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SPRING 2017

PEOPLE • ORGANIZATION • INNOVATION

THE NEW SOCIAL CONTRACT

The M&A Talent Factor

The State of Human Capital Analytics

Why Leaders Should Play Games


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This was, in large part, thought of as the American dream.

A

few months ago, I had a conversation with Diane Gherson, the chief human resources officer at technology giant IBM. The discussion centered on the evolving nature of the employeremployee social contract, a topic featured as part of Talent Economy’s Talent10x podcast. People’s attitudes around the traditional social contract between employers and employees — in which employers pay most full-time employees to perform a job in return for compensation and benef its like health insurance and retirement savings — experienced major shifts in recent years. Once upon a time an employee would seek out and expect a 30-year career with a single large corporation, receiving in return a salary, decent health care benef its and a pension that would serve them throughout their retirement years.

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T a l e n t E c o n o m y • S p r i n g 2017

As the decades wore on after World War II, however, that contract slowly began to change. Nowadays, give younger workers a similar promise of working for a single company for their entire professional career, and they’ll likely give you a funny look. Today’s emerging professionals want new experiences, challenges, higher pay and deeper purpose in their work. They want to not only change jobs every few years but to potentially make multiple career changes over their lives. To them, being with a single company for their entire careers is a trap, not a dream. I asked Gherson about the employer perspective to this attitude shift among workers. My premonition at the time was that a company as large and established as IBM would love to keep its employees around for three decades. Better to nurture and grow all its talent internally than have to continue to source from the outside every few years, I thought. Her answer surprised me. “You know, I don’t think the fixed costs of switching employees every few years are as high as they used to be,” Gherson said. “And the reason I say that is hiring is a lot easier than it used to be. The marketplace is a lot more fluid, obviously with the use of social [media].”

Add in the disruptions brought on by the growing concept of the gig economy, as well as the continued rise of greater contingent and freelance work, and the idea of a social contract between employers and employees appears to be growing thinner by the year. Nevertheless, as our cover story shows, there is still a very distinct social contract between employees and employers. Yes, the 30-year career packed with a lifetime of retirement benefits is rare, but today’s employers are finding a different sort of value proposition to offer employees — and employees are finding new things to bring to the table as well. This new exchange of values passed through today’s employer-employee social contract may not last long; the pace of change in today’s business environment is simply too fast to keep up. But the value in having some sort of employer-employee social contract is likely to endure. Frank Kalman, managing editor fkalman@talenteconomy.io

ILLUSTRATION BY ANNA JO BECK

Editor’s Note

She went on to add that, given how fast today’s technology is evolving — putting humans in a position where we’re constantly struggling to keep up and adapt — that the skills most companies need today won’t be the skills they’ll need in a few years. Having the flexibility to recruit for different skills in a few years thanks to the short-termism of the modernday social contract allows employers to stay on the cutting edge.


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CONTRIBUTORS JOHN GILLIS JR. is the president of leadership development advisory firm LeadershipX based in Austin, Texas. Gillis facilitates leadership programs around the world in various industries, focusing on creating immersive, experiential learning.

KELSEY WROTEN is a New York-based illustrator and comics artist. She has worked for clients such as The New York Times, The New Yorker, The Village Voice, and Vice. Wroten is currently working on a graphic novel with Uncivilized Books.

STACEY PETREY is president of human capital consulting firm Petrey & Co. She is also a practice lead at Pittsburgh-based financial services firm Solenture. Petrey earned a doctorate from the University of Pennsylvania where she was a Wharton Scholar.

PAUL BLOW has worked for The Guardian, New York Times, Wall Street Journal and Penguin Books. His bold conceptual illustrations mix contemporary themes with touches of humor and a healthy sense of the absurd.

Volume 2, Issue 2

PRESIDENT John R. Taggart VICE PRESIDENT, CFO, COO Kevin Simpson VICE PRESIDENT, GROUP PUBLISHER Clifford Capone VICE PRESIDENT, EDITOR IN CHIEF Mike Prokopeak EDITORIAL DIRECTOR Rick Bell EDITORIAL ART DIRECTOR Anna Jo Beck GROUP EDITOR/ASSOCIATE EDITORIAL DIRECTOR Kellye Whitney MANAGING EDITOR Frank Kalman ASSOCIATE EDITORS Andie Burjek, Lauren Dixon, Bravetta Hassell COPY EDITOR Christopher Magnus EDITORIAL INTERNS Mia Mancini, Camaron Santos CONTRIBUTING ILLUSTRATORS Anna Jo Beck, Paul Blow, Tiffany Mallery, Kelsey Wroten CONTRIBUTING WRITERS Tamar Elkeles, Geri Anne Fennessey, Sarah Fister Gale, John Gillis Jr., Ted Grubb, Stacey Petrey, Jack J. Phillips, Patti P. Phillips, Michelle V. Rafter, Ira Wolfe VICE PRESIDENT, RESEARCH & ADVISORY SERVICES Sarah Kimmel RESEARCH MANAGER Tim Harnett RESEARCH ANALYST Grey Litaker RESEARCH CONTENT SPECIALIST Kristen Britt RESEARCH GRAPHIC DESIGNER Theresa Stoodley MEDIA & PRODUCTION MANAGER Ashley Flora PRODUCTION COORDINATOR Nina Howard VICE PRESIDENT, EVENTS Trey Smith EVENT CONTENT MANAGER Ashley Collins EVENTS MARKETING MANAGER Anthony Zepeda WEBCAST COORDINATOR Alec O’Dell EVENTS GRAPHIC DESIGNER Tonya Harris BUSINESS MANAGER Vince Czarnowski REGIONAL SALES MANAGERS Derek Graham, Daniella Weinberg ACCOUNT EXECUTIVE Brian Lorenz DIRECTOR, BUSINESS DEVELOPMENT & EVENTS Kevin Fields AUDIENCE DEVELOPMENT DIRECTOR Cindy Cardinal DIGITAL MANAGER Lauren Lynch DIGITAL COORDINATOR Mannat Mahtani LIST MANAGER Mike Rovello BUSINESS ADMINISTRATION MANAGER Melanie Lee LEAD GENERATION ADMINISTRATOR Nick Safir Talent Economy is published January/February/March, April/May/June, July/August/ September, October/November/December by MediaTec Publishing Inc., 111 E. Wacker Dr., Suite 1200, Chicago IL 60601. Periodicals postage paid at Chicago, IL and additional mailing offices. POSTMASTER: Send address changes to Talent Economy, P.O. Box 8712 Lowell, MA 01853. Subscriptions are free to qualified professionals within the US and Canada. Digital free subscriptions are available worldwide. Nonqualified paid subscriptions are available at the subscription price of $125 for 6 issues. All countries outside the US and Canada must be prepaid in US funds with an additional $33 postage surcharge. Single price copy is $29.95.

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Spring 2017

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Contents

34

22 28

18 COVER STORY

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ANALYSIS

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New changes are coming to the traditional employeremployee social contract.

13

Leaders would be wise to pay more attention to their introverted talent.

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Bots are providing new efficiencies while threatening human jobs in the field.

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research shows how far human 28 Recent capital analytics has come — and how

Truly innovative companies require cultures that naturally allow ideas to materialize.

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financial synergies would benefit 42 Most from enhanced examination of the

Women are still woefully represented in the venture capital industry. Why?

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Future workers will require these critical skills to survive.

Today’s employer-employee social contract promises a continuing evolution in the areas of compensation, management, culture and learning and development, but what that evolution ultimately becomes is still being drawn up and developed. FEATURES aren’t just played by children; 22 Games they’re now revolutionizing leadership development.

far it still has to go.

combined firm’s human capital.

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42

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T a l e n t E c o n o m y • S p r i n g 2017

EDITOR’S NOTE

4

Upending the typical employer-employee social contract.

DASHBOARD

10

Data and insight on the talent economy from Talent Tracker.

INSIDER

18

Author Tim Harford on the benefits of being messy.

BOTTOM LINE most interesting 50 The and revealing quotes

from the Spring issue.


Data from our 2016 Modern Family Index shows turnover is a real risk for a large portion of today’s workforce. Download the eBook to learn more about this critical issue affecting employee retention at brighthorizons.com/MFI-ebook.

Bright HorizonsÂŽ is a leading global provider of employer-sponsored child care, back-up child and adult/elder care, educational advising for employees and their families, and work/life consulting. 800.453.9383


Dashboard: EMPLOYEE VS. EMPLOYER Worker Access to Benefits

DATA ON THE TALENT ECONOMY FROM TALENT TRACKER RESEARCHERS 0.8

Median Job Tenure by Age in Years, 2016

Paid Holidays

75%

18 to 19

1.3

20 to 24

2.8

25 to 34

4.9

73%

35 to 44

7.9

45 to 54

10.1

Paid Vacation

55 to 64

10.3

65 and older

71%

Health Care Benefits

4th Quarter Median Weekly Income* $700 $727

$747

$750 $760

$771 $782 $794

69%

$820 $843

Retirement Benefits

68% Paid Sick Leave 2007

2008 2009 2010

2011

2012

2013

2014

2015

2016

Paid Personal Leave

*Adjusted for Current Dollars

41%

Median Tenure by Occupation, 2016 Management, professional and related occupations

4.5 years

Production, transportation and material moving occupations Sales and office occupations Service occupations

Paid Military Leave

4.3 years 3.5 years

2.9 years

Talent Tracker is a custom analytics service developed by the Research and Advisory Services of Human Capital Media. Talent Tracker integrates data from open sources originating from the U.S. Census, National Science Foundation and The Bureau of Labor Statistics.

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Wellness Programs

5.1 years

Natural resources, construction and maintenance occupations

T a l e n t E c o n o m y • S p r i n g 2017

42%

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Paid Family Leave

35%

%

Child Care

11%

7 Subsidized Commuting %

Flexible Workspace

6%


Full Speed Ahead Today’s societal forces have shaped a new employer-employee social contract. by Frank Kalman upending our world with a number of social innovations meant to help society adapt and thrive. Government and education are two institutions that will require continuous social innovation to survive the technological innovations of the day.

I

n “Thank You for Being Late: An Optimist’s Guide to Thriving in the Age of Accelerations,” New York Times columnist Thomas L. Friedman outlines the dizzying array of forces thrusting society forward. The exponential increase in computing power, economic interdependency across the globe and seismic shifts in the Earth’s climate, he argues, are quickly converging and compounding upon one another, creating a society that is increasingly more difficult for institutions and individuals to navigate. The rise of technology is especially influential. As Friedman writes, society has surpassed the point where the exponential advancement of technological innovation aligns with our collective ability to adapt. Just as a given technology has captured the zeitgeist, another innovation has already come along, disrupting whatever norms stand in the way. Those who fail to catch up risk being left behind. Such accelerations, Friedman writes, are poised to disrupt all facets of society. In order to cope with such monumental changes, Friedman argues that society must match the multitude of technological innovations

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Another is the workplace. And a big part of what shapes the nature of work is the social contract between employer and employee. In the period immediately following World War II, when innovations and the pace of change came more slowly thanks to a glut of U.S. manufacturing jobs, stronger unions and more affordable in-house training, as well as a milder globalization landscape, the social contract between employers and employees was simple. Employees were promised that, if they showed up and worked hard, they would be rewarded with a salary, benefits like health insurance and a pension, and, above all, the promise of a middle-skilled job guaranteed to provide a comfortable, middle-class lifestyle. But as decades went along and the pace of innovation sped up — past the inventions of the Industrial Revolution and into the innovations of the Information Age and, more recently, cloud computing — that social contract slowly unraveled. Today, it’s not enough for workers to simply show up and work hard, follow the rules and expect to be rewarded, just as it’s not enough for employers to expect the same methods they’ve used to attract, retain and manage talent to be effective. As our cover story shows, the value

T a l e n t E c o n o m y • S p r i n g 2017

proposition for both employees and employers is constantly evolving. From compensation to management to culture to learning and development, today’s social contract has evolved in a way that places more emphasis on goals that align with employees’ ability to move in and out of organizations and jobs faster, and less on the expectation that they’ll embark on a 30-year career with a single firm. Additionally, employers are learning that the pace of change and fluidity in the skills market, as well as the continued rise of contract and freelance work, has made it easier for them to grapple with the once-formidable turnover and retention challenges of decades past. Many firms, chief among them LinkedIn Corp., the professional social networking giant purchased by Microsoft Corp. last year, actively encourages this “tour of duty” mentality. The convergence of these trends has created a new social contract. On the one hand employees are looking for dynamic experiences and learning opportunities, sometimes more than a generous salary or benefits package. On the other, employers are looking to quickly capture highskilled expertise to contribute to an innovation pipeline that will establish an employer brand that keeps their talent attraction cycle moving indefinitely. Time will tell how this social contract will continue to evolve. Perhaps the only certainty is that what’s relevant today likely won’t be relevant tomorrow.


What Introverts Need From Leaders by Ted Grubb

Leaders can create the conditions to help introverts thrive by coaching them to adapt and flex their behavior. Primarily, there are three things introverts need to be effective: 1. Time and space to recharge An introvert with a run-down battery will say the exhaustion is as much physical as mental. Extroverts derive energy being around other people. For introverts, unplugging for alone time is necessary to stay energized. Allow introverts to occasionally close their office doors or offer quiet rooms if the office is based on cubicles and open workspace. Encourage people to take walks during breaks or lunch. Offer a work-from-home option. Give employees permission to monitor and care for their own needs. 2. A safe place to do their best work While extroverts love to spitball ideas with colleagues, introverts do their best work by themselves. They’re not inclined to think out loud, because it actually can detract from the quality of their thinking. Regular meetings and team gatherings are necessary. But also provide introverts

the opportunity to have quiet time. Give a heads-up before meetings by providing key agenda items. Introverts will benefit from thinking things through before engaging. Allow written summary input from introverts where practical. When structuring project teams, establish rules of engagement that allow introverts to go offline. Also, ensure that introverts reconnect with the team to share their reflections. 3. Encourage introverts to be transparent Introverts can be their own worst enemies at work. They’ll move from private thought to private thought, gladly connecting the dots with no need to check for outside reactions. They may become unreasonably attached to ideas that eventually emerge fully formed — but this internal process can create huge blind spots. Remind introverts that transparency is not “all or none.” Even if they’re reluctant to share a thought, introverts can be encouraged to contribute things like: “Let me share my current thinking,” or “Here’s what I think. What do you think?” Introverts aren’t broken. They just need an environment in which leaders support and acknowledge their need for quiet reflection, while encouraging them to periodically leave their own headspace.

Are Bots the New HR? by Michelle V. Rafter The bots are coming. Bots, or automated software applications, range from the very simple to the very sophisticated, and they’re taking on more of the mundane tasks that make the talent economy tick, including finding, hiring and managing people.

By piggybacking on text messages and wildly popular messaging applications such as Slack that employees already use, they’re poised to be the future of people management technology, whether for collaborating with teammates, applying for a job, checking work schedules or looking up benefits. One early adopter is Crowded Inc., a startup sourcing platform with a bot that asks questions of software developers applying for a job and uses their responses to fill out an application instead of making them type in the information themselves. Another is Overstock.com Inc., which relies on a bot named Mila S p r i n g 2017 • T a l e n t E c o n o m y

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to field notifications from call center employees who are too sick to come to work, pass the information onto managers and adjust schedules accordingly. By eliminating back-office busywork, bots could eliminate human resources personnel. “My peers who are HR professionals are going to be out of jobs really soon and they haven’t got a clue,” said Rachel Maclean, chief operating officer and co-founder of Air HR Ltd., a U.K.-based startup that’s building a complete bot-based HR management suite. “There’s so much they do that’s low level, low value, it’s filling forms, shuffling papers and that can all be done by bots.” Both established talent economy technology platforms and HR startups are beta-testing bots with an eye toward making products available later this year or in 2018. The pace of development is increasing thanks in no small part to the rise of technology platforms like Amazon.com’s Alexa, Apple’s Siri, and Google Home. The digital personal assistants have made consumers more comfortable using voice-activated search to check the weather, listen to music or perform other small tasks.

with their existing talent management and HR software. For example, instead of logging onto their company’s time-and-attendance platform to request time off, an employee could type a command into Slack such as “I’d like to request time off,” or “PTO,” and it would trigger the HR program’s Slackbot to ask questions about the type of time off being requested before processing the request in the time and attendance app. In early February, SAP SE said it is testing Slackbots in several divisions, including a bot for the performance review module of SuccessFactors’ HR management suite. SuccessFactors is trying out the app on a handful of existing customers in Silicon Valley and some large retailers, and expects to release it later this year, said David Ragones, SAP SuccessFactors’ group vice president of product management. He said SAP is considering integrating with other enterprise collaboration tools but started with Slack because more customers use it.

Bots could eliminate back-office busywork and HR personnel.

It’s also being swept along by the popularity of Slack and other enterprise social networks and collaboration tools, which analyst MarketsandMarkets predicts are growing an average 13.2 percent per year worldwide and will reach sales of $49.5 billion by 2021. Since Slack launched three years ago, the collaborative work platform has collected 5 million daily users, including 1.5 million paid users. As Slack has grown, it’s inspired Facebook Inc. to open up its Messenger platform for work-related bots, Microsoft Corp. to add team collaboration to its work apps suite, and competition from other rivals.

Slackbots

Slack’s popularity in particular as an open application program interface, or API, that other companies can use to build their own apps on top of its core technology, has given rise to hundreds of Slack apps, or “Slackbots.” HR Slackbots, including dozens listed in an app directory on Slack’s website, let people use the tool to interact 14

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While HR vendors like SAP finetune bot software code, they’re also deciding whether to charge extra for the new service or include it in existing prices. SAP is opting not to tack on an extra fee for its bot. “It’s part of our next generation of performance management,” Ragones said. SAP’s announcement coincided with Slack’s rollout of an enterprise-level service that could attract even more HR tech vendors to build Slackbots. Some HR tech vendors haven’t waited. Zenefits and BambooHR, which sell rival core HR tech platforms for small- and midsized businesses, already integrate with Slack either directly or indirectly through third-party developers that provide the connections.

Chatbots

Slackbots are fairly limited, however, in their capability. More sophisticated programs built on natural language processing and machine learning have even more potential to disrupt existing talent management processes. The programs, often referred to as chatbots, are powered by massive information databases that allow them to carry on prolonged interactions with an employee or job candidate and get smarter as they collect more data. TextRecruit, a San Jose, California-based startup that


sells an SMS-based applicant tracking system and core HR service, is beta-testing a recruiting chatbot named Ari that organizations can use to fields questions from job seekers before passing qualified candidates onto a real recruiter for further vetting. The chatbot also works with Facebook Messenger and WhatsApp and is powered by the IBM Watson AI-enabled computer. It is in beta testing with five customers and is scheduled to be available by the end of the first quarter of 2017. TextRecruit created the bot in part to help corporate users of its existing applicant tracking system that couldn’t respond to job candidates’ text messages fast enough. With the bot, TextRecruit customers collectively send 100,000 text messages a day, according to Erik Kostelnik, the company’s co-founder and CEO. Another reason proponents believe chatbots will take off is how quickly job candidates respond to bot-based queries compared to email. Crowded is getting an 88 percent response rate in beta tests of its recruiting chatbot, which uses text messages and Facebook Messenger to reach candidates, according to Howie Schwartz, Crowded’s CEO. “It’s not always yes, but they’re responding,” Schwartz said. Even better, average response times are under two minutes. “If you send an email, it could be days, or if you call someone you end up in voicemail and they never respond,” Schwartz said. He expects to start offering the chatbot to customers to use on their own career pages by the end of February. By spring, Schwartz expects the types of jobs and conversations the bot can

handle to expand beyond software developers to salespeople and other positions. Startups aren’t the only ones working on HR chatbots. In the fall of 2016, Workday Inc. announced a chatbot-based digital assistant that will let customers’ HR staff ask a question or type in a command to find information or complete tasks. “Users don’t need to open another tab, they can just ask Workday,” said Joe Korngiebel, the company’s senior vice president of user experience. He expects the bot to be out sometime this year. In spring 2016, ADP announced it had a chatbot in the works that could send announcements of open jobs to prospective candidates or remind employees to use accrued vacation time. A company spokesperson wouldn’t provide details beyond saying the payroll giant may test an early version of the service with some clients in 2017, with the goal of rolling out a fully functional, self-service version next year. Any company that uses a chatbot will eventually have to decide if they’re going to tell job applicants or employees that the nice person they’re talking to is in fact not a person at all. For now, TextRecruit and Crowded aren’t calling out the fact that tips on job leads are coming from a bot. “I think everyone’s going to take a different approach,” Schwartz said. “Some will say, ‘This is X company’s bot,’ and some will pretend it’s a human being.”

How to Build an Innovative Culture by Tamar Elkeles After nearly 25 years of experience working in an innovative high-tech company in Qualcomm Inc., I’ve heard and experienced the critical elements needed to build an innovative culture. Innovation isn’t something that just happens; it’s a mindset that requires a commitment from both managers and employees.

Innovation starts with risk. Risk aversion is the key reason employees don’t innovate. Employees who are afraid to take risks and fear failure will maintain the status quo. Encouraging, rewarding and enabling risk-taking is essential for innovation. Learn from mistakes and make those lessons impactful. Share internal stories of both success and failure. Showcase risk-taking and the positive impact it has on the business. Celebrate employees who take risks. Challenge the status quo. Leaders typically inhibit innovation. I haven’t yet S p r i n g 2017 • T a l e n t E c o n o m y

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met an engineer who doesn’t want to innovate. Effective leaders need to model an innovative mindset. If leaders don’t generate new ideas, challenge complacency and initiate change, innovation stalls. If leaders don’t innovate, neither will their employees. Employees see what leaders do and they follow their behavior.

Getting it done is often better than getting it right. Life is in beta. There’s a 2.0 on the verge of being released. Leaders who wait for everything to be perfect before launching or executing are inhibiting innovation. Launch then learn. Iterate. Release the next version. Don’t wait for perfection; just get it done.

Saying no is easier than saying yes. Saying yes means accepting new ideas. Saying no means I like it the way it is and I don’t want to do additional work. Change takes time, effort and energy. Saying yes enables innovation. Managers who say yes are catalysts of innovation. Don’t think about all the reasons why something can’t be done — say yes and do it.

Embedding innovation into the culture and consistently communicating about it is the only way to sustain it. Management, employees, customers, suppliers, everyone in the company ecosystem has to drive innovation. An organization culture is built through norms, behaviors, attitudes and values. Ensure innovation is a common thread throughout. Initiate it, encourage it, reward it and celebrate it.

Why Aren’t More Women in Venture Capital? by Lauren Dixon Even as women continue to advance in business, they are still woefully underrepresented in the world of venture capital. According to a July 2016 article in Harvard Business Review citing data from the Small Business Administration, women held the majority ownership in just 36 percent of small businesses in 2014. The article also said that only 9 percent of leaders in high-growth technology startups are women. Furthermore, of those women who receive venture funding, their gains are less than their male counterparts. According to Bloomberg research, from 2009 to 2015, women received an average of $77 million in venture capital funding to men’s $100 million. Why? “There’s a constellation of reasons,” said Edith Dorsen, managing director and co-founder of Women’s Venture Capital Fund, an early-stage venture capital fund that invests in high-potential companies that include women in senior leadership. “Access in venture capital is hard for anybody, no matter how talented the CEO is and however large the potential of the business seems to be.” However, a disconnect remains between the pipeline of deals and the pool of capital made available to female entrepreneurs. 16

T a l e n t E c o n o m y • S p r i n g 2017

One reason is bias. “There’s an inherent and usually unconscious tendency or bias in all of us to support and invest in individuals that we most closely relate to and identify with,” Dorsen said. And unless the venture capital firm is female-led, women likely aren’t the model for what venture capital firms are used to funding. Not all agree. “I don’t believe that there is a bias — unconscious or not — when VCs are funding women,” said Tanya Bakalov, CEO and founder of BetterSkills Inc., a Boston-based talent development software platform. “The struggles are the same, in my opinion, regardless of gender. It’s more about credibility.” If entrepreneurs don’t have the details of their business — the idea, structure, business relationships — ironed out, VC firms won’t take them seriously. Instead, Bakalov thinks the problem with venture capital gains by women could come down to the fact that there simply are fewer women seeking funding. “I definitely see this as a proportion — less women starting their own businesses or going out and looking for venture funding.” Just as women broke into the workforce, they could similarly do the same in regards to receiving venture capital funding. The number of women who lead the funding for businesses correlates to the number of women who receive that money, especially in early stages of investing. According to the Center for Venture Research’s data, from 2014-15, there


was a decrease in both female angel investors and the yield for female entrepreneurs, the rate at which people sought funding and received it.

to understand the economic benefit and value of leading this change,” Friede said. “Once they do, the change will happen more quickly.”

To push a trend of increased investment in female-founded businesses requires that both men and women mentor female entrepreneurs, said Karla Friede, co-founder of Nvoicepay Inc., a Beaverton, Oregon-based payment automation software for accounts payable company, which received funding from Women’s Venture Capital Fund.

To help women in the world of entrepreneurship, business leaders should pay more attention to the balance of diversity in their workforce. As women and minorities advance in existing businesses, this leads to their ability to branch off and create companies of their own.

Additionally, more funds need to target women, and venture capital firms should hire more female partners. “Women can make a dent in this change, but men need

“I am not suggesting hiring someone who is not qualified,” Friede said. “Rather, make an effort to balance your workforce and executive teams. The most innovative and creative companies will have a balance in their workforce.”

Critical Skills for Tomorrow’s Workplace by Ira Wolfe Thanks to accelerating change, the critical skills workers have today may be irrelevant tomorrow. Everyone needs to be evolving, growing and adapting. Here are six critical skills that workers will need in the coming decades. Curiosity: In a world of accelerating exponential change, characterized by uncertainty, complexity and ambiguity, curiosity may be among the top critical skills most required to survive and thrive. To become a valued skill, curiosity requires a willingness to explore new experiences, take risks and the desire and ability to reflect on those experiences. Creativity: Some leaders praise creativity as a cure for our future; others claim it to be a massive distraction and threat. However, in the context of skills, there is no doubt that creativity is crucial. Someone’s ability to generate new ideas and turn them into solutions, to see the world in a new way is essential in today’s rapidly changing business world. Conscientiousness: Someone who is conscientious is dependable, responsible, organized and proactive. They arrive on time, stay late, do their work, meet deadlines,

exercise self-control and manage well. But is conscientiousness a skill or a trait? Can you increase or improve it? Train people in it? The truth is, conscientiousness is probably a combination of genetic hard wiring, environmental influences, skill training and motivation. Critical thinking: Employees’ critical thinking is highly desirable and essential. Their employer needs the ability to analyze, evaluate and create. They’re expected to carry out a growing list of responsibilities and meet higher expectations with fewer resources. That requires them to think analytically and apply the results of all that thinking without benefit of supervision or experience. Collaboration: In the ever-changing, complex environment of today’s workplace, employees will be valued because they are skilled collaborators who are able to communicate using multiple platforms, keep up with the f low of information and accept the responsibility that comes with collaboration in both physical and virtual spaces. Agility: Agility is the ability to keep pace, shift gears often and quickly, and keep current with the flow of information. Workers need to move nimbly and draw conclusions quickly. That requires both high personal energy and fast cognitive abilities so employees can perform well in many jobs and functions. S p r i n g 2017 • T a l e n t E c o n o m y

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“Messy: The Power of Disorder to Transform Our Lives,” suggests that readers should do more to loosen the reins on their busy lives and let things get out of hand. They’ll be better for it. Switching between tasks is a messy tactic that’s worked for many famous creatives, Harford argues in the book. Focusing on one project might seem like the most efficient and simple way to organize one’s work. But when someone is stuck on an issue with one project, having another to focus on allows that person time for their brain to unstick itself, contributing back to the original project. “This is something that almost every creative person in history that’s been studied has done,” Harford said.

Talent Economy spoke with Harford about why business leaders should embrace messiness, how to encourage their employees to be messy and when it’s best to let things get out of order. Edited excerpts follow.

Tim Harford Gets ‘Messy’ by Lauren Dixon Tim Harford is an economist, author, radio host and journalist who is promoting one book while writing another. One would assume he’s an impeccably organized person who is able to juggle this tangle of

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commitments with ease. He’s not — but, according to his latest book, that’s sort of the point. Harford’s most recent release,

•••••••••• TALENT ECONOMY:

What does it

mean to be messy? TIM HARFORD:

In the book, I talk about all kinds of different things in the context of mess: improvisation, distraction, multitasking, physical mess, ambiguity and imperfection. There are lots of different things that I’m discussing in the book, but I suppose what they have in common is they are

“Messy” is Harford’s fifth book. He is a senior Others include “The columnist with Undercover Economist,” the Financial “Adapt” and “The Logic of Life.” Times.

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PHOTOS BY FRAN MONKS

INSIDER • • • • • • • • • •


arguing for the virtues of the stuff that doesn’t fit into the standard categories; the stuff that we can’t quantify; the stuff that we can’t organize or put into a neat box; the stuff that we can’t script. These things tend to make us feel anxious. We feel that we should have a script; that we should have a number; we should have a target; we should have a tidy desk. Of course, those things have their place, but there’s virtue in all the ambiguous, all the unquantifiable and all the imperfect stuff as well. TE:

Today the trend appears to be to declutter, be mindful and simplify our lives. Why should business leaders be messy instead? HARFORD:

I don’t think that there is a contradiction between decluttering. What I see messy as being is arguing against the excessive attempts to organize. If you think about your desk, what you find is if you spend a lot of effort trying to clear your desk and trying to tidy your desk away, what you will often find is you have vast archives of paperwork because you filed everything away. All this paper crosses your desk, and you want to get it off of your desk, so you file it. But you filed it so quickly that you don’t really understand your own filing system. So now you have these incredibly well organized wastepaper baskets basically. Let’s contrast that with someone who keeps piles of paper around on their desk. You would think, “Well that’s a problem. That’s not very efficient.” It turns out it’s highly efficient.

Won the 2014-15 Rybczynski Prize for business-relevant economics writing.

No. 1: Your pile of paper is self-organizing. The stuff that you keep using keeps arriving on the top of the pile. The stuff that you don’t touch sinks to the bottom of the pile. We think of it as being a random pile, but it’s not a random pile. It’s actually naturally and organically organized by the process of using it. The second

where if you walked into someone’s office or you looked in someone’s desk, you would see with a person who appears to be disorganized because there’s paper everywhere actually has a much better organized system and they’re much more on top of their work. Whereas, the person who seems highly organized, actually everything looks neat, but

WE FEEL WE SHOULD HAVE A TIDY DESK. BUT THERE’S VIRTUE IN ALL THE AMBIGUOUS, ALL THE UNQUANTIFIABLE AND ALL THE IMPERFECT STUFF AS WELL.

advantage is you’ve got this desk with paper on it, so you’re surrounded by physical reminders of what you have to do, so you don’t need a carefully managed to-do list because you can see in a very visible way the stuff that you have to do. The third advantage is you have a very clear sense of what needs throwing away. It’s the stuff at the bottom of the piles. Of course some people take this to extremes and they hoard paper and they never throw anything away. But very often if you keep a lot of paper on your desk, you also put a lot of paper in the trashcan. So you have this weird situation

Hosts BBC 4’s podcast, “More or Less.”

underneath the surface, the system is dysfunctional. Of course I’m talking about averages here; I’m generalizing. Everybody has their own system, and people can make all kinds of different systems work. If people have found a system that works for them, well that’s fine. In the book, I write about Benjamin Franklin, one of the most productive and successful people in history, [who was also] incredibly messy and rather guilty about the fact that he was incredibly messy. He carried a lot of baggage around, literally, in terms of

Won the Bastiat Prize for economic journalism twice, in 2006 and 2016. S p r i n g 2017 • T a l e n t E c o n o m y

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paper, but also psychologically. He felt bad that his desk was messy. Benjamin Franklin! If Benjamin Franklin can feel guilty about not getting enough stuff done because he’s messy, I think the rest of us can cut ourselves some slack. Nevertheless, in offices we often find somebody in management has decided that there needs to be some kind of clean desk policy, for reasons that are often not very clear. Maybe it’s just aesthetic. They want the place to look like a magazine shoot. Or maybe they’ve read something about how operating theatres work or about how high-functioning precision engineering production lines work. And then, in a very inappropriate way, they say, “Oh, and the same must be true for this regular office, which has just got paper and computers in it.” People are ordered to tidy their desks. Now, we’ve already discussed that actually a messy desk can be very effective, very functional.

But there’s another problem on top of that, which is that people really hate being taught that you have this behavior controlled and being told what they can and can’t do with their own desks. It destroys their sense of their own space, of their control, of their environment. Very often when we go to an office, we don’t have a lot of control. We can’t control the windows, we can’t control the air conditioning, we can’t control what’s hanging on the walls. If someone is going to tell us how many pencils we can have on our desk as well, we really feel it’s infantilizing. And yet many companies do this. TE:

When leading a business, when does messiness work best? And how should it come about? HARFORD:

So much depends on context. But I think whenever a business has to adapt, that requires a degree of messiness. There needs to be a relinquishing of some control, and you’re letting your employees have some autonomy and make some decisions. There are a couple of obvious examples where that might be important. One is when you’re developing something new. There’s a lot of stuff in the book about the relationship between all kinds of messiness and creativity, so multitasking, diverse teams, improvisation, disruption, distraction: All of these things seem in the short term to be inefficient but actually help us produce new ideas. That’s one whole area where a messy approach can be effective. I think a second area is

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where you are facing your customer, and you have this decision to make. You’ve got a customer who needs something done, maybe they have a complaint, maybe they have a problem. Are you going to force them through some system, or are you going to treat them like a human being and really listen carefully to what they’re saying and respond to that? Of course, the careful listening involves giving the employees on the help line a lot more freedom, a lot more autonomy to make decisions, and in the short-run that can be less efficient, but you can produce much more satisfied customers. TE:

When faced with a big challenge, many people shut down. How can leaders overcome that mess and encourage their staff to embrace those messes? HARFORD:

I think that the important thing is that a leader has to model the right kind of behavior. It’s very striking how often you hear leaders who will say, “It’s very important that people aren’t afraid to make mistakes. This is a company where people can experiment. People can make mistakes — and that’s fine. We encourage that behavior.” But when you actually look at what happens, that is not what happens, and the employees know that’s not what happens. They know that when they make mistakes, they are


not in fact given a pat on the back and a bonus. They are criticized and shamed and demoted and given zero pay rises or they’re fired. It’s enormously common. First of all, the leader has to say the right thing and say, “It’s OK to improvise, it’s OK to make decisions even if the framework isn’t quite clear, it’s OK to use your own judgment, it’s OK to make some mistakes. That’s fine.” The leader has to say the right thing, but then of

WHENEVER A BUSINESS HAS TO ADAPT, THAT REQUIRES A DEGREE OF MESSINESS.

course the leader also has to follow through and demonstrate that in fact what they were saying was true. That’s the hard bit. TE:

Is there such thing as a bad mess or a bad distraction, or do they always have merit? HARFORD:

No, I think clearly there are many situations where messes are just entirely dysfunctional, and distractions just make it impossible to get stuff done. My argument in the book is not mess is always good, distraction is always good, there’s no situation that can’t be improved by adding a little chaos. I don’t believe that at all. What I do believe is that we found that our organizational systems can be so effective, and they make us feel so comfortable that we take them from situations where they work well, and then we start

trying to apply them in situations where they’re completely inappropriate. The argument of the book is just to try nudging the pendulum a little bit more toward mess. Mess is not always good; chaos is not always good; randomness is not always good. But the chances are that we are trying to be too tidy and too organized in whatever situation we’re in. If we experiment a little bit more with improvisation, with ambiguity, with a bit of disruption and new challenge, we might well be surprised by how that improves things. TE:

When should tidiness and order be encouraged over messiness? HARFORD:

We need a very clear view of what the organizational system is designed to do. There are many organizational systems that work incredibly well. Let’s just be clear. We’re not being organized for the sake of being organized. We’re being organized for a particular purpose. When you have a very complex problem that doesn’t involve a lot of creativity, doesn’t involve a lot of adaptation, just involves getting everything in the right place at the right time, that’s a situation where you want a high degree of structure. You need to know who’s responsible for who. You need to keep track of everything, not have a lot of slack. Building a skyscraper, for example, or organizing a logistical system.

Even with a particular task like, say, your email or your digital documents, you’ll find that in some cases, an organizational system will work. In other cases, it won’t. So there are lots and lots of situations where organization does work, but I think if you struggle to articulate exactly why the organizational system is there, it’s probably there for the sake of being there because it’s making you feel less anxious, rather than because it’s actually doing a good job. Lauren Dixon is an associate editor at Talent Economy. To comment, email editor@talenteconomy.io.

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BY JOHN GILLIS JR. ILLUSTRATIONS BY KELSEY WROTEN

Game mechanics play a large role in how humans consume and remember information. Here’s why companies should integrate games in their leadership development.

M For

ost children grow up playing board games, like Battleship, Monopoly and Clue, among others. today’s workforce, mainly

millennials, now the most populous generation in the workforce, those board games were supplemented with video games as well as mobile games, all of which provide peer-topeer bonding along with enhanced learning opportunities thanks to the interactive nature of playing games. Most adults today play those same games with their kids — in addition to new technology-based games — for the same purpose. Games are a big part of our lives. That’s why, as business leaders, it is important to encourage that more games be played inside of our organizations as a way to help leaders conceptualize the complexity of

today’s business environment and find solutions to their most pressing problems. Many companies are experiencing significant leadership gaps and an insufficient leadership pipeline, primarily due to the increasing pace of change in the global economy thanks to the rapid acceleration of technology, globalization and other factors. In an October 2016 Harvard Business Review article, “The 5 Elements of a Strong Leadership Pipeline,” Josh Bersin, principal and founder of leadership research and consulting firm Bersin by Deloitte, referenced data showing that nearly 90 percent of executives rated

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“strengthening the leadership pipeline” as an urgent issue. He further said that leadership development investments also can improve employee retention. Because of this, companies increased spending 10 percent last year to $14 billion to prepare “ready now” leaders to step into a new level of responsibility. Similarly, “2016 Best Companies for Leaders,” a December 2015 article in Chief Executive, reported that when doing a 10-year performance comparison, the top 15 percent of the best leadership development companies have a 111 percent market capitalization growth versus 64 percent for the bottom 15 percent. So, why don’t more companies use games for leadership development? According to a 2015 report by Development Dimensions International, a human resources consulting f irm, only 37 percent of companies use a formal program to develop a talent bench for a smooth leadership

transition. This is because the money spent on other methods does not have a positive return on investment, as only 28 percent of businesses claimed to be highly effective, according to a June 2014 article by research f irm Institute of Corporate Productivity, “4 Ways to Take Global Leadership Development to the Next Level.” Considering only a quarter of human resources leaders think their company leaders are “excellent” or “very good,” according to a June 2015 American Psychological Association article, “The Corporate Family Model of Leadership Development,” and a healthy percentage of others believe their leadership development programs are ineffective — essentially a waste of money — it’s time to try something new. Games are a great place to start. Because the shortage of leaders is a critical factor in organizational growth and current methods aren’t effective, business leaders must find new sources of innovation to properly build a leadership pipeline. For these innovators, there is an increasing demand to maximize learning and leadership development technology to create a competitive advantage. For organizations that want to see behavior change among their top decision-makers, to develop good strategists who can build competitive advantage in a complex and dynamic business environment, investing in gamification for leadership development is a potentially potent tool at their disposal. Still, this isn’t the same as having leaders direct their corporate learning departments to create self-paced e-learning. On the contrary, this requires that leaders working to develop a classroom-based, high fidelity business simulation designed to help C-suite executives conceive solutions to real scenarios businesses today face.

Children play games on their smartphones or tablets that look better than many of the antique spreadsheet-based games business leaders use today. When it comes to games for leadership development, modern technology demands tablet touch interface, 3-D visualization and wireless backups. To provide a visual classroom description, picture participants sitting at small group tables serving as a company’s executive team. The competing teams start with the same financial and human capital, and they then collaborate internally while they compete externally to 24

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determine where to best allocate their resources. They start by deciding on a team name, and their decisions amplify from there as they create a multiyear strategy prioritizing a company’s actions across departments with functions. It is challenging and high pressure, to be sure, but it is also engaging.

Instead of a game based on a company’s present industry, participants need to step outside of their comfort zone.

Furthermore, instead of a game based on a company’s present industry, participants need to step outside of their comfort zone so they can focus on the leadership lessons each game provides. Participants don’t get caught in industry specifics, like incorrect product pricing in the game, either. Instead, leadership development games incorporate business dynamics like strategic opportunities and competitive threats to help players stay agile and flexible as they determine contingency plans for their company. Typically, individuals in leadership development games or simulations are promoted for self-achievement; yet, they need a holistic company perspective once they are in a leadership role. With each game participant playing a specific leadership role within the business, the group can see cross-functionally to develop mutual accountability as part of a high-performing team. Participants will also ideally play a role on their tablet where they don’t have subject matter expertise, like an HR expert assigned to finance. Sometimes, participants will have an opportunity to play multiple roles within one game, so they can gain a broader perspective. This varied approach is more influential than a small group crowded around one laptop from a learning design perspective, as the department interdependencies highlight the systemic impacts from decision-making and help make the experience more like situations business leaders are likely to encounter during their day-to-day jobs.

To be sure, these leadership development games should not be played in isolation. Instead, business leaders should aim to support additional learning curriculum

that is configured to the organization’s competency model as well as its course learning objectives as identified during the needs analysis phase of learning design. After configuration, the curriculum should be customized with business-specific examples for the company or industry. This curriculum wraps around the game, so participants can practice what they learned while playing — a learn-bydoing approach in a safe environment.

The curriculum also has to simultaneously address high-priority corporate needs as well as personal development opportunities for each participant. Each participant has unique traits — competency, proficiency and job — which require an individual learning approach. Finally, many companies struggle between offering a program that addresses soft skill intangibles and hard skill tangibles — the program as it pertains to leadership development games and simulations should strive to address both. While the risk-free game environment fosters exploration and innovation, immediate performance feedback during the game can show participants the cause and effect of their strategy execution and business decisionmaking. For the game’s learning lessons to transfer back to the business, it must be a high fidelity experience, meaning it simulates the day-to-day business decisions leaders make accurately. For instance, the immediate financial influence of a given business decision should reinforce key lessons for faster acquisition, better accuracy and higher retention of information as well as an opportunity to make behavioral adjustments based on what the leader learned. Just like the real world, each team is trying to increase shareholder value, improve strategic decision-making capability, adapt to changing circumstances and improve the current and future value of the business — and their decisions should have buy, sell or hold business implications.

Companies skeptical of the use of gaming for leadership development often say previous game experiences S p r i n g 2017 • T a l e n t E c o n o m y

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were fun, but they did not provide a learning impact. To counter this, a professional facilitator-led debrief helps business leaders reflect on their critical thinking, decision-making and mistakes. Game participants benefit from the focus, energy and interactions of a facilitator who catalyzes dynamic, responsive and respectful dialogue with peers. They can then engage and reflect on a concrete, real-life experience, form abstract concepts, as well as test the concepts by applying them in new situations. Self-awareness is also foundational for transformational, resilient and authentic leadership. Leadership development games encourage participants to challenge themselves, question their assumptions, explore

Of course, learning without application is worthless. The key to behavior change is learning retention and application back on the job. In addition to the assessment, programs to measure in-game learning need time for intentional reflection so participants can document what actions they are going to take when back in their role. These actions could be developmental or related to specif ic behavioral change. Creating a leadership action plan can facilitate learning retention and application as well as improve behavior change. Participants need an accountability conversation with their mentor, manager or coach to increase current performance as well as develop capabilities for future

Business leaders must find new sources of innovation to properly build a leadership pipeline. Games or simulations are one such option to help leaders develop. different perspectives and build leadership confidence as part of their wider leadership expedition. Because the facilitator is critical to helping participants extract important leadership lessons, that individual must be an experienced professional who understands business and leadership and is not just a game administrator. Those years of experience and expertise bring real, practical examples to the leadership and business lessons. Moreover, learning assessments are also important to assess the value of a game-based simulation in leadership development. There are many great ones available in the market today, but many of the current program designs make participants feel like an appendage to the curriculum/ game. Therefore, in addition to receiving game feedback based on team performance, there also should be an embedded situational judgment assessment to provide each participant in the game with an individual discovery into their specific inner strengths and development opportunities based on their in-game decisions. By leveraging camouflaged real-world case studies, participants immerse themselves in job-relevant behavioral situations. These moments matter because they improve the assessment’s validity and authenticity, as participants recognize the situation is as realistic as their business environment. 26

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roles. Furthermore, there must be follow-up support and reinforcement for successful learning transfer and — perhaps most important — behavioral change that impacts business performance. The plan is where the real individual development value is unlocked and prepped to produce a positive return on investment for the company.

One example of a company who has successfully used the game-like simulations in its leadership development is Dell Inc., a firm I have worked with in the past. The company has robust development programs for its finance and accounting professionals in particular. In the third year of the company’s Accounting Development Program, program manager Tracy Negrete was looking to incorporate a capstone experiential learning experience. “For this learning experience, our goal was to provide the global team an opportunity to work together to make strategic business decisions,” Negrete said. “Their technical accounting skills are strong and translating that into effective partnerships with the business strengthens Dell.” Negrete designed the “learning by doing” content to


include topics that focused on the reality of working in a global business with virtual and multigenerational teams that are striving to be ethical, strategic business partners and change leaders. For each of these topics, the supporting curriculum was aligned to the desired learning objectives, as well as wrapped around the game so that participants practiced what they had learned. Of course, some of the key learning moments occur when the application in the safe environment of the game is different than the expectations the company has for these leaders when operating in the business. During the program debrief, one of the company’s finance leaders likened their experience to a recent

• “Lot of examples from real world and Dell specifically.” • “I liked the ethics session a lot and the way it was ‘tested’ in the game.” Following the class session, program participants received individual assessment reports and met with their manager regarding their leadership action plan developed during class. As a result of what they learned within the game, feedback from finance leaders and the development of their action plan, the participants had a well-rounded learning experience using game-like techniques in leadership development. As renowned scientist Albert Einstein once said, “Learning is experience. Everything else is just information.” Experiential learning incorporating games using realistic work situations for leadership development produces immediate results. The interactive game-learning medium is a scalable method business leaders can use to enable new ideas, while providing “sandboxes” where erroneous behaviors do not have a costly downside. Leaders develop their environment analysis, decision-making skills and consequence reflection over multiple quarters of gameplay where they must collaborate and compete.

global project with cross-functional impacts and considerable change management efforts, which further demonstrated the relevance of the game experience for the program participants. Negrete received extremely positive feedback from the participants, including:

Still not convinced on the gamification of leadership development and its role in helping better prepare leaders in their quest to navigate and solve realworld business problems? According to a 2016 study by the Association for Talent Development and Institute for Corporate Productivity, “Experiential Learning for Leaders: Action Learning, On-the-Job Learning, Serious Games, and Simulations,” high-performing organizations use experiential learning nearly three times more than low performing organizations. So, it can be a good thing when leaders play games.

• “The simulation is fun and interactive! Keep it on!” • “Relates training materials to real life examples. ... Great in enhancing understanding.” • “It’s not just plain theory (boring) but it’s very practical.”

John Gillis Jr. is president of LeadershipX, a leadership development advisory firm based in Austin, Texas. This article originally appeared in the March 2017 issue of Chief Learning Officer, Talent Economy’s sister publication. To comment, email editor@talenteconomy.io.

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alculating

uccess

BY JACK J. PHILLIPS AND PATTI P. PHILLIPS ILLUSTRATIONS BY TIFFANY MALLERY

How are companies progressing in the field of human capital analytics?

C

onsider this real-life scenario: General Electric Co. is interested in studying the relationships between variables in one of its manufacturing plants. In one project, the industrial conglomerate attempts to show how its human resources function could affect plant productivity and profitability. An analysis of variables that affect productivity and profits reveals the important variables tracked by the HR department in a particular plant. They are: 1. Accidents: Disruptive and de-

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crease productivity.

5. Initial dispensary visits: Unnecessary first aid visits disrupt operations and increase costs.

ship between them and productivity. A composite score of these variables is developed and named the employee relations index. The indicators were combined by means of a multiple regression formula, with the variables receiving different weights. Constants were added depending on the level of the variable in a plant and for the particular plant or group in question. According to its users, the ERI was intended to help managers evaluate policies and practices, track trends in employee relations, find trouble spots, perform human relations duties more effectively and control HR costs. Index values were compared with plant profitability (ratio of net income before taxes to capital investment). Although the plants with the higher ERIs were the most profitable ones, the relationship was not statistically significant.

The HR team tracked these measures and developed a mathematical relation-

The most interesting aspect of this study isn’t its results — it’s the date.

2. Employee turnover: Excessive turnover is disruptive operationally and increases costs. 3. Unplanned absences: Excessive unplanned absences are disruptive, as workdays are lost. 4. Grievances: Excessive grievances reduce productivity because they often affect morale of employees. Grievances often stem from problems in the organization that block or inhibit productivity.

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While the study’s analytic elements appear in line with today’s statistical culture, it was actually conducted in the 1950s and published in the Harvard Business Review in 1955. For many years, GE focused on quantitative methods and mathematical processes. The company even developed an important series of books on mathematical models for management in the 1960s. In today’s human capital analytics terminology, this study is based on a classic predictive model, where the independent variables (accidents, grievances, absenteeism, first aid visits and turnover) predict a dependent variable of plant profitability. Perhaps, if the researchers had used gross productivity (revenue per employee) instead of plant profitability, a significant connection (and causal relationship) could have been developed. In the 1950s, however, this project wasn’t labeled analytics; it was simply referred to as the development of an ERI index.

to speed and running smoothly. Specifically, most organizations have struggled with these five questions: 1. Who should be part of the team? In the beginning, it was assumed that statisticians and IT professionals should dominate the analytics sphere, so the power of technology and data analysis tools could be released. In some cases, that didn’t work because these individuals may not have clearly understood the opportunities, possibilities and strategies needed for success with analytics.

This study underscores the deep roots of the field of human capital analytics. Yet, for some leaders, analytics is a generally new phenomenon. While human capital analytics has been in place for some time, it has lacked a necessary cohesive focus and label. Moreover, the field hasn’t, until now, had the computing power or tools available to make the process easy for anyone to use. Here we examine the brief history of human capital analytics. We also use the results of a survey our organization, ROI Institute, recently conducted with a number of partners to establish the state of the field today, as well as offer lessons for how executives can maximize use of the tool to help them lead their organizations along the way. In 2007, the book, “Competing on Analytics: The New Science of Winning,” by Tom Davenport and Jeanne Harris revealed the power of analytics to make critical business discussions. While most of the book’s focus is on marketing, where analytics has been very powerful, it also mentions the possibility of using analytics in other business areas, such as IT, operations, logistics and human resources. After all, the largest expenditure in an organization is its people. With that in mind, the prospect of using people analytics created a great backdrop for human capital analytics growth. Since Davenport and Harris published their book, use of analytics has proliferated throughout business, including human resources. Whether it’s called human capital analytics, HR analytics, people analytics or talent analytics, there are now dedicated teams focusing on this important topic. At the same time, organizations have struggled to get their human capital analytics teams up 30

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2. How much should be spent on analytics? For many, at first this was a guess, starting small and growing as needed. For the most part, budgets are still fairly modest. 3. Which projects should be pursued? This is another area executives first struggled with in terms of how to maximize people analytics. Leaders at first didn’t know how to implore the function and at what scale. Larger projects have potentially the most impact, but companies need to use the tool for smaller projects as well. Initially, many executives had difficulty finding the right balance. 4. How should the data be used? To develop an analytics study and send it to decision-makers without much explanation is a recipe for disaster. The study


needs to tell a story, be action oriented and contain information to help executives make decisions. 5. How is the human capital analytics practice sustained? The big challenge is to sustain the practice. The success factors for an analytics practice are presented later.

improvements in effectiveness as a result of data analysis, the levels of management and executive commitment to people analytics will also see concrete improvements. Indeed, the ability to support strategic planning was the second-highest response to the question of the purpose of the human capital analytics function, accentuating the need for more evidence-based decision-making in organizations about their workforce forecasts.

The ROI Institute recently completed a major analytics study along with The Institute for Corporate Productivity, The Center for Talent Reporting and Vestrics. Data was collected from 317 human resource teams with a dedicated analytics practice to find out the state of the industry. Here we outline the study’s major findings, along with same figures to show the data in more detail.

When asked about how projects are identified for analysis, about 70 percent of respondents chose strategic priorities far above the 23 percent that said they used analytics to conduct program cost analysis. Furthermore, the majority of respondents said in the survey that requests from top executives and business leaders dominate new project identification.

Executives Support Talent Analytics

Decisions on analytics are also taking a decidedly strategic and executive approach. When asked how the human capital analytics team follows up on action items,

Almost 70 percent of survey respondents expect their analytics budgets to increase in 2017. Still, today’s budgetary standard is not a very high bar to exceed — most analytics budgets in organizations are relatively modest. It’s not atypical for organizations to have an analytics staff of one or perhaps a few people who also have other responsibilities. Our survey suggests that is quickly changing, as many organizations are hiring human capital analytics professionals and some are beginning to fund platforms and tools for these teams.

Whether it’s human capital analytics, HR analytics, people analytics or talent analytics, there are now dedicated teams focusing on this important topic.

Management appears more convinced than ever of the power of people-related data, according to the survey, as about 43 percent reported having strong support from the management team versus 27 percent who said they did not have similar support. Roughly 34 percent of respondents said they had executive commitment — a relatively small number, but promising nevertheless.

There were some areas in the survey where the results suggest the field is in need of some improvement. Among the most notable findings on this front is that only 30 percent said they believe the human capital analytics function has strong credibility within their organizations. Additionally, just 22 percent said they believe they have achieved several major successes with the function each year. It is our view that these percentages will undoubtedly grow as human capital analytics tackles more strategic projects within organizations. The survey found that organizational effectiveness was the primary purpose for the existence of the HCA function itself. When organizations begin to show concrete

the top response was that actions are placed on executive agendas. Who views the data is significant. Money and management support matters. So does measurement.

Analytics Teams Are Maturing

An important dilemma organizations face is whether to outsource the people analytics function or develop it internally. It’s surprising that, given the growing interest in the people analytics field combined with ongoing resource constraints, there aren’t more outsourced offerings available in today’s market. As a result, most organizations have elected to tackle this task internally; our research shows that about 58 percent of organizations are using their own resources, whereas 42 percent are using external consultants. When cultivating human capital analytics proficiency S p r i n g 2017 • T a l e n t E c o n o m y

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organically, a common quandary for organizations is determining the skill set needed for the function. Anecdotally, many organizations have a collection of skills and backgrounds that make up the human capital analytics team. Responses to this question in our survey supported this, as the skills cited varied widely. According to the survey, a company’s human resources function was by far the top answer to a question about the expertise of people analytics team members. Organizations often lament their trouble in finding talented analytics professionals who understand human resources. In fact, as our survey suggests, many wrestle with the question of whether or not to hire for analytics acumen and teach the HR part when vetting qualified candidates — or to hire existing HR staff to step up and handle analytics tasks. Having too many quantitative analysts, or quants, created a problem with some teams among early companies to adopt people analytics. While quants generate the data, the ability to tell the HR story is typically a challenge for analytics teams, the survey shows. Judging by the responses toJob the question about vs. the retention skills of human satisfaction 62%capital 49%analytics team members, HR is an expertise that is highly sought Engagement vs. productivity 48% 48% after and valued within people analytics teams.

with the qualitative interviews conducted for the study, which showed that leaders in high-performance organizations are increasingly relying on people analytics to help drive better business results.

Organizations are using analytics in numerous ways to make decisions on their talent throughout the employee life cycle.

Despite the growing use of people analytics by business leaders, our survey research suggests that this is a capability that still needs to evolve in many organizations. Engagement vs. quality 24% 39% When we asked survey respondents how important anCulture vs.many productivity 23% 39% Unsurprisingly, related skills were cited by respon- alytics was to decisions they make in broad areas of hudentsJob — satisfaction statistics, math, IT, data, man capital, there were several answers that garnered vs. operations customerresearch, satisfaction 18% 35% systems, operations vs. andsafety support16% all received Engagement 15% significant almost the same number of responses. Fewer than eight responses. And unlike many of the questions asked, the percentage points separated these answers, and the list Job satisfaction vs. attraction 15% 34% “other” category received over a quarter of the responses, represents essentially the life cycle of the workforce: Stressthat vs. analytics productivity 24% reflecting teams11% are comprised of people plan, acquire, develop, engage and retain. Organizations profitskills 6% and 11%competencies working on are using analytics in numerous ways to make decisions withEthics widely vs. varying an organization’s people issues. on their talent throughout the employee life cycle. Compensation vs.analytics retention 6% 5%

Conflict vs. productivity 5% 16% Performance vs. retention 5% 6%

Projects are Moving from Descriptive to Predictive

The Use of Human Capital Analytics

The team that is using results from human capital analytics projects is primarily human capital professionals (81 percent). But what was quite encouraging is that the next most cited groups included the top executive team, operating managers and the CEO. This finding aligns

The types of human capital analytics projects that teams embark on can be broad, but one area stood out: measuring the impact and return on investment of a program. Almost 70 percent of respondents mentioned this, along with another 29 percent that said “forecasting ROI” was a primary driver for their projects. The ability to accu-

FIGURE 1: Predictive Relationships

Which Are Being Explored Now and Which Do You Plan to Explore?

62% 49%

48% 48%

39% 23

Job satisfaction vs. retention

Engagement vs. productivity

24

%

Culture vs. productivity

Source: i4cp/ROI Institute, 2015 Human Capital Analytics Survey

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■ Current

34%

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15% Job satisfaction vs. attraction

%

11% Stress vs. productivity

6%

11

Ethics vs. profit

■ Future %

5%

16%

Conflict vs. productivity


rately predict and then calculate ROI is alive and well, particularly for talent-related programs in which determining the impact on the bottom line is often a challenge. This study confirms that the gap between what CEOs reported they want in our 2010 CEO study from the talent investment (impact and ROI) and what they have been receiving is beginning to close. Return on investment is the ultimate measure of program success, and the results of this study reinforce its importance in the human capital space. If a program is expensive, important and strategic, organizations must have the capability to show its value up to ROI.

Many of the ways in which human capital analytics is used today could be labeled as descriptive, meaning the data is simply being used to tell the story of what has happened and what is currently happening in the function. Of course, the goal of any analytics professional is to reach the predictive analytics stage. Understandably, this is difficult to do, but once organizations are able to use data to help predict items such as attrition, workforce staffing needs, talent and skills gaps, they gain a tremendous advantage, our survey data suggests. For instance, several interesting areas of predictive relationships were reported as shown in Figure 1.

The second type of project is “relationships between variables.” Meanwhile, the third type of project is “de-

When we asked those same people what relationships they envisioned being important in the future, in addition to those already listed, we saw signif icant jumps in relationships such as job satisfaction vs. customer satisfaction; job satisfaction vs. (candidate) attraction; stress vs. productivity; and conf lict vs. productivity.

Benefits of Talent Analytics: Sustaining the Practice

veloping predictive models” with these relationships. Converting hard-to-value measures such as engagement and stress to monetary values accounts for 32 percent of analytics projects, the survey shows. One of the biggest areas in talent that has historically tackled analytics is learning and development, which topped the list when respondents were asked about the functional areas they were addressing with people analytics. For decades, learning professionals have struggled to show ROI for their programs, but with planning, guidance and tools, the mature departments have been accurately calculating ROI on a variety of programs, including leadership development. Other functional areas respondents said they were addressing with human capital analytics included engagement, organizational development, recruiting and selection succession planning, and diversity and inclusion. Each of these areas shows significant impact to an organization, as long as professionals know where to pinpoint their efforts.

The influence of truly integrated talent management is being felt in many of the world’s top organizations, and people analytics are playing a big role in improving each component of the employee life cycle. The goal of all of this is to positively affect the bottom line. The majority of respondents said “driving business performance” is the top driver of talent analytics in their organizations, far above more HR-related reasons such as “enhance respect for human resources” or “increase funding for HR.” The key takeaway for leaders from this study is for them to have a more accurate picture of where they can have the biggest inf luence on their organization’s performance using people analytics. Some organizations are farther along than others when it comes to instituting a talent analytics function and making use of its strategic usefulness. Even more encouraging is the fact that many are still early in their analytics life cycles. The challenge ahead is to sustain and grow the human capital analytics practice. Jack J. Phillips is chairman of ROI Institute Inc., a research and measurement advisory firm. Patti P. Phillips is president and CEO of the firm. To comment, email editor@talenteconomy.io.

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The New

ILLUSTRATIONS BY ANNA JO BECK

Social Contract

BY ANDIE BURJEK, LAUREN DIXON, GERI ANNE FENNESSEY AND SARAH FISTER GALE


The past half-century has brought tremendous change to the employeremployee social contract. From compensation and management, to culture, to learning and development, the relationship is being defined as never before.

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ince the end of World War II, the American dream has been largely defined as the ability to attain stable employment with comfortable compensation and benefits. For many, such middle-class promise often meant spending their entire occupational careers with a single company, which afforded enterprise organizations both loyalty and stability from their employees in return for similar loyalty and commitment. As time went on, however, and as attitudes around

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work began to shift — primarily as a result of changing social norms and technology — the employer-employee social contract evolved, and continues to do so to this day. Here, Talent Economy editors profile how the continuously evolving employer-employee social contract has affected compensation, management, culture and learning and development.

Compensation The most tangible and direct change that has come with the evolution of the employer-employee social contract is the nature by which talent is compensated.

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o matter the era, every employment arrangement is going to require some basic level of compensation. However, as the employer-employee social contract has evolved, so has the way employers pay employees. A few primary variables have contributed to this shift and are likely to continue to well into the future. The first is employee tenure. Today’s employees are less likely to stay with a single company for more than a few years, despite the fact that overall employee tenure in the labor market has increased over time. According to the United States Bureau of Labor Statistics, the median tenure of wage and salaried workers has actually increased over the past half-century. In January 2016, the median employee tenure was 4.2 years, which is nearly a year more than tenure in 1951. Still, according to the Employee Benefit Research Institute, a public policy firm, young workers ages 25 to 34 have always spent roughly two to three years at a company, gaining experience in their early careers before moving on. It’s those later in their careers that EBRI said recently have begun to move on more quickly from company to company, further adding to the notion that knowledge workers are changing jobs more frequently. Between the early 1980s and early 2000s, workers ages 55 to 64 moved from a median tenure of about 15 years to around 10 years, according to EBRI research. The perception that employee tenures are shorter means companies have changed their compensation structures to better account for short-term performance. “There’s a movement away from these very long-term compensation structures, not only due to relative power, but also due to

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volatility and difficulty in predicting fast-changing technological future,” said Andrew Weaver, assistant professor at the School of Labor and Employment Relations at the University of Illinois at Urbana-Champaign. “All of those things combine to push compensation into a more shortterm, salary-focused, spot-market wage-type structure.” For instance, an employee pension — where employers set aside funds to be paid out at a fixed rate to cover employees’ future retirement expenses — once was considered the most common retirement benefit, with employers confident they could make such payments decades down the road. During World War II, the U.S. froze employee wages, forcing employers to use benefits as a competitive tool. This sparked increased interest in pensions and health care. Pensions have since fallen out of favor. According to the Bureau of Labor Statistics, defined-benefit plan (pension) participants accruing benefits fell from 80 percent to 40 percent from 1975 to 2011. Now that lifetime or multidecade employment is less likely, firms have moved their primary retirement offerings to easily transferrable defined contribution or 401(k) plans. As a result, employees — not employers — are taking on more of the cost and overall financial risk. “There is a general sense that employees bear more labor market risk than they once did,” Weaver said. The second variable is how employees’ performance is assessed. Historically, strict enterprisewide salary bands determined how employees were paid. That, paired with an employee’s annual performance evaluation, determined if they got promoted and, if they did, what salary raise they would receive. “It was pretty mechanical and pretty industrial, and there wasn’t really much you could do about it,” said Josh Bersin, principal and founder of research and advisory firm Bersin by Deloitte, based in Oakland, California. This, too, has changed. “This idea that we’re going to keep everybody fair and equal is not contemporary anymore,” Bersin said. “There’s a much more strong belief that people need to be paid what they’re worth. In a sense, each individual is like a job market of itself.” Compounding the personalization of determining each worker’s worth is the recent explosion of tools that have helped employees better examine their value. “Workers are smarter and better informed than they have ever been before,” Bersin said. Websites like Glassdoor, LinkedIn and others now allow employees to determine their market worth based on the troves of salary and compensation data these services collect. It’s simply harder for employers to hide information around compensation. Therefore, employers must adapt and update their methods for determining compensation. Outdoor retailer Pa-


tagonia Inc. now uses software to gauge performance to include peer feedback, which employees later discuss with their managers, according to Dean Carter, vice president of human resources, finance and legal at the Ventura, California-based firm. Rather than using performance ratings, employees enter feedback for each other into a software platform, thus harnessing the power of the crowd, Carter said. Therefore, the manager is not in total control of an employee’s quarterly review; their role is to instead drive insights about individual performance. In addition to how much employees are paid, today’s employer-employee social contract has evolved to the point where other forms of nontraditional compensation have moved up the value chain. Another way Patagonia boosts promotions and employee retention is through its paid leave and on-site child care programs. The company said it provides 100 percent of employees’ pay for 16 weeks for new mothers and 12 weeks for new fathers and adoptive parents. After that, the employees’ children ages 8 months to 8 years can attend on-site, integrated child care at a subsidized cost at the company’s headquarters. “The social contract of this now [at other companies] is if you have kids, you figure it out, and it’s not our responsibility,” Carter said.

These benefits are included in addition to traditional health insurance — a compensation component that has remained widely entrenched over the past half-century. “Unless the U.S. migrates to a national health care system, providing health care as part of the benefits package will continue to have a very important role in the employee-employer social contract,” said Kathy Horgan, executive vice president and chief operating officer for Boston-based financial services firm State Street Corp.’s global human resources division. Research from Glassdoor confirms that when it comes to employee satisfaction with their benefits packages, health insurance is by far the most important offering, followed by 401(k) plans. Nevertheless, Horgan said benefits staples like health care are required but aren’t enough given employees’ shifting values. “Today’s employees look for benefits beyond compensation — both the tangible and intangible — such as

“There’s a movement away from these very long-term compensation structures due to … difficulty in predicting fastchanging technological future.”

— ANDREW WEAVER, ASSISTANT PROFESSOR, This effort to provide generous family leave benefits has paid off for UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN Patagonia; the company said 100 percent of new moms return to work after taking leave. For the rest of the U.S., about 80 per- flexibility and various forms of paid time off, access to cent of new mothers return to work within a year, accord- volunteerism opportunities and a work culture that aligns ing to U.S. Census Bureau data. “After years of doing with their personal values. These all have an intrinsic dolthis, we have full parity of men and women at all levels of lar value,” Horgan said. management,” Carter said. Patagonia even said it foresees some children who were raised in its on-site child care Access to volunteer opportunities is an especially valuable program grow up and come to work at the company, start compensation offering nowadays. Companies that give families of their own, and then send their children to the back in this manner don’t have to outbid the market in company’s child care program. terms of salary, because they’re offering something their desired talent pool seeks and puts an economic value on, Another popular compensation offering given the evolving said Perry Yeatman, founder of Your Career, Your Terms, employer-employee social contract are health and wellness an online resource for career-focused women based in benefits. Software firm Adobe Systems Inc. offers its U.S. Washington, D.C. “It really is about can you match my employees up to $360 per year for eligible wellness activi- values, my beliefs? Can you make me feel like I’m making ties, such as gym memberships, activity trackers and run- the world a better place every day? Do I believe in what I ning shoes. “Adobe wants employees to feel well so they can do?” Yeatman said. If business leaders can get their culperform at their best, both professionally and personally,” ture, mission and purpose right, and then communicate it, said Mason Stubblefield, the San Jose, California-based that can act as a source of compensation advantage. “You company’s vice president of total rewards. can argue that’s not compensation,” Yeatman said, “but I

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would argue it absolutely is a fundamental thing that [employees are] putting a hardcore value on.” Despite the compensation changes that have come amid the evolving employer-employee social contract, not all industries have felt a positive shift. The manufacturing sector is one such industry whose employer-employee social contract has suffered at the hands of globalization and technology. With the continued rise of automation and globalization, many manufacturing firms have struggled to offer competitive and rising wages to workers. Adding to that pain has been a decline in investment in skills training for workers displaced by automation, according to University of Illinois’ Weaver. “In all, it’s a package of lower skill investments, lower wages, less commitment on both sides to a long-term employment relationship,” Weaver said. This points to a final driver of the evolving employer-employee social contract influencing compensation: geography. Larger cities with a more robust pallet of skilled talent, and which have many companies for people to choose from, offer a more dynamic social contract likely to favor the employee. But for firms based in more sparsely populated rural areas, the social contract offering isn’t as lucrative. “If you’re in a small town where there’s only one employer, you better be loyal,” said Deloitte’s Bersin. “You might have a very strong social contract with that employer.”

Management The fact that more of today’s workers are more likely to be short-term employees has also changed the nuances of the management relationships they have at work.

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n the immediate post-World War II era, when employees were more likely to stay with a firm for longer tenures, managers could afford to take a wait-and-see approach. “They got away with not actively managing their people, because time and the corporate system would eventually take care of it,” said Bruce Tulgan, founder of management consulting firm RainmakerThinking Inc. in New Haven, Connecticut. But in an era where job tenures are now measured in months, not years, managers need to take a more active and engaged approach. “If you

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want a productive team you’ve got to get them up to speed quickly and give them the support, resources and tools to perform,” Tulgan said. Tulgan mentioned the United States Marine Corps as an example of how to manage in a fast-paced, short-cycle culture. “The Marines turn ordinary people into extraordinary leaders in a very short amount of time,” Tulgan said. They do it through a combination of intensive boot camps, coaching and leaders who set clear expectations and teach repeatable solutions. And all of these lessons can be translated to the workplace. “Any team that has strong training and a highly engaged coach will do better and work harder than their peers,” Tulgan said. For today’s talent, methods like these may lead them to stay with the firm longer. They just need to be able to envision a future with the company, said Chip Espinoza, management consultant and co-author of “Managing the Millennials: Discover the Core Competencies for Managing Today’s Workforce.” “They will work 24/7 if they feel like you are invested in their future,” Espinoza said. “But if they feel ignored or undervalued, it doesn’t matter how sexy your company is, they will have an exit strategy.” This can all be a tough transition for old-school managers who view job-hoppers as unworthy of learning and development time and investment. But this shortsighted approach will only drive employees away sooner and limit their productivity while they’re on the job. To be effective in this environment, managers need to change the way they think about loyalty, according to Yihteen Lee, associate professor of managing people for IESE Business School in Barcelona, Spain. “Loyalty isn’t just a measure of time, it is measured by how committed a person is to their work, and how engaged they are in achieving the goals of the company,” Lee said. When managers view loyalty through this lens, managers can set more realistic expectations and more accurate development paths. “It’s not an issue of whether or not you invest in their development, it’s how you provide that training and support to meet their needs and the needs of the team,” Lee said. Brannigan Thompson, senior vice president of talent and leadership development for Voya Financial Inc. in New York, argues that the job-hopping millennial is an unfair stereotype that has more to do with the company culture than employee loyalty. “If companies find employees who match their culture — not just the job description — and make them feel like their work has value, they won’t leave,” Thompson said. At Voya, the average tenure is more than 10 years, Thompson said, even among the firm’s younger staff. Thompson attributes this to the company’s “culture fit” approach to hiring, lots of advancement opportunities


and flextime options, as well as ample paid time off to volunteer in the community. Even if great employees do leave after only a few years, in today’s fluid and flexible talent economy, they are rarely gone forever. “That’s important for managers to remember,” said RainmakerThinking’s Tulgan. The old-fashioned definition of employment as full-time, on-site, uninterrupted, long-term and exclusive, is becoming increasingly irrelevant. A 2015 report from The Workforce Institute at Kronos Inc. and WorkplaceTrends.com showed 46 percent of millennials would consider returning to their former employer, compared to 33 percent of Generation X and 29 percent of baby boomers. “Managers have to recalibrate their thinking to reflect this shift,” Tulgan said. “It’s all about what that worker needs while they are together.” Managers won’t just naturally adapt to this new world of work, Espinoza said. “If HR wants to keep turnover down among this generation, they have to teach managers how to support and engage them.” He urged companies to consider whether their leadership development programs are relevant to a younger employee base and to look for high performing leaders who can act as coaches, helping their peers learn better skills for managing millennials.

Culture The changing employer-employee social contract has also affected the nature of organizational culture. Thanks to a tightened labor market, employees now feel empowered to demand more from their employers, and they’re asking for more out of their firms’ cultures by way of things like increased flexibility, transparency and fairness.

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reating employee-focused company cultures is good for employers as well, according to Bonnie Endicott, director of people at Dallas-based Southwest Airlines Co., because it means that employees are finding new ways to stay engaged in the mission of a firm. “Employees want to feel that a company cares about them, and that they’re not just means to an end,” Endicott said. “I think they always wanted to be valued and not just means to an end, but folks are more vocal about it now.”

One way this has played out is that companies are putting new emphasis on career development, Endicott said, although not necessarily in the traditional way. The idea that all career growth is upward is outdated, Endicott said. Today, more companies are encouraging employees to make lateral moves to keep them engaged and improve their future outlook within the company. “Career ladders are gone. They’re the old-school thinking,” Endicott said. Replacing traditional vertical growth tracks with more horizontal options affords employees the chance to learn new skills. At Southwest, Endicott cited an example of moving from working as a customer service agent to taking an entry-level job in the finance department. One benefit to this arrangement is it keeps employees at the firm. When employees are looking to leave a firm, Endicott said, giving them a lateral move provides them with a new experience to keep them engaged and feeling as if they’re growing in their careers. Some argue that, thanks to the rise of technology that has made the employment market more transparent, the employer-employee social contract is more balanced than ever, with each side finding equal value in the arrangement. Nick Sanchez, chief people officer at New York-based human resources software firm Namely Inc., is one proponent of this idea. “Now, because of the advent of technology and data, there’s a lot more transparency for people in these relationships. It’s a win-win for both employers and employees.” Transparency has become a core cultural component to the employer-employee social contract at Namely. For example, the company makes an effort to be upfront about its employee experience in the recruitment and hiring process. “We really try to have a transparent interview process,” Sanchez said. He then added an example interview question to highlight its use of transparency: “I know your friends have probably told you about the high-growth tech startup environment, but what does it really mean to work in a start-up environment?” Once someone is hired, Namely puts each new hire through a goal-setting process that includes discussion of the employees’ short- and long-term goals, then does what it can to help employees reach those goals. This level of transparency benefits both sides. “People come to the table with much more of an open conversation both in recruiting and when they’re actually employed,” Sanchez said. Namely also uses transparency to shape its culture by adopting a cascading goals system that doesn’t leave anyone out of the loop. Each quarter, the CEO sets companywide goals and managers create their individual team goals tied to the company’s goals. From there, each employee works with their manager to set individual quarterly goals. S p r i n g 2017 • T a l e n t E c o n o m y

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All of these goals are public to the entire company so that everyone knows what is most important to their colleagues every quarter. Not only does transparency help to mobilize employees to accomplish the company’s goals, but it can also help employees feel more energized in their own careers. Workers today want to know how the work they’re doing ultimately develops them in their career. “They say the great coaches in the NFL coach their assistants to someday be head coaches in the NFL,” said Bryce Williams, president and CEO of Dallas-based wellness technology firm HealthMine Inc. “And I think you’re starting to see that in the better companies in the workplace.” Another cultural element propelled by the modern-day employer-employee social contract is employees’ desire to be more collaborative. Whereas more traditional reporting structures once dominated a firm’s innovation pipeline, today’s firms are turning to more collaborative tactics. Take Cisco Systems Inc. The San Jose, California-based company recently began holding companywide “hackathons” called the HR Breakathon to inspire employees to come up with new ideas for the firm, said Francine Katsoudas, the company’s senior vice president and chief people officer. The firm’s first Breakathon was in February 2016. It had 821 participants across 120 teams from 39 countries and 116 cities, and participants submitted a total of 105 ideas. The top four have already been implemented at Cisco. “We needed all 73,000 employees to feel like they were innovators and that they could take risks and make bold decisions here at Cisco,” Katsoudas said. Not only do such innovation challenges help the company find solutions to problems and new ideas, but they also help retain employees, Katsoudas said. “As an employer, thinking about that and having that frame of mind makes you better,” she said. “It allows you to figure out how can I give the employee the best experience while they’re here.”

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f you think back to the second Industrial Revolution, companies had to take on the burden of upskilling the workforce for the new concept of a job,” said Ravin Jesuthasan, managing director of Chicago-based research and advisory firm Willis Towers Watson. “Companies like General Motors and Ford essentially became social institutions as they provided jobs and training for life.” This historical phenomenon repeated itself again during the 1950s. “The ’50s heralded another period of steady, sustained growth in the U.S. that accelerated the ability of companies to plan and develop their workforces,” Jesuthasan said. Today’s rapid growth in the technology sector, paired with widespread economic uncertainty, has unraveled such an arrangement. Even as the employer-employee social contract has been turned on its head, it remains a significant driver of the future of firms’ employer value propositions. In fact, in professional services firm Deloitte’s 2016 “Global Human Capital Trends” report, “a new social contract” is named as one of the key factors in reshaping the employer-employee relationship. Some disagree. “The employer-employee social contract has done more than just shifted,” said Bill Sanders, managing director at Roebling Strauss Inc., a San Francisco-based strategy consultancy. “It died — and economics killed it.” Not only are many of today’s employers unwilling to train for the technical skills that many employees lack, but they’re often forced to first prioritize the education of more basic business skills. “Most companies (incorrectly) assume that new hires coming in have advanced technical skills and they find themselves stuck being remedial educators in skills like communication, problem-solving and decision-making,” Sanders said.

L&D

Part of the challenge employers have in investing in employee development these days is the ability to predict what skills will be relevant even one or two years out. It is much tougher today to identify the types of skills employees will need down the line, thanks to an increasingly fluid market for skills propelled by advancements in technology. This makes it more difficult to commit to training and educating their current workforce.

The employer-employee social contract has also dramatically influenced how companies treat talent development. As technology makes predicting future skills a challenge, fewer companies are finding learning and development investments valuable. But this doesn’t mean learning and development is something business leaders should ignore.

This shift in the approach to development exists alongside a sense that employers are struggling to find the talent they need to support rapidly changing businesses. “The perceived skills gap is because companies have stopped training and developing people internally,” Peter Cappelli, professor of management at the Wharton School of Business at the University of Pennsylvania and director of Wharton’s Center for Human Resources, said in a 2016 study by the Economist Intelligence Unit.

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This speaks directly to the changing nature of the employer-employee contract. “Before the 1980s, 90 percent of vacancies were filled internally and 10 percent were hired outside. Now 65 percent of vacancies are filled outside,” Cappelli said. The root cause is budgetary. “Training budgets fell by 20 percent from 2000-2008 and HR departments were gutted,” Cappelli said. For employees, many felt they were unfairly required to come equipped to perform a job on day one.

“The employeremployee social contract has done more than just shifted. It died — and economics killed it.”

in Roseland, New Jersey. This is especially the case among millennials, the largest generation in the workforce. “Millennials are more concerned with career advancement than with money,” said Nicole Cunningham, head of recruiting and employee experience at Knot Standard, a New York-based custom menswear firm.

Also, employers need to be sure that they’re using the most innovative resources in training technology to educate their employees. “In this digital age, we Still, some firms are findhave apps that can provide —BILL SANDERS, MANAGING ing innovative ways to use timely feedback for coachdevelopment to bridge that ing and can track who is DIRECTOR AT ROEBLING skill gap. developing and exceeding STRAUSS INC expectations,” said Kris In a recent case study in the Duggan, the CEO of BetHarvard Business Review, terWorks, a Redwood City, author John Donovan, chief strategy officer at telecom- California-based enterprise software firm. “The new conmunications firm AT&T Inc., outlined the firm’s new tract puts the onus on the employee to keep up to date and “Workforce 2020” initiative, with the goal of identify- on the employer to provide the tools and coaching, know ing how to internally source more digitally based skills. who is growing, and reward based on that.” As a result of the initiative, the company has spent more than $250 million on employee development programs, The age of automation and artificial intelligence is also inthe HBR case study said. Moreover, internal data shows fluencing how employers devote resources to learning and 140,000 AT&T employees are actively obtaining skills development. “Technology has eroded any sense of emfor newly created roles with the expectation that they’ll ployer responsibility,” Roebling Strauss’ Sanders said. In change roles every four years. “You can go out to the street some industries, if you can train or program a machine to and hire for the skills, but we all know that the supply perform a task that an employee used to have to be trained of technical talent is limited and everybody is going after to complete, that may be the employer’s favored solution. it,” Scott Smith, AT&T’s senior vice president of human This emerging reality can be seen across job categories. resources operations, said in the case study. “Or you can Consider self-serve ordering at fast-food restaurants, selfdo your best to step up and reskill your existing workforce serve checkouts at supermarkets and even in programmatic to fill the gap.” The majority of the reskilling effort at ad buying in the advertising industry. AT&T took place through online learning, according to the case study. Ultimately, employers need to think broadly and creatively about the best way to accomplish their goals when it comes Perhaps the most important driver keeping employee de- to maintaining a proficient learning and development culvelopment top of mind is that it may be keeping employees ture within their firms. from leaving. By reducing training programs and focusing on hiring employees equipped with technically advanced “There needs to be a plurality of means for getting work skillsets, employers may be missing a golden opportunity done today,” Willis Towers Watson’s Jesuthasan said. “The to motivate and retain their talent. “Recommitting to em- old days of hiring someone to fill a job and training that ployee training programs would be a great first step,” said person to continue to be productive based on the belief of Ahu Yildirmaz, vice president and head of the Research steady, linear progression is long gone. Leaders need to Institute at ADP, a global business services firm based constantly assess the best way to get work done.”

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OF THE

BY STACEY PETREY ILLUSTRATIONS BY PAUL BLOW

Mergers and acquisitions are often made with the combined company’s financial future top of mind. But how the two entities meld their human capital is critical to any deal’s success.

A

merger or acquisition is the union of two firms with different competencies and cultures. When done right, such deals can be a major boon for the future performance of the combined entity. When done wrong, they

can ensnarl both firms’ executives in years of untangling that make the initial attractiveness of the deal appear questionable. While most executives are likely to think that a given deal’s success is dependent on the prospects of the new company’s combined financial future, much of that future actually rests on the firms’ ability to meld their human capital. If leaders can agree that people are ultimately a company’s most valuable asset, largely responsible for a firm’s income generation and earnings growth, then managing the risks and opportunities associated with a merger or acquisition’s people is likely to account for the difference between a deal’s success and failure. Accordingly, it is critical for business leaders to assess the target company’s human capital with the same rigor

that is applied to the assessment of its financial statements, products, inventories and other assets and liabilities. This article offers six human capital tools business leaders should consider as they evaluate any M&A deal they’re eyeing.

Tool 1: Strategic Deal Rationale

A merger or acquisition is founded on an investment thesis, described as a definitive statement of how the deal will create value for the buyer and associated stakeholders. The deal thesis is supported through financial models for revenue and potential synergies to substantiate it to investors. Regardless of if the deal focuses on entering a new line of business, acquiring new technology and intellectual capital or consolidating a market, the investment thesis be-

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comes the backbone for the deal’s integration strategy. To that end, the first tool in a leader’s human capital toolkit is to clearly identify the deal’s strategic reasoning. In today’s M&A environment, typical rationales include: improving company performance; removing excess capacity from the industry; accelerating growth or market access; acquiring skills or technology more quickly or at a lower cost; and finding emerging success stories and developing their business roll-up strategies, among others. In turn, the strategic reasoning will then determine how deal synergies will be realized along a continuum between an investment-to-integration framework.

fits obligations in an era of record-low interest rates can lead to underfunded liabilities or poor investment performance. These items can lead to substantial purchase price adjustments during the transaction and impact employee retention and morale depending on the post-deal total rewards package design.

Tool 2: Enterprise Enablement Efforts

Capturing sustained economic value after a deal has closed is the most significant challenge for inorganic expansion. This leads me to the second tool in the human capital toolkit: aligning the enterprise enablement efforts with the levers for value creation.

COMMUNICATION

This strategic rationale can be used as a lens in assessing human capital factors in due diligence, pre-close planning During due diligence, human capital practitioners can beand post-close integration. The key is for leaders to align gin to identify how deal synergies can be realized through their human capital planning with the critical business the careful alignment of people requirements to operapriorities. For example, I have participated in more than tionalize deal objectives. For example, a few years ago I a dozen deals in the pharmaceutical industry focused participated in a large multinational deal with a mature on mitigating the patent expiry risks by acquiring new company that had significant talent tenure and retention products, expansion into new geographies and entering in their international locations. We used a multipronged or exiting the market segments such as animal health or approach and several unique human capital M&A tools to consumer products. In addicomplete a preliminary talent tion, vertical and horizontal assessment, cultural inventory M&A Human Capital Toolkit: A Snapshot integrations via M&A have and a total rewards inventory enabled pharmaceutical comand valuation. What was dispanies to take advantage of covered was that most of their economies of scale, expanded high-potential talent (longest R&D, stricter governmental future runway) were currently Strategic deal regulation and international on rich expatriate assignments rationale tax advantages. and within-country high-performing talent had significant The human capital issues tenure with valuable vested that may arise in pharmaceupensions and equity holdings. Enterprise tical transactions typically Many weeks and months were enablement efforts include measuring the cost of spent valuing and developing redundancies and reductions a post-close total rewards and in force (normally stemming retention package in addifrom duplicate functional tion to developing the talent areas); consolidation of sales “non-negotiable” list to ensure Culture forces; shuttering factories success of the conveyed assets or moving manufacturing to and inventory. lower-cost geographies; and retaining and integrating new The open secret about M&A leadership and key employees is that most deals fail to genTalent inventory into the desired future state erate the expectations they and assessment organization and culture. At promised when they were the executive level, changeannounced. As shown in a in-control payments can lead 2014 study by management to post-close retention issues consulting firm Bain & Co. Manage and especially for leaders of key that analyzed 150 mergers measure products or business lines. In announced between January more traditional pharmaceu2000 and July 2013, the top tical companies, large penfive root causes of deal disapsion or post-retirement benepointments or difficulties are: 44

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• Due diligence failed to highlight critical issues. • Overestimating synergies from combining the companies. • Failure to recognize insufficient strategic fit. • Failure to assess cultural fit during due diligence. • Problems integrating management teams and retaining key talent. In reviewing these results, it is clear to see that the majority of findings have significant human capital components. Human capital practitioners can improve M&A results through a rubric during due diligence to create a framework that allows executives to align the people requirements with the prioritized priorities.

Tool 3: Culture

Cultural alignment should support the deal’s value proposition and the targeted business’ objectives. This can be influenced by the goals of the deal synergies and the expectations of the post-close organization to enable the desired business outcomes based on the investment thesis. It is highly likely that, until the deal closes, human

Business leaders should assess the target company’s human capital with the same rigor that is applied to the assessment of its financial statements.

When aligning the enterprise enablement efforts with the levers for value creation it is important for business leaders to bring in the third tool in the human capital toolkit: culture. Culture matters, often more in multinational deals. While it is provocative to see new countries added to a company’s sales force or manufacturing footprint, organizational fit and national differences can lead to unprecedented complexity and cultural variability. Integrating company cultures is not the same as integrating business processes — it is not possible to hand pick the best practices and rationalize workflows when organizational culture spans borders and functional boundaries. Today’s multinational deals present difficult decisions for business leaders, even those who prioritize culture. In a review of complex global organizations, James Heskett, author of the 2011 book “The Culture Cycle: How to Shape the Unseen Force That Transforms Performance,” observed that, in many cases, developing a “one company” culture is very difficult and uneconomic to achieve. A common set of values may be the most a global organization can hope to achieve, but, as Heskett writes, how those values are interpreted will be based on local assumptions and practical application.

As I noted earlier, culture is one of the top reasons deals fail to meet expectations. I can speak to several critical lessons learned from integrating organizations with far different risk tolerances, power structures, achievement norms, business time horizons and communication ex

pectations. The executive summary: it is complicated and challenging work. Variations in these contexts can lead to significant employee dissatisfaction, delayed deliverables and increased costs as an organization works to overcome these silent impairments. Just as planning for business integration requires assessment and planning, cultural integration spans a continuum as well.

capital practitioners cannot develop an objective and empirical understanding of the target’s cultural variability. Upon close, there are several tools available to conduct a cultural inventory within the first 100 days post-close that can create a strong evidence base to enhance the enterprise enablement plan.

Tool 4: Talent Inventory and Assessment

Another mitigating factor in aligning the enterprise enablement efforts is the fourth tool in the human capital toolkit: talent inventory and assessment. Decisions regarding people investments that enable the organization to capture deal synergies, achieve its business strategy and meet performance goals are strategic differentiators. Early and swift selection of key talent for the transition is critical to minimize uncertainty, assign accountability, define functional authority and clarify roles and expectations. Like culture, conducting a meaningful talent assessment of the target will probably not happen until after the deal has closed. Still, a multipronged approach to developing an exhaustive talent inventory could be conducted pre- and post-close through the appropriate tools. By prioritizing the key business strategies, actions and barriers, human capital practitioners can then identify the S p r i n g 2017 • T a l e n t E c o n o m y

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people requirements for the post-close deliverables. Conducting a high-level inventory of the target’s current leadership and key talent for products, projects or technology pre-close can lead to the development of a talent table of key employees required for the transaction and help frame their retention requirements. Since no two deals are alike, human capital practitioners will need to be creative and flexible in due diligence to gain insight around the target’s talent. On one deal I participated in a few years ago, there was a due diligence dinner where each senior leader was given a short list of who to talk to and what questions to ask. The top two roles of each of the target’s talent had been identified to ensure we understood a high level fit assessment and to understand their level of interest in joining us post-close. In other instances, more specific role profiles can be developed to assess the gap between current or post-close talent (which includes the acquirer’s talent pool) against the organizational needs, key deliverables, required skills and technical expertise, and ideal behaviors needed to achieve the deal deliverables.

M&A results can improve through a rubric during due diligence. If human capital practitioners approach talent inventories and assessment through talent rubrics, they can prioritize by asking the following: •

Which jobs have the biggest impact on our key deliverables?

Who are our (the acquirer’s and the target’s) high potentials/top talent (depending on how your organization defines it, this can be measured by their ability to make and execute on key deliverables or decisions, longest runway for future roles, etc.)?

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Who can we tap for a stretch assignment to deliver on synergy or integration or post-close business deliverables? If so, who can we pull from our bench to backfill high potentials/top talent roles? T a l e n t E c o n o m y • S p r i n g 2017

And who can we tap to mentor employees with stretch assignments? For the target company, ensure key talent based on initial assessment will be conveyed with the deal (no exceptions) and identify what incentives, retention package and role will engage and retain them post-close.

How do we ensure top performers have the greatest impact on mission critical deliverables or decisions? Using these questions and other decision-focused talent assessment frameworks can articulate what metrics matter when determining who is tapped for the most important roles. Post-close, human capital practitioners can assess and prioritize how the target’s performance management and talent development cycle aligns with the acquirer’s established philosophy and procedures to create a meaningful talent inventory and assessment opportunity for the combined organization moving forward.

Tool 5: Manage and Measure

The disruptive nature of M&A and the integration process creates an opportunity for a broad performance improvement agenda to take advantage of optimizing beyond pure scale benefits. This leads us to our fifth tool in the human capital toolkit: manage and measure. Mergers and acquisitions rarely fail due to flawed strategy; most fail due to failed executive synergy generation or failed execution of the deal strategy. To take a page from preventative medicine, building a strong work plan, enabling the development of a deal integration team and articulating clearly what measures matter will lead to better post-close outcomes. This aligns with McKinsey & Co.’s decade-long research into organizational health.


McKinsey’s work on this front, as shown in the April 2014 issue of McKinsey Quarterly, indicates that health of an organization is based on the ability to align around a clear vision, strategy and culture; to execute with excellence; and to renew the organization’s focus over time by responding to market trends. To realize the deal’s rationale of stated synergies and optimization efforts, teams are given more aggressive targets and benchmarks. The organization’s mission and metrics should be tailored to identify and execute against clearly measured synergy and optimization targets. For example, in areas that will deliver the most value, in my past deals I’ve used benchmarks and industry-specific scaling data to frame the gap between the post-close realities vs. the desired future state. Benchmarks are not perfect, but in today’s landscape of global consolidation, knowing where to expect the greatest synergies down to the sub-function level — especially in enabling functions like finance, HR and information technology — can assist in developing a quantitative framework to manage and measure leaders’ post-close business model. Leveraging benchmarks can allow combined entities to set aggressive goals and identify the talent needed to achieve superior results.

Tool 6: Communicate, Communicate and Communicate

Lastly, as the deal workflow continues to develop and emerge, the sixth and continuous tool in the human capital toolkit is to communicate. Communicating early and often with all stakeholders — vendors, suppliers, customers, employees, investors, stakeholders and the surrounding communities that are affected by your organization — creates a consistent tone and theme. The demand for communication has become cliché, but when well-planned, business leaders’ communication toolbox is a strategic differentiator. I have worked on incredibly complex deals where com48

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munication to internal and external stakeholders operated within a separate work stream with clearly accountable parties and milestones that stretched for more than a year. Clearly articulating timing for key actions, candid transparency about the knowns and unknowns and creating easy-to-use feedback loops with all constituents allows for real-time modifications to the best-laid plans, truly a strategic differentiator. This article has given business leaders an overview of what human capital tools matter within the M&A environment. By clearly stating and communicating the deal thesis, the strategic rationale will frame deal synergies and align people investments with business expectations. Defining an integration strategy by aligning enterprise enablement efforts with the human capital levers for value creation creates a clear path for post-announcement activities. Completing cultural assessments pre-close and post-close is crucial to deal success and the formation of the new organization. Conducting a complete talent inventory and assessment will identify the people investments needed to enable the future state organization, capture deal synergies and achieve future state business and performance goals. The best way to operationalize the plan is through clear measurements and management of milestones and people investments through accountability. Lastly, developing a robust and enduring communication plan, communication vehicles and feedback loops to monitor and measure progress while allowing for real-time feedback and modifications creates a human capital toolkit that will be a strategic differentiator in your next M&A situation. Stacey Petrey is president of human capital consulting firm Petrey & Co. She is also a practice lead at Pittsburgh-based financial services firm Solenture LLC. To comment, email editor@ talenteconomy.io.


QUOTES OF NOTE FROM THIS ISSUE “There’s a movement away from these very long-term compensation structures, not only due to relative power, but also due to volatility and difficulty in predicting fast-changing technological future.” — Andrew Weaver, assistant professor at the School of Labor and Employment Relations at the University of Illinois at UrbanaChampaign | The New Social Contract, Page 36.

“My peers who are HR professionals are going to be out of jobs really soon and they haven’t got a clue. There’s so much they do that’s low level, low value, it’s filling forms, shuffling papers and that can all be done by bots.” — Rachel Maclean, chief operating officer and co-founder of Air HR Ltd. | Are Bots the New HR?, Page 14.

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“It is critical for business leaders to assess the target company’s human capital with the same rigor that is applied to the assessment of its financial statements, products, inventories and other assets and liabilities.” — Stacey Petrey, president of human capital consulting firm Petrey & Co. | Tools of the Trade, Page 43.

“Whether it’s called human capital analytics, HR analytics, people analytics or talent analytics, there are now dedicated teams focusing on this important topic. At the same time, organizations have struggled to get their human capital analytics teams up to speed and running smoothly.” — Jack J. Phillips and Patti P. Phillips of the ROI Institute | Calculating Success, Page 30.

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Talent Economy – Spring 2017  

Today’s employer-employee social contract promises a continuing evolution in the areas of compensation, management, culture and learning and...