Chapter 6: Strategies to manage talent – Human Capital Management Challenges in India

6

Strategies to manage talent

Abstract:

Having identified what the problem is and who should be held accountable this chapter elaborates how organisations can start managing talent. The concept of ERM (Employee relationship management) and its relevance from an Indian context is introduced. This is then followed by a discussion on knowledge mapping and capture. A practical approach to integrate existing knowledge in the organisation is provided. The relevance of benchmarking talent to identify potential is explored next. A framework to benchmark talent (CUPID) is introduced and its relevance discussed with respect to the talent management construct. This is then followed by an introduction to cognitive mapping which provides insights on ways in which this tool could be used to identify how people evaluate intangible constructs like emotional intelligence etc. The chapter concludes by revisiting the concepts of reward, recognition and retention and provides a framework to measure the value of human capital.

Key words

employee relationship management

Training investment

Employee value

Self categorisation theory

Role fit

Person organisation fit

Motivating workplace factors

Knowledge mapping

Knowledge management systems

knowledge measurement

Talent benchmarking

competence measurement

Talent assessment

CUPID benchmark

Talent mapping

Reward

recognition

retention

Performance measurement systems

ERM – employee relationship management

Given the sophistication of modern management techniques, it seems odd to accept that there should still be a question mark over the ability of managers to learn, value and deploy what so many experts agree is one of their main sources of competitive advantage, namely their people (Scarborough et al., 2003). This is a worrying state of affairs, because at the commercial level war for talent is intensifying and it is becoming increasingly difficult to recruit talented people.

In an information-intensive age, employees are no longer content to be treated like numbers or records. Their perceptions of what they want from a job have also changed dramatically. Gone are the days when there was a job for life. Increasing workload, decreasing loyalty, higher expectations from the talent pool have altered the talent landscape. Companies are constantly poaching talent. A study by McKinsey suggests that only 11 per cent of graduates in China are employable as compared to 26 per cent in India. Senior managers constantly lament the lack of employable talent in these countries. A grim scenario indicates that it certainly is going to get worse in a decade.

The talent pool is running dry and companies have started placing talent on the top of their agenda. Talent management is not slang or some window-dressing project but has increasingly become central to an organisation’s core business strategy. The fact remains, talent is in short supply and demand for talent is on the rise. It does not require a genius to figure out that it is the primary responsibility of an organisation to manage and develop in-house talent.

Talent can be managed only if an organisation:

 can assess their employees, understand their motivations and aspirations;

 earns employees’ trust by rewarding and recognising talent; and

 understands the value of their talent. However, remarkably few managers understand, let alone measure, the value of their talent pool.

We are experiencing talent shortage and organisations are no longer buyers of the service. They have shifted from being job providers to becoming talent seekers. This fundamentally changes the way we look at talent management or recruitment. Organisations are institutions that hire talent, generate expertise and products, and sell to customers. This implies they have customers on both ends of the supply chain. Employees are internal customers who use the infrastructure to develop products/services to be sold to external customers.

A customer-relationship management programme is presumed to be driven by technology. Adopting a mechanistic approach to relationship management will not result in satisfied customers. If an organisation wants its external customers to be happy, then it needs to keep their internal customers satisfied. There are numerous studies that have focused on the relationship between internal and external customers. Despite all this knowledge organisations that roll out customer management programmes rarely feel the need for a similar programme to manage internal customers.

If an organisation wants to retain its customers to ensure a healthy bottom line, it is necessary to preserve talent to ensure that it happens. There is no rocket science involved in this. Despite that, extremely few organisations focus on their internal customers, and organisations that do have always managed to maintain their talent and perform successfully.

Although people have started talking about employee relationship management (ERM), there is an imminent danger of ERM getting hijacked by software providers. The complete picture of how to manage employees like customers is still not clear, and the landscape is getting redefined quite frequently. Reseach is helping organisations and academics to obtain fresher insights into this concept. There is a tremendous amount of literature on managing customer relationships, analysing their buying behaviour, predicting their lifetime value. However, when it comes to employees, the amount of research and information available is quite limited. ERM is about building relationships, but it also needs to address the scope of motivation and rewards. ERM is about understanding the behaviours, mindsets and attitudes of employees to help them deliver and excel.

Treating a problem without understanding the symptoms is futile. Similarly, rolling out ERM interventions without understanding the make-up of employees would yield no results. An organisation has to understand individual motivations, their reasons for applying for a specific role, to manage talent. Organisations should also be able to determine the value of each role and how it helps organisations achieve their objectives. Organisations need to delve deeper to understand why some employees excel while others fail, despite operating in the same conditions. It is about understanding the psychological patterns intertwined in the cultural fabric of the organisation.

Many companies in India are willing to invest in an employee who is performing well. However, when they fall short of expectations, not many companies make an effort to understand why they are not delivering in the first instance.

The fact that these employees have got through an organisation’s screening process clearly indicates that the organisation has seen a spark or spotted latent talent in those individuals. If they under-perform, should it not be the organisation’s responsibility to understand why they are not performing? Should not the leaders and, more importantly, the HR department, be responsible for that? In most cases, the onus is on the organisation as much as on individuals. If not, there is something seriously wrong with the selection process.

An organisation has to spend time looking at the core issues that contribute to the problem, before attempting to solve it in the first instance. It is not only vital to understand what causes the problems but also to identify ways to solve them.

We in the business world have heard many buzzwords come and go. Organisations have been inundated with concepts which seemed to be set to transform the way business is being done. These concepts and strategies were around for some time till the next best idea or literature took prominence. ERM could potentially head in that direction if it is not treated with care. The challenge lies in understanding how different or similar it is with respect to customer management initiatives.

Satisfaction, loyalty and commitment metrics are used to measure and manage customer expectations. These metrics could also be used to measure and manage employees. Whereas a customer pays to get an organisation’s product or service, an organisation pays employees to provide that service. Although it appears as though an organisation plays the role of a seller and a buyer, in fact organisations have to sell their values, brand, etc. to both internal and external customers. In the case of internal customers, they also have to pay them to get them to invest in the organisation. Viewing the association through this lens will enable organisations to alter their perceptions of how they should treat their employees. Organisations use engagement measures to gauge their perceptions.

Leadership behaviour and the organisational factors mirroring high-involvement work systems are strongly associated not only with the employee and customer satisfaction, but also with prominent business outcomes, such as service, quality, cost and financial performance.11 Demonstrating linkages among employee satisfaction, customer satisfaction, and bottom-line financial results within an enterprise provides critical information that justifies corporate investment in people, and appropriate socio-technical systems found that the satisfaction of employees would be reflected by the satisfaction of its retail customers.

Furthermore, employee satisfaction could be high if employees could see themselves adding value. They could also be satisfied as they are getting paid more than in other organisations for doing the same job. In the third scenario, they could be satisfied because their current role does not stretch them. In all these cases, we cannot say if their levels of satisfaction would increase their loyalty and commitment. The same argument could be applied for loyalty which arises from the lack of other opportunities outside, genuine bond with the organisation or not wanting to go through the effort of finding another job. Therefore, if organisations attempt to measure satisfaction, loyalty and commitment separately the data that are generated would not represent reality. Every organisation has a distinctive set of requirements and would, therefore, require people with specific behaviours/competences to help them cater to customers. The challenge is to determine the genetic make-up of the organisation and use that knowledge to measure satisfaction, loyalty and commitment. Using measures off-the-shelf would not generate any insights and would result in more cynicism, causing employees to conclude that ERM is another ‘flavour of the month’ initiative.

According to the self-categorisation theory (an extension of the social identity theory), people classify themselves into groups and accentuate in-group distinctiveness to fulfil their self-esteem needs or to reduce uncertainties about their own self-concepts (Hogg and Terry, 2000). If employees perceive similarities in their own identity and the identity of other organisations, it will be easier for them to group themselves as one body and this can encourage them to generate value.

Culture is recognised to be an artefact of the conscious and unconscious behaviour of senior management beliefs (Hall, 1992). These beliefs help coordinate organisational behaviour through the management of psycho-social boundaries and perceptions, or ‘soft-wired’ aspects of strategic change, such as the way individuals pattern authority, tasks, politics, identity, manager–subordinate relationships and subordinate–peer perceptions (Hirschhorn and Gilmore, 1992). Tornow and Wiley (1990) studied the relationships between customer satisfaction, employee attitudes and organisational performance in a large, multi-national computer company. They found that employees’ perceptions of their organisation’s culture (for success) consistently reflected positive relationships with organisational performance measures. Hence positive organisational culture motivates employees to generate value, although again it is vital for there to be a fit between the cultural values and the individual (O’Reilly et al., 1991).

We as citizens abide by certain rules and regulations set by society. Similarly, employees abide by the organisation’s regulations. The value they add through their roles will depend on employee perception of the role. The value they add would be influenced by their perceptions of the organisation’s value and how liberating or restrictive it is. Fishbein and Ajzen (1975) developed a model for attitudinal research, in which distinctions were made between an individual’s beliefs or expectations, their evaluation of the outcomes in a positive or negative way, and their intentions to act. The attitudes in general that employees have towards the job, their colleagues and the organisation as a whole were seen as important by interviewees. Hence, employee attitude has a correlation to the value that employees generate. Identifying and recruiting the employees with the right attitudes and behaviours form the fundamental building-block of ERM interventions.

Traditionally, employees are valued on the basis of a cost-based approach. They are expected to render economic value in some form to meet the organisation’s objectives. At the social level, in thinking about the measurement of human capital, work has been carried out on how to assess a fit between individual values and the values of an organisation and how such a fit enhances organisational commitment (O’Reilly and Chatman, 1986). People usually use their own values and cultural associations to choose roles, occupations and organisations that are perceived to be congruent or have similar sets of values and attributes (Albert and Whetton, 1985; Schneider, 1987).

Most of the research on person-organisation fit has tended to focus on work-related outcomes (e.g. Kristof, 1996) and/or the process by which fit does or does not occur (e.g. Schneider, 1987). Few studies have examined antecedents of fit, or ways in which job seekers approach the goal of ‘fitting in’ (Kristof, 1996). Rynes et al. (1991) examined ways in which job-seekers assess their degree of fit. A study done by Cable and Judge (1996) suggests that people use the criterion of ‘fit’ in making job choices. Empirical studies provide convincing evidence that person–organisation–values fit is a fundamental determinant of long-term consequences for employees (e.g. work attitude, intention to quit, prosocial behaviour, and work performance), organisational entry (e.g. individual job search), and socialisation (see Kristof, 1996). Especially person-organisation-values fit has been well supported in its role in organisational commitment (O’Reilly et al., 1991; Cheng, 1993) as well as job satisfaction (Chatman, 1991; Cheng, 1993).

A fair performance review and rewards process motivates commitment, and it should satisfy the employee’s well-being and extrinsic needs. However, it does not appear to improve their empowerment levels and their ability to control work-related situations. Empowered employees will react to their customer’s needs as they arise, respond quickly to complaints, take pride in ensuring that service encounters are a success and will feel pride in and concern for the customer experience.

If employees perceive the organisation they work for grants them civil rights, they will respond by demonstrating loyalty behaviours, such as defending the organisation. They will also show respect by, for example, coming to work on time, abiding by the rules and regulations, etc. On the other hand, if the organisation grants employees political rights, employees will respond by demonstrating participation behaviours like offering suggestions to other employees and sharing ideas for improvement. Employee ownership can improve efficiency, especially when they are given the authority to run their roles like a business: if the employees are the owners, then the conflict between profitability and productivity disappears.

In a recent survey, conducted by Harvard academics, more than 600 managers of more than a dozen organisations were invited to rank five workplace factors that had a significant effect on employee motivation. Recognition, incentives, interpersonal support, support for making progress and clear goals were stated as the top five factors by these managers. The study identified that when employees believed they were progressing or were getting enough support to progress, they were highly motivated.

There is no clarity in terms of what is to be excluded or included in practice to develop ERM interventions. As a result, even in the same organisation, different managers attach different levels of importance to the same constructs. This demarcation reveals a number of significant underlying assumptions by which they operate. Understanding an employee’s perspective on its own is worthless; it must be understood as a way of refining the firm’s strategy. This discussion makes it clear that no coherent rationale or theory exists.

At the fundamental level, every employee is keen to add value to an organisation or role and wants to be purposeful. Organisations have to help employees discover the purpose of their role and the resultant value that they can add. This knowledge would enable employees to visualise how their contributions result in the organisation’s progress. They will start appreciating the purpose of their role and the value they can add. The challenge organisations face is the ability to link the value the employees add to the strategy which could conveniently be a starting point for instituting an ERM programme.

In order to conceptualise and implement such a programme, HR departments have to think outside the box. They need to think beyond the process-driven approach that they are used to and start looking at it more strategically. Many HR directors who were interviewed were aware of ERM but when they were asked to describe it in detail, they invariably leaned towards engagement metrics and/or performance management. ERM is not about engagement, although engagement measures could be used to measure the outcome of ERM interventions. ERM is not a process, nor a tactic. It is a strategy that has to be thought out very carefully and linked back to the strategic objectives of the organisation. If HR personnel want to embark on this journey, they should acquire a rounded business experience. They should be able to establish the linkages between strategy, behaviour and values.

Knowledge mapping

Collins’ English Dictionary defines knowledge as the ‘facts, feelings, or experiences known by a person or group of people’. Knowledge management is a fast-growing area that has been created by the impact of several others – HR, organisational development, change management, information technology, brand and reputation management, performance measurement and valuation (Bueno, 2002; Bukowitz and Williams, 2000; Ordóñez de Pablos, 2002). Psychological theories of organisational behaviour focused on studies of personality, leadership, motivation attitudes and behaviour to identify areas that lead to individuals adding value (Howell et al., 1993). This has dominated the thinking in the area of knowledge management (KM).

The question of how and why people add value then brings us to the discussion of knowledge and understanding. In this context, we see that we are dealing with a phenomenon that cannot be objectively codified because of its intangible nature. Employees add value as individuals and through their roles. Various factors contribute to the value that employees add in this way.

In the managerial competence literature, knowledge is generally considered in relation to business school curriculum content (Albanese, 1989) and knowledge-based competencies are understood as knowledge of subject matter (McLagan, 1997), ranging from the more specific and concrete, to the broader, more general or more abstract. For example, knowledge of the job (Akin, 1987) might be taken as basic and highly specific, while in relation to managerial positions, knowledge of the subordinates’ jobs (Mirabile, 1992) could also share these properties. The next level might include context knowledge (Bernotavicz and Locke, 2000) including knowledge of organisational norms (Akin, 1987), knowledge of the business (Ulrich et al., 1989; Yeung et al., 1996), knowledge of the organisation (Whitley, 1989), or broad knowledge and vision (Brockbank et al., 1999). The final knowledge level, i.e. more generalised, non-organisationally specific knowledge such as domain knowledge (Shanteau, 1992) might include knowledge of professional norms (Akin, 1987), knowledge of a management discipline as implied by theory competency (Bushe and Gibbs, 1990), or knowledge of the industry (Whitley, 1989).

For the purpose of this book, knowledge is presumed to exist in several forms in employees’ minds. Different organisations have different mechanisms to capture knowledge, which impacts the knowledge flows that occur as a result. Developing measures to assess the effectiveness of knowledge transfer is difficult due to the intangible nature of knowledge. For the purpose of this book, it is presumed that knowledge flows are different from information and data flows. As knowledge is intangible and resides in the minds of employees, there is a need to know what facilitates the flow of knowledge within organisations. As people are key to the flow of knowledge, these coordinating mechanisms are cultural in nature.

Values, trust, beliefs and organisational politics determine the success or failure of KM interventions, so to add real value, the KM initiative must address the existing corporate culture and sub-cultures (Gopika, 2004). Strong culture affects individual performance and the human capital they generate by imparting an extraordinary level of motivation (Kotter, 1992). Including a framework to evaluate organisational culture will complement the measures present in existing frameworks (Yeniyurt, 2003). However, there is no standardised framework to measure how culture supports or increases the knowledge of people, and as a result helps increase the value of human capital.

There is a need to have a conceptual framework that links culture and knowledge. This will help design the interventions required to create behaviours that support the organisation’s knowledge management objectives (DeLong, 1997). Flamholtz (2005) suggests that corporate culture is part of human capital and demonstrates the impact culture has on financial performance. He suggests using Likert scales to measure cultural value buy-in by employees. With respect to innovation, Hurley and Hult (1998) introduce innovation as the mediator of organisational learning and performance.

KM has two elements to it. The first aspect focuses on knowledge creation while the second aspect focuses on effectively using the knowledge already created. Knowledge creation is about using existing knowledge to develop new solutions. Knowledge usage, on the other hand, focuses on using existing knowledge to improve performance.

Organisational capabilities are based on knowledge. Thus, knowledge is a resource that forms the basis of the company’s capabilities.14 Capabilities combine to become competences and these are core competences when they represent a domain in which the organisation excels (Prahalad and Hamel, 1990). An organisation’s ability to learn, change and innovate can be linked to the human capital and to their business results (Pickett, 2005). Although knowledge management happens at the organisational level, it is at the individual level that knowledge creation and sharing occur.

In the knowledge economy, knowledge has become the strategic resource for firms competing in dynamic environments. Organisational knowledge can be analysed in two forms: static and dynamic. The intellectual capital research field represents the static approach towards organisational knowledge. Knowledge management represents the dynamic analysis of organisational knowledge (Patricia, 2003). Furthermore, knowledge generated in the organisation could be codified (documented) and tacit (resident in people’s minds).

Takeuchi and Nonaka in their 1995 book The Knowledge-Creating Company, draw a distinction between two types of knowledge: explicit and tacit. Learning creates specific human capital (tacit knowledge) that in turn enhances the firm’s learning performance. Research literature suggests that culture, technology, infrastructure and assessment contribute to the overall development of organisational learning (Bose, 2004), whereas Hurley and Hult (1998) consider organisational learning as a cultural rather than a separate aspect.

The term ‘knowledge management’ implies that knowledge is a tangible asset or resource that can be managed or indeed mismanaged. Knowledge management activities help organisations measure and manage intellectual capital for internal purposes. A knowledge management system (KMS) facilitates knowledge flow in the organisation. It evolves and grows during the process. A variety of tools and technologies make up a KMS (Bontis et al., 1999). The Internet, intranets, data warehousing, decision support tools and groupware are some of the many technologies that make up the KMS or could be referred to as structural capital.

Roos et al. (1997) state that from a strategic perspective, intellectual and human capital are used to create knowledge to enhance firm value. Knowledge could either be enhanced through learning, innovation or leveraged through knowledge management and core competencies. Learning within a firm is more firm-specific and potentially less useful to rivals. That portion of firm-specific human capital that is tacit knowledge is particularly inimitable (Liebeskind, 1996; Mowery et al., 1996; Szulanski, 1996). Moreover, the ability of human resources to learn is enhanced by their human capital investments in experience and problem solving (Hitt et al., 2001).

The resource-based view of the firm considers human capital to be an invisible asset (Itami, 1987). If these types of skills are not equally distributed, such that some firms can acquire the talent they need while others cannot, then that form of human capital is a source of competitive advantage (Snell et al., 1996). Human capital is only an advantage if the firm can secure exceptional talent. This emphasis on human capital is also reflected in strategy research on core competencies, where economic rents are attributed to people-embodied skills (Hamel and Prahalad, 1994). ‘Employee skills’ can then help them add value, and this was understood by the interviewees in this research.

The literature also discusses employee competence, which involves tacit knowledge and talents accumulated by the employee during the process of their employment. Boyatzis (1982) viewed competencies as ‘soft skills’ that are associated with underlying characteristics (such as motives, traits, skills, aspects of one’s self-image, social roles or bodies of knowledge) of superior individual performance in an occupational role. Employee competence involves the capacity to act in a wide variety of situations to create both tangible and intangible assets. Although competencies are soft skills, an employee’s competence is the ‘hard’ piece of intellectual capital (Sveiby, 1997). It includes an employee’s knowledge, skills, talents and know-how, of which knowledge and skills are uppermost. Knowledge, which consists of technical knowledge and academic knowledge, is obtained primarily through school education and is therefore theoretical. ‘Employee competence’ then also helps employees add value.

When it comes to measuring knowledge, there are many frameworks, although they all have their own limitations. The performance prism (Neely et al., 2002; Neely and Adams, 2001; Marr et al., 2003), is a three-dimensional model that has five facets. The top and bottom facets are stakeholder satisfaction and stakeholder contribution, respectively. The three side facets are strategies, processes and capabilities. The performance prism illustrates the complexity of performance measurement and management. The capabilities dimension considers some of the knowledge assets such as capabilities of the people, practices and routines, infrastructure as well as technological capabilities. Although the Performance Prism reflects the need to integrate the knowledge assessment with other more traditional aspects of performance measurement, there are no precise guidelines for which knowledge assets to choose.

In an intellectually driven age, it is the wealth of information possessed by people or their ability to use existing information that creates value. Therefore, when it comes to measuring or mapping knowledge, organisations have to have several approaches. From a purely knowledge-creation perspective, the impact of individual learning on organisations’ effectiveness has to be considered. This form of knowledge could either help organisations create value which could result in substantial outputs. Measuring the impact of such creation interventions is relatively straightforward. On the other hand, if the knowledge creation results in value erosion or protection, organisations face a bigger challenge in developing measures to validate the impact. Organisations would face the same challenge in a knowledge-flow situation.

Knowledge mapping should occur at two levels. At the creation level, it is about identifying and understanding individual ability to create richer insights and new approaches using the existing pool of knowledge. Mapping at this level identifies the creators. There is also the problem of knowledge capture at this stage, namely having a mechanism to support the creators in transferring the knowledge that was created into information. There is then the process of capturing the knowledge created to be clearly spelt out. Unless the knowledge creators see the value behind this activity, they would attempt to codify their knowledge. HR personnel should work in conjunction with the business leaders to devise appropriate reward and recognition strategies to facilitate knowledge transfer. Creating a peer group or identifying individuals as experts and circulating that information throughout the organisation is one way of recognising individual contributions. Peer ranking could also be used to recognise individual achievement. Reward strategies could then be devised based on the levels of recognition and respect these individuals deserve.

At the knowledge flow level, the information created out of the knowledge percolates through the organisation to other individuals and groups. Learning that transpires as a result of this flow expands the body of knowledge. An organisation could include individuals who have the ability to integrate the information nuggets to address a problem of a greater magnitude. These individuals occupy a central role in knowledge enhancement. Knowledge mapping strategies in place have to recognise such learning enhancers and capture the information that is generated.

HR departments have a vital role to play in developing systems to attract and quantify the value of such interventions. However, many people who were interviewed tend to tackle the problem more from a process perspective than a strategic perspective. Rather than creating a process map to cap knowledge, HR personnel should start questioning the purpose of the exercise. They should then be able to use that to demonstrate the value (tangible or intangible) such a practice can have on the organisation’s strategy.

Talent benchmarking

Competing in the international arena for skilled workers is essential for an organisation to promote its innovation and economic prosperity. Attracting and retaining skilled workers are among the most significant challenges facing any organisation’s policy-makers.

 The average cost of recruitment has gone up by more than 50 per cent and is largely influenced by the talent shortage in the market.

 The average time to recruit a new employee has increased by more than six weeks as a result.

 This delay is acting as a serious impediment for companies to achieve their objectives.

In an age where talent is increasingly becoming a precious commodity, companies should start focusing on talent retention as that is their only source of sustainable competitive advantage. Why should companies lose their best grown, groomed talent to competition? Companies lose millions of dollars on choosing less competent candidates each year. Until now the procedure for screening and hiring talent has been largely subjective.

The resource-based view of a firm considers human capital to be an invisible asset (Itami, 1987). If these types of skills are not equally distributed, such that some firms can obtain the talent they need while others cannot, then that form of human capital is a source of competitive advantage (Snell et al., 1996). Human capital is only an advantage if the firm can secure exceptional talent. This emphasis on human capital is also reflected in strategy research on core competencies, where economic rents are attributed to people-embodied skills (Hamel and Prahalad, 1994). Employee skills can then help them add value, and this was understood by the interviewees in this research.

HR directors and leaders who were interviewed believed that taking on more responsibilities outside their role will help employees to develop competencies that cannot be developed in their work alone. Learning and sharing, ability to stimulate, intellectual curiosity, and communication are some competencies they believe need to be measured in the organisation. They mentioned that different people are capable of adding different levels of value even for the same role and attribute it to application of individual talent and experience. They mentioned that although competence measurement identifies talented individuals it is primarily about managing an organisation’s expectations against individual expectations.

Assessment centres have for many years been used in succession planning to assist executives in identifying individuals with exceptional talent (Jones, 1992; Kudisch et al., 1997; Lievens and Conway, 2001). Robbins (1993) says career development is a means by which an organisation can sustain or increase its employees’ current productivity, while at the same time preparing them for a changing world, whereas Leibowitz et al. (1986) argue that career development activity is an organised, formalised, planned effort to achieve a balance between the individual’s career needs and the organisation’s15 workforce requirements. Klemp (1980) defines competence as an underlying characteristic of a person that results in effective and or superior performance in a job.16

Literature defines employee competence as the tacit knowledge and talents accumulated by the employee during the process of their employment. Boyatzis (1982) viewed competencies as ‘soft skills’ that are associated with underlying characteristics (such as motives, traits, skills, aspects of one’s self-image, social roles or bodies of knowledge) of superior individual performance in an occupational role. Employee competence involves the capacity of the individual to act in different situations to create both tangible and intangible assets. Although competencies are soft skills, an employee’s competence is the ‘hard’ part of intellectual capital (Sveiby, 1997). It includes an employee’s knowledge, skills, talents, and know-how, of which knowledge and skills are uppermost. Knowledge, which consists of technical knowledge and academic knowledge, is obtained primarily through school education and is thus theoretical. ‘Employee competence’ then also helps employees add value, again was once again recognised by the interviewees.

Human capital theory affirms that people invest in themselves through education, constructive knowledge and information to constitute stocks of generally intangible human capital, with the potential of increasing their owner’s market and non-market productivity (Schultz, 1960). The interviewees considered that employee knowledge helped employees add value. Know-how or trade secrets are defined as knowledge outside the public domain, gained during the course of employment, which may be advantageous17 to the competitor and are generally protected as a legal obligation of employees, either explicitly or implicitly in the contract of employment (Chen, 2003). A game theoretic analysis shows that cloning can be profitable where there are large network externalities (Conner, 1995). By percolating their knowledge accumulated through experience, employees do not only add value by themselves, but also increase the value-generating capabilities of colleagues. The literature supports the contention that ‘Employee experience’ has a positive correlation with employee value.

From the discussions above we see that talent assessment processes and tools refer to the policies and practices in organisations that are a vital part of building people-related capital. These policies and practices that form part of the work system and include things such as a management talent review process, performance management processes, 360 degree feedback processes, and the employment of measures that judge employee competencies, employee satisfaction or how effectively an employee adds value through their role. Rather than representing the more broadly defined high performance work systems discussed in the HR literature, this particular mix of policies and practices is more closely aligned to the collection of activities discussed in the work on The War For Talent (Michaels et al., 2001).

Talent benchmarking is not just about identifying the cost of acquiring the talent. It also includes classifying and grooming them based on the value they bring into the organisation. It is about identifying specific traits required for each role and then comparing those with the existing talent pool. The benchmark classifies their potential according to the value they add and/or protect, role complexity and their replacement cost. In short, it is about identifying people with potential and grooming them even before the individuals realise their potential.

Many tend to approach talent benchmarking from a mechanistic perspective. Generally, HR departments use performance reviews to identify the talent pool within the firm for ‘hire from within’ policies. They then tend to formulate a career plan and start training and development interventions to groom this pool. Many organisations are happy with such a process to plan talent development and to benchmark existing talent. This exercise caters more to current and immediate future requirements. The output of such an exercise should represent a comprehensive view of talent, their relative position in the organisation and the cost of replacing that talent.

In order to realise that, they need to establish benchmarks set for each role based on the KPIs. HR personnel could start creating benchmarks for each role in the organisation by using the inputs of peers, subordinates, the boss, HR personnel and the support staff. In order to create a benchmark, it is necessary to have a complete description of the role. It is also useful to include multiple perspectives. The complexity of this exercise can be increased or decreased depending on organisation requirements. However, this exercise is not strategic or forward looking as it takes into account only the current and the near future requirements from a role perspective.

To construct a benchmark the team could draw up a list of attributes that are critical, unwanted, preferred, desirable and irrelevant from the perspective of the role to create a CUPID benchmark. A set of competencies would be identified to populate each construct. The candidates can then be measured against those competences and a corresponding score could be generated. The system could be set up within the organisation as a stand-alone system as part of the talent identification process. Figure 6.1 is an example of a CUPID benchmark created by Talengene for one of its clients. Individual fit is then determined across each element and even across those competencies. The benefit of this exercise is that it helps organisations to identify talented people very simply. It also provides a template for individual training and development interventions.

Figure 6.1 Cupid comparison

When an organisation has a template for various roles across the organisation, they can use the benchmark scores to compare individual fit with respect to the role. A single input from the individual can be compared against the benchmarks set for multiple roles. In some cases, organisations have used it to compare individual inputs against roles of varying levels of seniority. By matching scores in this fashion, an organisation can identify individual potential, and the amount of responsibility they can take without investing in training. They can then identify people with potential and groom them for the next or a senior role as they see it fit.

However, forward-thinking organisations look at talent benchmarking from a strategic, rather than a mechanistic perspective. They are in tune with the organisation’s current and future needs. They then map the requirements of the roles.

Every talent recognition process has a hard and a soft side in terms of measurement. It is the softer aspects of talent management that aid in value generation. However, this is the most difficult one to spot, let alone measure. An effective benchmarking intervention attempts to capture the value generated. As discussed earlier, employees add value at the individual, social or societal level. A cognitive mapping technique could be used to identify key traits that the organisation values. It is then mapped against the traits individuals display to enhance organisation-specific measures.

Some interviewees believe that an organisation has to include measures to capture the value of intangible elements like passion, inspiration, influencing, leading and setting a vision. They believe attitude influences contribution, as despite having the same knowledge and tools some individuals contribute more.

On the other hand, organisations could embark on a complex talent benchmarking process as shown in Figure 6.2. This figure in essence captures the elements of a talent benchmarking process from a tangible and intangible perspective. This approach embraces the aims of the role from a strategic perspective. As a result, the benchmark that is created caters to current and future requirements of the organisation rather than the role.

Figure 6.2 How people assess talent at the subconscious level

There are in total 19 elements that could be used to map talented people.

Active people engagement refers to the style of managing people. It includes characteristics of individuals who are ‘switched on’ to people. Strategic leadership refers to the style of strategic characteristics. Sense making and giving refers to characteristics that help individuals to communicate and understand the organisation’s strategy. Coaching in this case refers to unlocking an individual’s potential to stretch or enhance their performance. Grounded judgement refers to traits that individuals have to make informed positive and reliable judgements by considering, and analysing different perspectives from different people. Task style refers to traits individuals have to get work done in a consultative engagement way. Business/technical knowledge refers to technical and business knowledge required to run the business. The stamina and adaptability factor encompasses elements like energy, time management, creativity, effectiveness and discipline.

Efficiency orientation covers focus, cost value consciousness and analytical ability. This refers to the traits required by individuals to be efficient in their job. Work life/loyalty balance refers to the link between work-life balance individuals need to have and its link to loyalty. The judgement integrity capacity factor has an influence on result orientation and integrity as individual elements. It refers to the ability of employees to demonstrate integrity and not be guided only by the need to contribute to profit-making. The experience/background factor refers to individuals’ experience, education and background to help them perform a role. Accurate self-assessment refers to individual ability to understand strengths and weaknesses and recruit and/or use talent to overcome this weakness for the individual as well as for organisational betterment. Stakeholder perspective refers to traits that individuals need from a stakeholder perspective (balancing customer as well as shareholder requirements).

Emotional intelligence in this context encompasses empathy and interpersonal skills. Project problem-solving in this context refers to individual traits required to solve problems in a project environment. Learning has innovation and flexibility/willingness to adapt traits as a goal. It refers to the ability of an individual to innovate and be flexible to change in order to produce better results. Hardworking refers to the ability of individuals to work hard to achieve the objectives they are expected to meet. Development orientation refers to individuals’ ability to develop employees and self.

These elements are the summation of a cognitive mapping exercise conducted across organisations in India and the UK. The participants who undertook this exercise reported to the chief executive or were part of the board. Their subconscious thought process was captured using the map technique to identify the constructs they perceive to be important while evaluating and identifying an individual as talented.

However, for these aspects to be measured effectively, employees need to demonstrate the right attitude, which is determined by their behaviour and values. No training intervention would add value to individuals if their attitude to work or the organisation is indifferent. Studies have demonstrated that employees with a positive attitude excel in the competences they are measured in. Any organisation has to measure individual attitudes before investing in employee training. Some HR directors tend to involve employees to develop appropriate competence measures as they believe that everyone should not be assessed by a rack of competence. Doing so, they feel, would result in an abstract measure and render the whole exercise of measuring competencies futile. Appendix B explains how the technique could be used to develop a talent benchmarking template.

The three Rs – recognition, retention and reward

The impact of globalisation and recession has made people realise that there is no job security. It has fuelled entrepreneurial spirit and resulted in a new generation of people who actively freelance. HR departments face the challenge of engaging these individuals, motivating and rewarding them for their efforts. These internal customers are individual business units, and they are driven by their unit’s profitability. With the conventional definition of work getting redefined, and with more and more people working in a virtual environment, the problem only gets amplified.

In addition to this, HR is also faced with the task of interacting with a diverse workforce. As the average life expectancy has increased more and more, people are still working later in life. At the present moment, Baby Boomers, Gen X and Gen Y make up the workforce and, within a decade, we will have the first of the millennial generation entering the workforce. At any given time HR, therefore, has the challenge of working with at least three generations who have different attitudes to work, reward and recognition. There is a delicate balance that HR staff have to maintain, to recognise and reward these three groups.

The recent emphasis on assessment to facilitate external reporting has meant that little attention has been given to the development of classification models of human and structural capital beyond a rudimentary level (Carson, 2004). This has led to the creation of constructs like social and societal responsibility, emotional intelligence and identity as part of the evaluation process. Inclusion of these constructs by managers supports the claims to measure made by Goleman (1995) and Cooper (1997) for assessing emotional intelligence, culture, identity and image (Hatch and Schultz, 1997). Although managers were not able to articulate a way to measure it, they strongly opined that these elements do help employees create value.

A consistent, impartial performance review increases employee satisfaction and enhances the value generated as a result. Hedge and Kavanagh’s (1988) study suggests that employees need to know how they are performing, as this aids in career path planning. Performance appraisal also allows the company to ensure that the employee is performing and improving with respect to their job description. Performance reviews allow the company to determine growing talent within the organisation for ‘hire from within’ policies, which have also been proven to increase employee satisfaction, because they encourage employees to improve job knowledge in order to make a greater contribution to the firm. As an added bonus, such reviews create an environment for employees to resolve difficulties in co-worker relationships (Messmer, 2000).

However, for a measurement system to be effective, it should evaluate the relevant factors pertaining to the business (Huselid 2005). It should be able to provide a causal relationship to understand the complex relationship between the value generated by the employee and its impact on business as a whole. He states that strategic performance measurement is based on the relationship between human capital and specific strategic drivers in the organisation. Therefore, neither traditional benchmarking measures like efficiency measures, nor constructing measures like ‘human capital value added’ are enough to capture the value generated by human capital. He strongly advocates the need to have new measures that help drive the strategy of organisations. He advises organisations to customise measurements according to their individual requirements. Although it is necessary to have an objective review, the value of such interventions can only be realised if the information collected is used to motivate employees. Such systems help to reward and recognise talent and aid retention.

An effective performance measurement system captures both tangible and intangible employee contributions and rewards them accordingly. When organisations use the traditional assessment measures they find it easier to measure and reward revenue-generating roles than supporting roles. Organisations can easily reward people who have tangible targets. They find it difficult to measure and reward soft intangible traits. Existing reward and recognition schemes depend on the employer’s perception of value (for what is paid in relation to what employees contribute) and put poor performance down to lack of recognition.

There is an inherent danger of an organisation taking their employees’ contributions for granted. It can easily result in the case of intangible contribution. It takes a long time to realise the benefits of any strategic activity, and as a result the effects of strategic interventions cannot be quantified in the short term. It becomes tough to reward such contributions. However, some leaders with a short-term perspective have used that as an excuse to create reward structures that are beneficial to them. Companies like Enron and the recent financial crisis are proof of that. While it is essential to recognise the impact of intangible contribution, the reward system should factorise that into its evaluation process.

If organisations start evaluating the roles from a value perspective, they would be able to move beyond performance. Every role has an element of support and creativity to it. It is the responsibility of HR staff to map out the elements of value that are essential for the organisation to achieve its objectives. They need to identify the key tasks required to accomplish that job and then evaluate the relevance of each function with respect to that.

For example, to achieve a commercial goal, there has to be a sales person. However, the sales person cannot act on their own. They need the help of other functions like logistics, production and even secretarial help to achieve goals. Subsequently the importance of each function could be weighed. This would help them understand the value generated by each unit and it could be used to reward the team if the corporate objectives are met. A similar exercise can be conducted in every department to understand the value generated at the individual level. They could then be evaluated against a number of key performance indicators which would provide an indication of individual performance. Evaluation and future rewards would have an element of corporate, as well as individual, performance. In the UK, some organisations use this method. As a result, 25 per cent of their bonuses depends on individual performance while 75 per cent depends on organisational performance.

Although generous rewards and recognition for contributions made in a role increase employee engagement, it is not the only factor that influences engagement. Employees can be engaged emotionally, rationally and volitionally from a personality perspective. From a job position, they can be engaged intellectually, emotionally and financially. Many employees are committed to the role at the intellectual and emotional level. Whereas financial rewards do not encourage everyone, they have to be on a par with industry standards for the other forms of engagement to take place. Every individual has a unique mix of these engagement levels. The problem HR departments face is to determine the right mix of engagement levels for each employee. That information could then be used to reward and recognise performance.

Although a happy employee is more likely to approach a consumer issue with the right frame of mind and represent the organisation positively, that does not necessarily correlate with profitability. Increase in customer satisfaction levels could be an indicator of happy employees. However, in fact, satisfaction measurement on its own, be it for internal or external customers, is not enough to tell the true picture. To understand the value generated by the interactions, organisations need to measure satisfaction, commitment and loyalty of internal, as well as external, customers.

Organisations utilise many rewards systems as a key management tool to influence individual and group behaviour, thereby contributing to the organisation’s success (Lawler and Cohen, 1992). The structure and allocation of rewards may affect the motivation of individual team members, and the inclusion of rewards is central to many models of work group effectiveness (Hackman, 1990). Employees should be rewarded more if their actions reflect what the organisation expects of them in their role and as an individual.

Scholars have provided evidence which shows that a well-managed investment in staff training and utilisation are conducive to organisational performance and efficiency (Acemoglu and Pischke, 1999). It also showed that the results of training investments are reflected in financial performance (Bassi and McMurrer, 1998). Various studies demonstrate the importance of reward and recognition schemes and investment in employee training to leverage value generated by employees. Training and development for career development are seen as acts of recognition and not as rewards. Recognition boosts individual pride and increases contribution. This will help employees understand the value of their work, increase motivation and improve performance.

More than the reward and recognition package, it is an individual’s motivation that helps them to perform their jobs better. In an equal vein, an employee’s work–life balance determines the nature of reward and recognition they would accept and make them feel satisfied.

Retention, therefore, is dependent on employee behaviours, attitude and mindsets, and their perception of the rewards and recognition conferred on them.

An organisation that can help its employees understand the value they add through their roles would have a charged, effective and cohesive workforce that is easy to retain. An organisation’s culture has a pivotal role to make that happen. A positive culture creates confidence in people to question and allows them to understand how their role contributes to the organisation. In the UK, a large retail chain, John Lewis Partnership, has shot a video that recognises employee contributions at all levels. This video is about people who are not visible in the day to day functioning of the organisation and shows how they help add value. This organisation operates a partnership structure where every employee is a partner in the business and the bonus is shared with each employee. As a result, they have an engaged workforce. The leaders have clearly understood that different people tend to have different forms of engagement and have devised their reward systems to accommodate that perspective.

The framework given below (Figure 6.3) provides a template to help HR personnel capture the value employees add. This framework reveals that individual as well as organisational context has a direct role in helping the employees add value to their role. From an organisational context, quality of leadership, culture, structure and processes are some factors that exert considerable influence on the factors that motivate individual employees to add value in their role. From an individual context, work-life balance requirements and their individual culture (which is the individual upbringing, education, family values and beliefs) determine the value they add to the organisation. The value individuals produce can be classified into individual, social and societal value.

Figure 6.3 Human Capital measurement framework

 Individual value: This depends on the perceived emotional intelligence of employees and the values that they believe in and live by. Personal values are shaped by individual upbringing, which shapes the individual’s attitude, mindset and personality and effectively influence the way they behave. Values influence behaviour and this determines the attitude they display at work. Although attitude could be conditioned by workplace requirements, they would always be bypassed if there is a conflict with personal values. For an individual to contribute, the individual and organisational values have to be aligned.

 Social value: This depends on the value generated through social interactions. It is their ability to network, and the ability to occupy a central position in the network. It is also influenced and enhanced if employees are able to connect with the company and their teams. Employee attitudes towards their peers, their role and the organisation influence value creation at the social level.

 Societal value: This depends on the value generated by employees demonstrating socially responsible behaviour and responsibility to the society or environment. Research has demonstrated that corporate citizenship or socially responsible behaviour leads to ethical behaviour in employees. This dimension has to do with the value generated through demonstrated concern for external stakeholders, whereas economic and social values are internal measures for value generation.

In order for these three forms of value to be delivered, individuals have to connect with the job and values. When there is a match it results in engagement. As discussed earlier, engagement takes different forms and results in tangible and intangible forms of value. The elements that populate each of the constructs in Figure 6.1 could be measured in order to provide a more realistic assessment of the value generated by employees. Although this framework can be generalised across organisations, HR personnel have the responsibility of identifying organisation-specific elements and measures for each construct of the framework. Anything that is not measured cannot be recognised or rewarded appropriately. Hence, having a measurement/evaluation system in place to assess the constructs plays a crucial role.