Placing the best people in your company’s most important roles does not happen by chance. Matching top talent with key roles requires a disciplined look at where an organization creates value as well as an understanding of how individuals contribute. What framework can leaders use to link talent to value? What’s the best approach for connecting the best person to the job?
According to McKinsey & Company experts Mike Barriere and Rahul Mathew, organizations can create increasing amounts of enterprise value by deploying human capital as they would deploy financial capital.
A different approach to matching talent to key roles
Talent transformation and alignment can be used as a way to unlock enterprise value. What does that mean? Organizations can unlock value by deploying their talented employees to do the work that matters most.
The market disproportionately rewards organizations that try to dynamically allocate both finance and human capital. For years, for many companies, the way to win and outperform was to be very serious about where to allocate their financial capital. A 20 year study by McKinsey looked at dynamic companies that allocated financial capital to go where bets were being made—such as new growth areas.
What they found was that the impact on shareholder value was significant. If a company dynamically allocated their financial capital, they outperformed their peers. We’re living in a world of accelerating complexity and disruption, and we know there’s a big advantage for how a company allocates financial capital. McKinsey then sent surveys asking companies how well they allocate their talent. They asked how frequently firms performed talent reviews. What they found was that dynamic companies often reallocate top talent to match their key roles. This is similar to how dynamic companies allocated their finances.
Capital talent is more of an emerging science, but it really matters. Companies need to be agile with both financial and human capital allocation, but it’s the human capital that’s scarcer of the two.
How can leaders dynamically allocate human capital?
Where do we start when we talk about deploying human capital? First, leaders need to identify the leverage points in their organization that are most likely to deliver against their goals and aspirations. The leverage points are referred to as critical roles. Considering the traditional way leadership has identified critical roles before, it’s largely been very hierarchical and top-down.
The truth is, those leverage points are a couple layers lower down within an organization. According to McKinsey, more than 60% of the roles inside an organization are two layers below the CEO of the business. How are these critical roles identified? These critical roles need to be identified against the aspiration of the business. For example, you’re not going to have someone who is writing legal contracts for your biggest commercial proposals to show up as a critical role if you’re thinking about the traditional way of doing it. However, if you think of that role instead from the view point of value creation, the person who is writing those large contracts is either protecting you from significant downside risk or can actually help you win a proposal that will create value for your business.
In other words, it’s not about the talent—the focus first is on the roles. When allocating human capital, the mindset must be to think about the roles before thinking about the talent.
At McKinsey, the human capital experts use a Talent-to-Value approach that ensures placing the best talent in the most critical roles. This allows HR and leadership to dynamically manage performance and deliver on value aspiration.
Talent-to-Value is a replicable approach that always starts with understanding how an organization makes money. This step is all about aligning on the value agenda. The value agenda allows a company to identify the critical roles in the organization. The point is for leaders to understand specifically what these roles are going to do to deliver on the value mandate. (McKinsey refers to this as “jobs to be done.”) Through this approach, organizations are able to quantify how much risk lives within their strategy. Additionally, business leaders are able to underwrite how much risk they have in the business.
Leaders can then tackle the risk along with how the role is designed. Identifying the risk output associated with a certain role allows organizations to maximize their ability to deliver on that value. According to Mathew, “If we can bring data and facts to how we manage talent as an organization to deliver against a strategy, we have a better chance to deliver against that aspiration. Finding these roles requires doing so in a dynamic way that is tied to the strategy and to a strategic plan. This type of approach allows you to be nimble and to continuously identify roles based on your strategy.”
What makes it difficult for companies to adopt a dynamic approach to talent?
Sometimes it’s not clear who has the talent mandate within an organization. Some orgs have complex talent management and some business leaders don’t focus on hiring and consider it to be the function solely of HR. This mindset disconnects HR from business outcomes. In other words, talent isn’t linked to how talent drives value.
The other point-of-view is, “my business, my talent” in which HR doesn’t play an active role. In this case, leaders are driving human capital allocation based on intuition instead of through a strategic lens. The reality is, however, that HR nor business leaders can adopt a dynamic approach to hiring alone.
The next difficulty is that many companies talk about critical roles and success planning around these roles, but they don’t really ask: “What is success in this role? What value is this role driving?” Companies lack clarity about what success means in a role and thus take for granted that it can and should be used to drive value.
The third hurdle in terms of adopting a dynamic approach to talent is missing information on their talent. Leaders need to ask: “Do we really know our talent? Do we really know where they would thrive based on their skills and attributes?” Organizations need that information in order to have confidence when placing individuals into critical roles. Companies sometimes need more robust talent metrics, profiles, and assessments.
“Every company believes they have alignment, but unless they are able to take that strategy and actually translate that into a set of people who are going to go out and do a set of things that are going to impact the aspiration they want to hit—they don’t know if they have alignment. You can build a significant amount of strategic clarity if you’re able to take that set of information or choices and turn that into a set of human capital choices. When you do that well, you build clarity in the role, in the strategy, and the people filling their roles.”
How often do we review role allocation and roles?
Dynamic talent allocation is constant. But in particular, anytime you’re doing strategic planning or revising your strategic initiatives, it’s time to think about talent allocation. According to Barriere, “Once critical roles are identified, you then have to think about metrics. What are the performance metrics in these critical roles and how are the individuals performing? You want to look at that quarterly. These roles are so important that the CEO has a running list of the critical roles and who’s filling them. At least every quarter the executive team is reviewing talent metrics.”
OKRs have the tremendous potential to enable the dynamic allocation of human capital. With them, leaders know what’s working and what’s not in a fast, agile way. As Barriere points out, “Great talent wants to provide value. They want to see how they performing and how they’re doing and OKRs provide that platform to give top performing employees insight into their work how they’re executing against goals.”
For a more robust discussion on linking talent to value, access Betterworks deep-dive discussion on dynamic talent allocation here.