What is the most pivotal work your company does? Breakthrough innovation? High-profile clients? Big-picture strategy? Patent protection? Typically, such work requires skills that are both unique and valuable.
Common wisdom — and some human capital theory — holds that organizations should always engage unique and pivotal talent by hiring regular full-time employees, so they are both readily available and protected from competitors.
But it may be time to rethink the standard. The traditional way of working with unique and valuable talent is being challenged by emerging work arrangements that go beyond employment. Today, the decision between hiring and outsourcing talent depends not only on whether the talent is unique, but also on the type of uniqueness.
The Traditional Argument: Hire Valuable Talent (Unique or Not)
A widely cited article on human resource architecture by David Lepak and Scott Snell defined two dimensions of human capital: (1) "uniqueness" and (2) "strategic value."
For talent with high strategic value and high uniqueness, Lepak and Snell recommend organizations rely on long-term employment and development. For high strategic value and low uniqueness, they tout "job-based employment to perform predetermined tasks." For talent with low strategic value but high uniqueness, they recommend alliances. It is only for talent with low strategic value and low uniqueness that they promote outsourcing — which echoes traditional employment-focused HR practices.
However, looking a bit deeper reveals hidden value in outsourcing. In "Lead the Work," my co-authors and I show that talent networks, professional services organizations and outsourcing platforms have evolved from simple job matching services to sophisticated work ecosystems. You can increasingly look beyond employment to find unique workers who can perform pivotal work. In addition, those unique workers may prefer project-based engagements to working full-time — freelancers in the gig economy offer increasingly varied talent options.
So, how should you decide whether to employ or outsource talent? It requires an understanding of the different kinds of uniqueness.
Talent Is Unique In Different Ways
Human capital can be "unique" in two ways: (1) unique to your specific organization or (2) unique to your specific industry. Let's say your company is applying for a patent for a new product: A patent lawyer with organization-specific uniqueness would be an expert in patents affecting product lines or technologies unique to your company. On the other hand, a patent lawyer with industry-specific uniqueness would be an expert on patents relating to products and processes throughout your industry, across many companies.
It may be best to hire the organization-specific unique patent lawyer, but to outsource the industry-specific unique patent lawyer.
Why? Research by Kyle Mayer, Deepak Somaya and Ian Williamson suggests that an external law firm can offer many more opportunities for lawyers to hone their skills industry-wide, because the law firm can be the outsourced provider of work to many individual companies and can afford to compensate industry-specific unique lawyers highly.
The same thing is true for talent platforms — they can attract the very best of the best in industry-specific areas such as graphic arts or software coding.
Deconstruct Jobs to Reveal Uniqueness Opportunities
Following traditional logic, a company might hire a worker with industry-specific uniqueness, but such full-time employment can actually reduce those skills. Indeed, not employing industry-specific talent may be the best way to keep their skills finely honed.
Returning to the patent lawyer example, a lawyer at a single company will likely spend time on work that is not related to their industry-specific skills, compared to lawyers that work more consistently on industry-specific projects. Supporting this, Mayer, Somaya and Williamson found that companies often outsource industry-specific legal work, particularly in highly-litigated areas. So, before you assume you must hire unique talent, consider outsourcing for highly skilled and pivotal work.
HR leaders must equip their organizations to deconstruct work, look inside the "job," and think about what type of unique talent is needed. By "deconstructing" typical work systems, leaders will find new uses for outsourcing and build a smarter talent structure.
Photo: Creative Commons
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A New Poseidon Adventure: Flipping Succession Planning Upside Down
Organizations make significant investments in efforts to hire the right candidates – the people who have the right experience and cultural fit. By carefully managing the performance and potential of these people over time, the organization can grow its leadership pipeline, keep a steady inventory of needed skills and competencies and remain nimble in the face of change (which we have plenty of all around us these day) – all of which can have serious impact on the bottom line. However, much of this pie-in-the-sky stuff relies on being able to locate and cultivate high-potential and high-performing talent across the board. Without an integrated succession management solution, recognizing and developing talent can be an ever-elusive process. The questions we are seeing asked today include: does the traditional top-down approach to succession management still make enough of a difference? Does managing succession for a slim strata of senior executives take full advantage of the kinds of talent data we now have at our fingertips? It doesn’t have to be so. Succession management can be an interactive process between senior leadership, managers and employees at all levels of the organization. And, if we trust them, we can actually let employees become active participants in their own career development. (Shudder.) Career Management (Succession Planning Flipped Upside Down) This "bottom-up" approach is gaining momentum because who better to tell us about employee career path preferences than employees themselves. Organizations actually have talent management and other HR systems in place that allow for collecting and analyzing a whole slew of data around: Career history Career preferences Mobility preferences Professional and special skills Education achieved Competency ratings Performance scores Goal achievement Training and certifications Etc. In short, pretty much everything we’d want to know to make well-informed succession planning and talent pooling decisions. For some, the leap is simply putting some power into the employee’s hands. The talent management system of 2011 is capable of displaying a clear internal career path for employees and then, on the basis of all that data bulleted out above, showing a "Readiness Gap" – what do you need to do to make the step to the next level? And if your talent management environment comes armed with a real Learning Management System, you can take it to the next level with a dynamically generated development plan that gets the employee on the right path to actually closing those gaps. Faster development, faster mobility. Organizations that seriously favor internal mobility don’t just make employees stick on pre-defined career paths – they can search for ANY job in the company and check their Readiness levels. I might be in accounting today, but what I really want to do is move to marketing. Giving employees the chance to explore various career avenues within the organization helps assure that "water finds its level" – that is, that the right people with the right skills and the right levels of motivation and engagement find the right job roles internally. Employee participation is key, but make no mistake – managers play an important role in this interactive process. They must be prepared to provide career coaching, identify development opportunities and recommend employees for job openings. The candid discussions require that employees have open access to information so they can best understand the criteria necessary to move to the next level. A Two-Way Street Employee-driven career management is just one tool. The more traditional top-down approach to succession management remains indispensable. But organizations that value talent mobility and the ability to be able to shift and mobilize talent resources quickly will find that attention to career pathing can be vital. For employees, of course, the impacts are immediate and include boosted levels of engagement, higher retention, increased productivity and more.
The Hidden Costs of Ignoring Your Talent Management Strategy
Building and maintaining a successful company hinges on having the right people to execute projects and drive results. People, we hear time and again, are your company's most valuable asset. But their success — and HR's ability to recruit, engage and retain them — depends on HR pros who are strategic decision-makers, armed with the proper tools to let them excel at their jobs. Modern HR professionals manage much more than payroll and benefits. But their technology tools, in many cases, haven't evolved past basic productivity software like email or Microsoft Word. HR simply can't be strategic with old-school tools that reduce people to statistics and give little insight into what the numbers mean. Emails and spreadsheets were not designed to deliver meaningful insights into people's performance, suggest when employees should be promoted or highlight skills gaps in a company. For that, HR needs a broader, more strategic set of talent management tools, which lets professionals manage every aspect of the workforce, from training and performance reviews to collaboration and succession planning. Yet, research shows that less than 25% of companies use a unified, holistic approach to their talent management. The Real Costs of "Doing Nothing" As a Talent Management Strategy The critical relationship between business strategy and HR strategy too often gets overlooked by senior leadership. While it may seem like the company is saving money by managing recruiting, training, performance and succession via manual and paper-based processes, in reality it’s costing your business more than you know. For example: Without a talent management strategy, a company with 2,000 employees is losing almost $2 million every year in preventable turnover alone. Businesses that don’t invest in learning suffer from decreased employee performance and engagement to such a degree that they can expect to realize less than half the median revenue per employee. That’s a direct impact on the business. In employee performance management, organizations without a focused strategy waste up to 34 days each year managing underperformers and realize lower net income. To learn more about the business impact of talent management and how to start building out your strategy, check out the eBook Why Your Nonexistent Talent Management Strategy is Costing You Money (And How to Fix It) and register for the March 19th webinar, Building the Business Case for Talent Management.
The Return of the Moderate Merit Budget – Wreaking Havoc on Pay for Performance
With the economy now on steadier ground, most organizations have returned to administering a merit budget to the pre-recession levels of 3 to 3.5%. In the years immediately following the economic downturn, many merit budgets were eliminated entirely or were reduced significantly and reserved for a select segment of the employee population. Pay for performance has become a necessity for many organizations that are expected to accomplish more with fewer resources. I often get asked: "How can I truly award my top performers with such a limited budget? Should I do so at the expense of my ’Meets Expectations’ performers? What if I need to retain my ’Meets Expectations’ performers and giving them 0% to 2% increase puts me at great risk for turnover? But if I don’t recognize my top performers, don’t I risk losing them...?" These are difficult questions to answer, however you can determine the best solution for your organization by considering the following: Are your employees paid at market pay levels? Is your organization’s performance management process mature? Does your organization have other compensation programs in place to reward top performers (e.g. variable pay)? Market Pay If turnover is a concern, and your organization needs to maintain ’bench strength’ in order to achieve its strategic objectives, your biggest priority should be to ensure that you are paying your employees at market pay levels. Why? Historically, as the labor market strengthens, organizations become vulnerable in terms of losing people. Hiring and onboarding replacement talent is not only costly to the organization, but can also cause dissension among existing employees since new hires may be getting paid more. Be sure to stay abreast of market pay levels and trends, and use the merit budget to correct disparities. Performance Management Process Organizations vary significantly in terms of the maturity of their performance management process. Closely examine your organization’s process and look for ways to improve it. If there is a perception that one management team is an ’easier grader’ than the others, the process is inherently flawed and any pay for performance program will not be viewed as credible and fair by employees. A good place to start is to get a calibration process in place and communicate broad guidelines on expected distribution ratings. Variable Pay Programs Variable pay programs (e.g. bonuses) have become increasingly more popular across all industries and career levels. These programs provide the opportunity for employees to share in the organization’s success while not adding to fixed payroll costs. Some plans have an individual performance component which can be a very effective means to recognize top performers. However, in order for this type of program to be successful, individual goals and targets must be well documented and communicated. Again, this is largely based on the maturity of the organization’s performance management process which takes time to evolve. What are the best steps to avoid wreaking havoc on your pay for performance process? First ensure your pay levels are keeping pace with the market Continue to evolve your performance programs with calibration among managers and a rigorous goal setting process Promote variable pay plans to reward high performers without adding to fixed pay roll costs It’s not always an easy journey but, in the end, it’s best to use a measured approach that is based on business needs and a realistic assessment of your current programs and processes.