Saturday, September 09, 2006

The Value of Talent

I have been writing several articles on hiring & retaining talent within an organization. Attrition rates in Indian BPO companies have reached 30% in some cases. Recently, I came across a case where an entire team of software developers threatened to resign if the work conditions do not improve. These engineers have been working more than 100 hours a week for last 9 months and the project does not seem to end anytime soon. Worse, they were not even recognized for their efforts. Most of this attrition is due to reckless use of human talent. Recent survey conducted by NASSCOM shows that about 40% of the employees who quit a BPO – leave the industry! This indicates a tremendous waste of human talent.

If these companies managed their financial assets as carelessly as they do with their human assets, then shareholders, auditors, and regulators would come down hard on them for inefficient use of funds. Although all CEOs and top management members tell "Our employees are the most important assets – or our employees are key to our success" etc., many companies cannot measure/manage their employees’ contributions to corporate value.

I have studied the Indian service industry very closely and based on my study and knowledge prompted me to write this article.

Causes of Inefficiency

Inefficiency in utilizing human resources stems from two fundamental mistakes by the company. Firstly the line managers are reluctant to categorize people based on their business impact, instead managers prefer to categorize into a larger buckets based on skills & experience. Secondly, the Human resource management policy is not aligned with the needs of the organization i.e., people are being classified by the roles or functions in which they work - but not one their experience or ability to perform the role. Often no attempt is made to map the person’s ability with the role he is supposed to perform. The ability of an individual to perform the assigned role has a huge value impact.

I believe that service providing companies need a far better understanding of the strategic value of employees; it is critical to success in the global marketplace. The company’s future growth and competitiveness depend more than ever on attracting qualified workers — an increasingly scarce resource— and helping them work efficiently together within the organization. In essence, companies which provide services to customers must think like theater troupes: Their success depends on timing and on every person executing his or her role, whatever it may be.

To cite an example: A large Indian IT company provides IT services to A British Telecom company. The Telecom project manager has huge project which needs to be executed carefully - i.e., the Indian IT company needs to understand the customer requirements in great depth. This implies that the person who should be sent to study the customer requirements must be experienced in conducting the study, must have excellent communication skills, and must know how to get the information he needs to conduct the study. But in reality, the person who is sent to London to study the customer requirements had never done that type of work before, had poor communication skills and was reluctant to ask questions. The result of selecting a wrong person to this task resulted in poor understanding of the customer requirement, wrong implementation of the solution, and a completely dissatisfied customer. At the end of the project, the person who conducted the requirement study was blamed - who got frustrated and left the organization.

The above example shows how inefficient mapping of the task to the person’s ability resulted in such a mess.

Understand the Business Impact

A strategic approach to managing the value of employees first requires a definition of the roles that must be performed on the corporate "stage." This means creating a taxonomy of jobs within the company that is consistent across business units and is separate from the individuals working at these jobs. This implies that an employee is expected to fulfill a function, with a number of tasks for which a number of skills are required. Some of these tasks are technical and some are related to the employee’s relationships with customers, coworkers and other outside agencies.

Line managers must first define the roles that needs to performed in that business unit. For example in an IT industry, the roles are: Business Analyst, Project coordinator, Technical Analyst, software developer, Test engineer, systems integrator, Customer assistance executive etc. Note that these roles are defined independent of the technical skills definitions.

A business analyst, for example, must be able to understand the business requirements of the customer, analyze the solution and communicate effectively with customers and coworkers. A project coordinator must be courteous, manage customer expectations and coordinate various activities on the customer side as well as service provider side. A test engineer must know how to perform the required technical tasks and meet the various quality standards.

Once these roles are defined, the next stage is to map the employee competency with that of role. Line managers must identify the various competencies of their employees - this includes technical skills and soft skills as well.

Understanding the Value Impact

Once the different roles have been defined, management is in a position to determine how important each is to the company’s ability to create value for customers and shareholders.
Certain jobs have a greater value impact on an organization; there is a substantial risk to financial performance or reputation if these tasks are not performed well. In some cases, but not all, these jobs merit higher compensation. Other roles carry a significant cost impact, because they require a good bit of training, development, and skill complexity to be performed adequately.

The roles which have the highest value impact These roles almost always command the highest salaries in the organization. See figure-1

On this basis, we can classify an organization’s roles into four broad segments, each of which requires a significantly different talent management approach.

  • Innovators
    These people devise and implement an organization’s distinguishing value proposition or business model. They include principal engineers, chief architect, scientists, etc., in a technology company. This also includes visionaries leader - CEOs, COO, CTO etc., who can innovate new business models and processes. Innovators are scarce resources with skills that take a long time to acquire and are costly to develop and maintain. As a result, they are paid very well and hence have higher cost impact.

  • Ambassadors
    Ambassadors represent the organization’s public face and are responsible for customer experience. Ambassadors can work in all levels of an organization. From the entry level position to that of a CEO. In an IT industry, the common ambassadors are: Project managers, project coordinators, Application support engineers, salesmen, account managers etc. The value impact of these ambassadors is very high - because if they don’t do their job well, the business can suffer significantly. Consequently, these people are paid according to the value impact they have on the business - i.e., CEO, Client partners, Account Managers are highly paid. Whereas front-line employees who are easily replaceable and their skills do not have to be particularly specialized are not highly paid. As a result the overall cost impact if fairly low.

  • Craft Masters
    Craft Masters ensure the quality, timeliness, and cost-effectiveness of an organization — the essential ingredients for the faultless execution of a business strategy. These are the design engineers in a high-tech business, the project managers, the marketing managers, etc.

  • Drivers
    Drivers keep the business running. They are back office operators, programmers, developers, IT support staff, administrative assistants etc. Although they are neither crucial to the success of a venture nor hard to hire, in most companies they represent the largest category of human capital, and bad management of this group can lead to operational disruption or quality problems.
The differences among these four segments are expressed in terms of talent valuation — such attributes as knowledge, experience, skills, and personal interaction capabilities — and not in terms of organizational structures (such as business units) or in human resources management terms (such as age, education, seniority, or compensation).
This concept for strategically managing the value of employees brings human resources approaches to a new level. Basic management processes — sourcing, development and training, compensation, retention, and separation — are conceptually the same for all four employee segments.

However, since each segment differs in how critical it is to an organization’s success, the practical tools used in applying these processes will also differ. Take sourcing, for instance. Depending on a company’s business model and operational plans, employees in some segments, such as Innovators and Ambassadors, are generally hired and trained as part of the permanent corporate head count. In other instances, however, Craft Masters and Drivers are brought on as temporary or contract staff or engaged as independent consultants.

People Management

Once the right people are cast in the right roles, they must be managed according to those roles. For example, consider two training officers, Tom and Dick. Tom is highly professional, and his training efforts are almost always successful; he is a Craft Master. But Dick is more creative and is expected not only to train staffers well but also to improve the quality of the teaching materials. He was hired through a headhunter, is paid more than Tom, and knows that he is depended upon to expand the limits of the training organization. Dick is a Creator. Tom and Dick have the same job title and, in general, do the same work. But Tom and Dick are in separate business critical categories, thus their salaries, evaluations, and promotions must be handled differently.

Closing thoughts

Dealing with employees based on their skills and the roles can be a complex balancing act for management. But it is exactly what every should do. For example, the manager of an opera house must continually handle a number of distinct segments of people: the singers, the conductor, the casting director, the cast, the musicians, the bartender, the box office cashier. To do this, he uses varied sourcin techniques, compensation principles, and motivational approaches in a relatively instinctive way.

But in many cases, the management rules and procedures of an organization can be obstacles to segmentation and a force for "averaging" the treatment of individuals’ roles. This tendency is a dangerous handicap that makes it impossible to measure the value of employees and, ultimately, to compete successfully in the global marketplace.

Also See

Retaining People in Technical Jobs
Retention of top managers
Use Marketing to Hire and Retain Talent

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