Developing sophisticated talent strategies

Most companies have a better understanding of their product market strategy than their labour market strategy

HR has come a long way since it first entered corporate consciousness in the early 1980s. Today there are few companies that do not have an explicit recruitment strategy, engage in talent management, have carefully thought-out incentive systems, and regularly run various leadership development initiatives.

As a professor of strategic management I see three key steps forming HR’s next frontier. These revolve around HR needing to become more strategic.

When I ask a top manager about their HR strategy I’m typically shown a few PowerPoints with charts and frameworks. But when I ask the same manager about their company’s business strategy a much more detailed account usually follows; an explanation of a precise value proposition, exactly what customer profile they are aiming for, and what the key internal processes are given the specific fit between the two. Most companies have developed a much more detailed understanding of their product market strategy than their labour market strategy.

But this isn’t always optimal. The first frontier for HR is to develop talent management strategies that are just as sophisticated and precise as their companies’ product market strategies in terms of their value proposition, employee profile, and internal organisation.

If done well such a sophisticated HR strategy might come to form the very heart of a company’s entire business model. For example, strategy consulting company Eden McCallum offers a service that is not all that different from other consulting companies, but its talent management strategy – based on operating a pool of freelancers – is unique, giving it a competitive advantage in the labour market. More organisations may find that competitive advantage can be found in the market for employees rather than in their product markets.

The second frontier for HR is that it needs to move on from designing formal talent management systems towards the management of informal processes and mindsets, because that’s where the real value lies.

When Cisco, for example, reorganised from client to technology groups, it found that its old informal employee networks (formed around customers) effectively complemented its efficiency-based technology groups. It obtained the necessary technological efficiencies through its formal technology-oriented structure, yet maintained its famed customer focus and problem-solving skills through its informal networks. This created an efficient yet adaptable organisation.

Deliberately managing such informal systems to fill the inevitable shortcomings of a firm’s formal structure forms HR’s second, much-needed frontier. Managing the informal organisation is not an easy task, but it can create enduring value for a company.

Finally, all too often HR programmes – and talent management initiatives in particular – are focused on individuals, and recruiting, training and retaining superior employees. But competitive advantage comes from superior organisations, not superior people. For an HR strategy to deliver competitive advantage it will need to shift from hiring and developing individuals to the management and creation of inter-personal processes.

Southwest Airlines’ founder Herb Kelleher understood this well. He knew that to execute its low-cost strategy better than anyone else the company did not need better people, but better internal processes that fostered co-operation and a strong corporate culture among employees. Southwest’s recruitment strategy is not organised around the well-worn principle of ‘hiring the best and brightest from the country’s top schools’ but focuses on identifying people who can be socialised into their company’s particular culture and systems.

It is such careful internal processes, diligently built over the course of many years, that culminate in superior performance. Organisations are groups of people. Creating better ways for them to work together can add real, sustainable value to corporations.

Freek Vermeulen is associate professor of strategy and entrepreneurship at London Business School