As we continue to study best practices in the implementation of corporate learning and talent management, we find that high performing organizations fall into two categories: those who endure and prosper over long periods of time (decades), and those who rapidly rise to prominence, then falter during a major business challenge, and often become acquired (or disappear).
The former are what we call “enduring organizations” – and they typically become iconic brands which provide tremendous returns to shareholders, employees, and customers. (These are the types of companies that Warren Buffet likes to invest in.) The latter are exciting companies to read about, but often disappear and become historic roadmarks in the highway of progress (one could call them “roman candles”). Fast-growing, trend-setting companies (e.g. Google) set trends and create tremendous excitement, but they are not truly tested until they endure broad economic and business cycles.
Characteristics of Enduring Organizations
These enduring organizations have several things in common. First, they have an uncanny ability to grow and prosper under a wide variety of economic and business conditions, and survive for many decades. Second, they survive wrenching upheavals in their markets and somehow learn to reinvent themselves over time. Third, they become iconic brands, which last long beyond their product lifecycles. And fourth, they provide extraordinary returns to shareholders, employees, and customers.
An excellent example of such a company is IBM. IBM was founded in the early 1900s and originally built rifles for the US military. It turned into a “tabulating machine” company which developed systems for the US census, and then later developed the first mainframe computer. IBM dominated the mainframe computing era for more than 20 years, reaching such market monopoly that the US Department of Justice forced the company to unbundle its services from its technologies.
In the 1980s the computing industry shifted – from one of vertical integration (one company making the chips, computers, operating system, and application software) to one of horizontal integration (many compaines making chips, many companies making computers, many companies making operating systems, and many companies making application software). IBM helped create this market by launching the IBM PC, the first open systems computer. But the company suffered a painful transformation in its business as a result, almost being forced to split itself up into seperate companies.
Demonstrating its ability to deal with change, IBM transformed itself again – and thanks to Lou Gerstner and Sam Palmisano (the current CEO), IBM re-emerged as the most trusted and profitable IT services and consulting company in the technology industry.
During this period of time, many innovative and well-run companies emerged, grew, and disappeared. Tandem computers, Digital Equipment, Compaq, SiliconGraphics, and many more. Somehow they never seemed to build the processes and staying power of IBM.
We can think of dozens of examples of companies that have created such enduring brands: Caterpillar, UPS, GE, Procter and Gamble, Clorox, AIG, McDonald’s, Goldman Sachs, and many more. If you take a “long term view” of stock market value, you will find that these enduring brands generate far greater returns over the longrun than many “high fliers.”
What makes thes Organizations Endure?
As we have studied these organizations, and their underlying business and talent processes, we have found that one of the most important things these organizations have in common is their ability to manage talent. In a sense, these organizations have learned over time that they are not really “product” companies or “service companies” but rather they are “talent companies.” They have built processes, systems, and strategies to hire, develop, manage, and coach people to build an adaptable, accountable, and value-driven organizations.
Enduring Organizations Adapt Well to Change
If you consider the biggest challenge most companies face, it is change. Once you build a unique and value-oriented product or service, the biggest challenge you run into is the fact that the world never sits still. Change occurs on a relentless and continuous basis: competitors copy your product; customers demand new capabilities; the economy stalls or goes into a tailspin; your market segments change and demographics shift; and sometimes even bigger changes are taking place. Today, for example, the environment has become a major driver of buyer behavior (more than 40% of US corporations consider the “green movement” as a fundamental threat or opportunity to their business). Many of these changes are rapid and unpredictable.
The question we consider is not how to adapt to one of these changes in particular, but rather to learn how organizations create enduring strengths which enable them to adapt successfully. My personal belief is that the ability to understand and adapt to change is one of the biggest strengths in these enduring organizations. Many companies develop monopoly positions with their products and services, but they often find that these monopolies are attacked quickly.
Consider Motorola in the cell phone industry. Motorola invented the mobile phone, and hit a home run with the RAZR. But the company has been unable to adapt to the relentless progress in this market, losing market share again and again to Nokia, Apple, Samsung, and other competitors. Enduring organizations find ways to continuously move “up the value ladder” by changing their products, services, and strategies.
There are dozens of examples of such organizations: consider UPS, which originally was a company that delivered messages via horseback. It moved into automotive transportation, then global shipping, and now global business logistics — all with the same focus on business productivity and value. UPS has a strong, end-to-end focus on hiring, developing, and managing the right talent. They have well-developed, clear competency model for success and they reinforce it throughout their people processes.
What we find is this: These companies do not define themselves by their products and services, but rather by their talent. It is their “talent machine” that enables them to adapt their strategies, move up the value ladder, and execute well in the face of continuous and relentless change in their markets.
The Five Essential Elements
It’s not enough to say that these companies have “good people strategies” or “strong cultures.” They actually have much more.
When we dissect what makes these companies endure, we have found five keys — each of which requires a strong focus on talent. We call these five keys the “five essentials” – they are business essentials which are supported by strong talent management. Your job as an HR professional is to understand how to implement these five essentials in unique and long-lasting ways.
As I prepare to present this information at our upcoming research conference (IMPACT 2008: The Business of Talent®), let me briefly highlight them here. We will be publishing more detail and examples in months to come:
- Strategy: The first essential is strategy. Enduring organizations have developed strong and focused value-add strategies for their markets. They clearly understand how they add value. There are three core value add strategies in any market: product innovation, customer intimacy, and low-cost production. Enduring organizations select a strategy and stick with it – enhancing it over time. They codify these strategies into their talent management processes: who they hire, how they manage people, who they promote, and how people grow in the organization.
For example, in technology, one could argue that Apple is the product innovator, IBM is the customer intimacy company, and Dell is the low-cost producer. Each must staff, manage, and incent people differently because of these different value strategies.
- Management: The second essential is management. Enduring organizations focus on alignment, transparency, accountability, and trust. Management is all about making sure people know what to do every day — and that they have the tools and support to be successful. Management must be tied directly to strategy, hiring the right people and incenting people to do things which support the strategy. HR professionals can and must play a major role in building these management systems, and we have many examples of amazing management processes which drive these enduring organizations.
For example, our research shows that organizations which build strong, strategic competencies from which to manage their employees have almost 4X the return on the ability to build a high performance culture. We also know that high performing companies in different industries manage people very differently (e.g. financial services companies focus much more heavily on service and quality; technology companies focus much more heavily on innovation and engineering.)Your job in HR is to help the organization craft and implement its management process, and rigorously and extensively train and coach managers to use the process.
- Leadership: Third, and perhaps most importantly today, enduring organizations have an amazing focus on leadership. (The #1 issue on the minds of corporate leaders today is strengthening their leadership pipeline.) Enduring organizations understand the core competencies of their leaders, they vigorously identify and build new leaders, and they move leaders throughout the business. They know that only by hiring and developing excellent leaders can they build and develop excellent employees. They understand the need for continuous focus on succession management, as both a tool for growth and a way to hedge against business risk.
Here our research clearly shows that organizations at level 4 in our leadership maturity model are generating almost 6-fold higher returns on business outcomes and bench-strength. Unfortunatley fewer than 10% of organizations have reached this level today, but we see tremendous focus on improving this critical area and we are committed to helping others understand best-practices here.
- Learning: The fourth essential element is learning. Enduring organizations realize that organizational learning is a fundamental to success. These companies spend 1.5-2.5X more on training per employee, and they focus on a wide variety of strategies to build organizational learning: career development, coaching, mentoring, as well as strong skills development. Most importantly they implement a “learning culture” which encourages risk-taking, innovation, and continuous improvement.
An interesting example: during the 10 years that I worked at IBM I was involved in the rollout of some of the biggest flops of the decade. There was the IBM PC Junior, the RT-PC, the 9370 Minicomputer, and many more. These products, often the results of years of R&D, were announced with flourish and fanfare. When they failed, IBM was clearly disappointed. But the leaders of these products were not fired or demoted — rather they were forced to “learn from these mistakes” and go on and make them better. The PC Junior became the IBM Thinkpad. The RTPC became the IBM RISC System/6000 and the SP2 supercomputer. And the 9370 eventually re-emerged as a family of high powered mid-sized mainframes which are still in the market today. This is an example of an organization that really learns.
- Systems: Finally, enduring organizations build systems. Systems (processes, not software systems) create scale, consistency, and provide information for decision-making. These systems become the backbone of the organization and they create a focus on quality and continous improvement.My best example here is McDonald’s. One may believe that McDonald’s is a hamburger company, or perhaps a fast-food company. But actually, if you truly understand how McDonald’s works, you would realize that this company is an amazing combination of systems. More on this later.
We will be discussing these topics in detail at our upcoming research conference, and giving you examples of how enduring organizations implement these solutions for business value.
The Role of HR and Talent Management
Today’s “talent management” is all about implementing these five elements. Talent management is not an “HR strategy” – but rather it is a “business strategy.” The talent processes and systems which HR managers implement (employment branding, recruiting, competency assessment, performance management, succession management, leadership development, career development, and on) directly support these five elements. HR leaders are the architects and craftsmen of the systems and processes which create such enduring organizations. Business leaders should think about “building a talent engine” in support of the organization’s goals, rather than just building products and selling them to customers.
Jack Welch, ex-CEO of GE, put it well. He stated that the #2 most important person after the CEO is the VP of HR. Why? Because the VP of HR identifies and develops the pipeline of leaders which will run GE in a profitable and adaptable way.
Your job as an HR or L&D professional is to take your skills and expertise and apply it in these five areas, remembering that as you craft expert solutions, the implementation of these solutions will be performed by the business leaders, managers, and employees in your organization. In a sense you are the “master carpenter” who builds a long-lasting house. The house you are building will be inhabited by executives, managers, and employees – not only you – and you have been entrusted with a large part of its design. And your role is dynamic: you must monitor the house to make sure it is continually being enhanced and improved as needed.
This is what we call The Business of Talent®, and it is the focus of our research. I hope these thoughts are helpful and welcome your feedback.