In Part I of our series on “What keeps executives up at night?” we identified a common worry for leaders in an age of constant change and disruption: talent. As Dominic Barton (McKinsey), Dennis Carey (Korn Ferry), and Ram Charan (Northwestern University) write:

In our combined 90 years of advising CEOs and their boards, the three of us have never come across a moment like this, when virtually every CEO we work with is asking the same daunting set of questions:

  • Are my company’s talent practices still relevant?
  • How can we recruit, deploy, and develop people to deliver greater value to customers—and do so better than the competition?
  • How can I be sure that I have the right approach to talent—and the right HR—to drive the changes we need to make?

So, the follow-up becomes how can leaders think through the approach to talent and create a strategy to execute against and build company value? We identified three key ways leaders and organizations can address to build a sustainable advantage. As Michael Scott from The Office says, “You need to play to win. But you also have to win to play.”

Set (or revisit) vision and strategy and then assess current talent gaps

Identifying current talent gaps (or gulfs, in some cases) relies on a keen understanding of the company’s vision and strategy to assess talent. Key questions include:

  • Why do we need to change how we operate?
  • What is our company vision and what are our goals?
  • What are the company values?

While the above questions seem trivial they are core to any meaningful shift or change. A primary function of leadership is to develop vision and strategy and then align the organization to drive towards it. The most successful companies in the world – Amazon (“Earth’s most customer-centric company”) and Google (“Organize the world’s information and make it universally accessible and useful”) – have clear visions that reflect the company’s objectives and they continuously reinforce it. Generating a vision statement is tough and requires thoughtful introspection. Done well, it forces the organization to say “no” to activities that don’t conform. Taking a step back: how can a team of the most talented employees succeed if they don’t have a direction in which to go and an everyday guide to drive towards it?

Ok. There’s a clearly articulated vision and a strategy for how to drive towards it in place. What now?

This is where strategic workforce planning becomes critical to identify what traits are needed for the company’s next phase. As Aon CEO, Greg Case, opines, “People allocation is as powerful as financial allocation.” Some questions to consider:

  • Based on the vision and strategy, what are the CEO’s goals?
  • What initiatives are the CEO’s direct reports focused on to achieve those goals?
  • What talent gaps exist in the current organization to achieve those initiatives?

Teams must go through and identify the people — and budget — needed to achieve the work throughout the year and then flex up and down with outside resources/teams. The key to this approach is ensuring the core, agile team has the skills to work the different projects and is adaptable. The challenge of setting the appropriate budget should not be discounted and requires a thoughtful approach to talent acquisition (discussed below). In sum, courtesy of Mr. from McKinsey & Co., “Agile organizations built around empowered teams are the best way to constantly and nimbly match the right talent to the right strategic initiatives.”

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Sample planning document to identify talent gaps

Leverage tactics to attract (& retain A-players)

One of the biggest challenges retailers are facing is attracting great talent. As Scott Galloway says in NRF’s Retail Gets Real podcast, “In the digital age, the team with the best players wins…Your ability to recruit the best and brightest is the game. Full stop.” More than ever great talent and leaders have options outside of retail – from technology companies to smaller, and more exciting, brands. Retailers need to change how they attract top talent if they want to succeed in this new era of constant change. As Laszlo Bock, former SVP of People Operations at Google, says in his book Work Rules!, “If you’re committed to transforming your team or your organization, hiring is the single best way to do it. It takes will and patience but it works.”

So, how do you compete for the best talent? Here are three proven tactics, courtesy of Scott Galloway from his experience building successful teams:

1. Offer flexibility to the new, and diverse, workforce: as Scott points out, roughly 70% of high school valedictorians are females. The workforce will increasingly have more women and people of color (as demographics change). Try to understand their unique needs and tailor policies that align to them to both attract and retain employees. For example, allow them to work from home once a week. Create policies that offer flexibility and differentiate from legacy models that rely on 9-5 work.

2. “Throw money at them”: Google, Amazon, and Facebook all spend a great deal of money (including stock options) to attract top employees. Legacy companies will have to get used to this new way of operating if they want to compete for the same talent. Skeptical that paying top talent helps? Look no further than another team sport, soccer, where researchers Simon Kuper and Stefan Szymansi found that teams with the highest annual wage bills typically finished higher in the English Premier League:

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Research from Soccernomics

Why should this be any different in business? Teams with better talent (indicated through total compensation) will perform better, particularly in the digital age. Today, more than ever, top talent has options and, thanks to tools such as Glassdoor and LinkedIn, they understand their market value.

A consideration for companies going forward will be to change the traditional compensation model whereby sr. managers are paid far more than individual contributors (such as engineers, data scientists, or strong generalists) to succeed. As Scott Galloway so eloquently says:

Old economy companies are going to have to get used to the fact that in some instances the people they hire are going to be making more money than the people who have been their 5 years. People freak out and say they can’t really do it and understand it causes a culture shift…There’s no getting around it. If you want to hire the best and the brightest from the best schools you have to give them some flexibility and you have to pay them well. Most old economy companies talk a big game about recruiting the best and brightest but don’t want to make that kind of investment.”

In short, companies need to re-think their strategy to attract and retain top talent to succeed. This means conscious investments and changes from the CEO in conjunction with the CHRO.

3. Retention: Now that you have recruited top-notch talent and given them a vision to pursue, the challenge shifts to making sure they stick around.

Everyone wants to be successful however, a successful career looks different today than it has in the past. Instead of being a linear progression, careers are now a fluid and evolving organism which need consistent check-ins and nurturing. The new workforce – millennials in particular – want, and typically get, regular streams of feedback in their daily lives which has bled in to the workspace (i.e. LinkedIn, Indeed, workplace chat apps, etc.) Little wonder that they perceive instant feedback as vital for their career development. While traditional organizations may disregard this as unnecessary, or a passing workplace fad, they do so at their own peril. A few ideas on how to evolve and provide meaningful interactions:

  • Separate development and performance: It pays to make a clear distinction between personal growth and results. By structuring a clear divide, you help employees hone in on their long-term goals (development) without muddying the waters of their short-term goals (recent performance). This sends a clear signal that a company values both aspects of an employees’ career – and will help develop both.
  • Focus on top and bottom performers: Pioneered by Jack Welch at General Electric in the 1980s (“Vitality curve”, aka “Rank and Yank”, by cutting the bottom 10% of performers every year) ensure all employees know that there are expectations and those that exceed will be rewarded and those that fall behind will not. While we don’t advocate for such drastic measures, (GE recently abandoning the practice as well) employees must believe they are a part of a high-performing team – and high-performing teams are constantly raising the bar for their bottom 10%. Borrowing a concept from Kim Scott’s “Radical Candor”, help employees understand where they truly stand so that they can course-correct or self-select to leave the environment.
  • Let star employees lead by example: Make sure that rewards are celebrated. The last thing that you want to do is have an employee believe they are a superstar when in fact, they are not. Misalignment can lead to painful experience for all parties. By consistently bringing actions to the forefront and employees that embody the values cherished by the organizations, others will start to trust that every step they take towards accomplishing the company’s vision is noticed.

Beyond your workforce – identify alternative talent models

A key to meeting the challenges of constant change in the future will be to identify alternative talent models going forward to match the right people to the right strategic initiatives. As Mr. Barton from McKinsey & Co. says, “We’re saying that 2% of people are driving a lot of value. You’ve got to find those people.” This will mean re-thinking traditional employment models (W-2 employees) and shifting to consider contract roles or small consulting teams for portions of work. Increasingly, talented individuals work at boutique professional services firms or for themselves primarily because it a) provides them flexibility in terms of both lifestyle and their work and b) they’re often able to earn as much or more than they would with a traditional employer.

From a big picture perspective, former CEO of Yum! Brands, David Nowak recently laid out that, “Millennial turnover is costing the country $30.5 billion each year.” With employees spending less time with employers, why fight the trend? Companies must figure out how to embrace this turnover to access the most talented players in the market.

Organizations can turn this approach into an advantage by hiring contractors or small consulting teams. These individuals bring valuable experience from outside of the organization and add a different dynamic. In our research, we came across an organization that hired a small to work cross-functionally across the organization to lead its strategic workforce planning efforts. Due to the sensitive nature of the information (total compensation, for example, for employees) and the multi-disciplinary focus (strategy, FP&A, executive presentations, etc.) it made sense to have the team manage rather than someone internally who might have higher aspirations in the organization.

Summary

In sum, creating a sustainable advantage with talent requires engagement from leadership at the top of the organization to evaluate all aspects of the business from vision and strategy to planning to recruiting. The challenge is significant; however, it is the clearest path to creating a sustainable competitive advantage in a world of constant change. Like anything else, it requires sustained effort and focus (over a 12 to 18-month period) and the right partners. But, as Yogi Berra once said, “If you don’t know where you are going, you’ll end up someplace else.”