Developing an Effective Talent Management Strategy

This essay’s aim is to define an effective talent-management strategy and the challenges involved with identifying and developing talent. Talent management was classified in 2015 by Boston Consulting Group as one of five critical challenges for Human Resources (HR) in the European context alongside managing demographics, work-life balance, change and cultural transformations as well as becoming a learning organization.  HR puts forward that employees are the key factor in creating competitive advantage (Guthridge, Komm, and Lawson, 2008).

Talent management (TM) is seen as a solution by HR in order to improve organizational efficiency (Collings and Mellahi, 2009). TM practices do not only affect macro-outcomes dealing with finance of the company but also have an impact on micro-outcomes such as employee attitudes and behaviours. This can be explained by the fact that TM targets the highly valuable and unique employees (i.e. high potentials) whom are assumed to generate the greatest return on investment (Lepak and Snell, 1999). 

Although talent management has been recognised as on important by HR practitioners, there is still a lot of debate about the term itself.

The first definition characterizes talent management simply as “anticipating the need for human capital”, it is founded on the implementation of a talent-on-demand framework (McCauley and Wakefield, 2006).  This model would apply operations management principles to talent management hence allowing for a better anticipation and quicker adaption to shifts in demand (McCauley and Wakefield, 2006). However, this definition limits people to assets that can be used to reach an organization’s need, it does not factor in the human element. The Chartered Institute of Personnel and Development (CIPD) defines talent management as the practice that “seeks to attract, identify, develop, engage, retain and deploy individuals who are considered particularly valuable to an organisation”. It becomes a process directed towards discovering, developing and sustaining talent through different practices and activities put in place by an organisation (Armstrong and Taylor, 2014).  Here, talent management establishes a clear link between both workforce competencies and future organisational goals.

However, strategic talent management is defined by Collings and Mellahi (2009) to be “activities and processes that involve the systematic identification of key positions which differentially contribute to the organization’s sustainable competitive advantage, the development of a talent pool of high potential and high performing incumbents to fill these roles, and the development of a differentiated human resource architecture to facilitate filling these positions with competent incumbents and to ensure their continued commitment to the organization”.

To sum up, a definition TM should be comprised of identifying key positions, developing talent pools of high potential and performing employees and finally developing a differentiated HR architecture to facilitate the assignment to those positions. In order for TM to be effective stakeholders from different parts of the company must be involved. This comprises participants (that have completed talent programmes), managers (more particularly line managers in charge of identifying and developing their talent) and HR (giving guidance and support).

Iles, Chuai and Preece (2010) distinguished four perspectives on TM: first, an inclusive, people-focused perspective that is founded on the assumption that all employees are talented but in different ways; second, an exclusive, people-focused perspective in which employees are differentiated according to their added value to the organisation (Gallardo-Gallardo, Dries and Gonzales-Cruz, 2013; Iles, Preece and Chuai, 2010); third, an exclusive, position-focused perspective in which people are differentiated according to the strategic importance of their positions; and fourth, a social capital perspective that – as a reaction to the dominant focus on talents as individuals – stresses the importance of considering the impact of the work context (e.g. teams, leadership) when identifying high potentials. 

The practice of workforce differentiation is based on the resource-based view of the organisation (Barney, 1991; Wright, Smart and McMahan, 1995). Justifying that organisational efficiency increased when “critical and talented’ groups of employees are identified (regarding their value and uniqueness) and managed according to different employment modes (Lepak and Snell, 1999).

At the exclusive extreme, organizations might allocate 90% of their resources (e.g., monetary and non-monetary rewards, training budgets, promotion opportunities) to only a select and exclusive group (pool) of their employees. This differentiated investment is referred to in literature as ‘workforce differentiation’ (Becker, Huselid and Beatty, 2009; Huselid and Becker, 2011; Berger and Berger, 2004). At the inclusive extreme, organizations might allocate their resources equally among employees sometimes allocating more resources to low-performing employee groups in order to achieve overall better performance (Bothner, Podolny and Smith, 2011).

The inclusive approach to TM is believed to have a positive impact on the overall working environment (Warren, 2006) the exclusive approach is assumed to generate higher return on investment regarding in terms of profit and productivity subsequent to higher motivation of star employees (Boudreau and Ramstad, 2005).

For strategic talent management, it is argued that the first step should not only be the identification of “A performers” (Huselid and Becker, 2011) but rather “A positions” (Axelrod, Handfield-Jones and Michaels, 2002) which could potentially have a positive impact on sustainable competitive advantage. To understand challenges faced by the talent management process, we must identify different components of a talent pipeline (Stahl et al., 2007). These include attracting/recruiting, developing, rewarding, tracking, exciting, deploying but also engagement, retention and performance management.

All companies create systems to identify high-potential candidates. These are based on leadership competencies and assessment. Companies generally try to identify leadership talent through diverse inputs including performance evaluations, 360-degree reviews, assessment centre results, and sometimes standardized aptitude tests. Assessing leadership potential usually done by comparing the employee’s competency (and performance) profile to that of successful leaders.

Many companies develop talent pools and inventories both for selection and succession purposes. In most companies, high-potential employees receive formal training, mentoring, and job rotation. Succession planning (Conger and Fulmer, 2003) is than used as a guide to allocate resources by tying in compensation and benefits to performance. The pharmaceutical giant Novartis uses the performance–potential matrix to align managerial behavior with its core values, such that managers get evaluated not only on their performance compared with objectives but also on their ability to live up to Novartis’s values, including integrity, empowerment, and compassion (Chua, Engeli and Stahl, 2005), .

Although the percentage of employees recognised as “A players” (following the McKinsey’s recommendation in “The war for talent”) only count for 10–20% of managerial and professional staff. For example, Unilever, the British–Dutch consumer products group, includes 15% of employees per management level in its high-potential list each year and expects these people to move to the next management level within five years. Some companies are even more selective. Infosys limits the number of high-potential employees it identifies to avoid inflated expectations that may lead to frustration, lack of productivity, and ultimately loss of talent. Only 500 of the firm’s more than 60,000 employees are designated high potentials, then grouped into three tiers on the basis of the anticipated time they will need to transition to a top management role.

A handful of studies have looked at the impact of employees identified as ‘high potentials’ (Björkman et al., 2013; Dries, Pepermans and De Kerpel, 2008) regarding workforce differentiation. Relatively speaking, the self-perceived high potentials were more committed to develop their competences. However, Marescaux et al. (2013) found that workforce differentiation can also lead to negative effects. Employees who experienced a less favourable treatment than others had a lower affective commitment compared with those who experienced an equal or a more favourable treatment.

Identified high potential employees will naturally reciprocate with beneficial attitudes and behaviours (Kuvaas and Dysvik, 2010). Supporting this are findings in psychological contract literature, these show that the high potentials feel obligated to positively enhance their work behaviours in response to investments made by the organisation (Höglund, 2012) . On the opposite, non-identified high potential employees might reciprocate with counterproductive attitudes and work behaviours because they feel their organisation disrupt the exchange relationship (Turnley and Feldman, 2000).

Gelens et al. (2014) found that the feelings of distributive justice among interviewed employees were related to job satisfaction and work effort. It showed that people put more effort in their work when they perceive the workforce differentiation procedures (talent identification) to be fair, and less effort when they perceive them to be unfair. This could be explained by two-factor model described by McFarlin and Sweeney (1992), which posits that outcomes in favour of the organisation (e.g. work effort) are more influenced by procedural justice, while more personal outcomes (e.g. job satisfaction) that are closely linked to positive emotions are primarily driven by favourable distributive justice perceptions.

McDonnel et al. (2010) state that there can be a number of groups of staff that might be classified as talent. These include specialist functional staff, people that are identified as critical to the firm’s organizational learning and core competence by virtue of the particular knowledge or skills they possess (CIPD, 2006; Heinen and O’Neill, 2004). These individuals are part of the ‘key group’ (talent pool) (Edwards et al., 2007). These may range from analysts to client executives to chemists to research and development (R&D) staff. Given the evolutionary nature of the way critical skills are seen, the most talented can also be seen as those who adapt most successfully to their changing organisational environments (Brown, Hesketh and Williams, 2004). 

These also include high-potential employees viewed as the next generation of organizational leaders (CIPD, 2006; Collings and Mellahi, 2009; Stahl et al., 2007; Stiles et al., 2006). These are high-potential, exceptional performing individuals who will in time move into key strategic roles that will determine the success, or failure, of the firm. They are believed to offer high value-added competencies and consequently hold great resonance with the knowledge-based segment (Black, Morrison and Gregersen, 2000; Evans, Pucik and Barsoux, 2002).

Many big companies have established state-of-the-art training centres or learning campuses; they work with the best universities and educational services providers and use the latest leadership development tools and technologies. Development strategies rely on the balance between leadership competency building with individual management development (Kaplan and Kaiser, 2003). 

IBM currently invests more than $700 million annually to develop the knowledge and expertise of its workforce. Employees spend an estimated 16 million hours each year (about 50 hours per employee) in formal training, either online or in traditional classroom settings. Employees designated as having high potential can take advantage of various leadership development programs, delivered in-house or by leading business schools around the world. Furthermore, successful companies make leadership development an integral part of their culture and actively involve their senior leaders in the process (Pfeffer, 2005). For example, P&G’s CEO Lafley remains convinced that “nothing I do will have a more enduring impact on P&G’s long-term success than helping to develop other leaders”.

Some companies instore a promotion-from-within policy, which encourages training and skill development. Given the possible promotion opportunities, it offers an incentive for strong performance and facilitates decentralization, participation, and information exchange, because it promotes trust across hierarchical levels. Nevertheless, only looking inside of the company might increase the risk of inward thinking over time. Therefore, companies such as GE and P&G rely on acquisitions and external recruitment to occupy approximately 20% of their midlevel and senior positions. This is used to re-energize management teams and avoid insularity and inertia.

One of the important factors of talent management is stakeholder involvement. Managers from all levels are solicited in the recruitment of talent and are responsible their development in skills and knowledge. Line managers play the role of coaches or mentors, providing job-shadowing opportunities, and encouraging people to move around within the organization for career development purposes. 

A talent development-oriented culture responsibilises employees on their development (seeking out challenging assignments, cross-functional projects, or new jobs) within the corporation. However, Stahl et al. (2007)’s web-based survey revealed that job rotations across functions or business units still remain underutilized development tools. Despite their belief in the effectiveness of job rotations and challenging assignments as career development tools, firms seem to lack the ability to implement them.

Open job posting systems provide an effective way to identify talent within the company and break down internal silos. For example, P&G maintains open job postings on its intranet. Employees can post their profile to the system, and managers can search for available candidates interested in a new posting. This system works best in cultures that encourages the move of talent within the company to accelerate development. This tool is used by P&G, Unilever, Shell, and GE (Barlett and McLean, 2006). 

Following this line is the emergence of internal “talent marketplaces” (Bryan, Joyce and Weiss, 2006) combining both corporate-wide performance management and salary systems. The fist system provides standardized assessments of employees’ experience, competence, and performance ratings, which line and HR managers use to determine current employees’ suitability for specific positions. Complemented by the second, which specifies the salary range for different positions creating transparency.

Nevertheless, development programs are not enough, they must be supported by the appropriate policy, legal and organising frameworks which will enable the long-term recognition, development and utilisation of appropriate capabilities.

To conclude, Stahl et al. (2012) have already emphasised the importance of having multiple levels of fit to increase the effectiveness of talent management practices. This includes aligning it with other HR practices (i.e. internal fit), linking it to the business strategy (i.e. strategic fit), and embedding it in the value system and leadership philosophy of the organisation (i.e. cultural fit).

Additionally, 'Proactive talent management' is key because it identifies talent, assess its strategic importance, develops it, and allocates training and other resources (Brockbank, 2002). 

Chugh and Bhatnagar (2006) describe TM as  a process which helps an organisation: to retain talent; to manage great talent's expectation of career, growth, designation, band, roles; to plan replacement and growing: business and individuals and to be able to identify the gaps in the talent pipeline, in relation to the business pipeline (Ching and Bhatnagar, 2006). A company’s image greatly benefits from demonstration training and development strategies in term of attractiveness (Berthon, Ewing and Hah, 2005; Younger and Smallwood, 2007).

Some companies even go as far as getting recognised a “great place to work” (https://www.greatplacetowork.co.uk/), based on an evaluation using a Trust Index Survey (employee experience survey) and a Culture Audit (details the practices and programs of the company).

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