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Strategic Talent Investment

Wednesday, September 28, 2016
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Limited dollars for talent development? High expectations for measurable impact? More requests than resources available? These are just some of the challenges facing HR today. The solution: Make strategic talent investments that directly link to the business strategy. 

Successful organizations have business strategies that define their goals, as well as the capabilities and systems they need to have in place to execute those goals. From my experience, the volatile marketplace has challenged leaders to craft sustainable, competitive strategies; of those that do, many still don’t thoughtfully consider the capabilities and aligned systems needed to operationalize their strategy. While there are exceptions to this conclusion, it is more commonplace to see lagging talent strategies and business systems.  

To support the business strategy, talent development needs to stop being reactive and start being proactive. Throughout my career I watched HR wait for the strategy to be defined by the business before it determined the actions to take to support it. That doesn’t work. The time to make a difference is during the creation of the business strategy so everyone involved understands the organization’s strengths and weaknesses. 

Absent that perspective, leaders are making assumptions about what can and can’t be achieved to execute their strategy. When it comes time to build budgets, the lack of forethought into what it will take to execute in terms of both capabilities and systems contributes to an unaligned mess. Budgets become grocery lists of investments that are only nominally linked to the business strategy. No one is thinking through which capabilities and systems are truly critical to enable the strategy execution. 

How Do You Become More Strategically Aligned With the Business?  

As mentioned, HR executives need to assume a more proactive role during the strategy formation. They need to exert their influence on the leadership team, and come prepared to share a clear understanding of where the organization is today from a talent and a HR systems perspective. This means they need an effective means of classifying current talent capabilities and gaps. 

An infrastructure of integrated approaches to assessment, talent planning, recruitment and hiring, performance management, and compensation needs to be functioning at a high level to provide talent development executives with the necessary data for strategic decision making. Furthermore, they must have sufficient knowledge of the business, the competition, and the consumer. Otherwise, recommendations on strategy will lack sufficient credibility. With the data and knowledge available, HR can then make strategic investment decisions.  

How Do You Make Strategic Talent Investment Choices? 

If you know where you are today in terms of capabilities and where you need to be to execute the business strategy, then making these decisions will be straightforward. Most organizations struggle with unclear priorities and massive tactical “to do” lists that are not aligned with the strategy. Your plans need to be directly tied to the business strategy. 

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Building a strategic investment plan means you make critical, differentiated investments in core talent areas that will have the most significant impact on your business strategy. Just as a business has to choose what it will and won’t do as part of creating its strategy, talent leaders need to have the discipline to make choices. That can mean you allocate some of your investment across frontline leaders as you implement a new service model. 

Or, perhaps it is an investment in high-potential midlevel leaders who need to make the transition to managing larger scope across broader global teams. The point is, your choices should be the result of strategic input at the beginning stages of business strategy formation. Failure to make strategic connections and monetize the return on investment will lead to arbitrary decision making and ineffective solutions.  

Similarly, the absence of the right talent development solutions will bring further failure in delivering against the capability requirements for the strategy. The keys to strategic talent investment are: 

  • Link business strategy to investment choices. 
  • Identify a solution. 
  • Follow through with execution and measurement.  

Using this as a model to build your talent development plans will significantly increase your chances of investing in the right solutions for the right audience at the right time, and with the right results. 

How Do You Build a Case for Your Talent Investments? 

The question you need to ask first is: Will making this investment help us accomplish our business strategy? Even if you answer yes, organizations may still cut the talent investments that most directly affect their ability to achieve their strategy. 

For example, I recently led a high-potential program designed to build general management capabilities among leaders from product functions who were experts in each of their fields. The goal, originally defined by the CEO, was to create a pool of general managers (GMs) who could lead businesses that were becoming more global and integrated. Rather than have operators run a product business, the objective was to have GMs with product expertise run a product business on a global scale. 

After two years of the program, 72% of the participants received promotions to GM roles and 22 percent took on expat assignments as GMs in Japan and China. But despite its success, the program was cut because the investment—$50,000 per person for 20 people—was deemed too steep. The primary reason that the case couldn’t be made to continue this investment following a CEO leadership change was that we were unable to demonstrate how the program was directly aligned with the business strategy. We didn’t monetize the value of the investment. 

Here are some questions you should answer when making a strategic case for talent investment: 

  • How does having internally developed X leaders with Y capabilities enable the achievement of your organization’s vision and strategy? Will having leaders with these capabilities allow you to more rapidly innovate, act on opportunity, or compete in new markets? Which specific strategic business objectives are you tackling?
  • How much business do the leaders you are developing affect, and how much economic value can be gained? Let’s say the leader runs a $200 million business. If the leader, as a result of your targeted development, is able to find cost savings and increase earnings by 2 percent, the economic value the leader brings is $4 million.
  • What is the cost to recruit, hire, and onboard someone for a key role? What is the cost in lost productivity? Most estimates put the cost of hire to be 1.5 to 2 times the salary for key roles. If you assume a key leader earns $200,000, then the minimum cost to hire is $300,000.
  • What will it cost you in attrition if you don’t invest in your key talent? As Daniel Pink articulates in his book, Drive: The Surprising Truth About What Motivates Us, leaders need a sense of mastery, autonomy, and purpose to be motivated and achieve their best. Development provides leaders with the opportunity to expand their mastery and autonomy and even clarify their purpose. As he says: “The secret to high performance and satisfaction …. is the deeply human need to direct our own lives, to learn and create new things, and to do better by ourselves and our world.” The loss of key talent affects commitment and focus on results among team members. It has a lasting, negative effect on climate that can permeate the organization.
  • What insights are you not tapping into from these leaders by not making the investment in development? Leaders are both born and made and through practice; excellence can be achieved. By creating the right development solution, leaders are given an environment in which they can acquire new knowledge, learn new skills, and practice with low risk. What new idea, innovation, or perspective might you leave on the table because you didn’t invest in giving leaders the tools and resources as well as the space to learn? 

With these questions answered, talent development executives should be able to make the case to invest $50,000 in the development of key talent, going back to the example above. If you consider the hiring cost of approximately $300,000 and the lost potential economic value of $4 million, the possibility of attrition, and the resulting negative climate impact, the organization is beyond remiss for not making the investment a priority.  
Talent Development and HR has long sought to be a business partner. The more talent leaders can influence business strategy, link their efforts directly to the strategy, and deliver thoughtful, differentiated investments that can show true value, the more likely the business will seek their partnership.

About the Author

Sharon Margules is an experienced leadership development consultant and executive coach with more than 20 years in talent development. She can be reached at sharon@margulesleadershipconsulting.com.

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