broader set of roles.

McKinsey says these models that ‘push’ talent to where companies deem they are needed most should be replaced with models that ‘pull’ knowledge and talent.

Bringing the Market Inside the Hierarchy

Talent marketplaces already exist in many legal and professional services firms as well as in academia and within the R&D units of large corporations. According to McKinsey, they operate following informal rules of conduct and generally work best when relatively small (under 100 people). They also tend to involve high potential and elite performers within the organization. Managers try to woo these individuals to work for them while the performers seek out the most attractive assignments.

McKinsey however recommends that organizations create formal and managed internal talent marketplaces that “bind the interests of individuals to the interests of the company and ensure a fair exchange of value to both parties in the transactions.” They believe that talent marketplaces are not for every company or worker but work best in large, growing, knowledge-driven companies with individuals doing complex, judgment-based work.

McKinsey recommends implementing systems to make all pertinent information about the jobs and the candidates visible and consistent so that open and fair comparisons can be made and hiring decisions are transparent. The terms of employment should be formalized – laying out a specific contract for a job that spells out the role, duration, responsibilities, travel etc. Contracts should be time-based, usually from 1-3 years. HR plays the role of talent broker to promote the process and the interests of both parties.

Talent participating in the marketplace should be treated as ‘restricted free agents’ and competition for jobs should be non-price based because this would go against the interest of the company which is to maximize profits. Instead, enterprise standards of pay for performance should be established and competition centered on other non-monetary factors such as the nature of assignments, opportunities for growth, duration etc.

To make the market work consistent definitions of roles and qualifications as well as standardized and comparable performance evaluations are needed. The authors cite the US military as an organization that has implemented a system of standardized role and qualification definitions that allows it to rapidly shift its people and skills mix around.

McKinsey asserts that talent marketplaces are especially suited to the most highly-talented, self- directed people. They will see greater demand for their services and have more mobility because bosses won’t be able to block their movement and career progression. They will develop faster and build better knowledge of the organization and a network of contacts by moving around. In addition, “such self- directed and talented people are the very ones an enterprise is most at risk of losing since they are the most likely to be actively testing external talent markets to find more attractive opportunities.” Leaders across the organization will have a bigger pool of internal talent to tap for important roles. The company wins because presumably the best people will always be in the roles best suited to their skills and credentials.

McKinsey admits that internal talent marketplaces are very difficult to create in companies with “well- established organizational silos”. So organizational structures will need to be redesigned and corporate culture changed for this approach to have any chance of working.

Why Not a Free-For-All?

Although not easy to implement even in the best of circumstances, the potential benefits of internal talent marketplaces make them worth piloting and more companies should try them. It’s always been mystifying to me how easy it is for the typical worker, let alone top performers, to jump from one employer to another yet how difficult it is for many to move to another department on the next floor. This 'stay put or leave the company' approach may be all well and good if you are in a business with little change and lots of cheap, easy-to-replace labor.

But if you are competing, as most companies increasingly find themselves doing, on skills and brain power, then allowing talent – all of your talent - the freedom and mobility to move into new roles and different parts of your organization makes a lot of sense. People will be more motivated to stretch and grow and their skills better developed and deployed than in static models. And staff will be more likely to accept and thrive in new roles for which they actively compete and qualify than those they are assigned to from higher ups or HR.

But why limit talent marketplaces to only ‘top talent’? Why should only certain classes of workers have greater levels of freedom to pursue jobs and careers than others? This simply reinforces the caste system that already exists in many large hierarchically structured organizations. Opportunities for job and development mobility should be determined only by a person’s skills, experience, knowledge, performance, ambition, enthusiasm and potential not whether they are part of the elite or a special group.

So make sure your organization's theme song for talent is “I’m Free” because anyone hearing “You Can’t Always Get What You Want” will sure to become a "Ramblin Man" (and woman).

The Misguided War for Talent

Here we go again. Just when HR executives were getting used to having a brisk wind behind them in the race to find and retain talent, the demographic and economic winds reverse – blowing back against them and at gale force no less. As scores of articles in the press and reports issued by various associations, think tanks and consulting firms all seem to be urging, it’s time to fire up the recruiting machine because ‘talent’ will soon be (if it isn’t already) in very short supply. No more leisurely cherry picking of the best and brightest. Forget about gearing up for the next RIF (a dreadful euphemism) program, it won’t be needed, at least for awhile. The battle for brainpower is here. The war for talent has resumed. Companies appear to be again frantically chasing after top talent and showering it with all manner of perks and riches. As one HR executive from a super-sized energy company recently told me, “All we’ve been doing for the past several years is downsizing but now we are gearing up to recruit several thousand people.”

The Battle for Brainpower

The October 7th-13th, 2006 issue of The Economist contains a special report focused on the new battle for brains. It asserts that talent has become the world’s most sought-after commodity and that a shortage is causing serious problems. To support this claim, the article cites findings from a recent international survey of HR executives by the Corporate Executive Board indicating that “attracting and retaining talent” was their top priority and that over six out of ten respondents were concerned about company-wide talent shortages.

This Economist survey is written by the usually brilliant Adrian Wooldridge. Although high level and intellectually stimulating, it ultimately proves to be a somewhat disjointed collection of facts and ideas – with one critical contradiction. In the beginning of the piece, ‘talent’ is referred to as a commodity while in the latter sections talent is portrayed as an elite group of highly-skilled and highly-accomplished people.

The author mentions the usual suspects – the growing value of knowledge, skills and intellectual capital, the aging population and the diversity of the workforce - as the key structural changes that are making talent more important. No surprises here but Wooldridge smartly argues that these trends call for new levels of leadership acumen. Eyebrow-raising evidence is cited such as NYU Professor Baruch Lev’s study showing that talent-intensive assets ranging from skilled workers to patents and know how now account for over fifty percent of the market capitalization of America’s public companies and Accenture’s assertion that intangible assets constitute 70% of the value of the S&P 500. These data points provide rather dramatic quantification of the enormous economic value of brain power and suggest that driving gains in shareholder value now demand talent management skills perhaps more than financial engineering ones.

The author insightfully points out where the aging population will hurt companies the most. He quotes a finding from a report by RHR International that America’s 500 biggest companies stand to lose half of their senior leaders in the next five years while many of these companies have decimated the ranks of middle managers who would have been in line to replace them. He also explains that a less loyal and less standardized workforce means that managers will not only need to deal with lots of different types of people but also manage workers spread out in different regions and across different functions. This will lead to even more competition for scarce leadership talent.

Wooldridge argues that the “talent war” must be taken seriously but that talent is often too narrowly or too broadly defined. The author defines talent as “brainpower – the ability to solve complex problems or invent new solutions.” He argues that the need to gather talent is prevalent among all companies, that the search is now global with even governments getting involved, and that there has been a general shift from a talent buyers market to a talent sellers market. Lastly, the survey discusses the inequalities of how talented people, particularly top managers, are rewarded compared to the rest of the workforce and how well the concept of meritocracy is working in business.

The Pros and Cons of Meritocracy

The dictionary defines meritocracy as a system in which advancement is based on individual ability or achievement. While the Economist strongly supports the concept of meritocracy, it also expresses strong concerns about it leading to compensation inequality and elitism. Wooldridge points out that America has the freest market in talent but is seeing the most dramatic increase in income inequality. He cites an academic study of income distribution showing that the share of income going to the highest earning 1% of Americans doubled between 1980 and 2004 and the share of the top .1% tripled. Despite these concerns, the author concludes that these income trends are sensible citing statements from Google and Microsoft executives extolling the disproportionate contribution and value of the talent elites working within their organizations.

The article also praises the widespread use of “up-or- out” practices by most successful professional services firms that emphasizes competition by the many for a few top spots as a sign that this kind of winner-takes-all competition among talent is the best approach to ensuring high performance.

Wooldridge concludes by stating that “the success of advanced economies is increasingly dependent not on their physical capital but on their capacity to mobilize their citizens’ brainpower.” He asserts that the rise of global meritocracy is the most beneficial way to achieve this. The author concedes that there is likely to be a backlash against talent but that the way to prevent it is to make sure everyone gets a fair chance in the game.

Not everyone agrees that meritocracy is good. One particularly elegant dissenting opinion is offered in the article “The Natural Basis of Competition and Meritocracies”, appearing in the blog Slow Leadership. It argues against meritocracies as a way to organize people in business by pointing out their significant downsides such as the risk of bias and subjectivity, pitting people against each other by creating winners and losers, and making people fear failure and thus diminishing their appetite for taking risks.

Meritocracy is Good but Winners Take All is Divisive

Many American corporations and workers embrace the principle of meritocracy – that people are individually recognized and rewarded for their accomplishments and contributions to their employers. Yet policies that allow a few winners to reap most of the rewards seem to be pervasive in many large organizations and are responsible for creating ambition-driven, money-obsessed elites. It seems to me that in the era of competing on brainpower, it’s just as important to leverage the broad range of knowledge in an organization as it is a few brilliant individuals. It therefore may be better to divvy up performance rewards more broadly and equitably rather than concentrate a big pile of money for the elite few.

Providing more opportunities to more people to reap relatively few big payoffs as the Economist recommends won’t eliminate income inequality and elitism. This doesn’t promote meritocracy in my view but another form of hierarchy, albeit one much flatter and with far more wealth concentrated at the top. Indeed, with layers of middle managers removed and companies making increased profits, there has been far more to go around to a smaller group of people. This elitist approach is one reason why there are so many overpaid CEOs while the compensation growth of the majority of workers has remained flat.

The issue then is not whether meritocracy is good or bad but how to do it right. What should the logic of meritocracy be – that the most talented receive the lion’s share of rewards or that all performers are rewarded commensurate with their contribution? There is no doubt that top talent is important but leaders should be seeking to leverage and reward the contributions of all talent, not an elite few. They would be wise to forget about fighting and winning talent wars and instead strive to create a meritocracy of the many rather than an autocracy of the elite.