Confronting overconfidence in talent strategy, management, and development | McKinsey
Many leaders we encounter insist that their talent- and people-development strategies are sound—and that their organizations are good at implementing them. Is this confidence warranted, and are companies living up to their leaders’ assertions? Could these leaders be succumbing to the same optimism bias that motivates three out of four people to imagine that they are above-average drivers? The answers to these questions matter: companies with very effective talent management enjoy higher total returns to shareholders than less effective competitors do.1
Our survey looked at 21 practices spanning a range of areas from recruitment, employee engagement, and talent strategy to talent development, work efficiency, and ways of working.
When we looked at the responses by role, we noticed that CEOs and HR leaders appeared more bullish than the other managers: 64 percent of both HR leaders and CEOs said their companies were high adopters (deploying 16 or more of the practices), but only 42 percent of all other respondents in our survey agreed. Similarly, CEOs and HR leaders were less likely than the others to say their companies were low adopters (Exhibit 1).
Corporate leaders also appeared optimistic about specific talent practices. CEOs, for example, were two times more likely than other respondents to say their companies excelled at “know[ing] who the best people are and put[ting] them to work on the most important business priorities.” And they were also nearly twice as likely as others to say that managers and leaders at their companies “are evaluated against their people performance, not just their business performance.”
Leaders: The limiting link?
When survey respondents admitted that their companies had difficulty implementing some of the practices, they tended to identify company leaders and management as the biggest impediments. “Our leadership does not value this practice,” for example, was cited by one-third of the non-CEOs—more than any other barrier—as a top-three reason various talent practices hadn’t been embraced (16 percent of CEOs also cited this barrier).
The talent practices where non-CEO respondents felt leaders’ lack of support was most consequential were related to ways of working, talent engagement, and talent strategy (Exhibit 2). For example, 52 percent of non-CEO respondents said that the company leadership didn’t value the use of “clear structures, roles, and responsibilities to streamline work,” while an additional 46 percent said that the company leadership didn’t see the value of performance evaluations that judged managers—and senior leaders—on their people-management skills as opposed to just business performance. About the same proportion said leadership didn’t value “help[ing] and reward[ing] those who deliver continuous improvement.”
To encourage new behavior, one UK-based multinational made 20 percent of every manager’s annual bonus contingent on scores from direct reports on a variety of leadership practices. As the quality of leadership improved, the company noticed a secondary benefit: encouraging line employees to give upward feedback made them more fluent in the practices and improved their own leadership skills, as well.
Short-term views
A closer look at the survey evidence highlights signs of short-termism in vital areas such as talent strategy, talent development, and recruitment.
For instance, when we asked respondents what prevented their companies from identifying the best people and putting them to work on the most important business priorities, 37 percent said that “this practice does not fit our culture” and one-third that “we have more important things to worry about.” This is despite evidence suggesting that when companies regularly reallocate talent to match strategic priorities they are more than twice as likely to outperform their competitors.3
Respondents also cited “more important things to worry about” as the principal reason their companies didn’t adopt more skills-based training (41 percent), followed closely by perceptions that training was too expensive. These views are notable given the looming skill gaps expected to arise from disruptive technologies and the fact that many senior executives say their organizations are unprepared to address the skill gaps they anticipate.4
When respondents admitted to difficulty in implementing some of the practices, they tended to identify company leaders as the biggest impediment.
Other preoccupations seem to take priority over good recruitment practices, too: 37 percent of the respondents said they have more important things to worry about than changing recruitment processes to improve workplace diversity—despite a growing body of evidence linking gender, ethnic, and cultural diversity to positive business outcomes.
Idea in action:
To encourage long-term thinking, the UK-based multinational adopted a rule requiring all senior leaders to spend three years in their roles before becoming eligible for promotions that would take them to another part of the business. This rule ensures that leaders are aware of—and own—the consequences of their decisions.
Take stock, make changes
Taken together, our findings suggest that many companies in the United Kingdom (and beyond) should take a close look at their talent practices, particularly as the more demanding and diverse millennial generation comes of age. Workers are paying attention: a 2018 survey found that poor management was the top reason UK employees weren’t happy in their current roles.5 And British workers are hardly alone: comparable studies in the United States suggest that employee dissatisfaction with the company’s leadership is commonplace.6
The path to improvement for companies anywhere, we find, starts with soul-searching, as well as recognizing that the view from the middle of an organization may be less sanguine than the view from the top. Leaders must be prepared to deal with what they learn from employee surveys or external benchmarking exercises. A real commitment to talent can’t be built through half measures or, worse, faked. As one survey respondent put it, if verbal messages are “not backed up by [leadership] actions . . . then you can’t expect HR to think it’s a priority. In order for a good practice to be implemented . . . the senior leadership team have to genuinely want it to succeed.”
If companies in the UK moved up just one decile in people performance relative to their peers, the resulting boost in labor productivity would be worth £110 billion.
Elevating people leadership on the management agenda often requires elevating the chief human-resources officer (CHRO) or the most senior person in charge of talent if the role goes by another name. At a minimum, the person who holds it should report to the CEO and be accountable for organization-wide talent priorities linked to tangible business objectives. The board, which often becomes involved in succession planning, can also do much more to review and advise on the organization’s talent performance.
As our colleague Dominic Barton and his coauthors noted in Talent Wins,7 CEOs in some talent-oriented organizations insist that the CHRO and CFO be part of a core strategic inner circle that drives people strategy. Our research, highlighting a disconnect between the organization as a whole and the perceptions of CEOs and HR leaders, suggests that moving to such a model also will require a mind-set shift.
Idea in action:
The UK-based multinational’s executive committee focuses up to six hours a quarter on the development of the company’s top 150 leaders. Because the process depends on discussions from the business, it builds coalitions that support talent development more broadly, while signaling its value to employees. Even when facing a tough external environment—a “crisis” in one leader’s words—the company maintained the process throughout.
McKinsey has long emphasized the positive relationship between a company’s organizational health—including people practices—and its performance. The upside potential is considerable. For the United Kingdom, our research found that if companies moved up just one decile in people performance relative to their peers, the resulting boost in labor productivity would be worth £110 billion, or 9 percent of the UK’s nonfinancial business economy. At the very least, as the UK-based multinational has found, better practices improve employee engagement and boost productivity in a tangible way.
The authors wish to thank Jennifer Beckwith, Pip Kindersley, Naba Salman, and Doron Seo for their contributions to this article.
This content was originally published here.