Talent

Making People Your Competitive Advantage

Edward E. Lawler, III

• Publisher: Jossey-Bass
• Year: 2010
• Print ISBN: 9780787998387
• eBook ISBN: 9781118047620
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Comportamiento organizacional

The source of competitive advantage has shifted in many organizations from reliability to innovation and flexibility. But what does it take for an organization that innovates to then manage effectively? In this follow-up to Built to Change, Ed Lawler argues that it is a combination of the right structure and the right people. First, organizations must decide what structure they are: are you a high-involvement organization that has products and services that require a high level of coordination and cooperation among employees? Or do you have a more global competitor structure in which you are constantly bringing in new talent and technological expertise? Are you a mixture of both? Lawler outlines the unique human capital strategy for each approach, shows what it looks like in action, and provides the foundation and tools for creating competitive and innovative organizations.

CHAPTER ONE

TALENT MATTERS

In the last several decades, an avalanche of business books, articles, speeches, and seminars have stressed the importance of human capital—people—in gaining competitive advantage. Executives seem to be paying attention. According to a recent survey of senior executives from all over the world, the two most important management challenges are

• Recruitment of high-quality people across multiple territories, particularly as competition for top talent grows more intense

• Improving the appeal of the company culture and work environment

Fifty-five percent of the respondents to that survey reported that they expect to spend more time on people management than on technology in the next three years. More than 85 percent of the respondents said that people are vital to all aspects of their company’s performance particularly their top strategic challenges: increased competition, innovation, and technology.¹

What’s more, according to another recent survey of over a thousand global CEOs, 72 percent are more concerned about the availability of individuals with key skills than they are about energy and commodity prices and intellectual property rights.²

Apparently, people are front and center on managers’ radar, as well they should be. Increasingly, companies in a wide variety of businesses are finding that people can be their number one source of competitive advantage. But it is not enough for leaders to say that people are important, or to put people issues high on their mental to-do list. What is needed are organizations that are designed and managed—from the boardroom to the front line—in ways that optimize talent attraction, retention, and performance. I call this type of organization human-capital-centric, or HC-centric.

Today, most organizations are still managed in a bureaucratic, structure-centric manner, and they have been managed that way for decades. In these companies, you’ll often hear managers at all levels talking about the importance of people, but the walk really doesn’t follow through on the talk. Their managers do make an effort to see that they attract and retain the people they need to make their bureaucratic structure operate efficiently, but they are not designed to make their human capital a competitive advantage.

In one of my favorite Dilbert cartoons, the boss says, “I’ve been saying for years that ‘Employees are our most valuable asset.’ It turns out that I was wrong. Money is our most valuable asset. Employees are ninth.” When asked what came in eighth, he says: “Carbon paper.” I realize that not everyone remembers carbon paper, but I hope those of you who don’t still get the joke—and the real point: Lip service and window dressing are not enough.

To be clear, a bureaucratic, structure-centric approach to management can still work. A modest effort to attract, retain, and motivate talent is all that’s needed in some organizations, because it achieves good enough performance from their human capital, and people are not their primary source of competitive advantage.

But for companies that are truly competing on the performance of their people—their human capital—it is not enough. They need to adopt an HC-centric approach to organizing. It is not just about controlling people costs because they are a major expense—it is about how well people perform, because their performance is the critical factor in determining whether the organization is effective.

COMPETITIVE REALITIES

So how do you tell whether an organization should be HC-centric or not? Multiple factors have contributed to the creation of the knowledge economy and the rise of talent as a potential source of competitive advantage. The extent to which an organization has been influenced by these factors is the major determinant of whether it needs to be HC-centric.

One of these factors is access to financial capital. Having access to financial capital used to be a major source of competitive advantage, but today financing is easily obtained and therefore is rarely a potential source of competitive advantage. In developed countries, financial capital moves quickly and efficiently and is easily accessed. Evidence of the ready availability of capital is prevalent. More and more corporations are buying back their stock because they have an abundance of cash, and private equity funds are buying major corporations with their large cash positions. Oh yes, new public offerings continue to be common, even though they are not as hot as they were in the dot-com era.

Another factor in the creation of a new competitive landscape—perhaps the most obvious change—is the information technology that has been created in the last decade. It has reshaped the global economy as well as the internal operations of corporations.

Information technology (IT) has contributed to the growing need for technical knowledge as well as to the development of new technical knowledge and businesses. Perhaps equally important is the impact of IT on the ability of organizations to move work across internal, external, and geographic boundaries. It is now possible to outsource manufacturing, software engineering, and many other activities to other companies and countries, and to coordinate the results on a global basis.

IT has made it possible for people to work more flexibly and to change what they work on with increased rapidity. It also can give people a better understanding of what they are doing and why they are doing it.

Time Magazine recognized the impact that IT has had when it made “you” the person of the year for 2006. According to Time, the World Wide Web is about people being able to do new and important things. It is about the “many” gaining power—and not just changing the world but changing how the world changes. In the case of organizations, it is changing what people do, how they do it, their importance to organizations, and how they are managed and organized most effectively.

Closely tied to the evolution of information technology is the increased amount of technical knowledge required for many of the products and services produced and offered in developed countries. This increase is fueling a parallel increasing need for knowledgeable, skilled, and motivated employees. It’s also a major reason why the market values of S&P 500 companies are over three times their book values, and why the value of publicly traded companies’ intangible assets has been growing for decades.³ One estimate is that in 1982 intangible assets accounted for 38 percent of company assets, and that by 2000 they accounted for 85 percent.⁴

Another factor in the creation of a new competitive landscape is the result of the changes just described: The U.S. economy is increasingly service-driven. IBM, for example, once a computer and office equipment manufacturer (do you even remember IBM typewriters, or better yet, time clocks?), has evolved into a predominantly service-oriented organization. There also has been tremendous growth in food service organizations, such as McDonald’s, and retailers, such as Wal-Mart (the largest U.S. employer). As a result, manufacturing employment now represents only 8 percent of the U.S. workforce, down from over 30 percent just a few decades ago.⁵

Why is the growth of service organizations important? The major reason is customer interface. One thing that distinguishes service organizations from manufacturing organizations is the importance of the relationship between the customer and the service provider. This often is distinctively personal and is critical to the success of the organization. It is noticeably dissimilar from the relationship between a manufacturing employee and the product. What works from a management point of view for producing a product often does not work when the issue is interfacing with customers.

Because of the amount of change that has taken place in the last several decades, it is increasingly clear that the source of competitive advantage in many industries has shifted from effective execution and reliable processes to the ability to innovate and change.⁶ And it has changed from the ability to provide satisfactory customer service to the ability to excel in the area of customer relationships on a grand scale.

Simply stated, for companies that are truly competitors in the knowledge economy, what was good enough performance yesterday is rarely good enough today—and will almost never be good enough tomorrow. For most organizations, the best way to meet this challenge is to become HC-centric, to focus on making talent their most important source of competitive advantage.

The corporate landscape today is littered with once-successful large corporations that are failing, dying and going out of business because they have not changed. One only need look at the amount of change that has occurred in Fortune Magazine’s list of largest corporations to see just how unstable corporate performance has become. Between 1973 and 1983, 35 percent of the companies in the top twenty were new. The number of new companies increases to 45 percent when the comparison is between 1983 and 1993, and it increases even further, to 60 percent, when the comparison is between 1993 and 2003. The comparison between 2003 and 2007 shows a high level of change continuing (25 percent).

Some major corporations have disappeared entirely. Westinghouse used to be a peer of General Electric. Arthur Andersen used to be one of the world’s largest public accounting firms before the Enron scandal. Polaroid used to be a cutting-edge technology imaging company. Digital Equipment Corporation was second only to IBM in the computer business.

I could go on and on, but it’s hardly necessary. The simple fact is that fewer and fewer companies can be successful by practicing an old-school bureaucratic approach to management. Yes, it still works in transactional sales businesses (such as parking lot fee collection), in low-value-added manufacturing (garment sewing), and in food production (harvesting and packaging). But for companies that are competing on innovative products and services for which employee contact with customers is central, an HC-centric approach is essential.

TALENT AS A COMPETITIVE ADVANTAGE

What does it take to create an effective HC-centric organization? The first answer many give is “the right people.” It is hard to argue with this, as talent is certainly critical to innovation, change, and high performance. Talent that brings needed expertise and ideas to corporations is fundamental to innovation, as is talent that accepts change and is capable of learning and executing new processes. The right talent is the fundamental building block when it comes to creating an organization capable of innovating and changing and using this as a source of competitive advantage.

What’s more, acquiring the right talent is becoming an increasingly complex and challenging activity. The workforce itself has become more global, virtual, and diverse than it ever has been. Increasingly, a surplus of investment capital is chasing a scarcity of talented people.⁷ The future is sure to hold more of the same; thus, organizations that excel at talent management will continue to enjoy a competitive advantage.

There is also a good reason to believe that, in the United States at least, the educational system is not keeping up with the expected need for talented, well-educated employees.⁸ For example, the share of the U.S. workforce that has a post-high school education is not expected to rise significantly in the next twenty years, despite the fact that more and more of the work in the United States is expected to require at least a high school education.

Meanwhile, the supply of educated workers outside the United States is expected to continue to grow. Increasingly, customer service representatives, radiologists, engineers, software developers, and editors can be sourced many places in the world. The challenge for organizations, therefore, is to create an infrastructure that will allow them to find the talent they need, develop it, motivate it to perform, and retain it. The ability to do this and to do it well is a critical part of creating a competitive advantage that is difficult if not impossible to duplicate.

ORGANIZATION AS A COMPETITIVE ADVANTAGE

Finding, acquiring, and retaining the right talent is a necessary, but not a sufficient, step in creating an organization with a sustainable competitive advantage. To do this, an organization also has to have the right structures, systems, processes, and practices in place. All too often, organizations have great people, but do not manage or support them correctly. People are stifled by systems and processes that restrict experimentation, limit learning, hinder the transfer of knowledge, fail to motivate, and suppress innovation.⁹ As a result, organizations fail to capitalize on the talent they have and in the long run perform poorly.

Why is this the case? Bureaucratic systems and processes are created in the name of execution, control, and the short-term optimization of performance. In a time of slow change or little change, innovation may not be an important source of competitive advantage, so a bureaucratic approach may be best.

But in periods of rapid change, emphasizing execution and historical best practices almost always causes an organization to lose its competitive advantage. It ends up using outdated practices because it lacks the ability to innovate and change. As a result, it cannot attract or properly manage the best talent, and its performance declines.

Even acquiring an existing organization that has the right mix of talent may not be enough to improve an organization’s competitiveness. All too often, organizations that are mired in past practice mismanage the acquisition process, and as a result lose the very people and capabilities that were the justification for the deal.

One way to think about this is to distinguish between the need for organizations to “get better” and their need to “be different.” For many businesses, most notably those based on knowledge and technology, “getting better” is simply not good enough. Focusing on improving processes (in the spirit of Six Sigma) or reducing costs is important, but if it is the predominant focus of the organization, it can lead to failure in the long term. What is needed is a strong emphasis on being different from what used to be good enough, and different from what competitors are offering, because that is how new competitive advantages are created.

Becoming different is possible only if an organization can be creative and innovative. This requires a strong emphasis on learning and gathering new knowledge from internal and external processes. It also requires an organization-wide understanding that any competitive advantage based on new products or tactics will probably be relatively short-lived. They can be copied, and the continuing growth of knowledge and innovation means that better products and services will appear quickly. The focus needs to be on creating an organization that can continuously innovate and change, not just come up with a new product or a new service offering.¹⁰

An organization that can develop the capability to innovate and manage change has a competitive advantage that can be a barrier to entry for other companies. Companies trying to compete quickly realize that success is not simply a matter of raising capital, buying new equipment, or recruiting top talent. Rather, it involves a much more complicated and difficult undertaking: developing internal systems that attract and retain the right talent and organize the talent in ways that lead to continuous innovation and change. In other words, it requires creating an organization that is HC-centric in its design, structures, policies, and practices.

PERFORMANCE AND CHANGE

Simply stated, the best way for organizations to gain a competitive advantage and to sustain it in today’s business environment is to perform so well and change so fast that they string together a series of temporary competitive advantages. Needless to say, this is easy to say but extremely difficult to do. It requires a special com...

Table of contents

• Praise
• Title Page
• Copyright Page
• Foreword
• PREFACE
• Acknowledgments
• CHAPTER ONE - TALENT MATTERS
• CHAPTER TWO - MAKING THE RIGHT MANAGEMENT CHOICE
• CHAPTER THREE - DESIGNING ORGANIZATIONS
• CHAPTER FOUR - MANAGING TALENT
• CHAPTER FIVE - MANAGING PERFORMANCE
• CHAPTER SIX - INFORMATION AND DECISION MAKING
• CHAPTER SEVEN - REINVENTING HR
• CHAPTER EIGHT - GOVERNING CORPORATIONS
• CHAPTER NINE - LEADING
• CHAPTER TEN - MANAGING CHANGE
• EPILOGUE
• NOTES
• REFERENCES
• THE AUTHOR
• INDEX