Global PETS Forum 2013, 24-25 January 2013, Prague, Czech Republic

1. Global PETS Forum 2013, 24-25 January 2013,Prague, Czech Republic Effective Talent Management: Building a Strong “Employee Value Proposition” in Your Firm Professor Günter K. Stahl, WU Vienna and INSEAD

2. The Most Strategic Domain of HRM is Talent Management

3. Talent Management in Your Organization Which of the following statements are true for your company? People are our most important asset. We want to be the employer of choice in our industry. Competition for talent is heating up and will likely intensify further. Developing a strong talent pipeline is as critical to the firm’s success as building a rich product pipeline. When we have made talent management mistakes, there have been negative business side effects (e.g., lost growth opportunities). In contrast, being superior at attracting, developing and retaining talent would make a real and positive business difference in our firm. We have a clear strategy and plan for being the employer of choice and building a strong talent pipeline. We have good metrics for calibrating how we are doing as an employer of choice and optimizing our talent pool.

4. The Global Human Resource Research Project: Overview Phase 1: Case Studies In-depth interviews with 308 senior executives (including CEOs), line managers and HR professionals in 38 companies and 23 countries Phase 2: Web-based Survey Survey of 463 HR managers in 22 companies from three regions (Americas, Europe-Middle East-Africa, Asia-Pacific) and 36 countries Phase 3: Follow-up Survey Follow-up survey of executives in the 22 companies that participated in Phase 2 to assess how HRM practices influence performance Research Foci: - Talent management - Organizational culture - Leadership development - Performance management - Compensation and benefits - Employee relations - HR functional excellence - Knowledge management Lead researcher North America Patrick Wright, Cornell Lead researcher Europe Philip Stiles, Cambridge Lead researcher Asia-Pacific Günter K. Stahl, INSEAD Nokia ABB GlaxoSmithKline Ikea BA Unilever Procter & Gamble Lufthansa HSBC Siemens GE Microsoft Samsung Shell Novartis AmEx IBM Oracle Haier Toyota SK J&J Citigroup Lucent Nissan Lenovo Matsushita TCL Infosys Siam Group Source: Stahl, Björkman, Farndale, Morris, Paauwe, Stiles & Wright (2012). Leveraging your talent: Six principles of effective global talent management. Sloan Management Review, 53, 25-42.

5. Best Companies for Leaders: Top 20 “Major U.S. companies have an edge over European multinationals. Japanese and Korean companies, such as Toyota and Samsung Electronics, are nowhere to be seen.” Sources: Chief Executive, November, 2005, December 2006; Hay Group Newsletter, April 12, 2006

6. Declining Supply of Future Executives Number of 35-45 year olds in the United States; Index: 1970 = 100 Source: United States Census Bureau 240 220 Peak in 2000 200 Trough 2015 180 160 140 15% decline from peak to trough over 15 years 120 100 80 60 2020 1970 1980 1990 2000 2010 Source: Chambers, Foulon, Handfield-Jones, Hankin & Michaels (1998). The war for talent. McKinsey Quarterly, 3, 44-57.

7. Demographic Trends: Examples Germany and Japan The population is aging in most parts of the developed world. In the next decade more people will leave the work­force than will enter it.

8. The Global Talent Challenge McKinsey study: Percentage of university graduates considered suitable for hire

9. The Talent Challenge: Demand-Supply Gap Business growth (e.g., Infosys from $121 million to $6,262 billion in 10 years) Business transformation (e.g., from manufacturing-driven to service-driven) Investment in new core businesses (e.g., internet, biotech) New forms of partnership (e.g., with governments to reform health care) Globalization (e.g., offshoring and global sourcing) Pressure to hire new skills at all levels (e.g., in order to restructure quickly) Do we have the right quantity of talent? (Pipeline) Do we have the right quality of talent? (Skillset, Mindset) Rising Demand Declining Supply • Demographic trends (e.g.,retiring baby boomers, Generation Y) • Drastically increased job mobility (e.g., the rise of “boundaryless” careers) • Reduced “switching costs” (e.g., due to shift from traditional pension plans to defined contribution plans) • A pickier workforce (e.g., employeesseeking better work-life balance) • More restrictive labor markets (e.g., tighter immigration policies)

10. Shift in Balance of Power Several key shifts have tilted the traditional balance of power away from employers and toward employees: Shift in talent supply and demand creates opportunities for skilled people Low cost of alternative employment search (e.g., corporate websites, monster.com, Facebook) Reduced “switching costs” (e.g., due to shift from traditional pension plans to defined contribution plans) Employer Employee • Increasingly employees will know their worth and opportunities • Consequently, unless the firm has a superior employee value proposition, it will find itself struggling to attract and keep top talent

11. Employee Value Proposition As an employee, do you pay a price to work at your company? As employees, what are some of the prices people pay? Long hours Stress Travel/time away from home Effort/concentration A difficult boss Blood, sweat, and tears Can the price you pay at one company be significantly higher or lower than the price extracted at another company? Does the price you feel you pay (hours, stress, blood, sweat, and tears) influence how much you feel you should get from the firm in order for you to feel that it is a fair deal?

12. Employee Value Proposition For the blood, sweat, and tears that you give the company (i.e., the price you pay), what sorts of things do you get from the company in return? Is it a good deal? • Money • Pension • Recognition • Praise • Appreciation • A good culture to work in • Good people to work with • Growth and development opportunities • Interesting work to do • Freedom and autonomy

13. Employees pay a price in blood, sweat, and tears in working for a company. They get a variety of benefits in return from their employer. It is the perceived, relative intersection of these two factors that determine the extent to which the employee perceives the employment value proposition as superior or inferior. This in turn affects the extent to which the employee is attracted to the company. Employee Value Proposition Superior Value Region Equal Value Line Average Offering Inferior Value Region Average Price What do you get? What price do you pay?

14. Employee Value Proposition What price do your employees believe they pay? Is it lower, the same, or higher than other firms? Superior Value Region Strength of the value proposition 45% Offer Premium (A) 20% Offer Premium (B) Average Offering 25% Offer Discount (C) Inferior Value Region 20% Price Premium Average Price

15. Employee Value Proposition What price do your employees believe they pay? Is it lower, the same, or higher than other firms? Superior Value Region Strength of the value proposition 45% Offer Premium (A) 20% Offer Premium (B) Average Offering 25% Offer Discount (C) Inferior Value Region 25% Price Discount 20% Price Premium Average Price

16. Employee Value Proposition What price do your employees believe they pay? Is it lower, the same, or higher than other firms? Superior Value Region Strength of the value proposition 15% Offer Premium (A) Average Offering 10% Offer Discount (B) Inferior Value Region 20% Price Discount Average Price

17. What employees care about most can be grouped into four clusters. The company: Its culture, values, performance, and challenges The leaders: Their integrity, focus on people, career mentoring, and respect The job: Its freedom, autonomy, exciting tasks, and growth potential The rewards: Affiliation, career potential, indirect financial, and direct financial Employee Value Proposition

18. Employee Value Proposition Why should a smart, energetic, and ambitious person want to work for this company as opposed to another? Company Values Culture Strong Results Exciting Challenges Leaders Integrity Focus on People Mentoring/Coaching Respected Boss Affiliation Career Progress Indirect Financial Direct Financial Freedom Exciting Tasks Work-Life-Balance Growth/Development Rewards Job Source: Stewart Black, INSEAD

19. EVP Assessment: Questions for Discussion What are the relative strengths and challenges (aspects that need to be improved) of your company’s EVP? In improving your company’s EVP, which of the four areas (company, job, rewards, leaders) would you target and why? Which aspects are the most important? What you can you do in terms of building a stronger EVP in your firm? What high priority actions would you recommend for your company to take? Why would a smart, energetic, and ambitious person want to work for your company as opposed to another?

20. Employees pay a price in blood, sweat, and tears in working for a company. They get a variety of benefits in return from their employer. It is the perceived, relative intersection of these two factors that determine the extent to which the employee perceives the employment value proposition as superior or inferior. This in turn affects the extent to which the employee is attracted to the company. Employee Value Proposition Superior Value Region Equal Value Line Average Offering Inferior Value Region Average Price What do you get? What price do you pay?

21. Employee Value Proposition Why should a smart, energetic, and ambitious person want to work for this company as opposed to another? Company Values Culture Strong Results Exciting Challenges Leaders Integrity Focus on People Mentoring/Coaching Respected Boss Affiliation Career Progress Indirect Financial Direct Financial Freedom Exciting Tasks Work-Life-Balance Growth/Development Rewards Job Source: Stewart Black, INSEAD

22. Gen Y: What Are They Looking For? Top 10 attributes of a Generation Y‘s ideal job Source: The 2006 Cone Millennial Case Study

23. In case you are interested… Stahl et al. (2012). Leveraging your talent: Six principles of effective global talent management. Sloan Management Review, 53, 25-42.

24. Company Differences • Outcomes • Commitment • Satisfaction • Intent to Leave

25. Company Differences: Intent to Leave A K Correlation between EVP and Intent to Leave = -.67

26. Demographic Differences 5-10 yr 3-5 yr 1-3 yr 10+ yr 0-1 yr 0-1 yr had highest EVP and lowest Intent to Leave; 5-10 yr had lowest EVP and highest Intent to Leave

27. Difference by Country

28. Differences by Country Correlation between EVP and Intent to Leave = -.49 Indonesia and Korea had the lowest EVP and the highest Intent to Leave.

29. Employee Value Proposition: Conclusions Attracting or keeping a desired employee is based on the same principles as attracting and keeping a desired customer. Employees must have a value proposition that they feel is superior to other alternatives. As is the case with customers, value to the employee is not just what he or she gets from the company but is determined by the inter- section of the price the employee pays in relation to what she gets. This intersection creates an easy way to graphically represent the superiority or inferiority of an employee value proposition. The strength (or weakness) of the employee value proposition is good at predicting a company’s performance in the war for talent – how good they are likely to be at attracting and retaining talent.

30. The Global Human Resource Research Project: Overview Phase 1: Case Studies In-depth interviews with 308 senior executives (including CEOs), line managers and HR professionals in 38 companies and 23 countries Phase 2: Web-based Survey Survey of 463 HR managers in 22 companies from three regions (Americas, Europe-Middle East-Africa, Asia-Pacific) and 36 countries Phase 3: Follow-up Survey Follow-up survey of executives in the 22 companies that participated in Phase 2 to assess how HRM practices influence performance Research Foci: - Talent management - Organizational culture - Leadership development - Performance management - Compensation and benefits - Employee relations - HR functional excellence - Knowledge management Lead researcher North America Patrick Wright, Cornell Lead researcher Europe Philip Stiles, Cambridge Lead researcher Asia-Pacific Günter K. Stahl, INSEAD Nokia ABB GlaxoSmithKline Ikea BA Unilever Procter & Gamble Lufthansa HSBC Siemens GE Microsoft Samsung Shell Novartis AmEx IBM Oracle Haier Toyota SK J&J Citigroup Lucent Nissan Lenovo Matsushita TCL Infosys Siam Group Source: Stahl, Björkman, Farndale, Morris, Paauwe, Stiles & Wright (2012). Leveraging your talent: Six principles of effective global talent management. Sloan Management Review, 53, 25-42.

31. Performance Management Compensation and Benefits Training and Development Succession Planning Retention Management Activities and Practices Recruitment and Selection TALENTMANAGEMENT Employer Branding Internal Consistency Local Autonomy Delivery and Coordination Alignment Embeddedness in Culture Global Integration/Standardization Senior/Line Management Involvement Alignment with Business Goals Talent Management: Principles, Practices, Processes Source: Stahl et al. (2012). Leveraging your talent: Six principles of effective global talent management. Sloan Management Review, 53, 25-42.

32. Current Trends in Talent Management Driver of firm performance and sustainable competitive advantage! • Emphasis on employer branding (“employee value proposition”) • Belief in importance of top management commitment and line manager involvement • Talent management no longer limited to “high potentials” • Investment in “high-impact” talent pools • Convergence of talent management practices across countries, regions, and industries • Trend toward global integration and standardization • Importance of alignment of talent management practices • –across practices (“internal fit”) • –with the business goals (“strategic fit”) • –and culture (“cultural fit”)

33. Employee Value Proposition Why should a smart, energetic, and ambitious person want to work for this company as opposed to another? Company Values Culture Strong Results Exciting Challenges Leaders Integrity Focus on People Mentoring/Coaching Respected Boss Affiliation Career Progress Indirect Financial Direct Financial Freedom Exciting Tasks Work-Life-Balance Growth/Development Rewards Job Source: Stewart Black, INSEAD

34. Gen Y: What Are They Looking For? Top 10 attributes of a Generation Y‘s ideal job Source: The 2006 Cone Millennial Case Study

35. Building a Strong Employer Brand • What matters most to specific types of recruits? • How can we best reach each type of recruit? • How can we improve our name recognition? • How can we differentiate our firm from competitors? • How can we deliver a unique and compelling EVP? • What are the relative strengths and weaknesses of our EVP? • How can we build a stronger EVP?

36. Building a Strong Employer Brand: Identifying Competitors in the Market for Talent

37. Talent Management: Importance of Line Manager Involvement Successful recruitment, development and retention of talent requires the commitment and accountabilities of three stakeholders: CEO Line Managers HR “These issues aren’t HR issues anymore. They are line management issues. There’s been a profound shift” Murray Dalziel, group managing director, Hay Group

38. Importance of Top Management Commitment I spend a thirdto half of my time on leadership development. … Nothing I do will have a more enduring impact on P&G's long-term success than helping to develop other leaders. A.G. Lafley, CEO Procter & Gamble, 2007

39. Layers of Talent: Workforce Pyramid Top Management Talent management is no longer limited to ‘high potentials’! Middle Management Entire Workforce Frontline Management High Potentials Employees Specialists Indirect Workforce Source: Guthridge, Komm & Lawson (2008). Making talent a strategic priority. McKinsey Quarterly, 1, 49-59.

40. A New Approach to Training and Development:Identifying High Impact Talent Pools Applying yield curves to talent: Disneyland’s Mickey Mouse vs the sweeper Strategic Value Best Mickey Mouse Worst Mickey Mouse Best sweeper There is more value in improving sweepers than Mickey Mouse! Worst sweeper Performance Source: Boudreau & Ramstad (2008)

41. Talent Management Best Practices:Synopsis Source: Stahl et al. (2012). Leveraging your talent: Six principles of effective global talent management. Sloan Management Review, 53, 25-42.

42. GE’s “Rank and Yank” System: The Vitality Curve POTENTIAL / PROMOTABILITY High Medium Limited Top 20 OVERALL RATING (Performance, Competencies, Values) Highly Valued 70 Least Effective 10

43. People Management Practices: Importance of Alignment Unless you are really dedicated to a whole system, it doesn’t work. We give feedback, we coach, we invest in training – and we have clear performance goals. People agree on their annual goals and objectives, they know where they stand; and they know we will help them to be the best they can be. If all those things don’t exist together, it won’t work… Jeffrey Immelt, CEO of GE Source: Bartlett & McLean (2006). GE’s Talent Machine: The Making of a CEO. Harvard Business School

44. What Motivates Talent? Percentage of top 200 executives rating factor absolutely essential Great company Values and culture 58 Well managed 50 Company has exciting 38challenges Strong performance 29 Industry leader 21 Many talented people 20 Good at development 17 Inspiring mission 16 Fun with colleagues 11 Job security 8 Great jobs Freedom and autonomy 56 Job has exciting 51challenges Career advancement 38and growth Fit with boss I admire 29 Great company Great jobs Compensation and lifestyle Compensation and lifestyle Differentiated compensation 29 High total compensation 23 Geographical location 19 Respect for lifestyle 14 Acceptable pace/stress 1 Source: Chambers, Foulon, Handfield-Jones, Hankin & Michaels (1998). The war for talent. McKinsey Quarterly, 3, 44-57.

45. Identifying High Potential: Example Bank of America Leadership issues Performance Results the “what" exceeds expectations P. Chin W. Lewin Key talent F. Ravaux meets expectations E. Sanchez Top-grading opportunities does not meet expectations H. Smith does not meet expectations meets expectations exceeds expectations Leadership Behaviors the “how” Source: Conger & Fulmer (2003). Developing your leadership pipeline. Harvard Business Review, December, 76-84.

46. “Type 4” Managers MAKE THE NUMBERS NO YES NO TYPE 4 LIVE THE VALUES/ COMPETENCIES YES

47. Values-Based Performance Management: Example NOVARTIS Performance Objectives Exceeded Expectations Fully Met Expectations Partially Met Expectations Values/ Behaviors Fully Met Expectations Exceeded Expectations Partially Met Expectations Source: Chua, Engeli & Stahl (2005). Creating a new identity and high performance culture at Novartis. In Stahl & Mendenhall (Eds.), Mergers and acquisitions: Managing culture and human resources. Stanford: Stanford Business Press.