Profitability is about performance, and performance is about people—one person at a time and collectively. This is the basic math that drives competitive advantage and organizational performance. In fact, the positive relationship between the quality of an organization's people practices and its financial success emerges clearly from recent research.
Take, for example, a Hewitt Associates study of what it identified as the top-20 companies for leadership. It shows 85 percent of financially top-performing companies hold their leaders accountable for talent development, while only 46 percent of the lower-tier companies do so. Or, consider Robert S. Kaplan and David P. Norton's balanced scorecard research in The Strategy-Focused Organization, which demonstrates that only 20 percent of a typical company's value is attributable to tangible assets, while 80 percent derives from intangible resources such as people, intellectual property and brand.
People are such a fundamental resource for an enterprise that—unless top leadership harnesses this asset with eyes wide open—the organization risks being eclipsed in the so-called war for talent. It is mission critical for executive leadership to be strategic—with a laser-like focus—about talent.
The People Value Chain
The concept of the "value chain," introduced by Michael Porter, can also be applied directly to talent in the form of the following "people value chain": talent attraction, targeted recruiting, high-accuracy hiring, proactive "on-boarding," talent identification, performance enhancement, career acceleration, and succession management.
The reality is that the most critical organizational levers leadership must operate to extend its competitive advantage are all related to people. Only a zealous, strategic focus on talent can deliver the goods, which, in the end, is about enchanting the customer. Specifically:
Vision, mission and strategy lead nowhere unless they inspire and create a visceral level of meaning throughout the organization.
Confident leaders have to be identified, groomed and developed to become leaders who exemplify the core values of the enterprise, and thereby create a trusting and eager following.
Every member of the organization has to be engaged—again, at a visceral level—and day-to-day performance must be in alignment with the overarching strategy.
Systems and processes must be in place to harness talent as a precious resource.
Finally, leadership must shape and refine the organizational culture to support and nurture the people value chain.
"We are all held to profitability goals and objectives, whether through organic or concentric growth," said John Dickey, former vice president of human resources for Hillenbrand Industries in Batesville, IN. "Profitability and growth begin with talent—people who think entrepreneurially, who want to add value, who understand how to inspire and motivate others, and who seize opportunities rather than watching things happen around them."
Peter Drucker summed it up best when he said, "The ability to make good decisions regarding people represents one of the last reliable sources of competitive advantage since very few organizations are very good at it."
"Or, borrowing a metaphor from Jim Collins' bestseller Good to Great, if you don't have the right people in the right seats on the right bus moving in the right direction, your company will be a rudderless ship."
Best Practices of the Best
Some standout best practices that put people first in the quest for high organizational performance include:
The top HR executive reports directly to the CEO.
Senior leaders make an aggressive commitment to support talent management and are wholly accountable for it.
Strategy and performance metrics clearly reflect that people, culture, and talent are critical to realizing the company’s vision.
Hiring is done by design (not by “chemistry”), using a systematic and disciplined methodology for assessing a candidate’s fit to a particular job specification.
Company-specific competency profiles serve to inform the entire value chain, from attraction to selection to development.
Business strategy, along with vision, mission, and core values informs both performance-management and people-development processes.
Investments in the grooming of high potentials are non-trivial. Their careers proceed according to comprehensive, methodical and targeted programs. Promotions and job assignments are guided by talent-development considerations.
Perhaps the most essential best practice is the measurement and cultivation of employee engagement as a leading indicator of organizational success. "There is a significant distinction between employee engagement and employee satisfaction,” Dickey says. “Engaged employees are not just satisfied with the way things are; they think and act as entrepreneurs. They are more innovative and, therefore, add greater value."
“When employees are highly engaged, and their energy and actions are aligned with the goals of the enterprise, a dynamic of growth emerges. Employee satisfaction is a subcomponent of employee engagement. Engaged people are happy with who they are, with what they are doing and where they work.”
Research in recent years indicates employee satisfaction is a lagging indicator; that is, it is only minimally predictive of organizational performance and business success. Employee engagement, on the other hand, is a valid leading indicator of whether the company will be successful in achieving its vision.
The fundamental reality of organizational performance is that it’s primarily a psychological affair. In other words, leading people is a soft and squishy process, and any attempt to handle it mechanistically will fail. For example, a performance evaluation form does not deliver performance enhancement. Administering a 360-degree assessment survey does not close developmental gaps. Nor does making a compelling and inspiring series of speeches change the organization’s direction.
The reality is that the launching platform for soaring organizational performance is built on vision, meaning, inspiration, passion and partnership. Leadership that really “gets it” takes a strategic, long-term, patient and disciplined approach to creating and maximizing the people value chain.
Do you Meet the Challenge?
The most successful companies have discovered that it’s not necessarily their core business processes that give them an edge anymore. Rather, today’s harsh competitive landscape of business comes down to management and leadership expertise.
Ever-more-demanding customers, with a correspondingly heightened emphasis on customer satisfaction and retention; the growing need to refine organizational culture to advance competitiveness; increasing demands by investors and boards; and myriad shifts in the psycho-demographics of today’s employees all call for leaders who possess a high degree of emotional intelligence, and company cultures that are infused with emotional intelligence.