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Talent Management’s Fundamental Economic Algorithm

Talent Management’s Fundamental Economic Algorithm. Building on Ronald Coase’s insights on: “Why does the firm exist?” . We have the Firm Because. The transaction costs are lower through arrangements within the firm rather than with the marketplace

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Talent Management’s Fundamental Economic Algorithm

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  1. Talent Management’s Fundamental Economic Algorithm Building on Ronald Coase’s insights on: “Why does the firm exist?”

  2. We have the Firm Because • The transaction costs are lower through arrangements within the firm rather than with the marketplace • There is no appreciable trade-off in benefit value

  3. Question? • What happens to this cost/benefit relationship over time? • Does it remain regardless? • Does/can it change? • Why?

  4. Answer • It will invariably change over time • Changes in technology • Changes in costs of inputs • Changes in the way we can extract benefits • Changes in methods of processing • Changes in management systems • Changes in supply and demand • Etc.

  5. So? • How (& incorporating what) we organize internally should be reassessed from time to time. • Ergo: When we organize the firm, we are best served over time if we can be flexible (easily and cost effectively) in what is “in” or “out”.

  6. The Algorithm IB$ IC$ EB$ EC$ > IB$: Benefits from Internal organization IC$: Transaction costs from Internal organization EB$: Benefits from External organization forms EC$: Transaction costs from External organization forms

  7. Arrangement leads to Value • The algorithm reflects the value from a particular arrangement • “>“ reflects where the internal (within the firm oriented) arrangement has greater value • “<“ reflects where the external (market place oriented) arrangement has greater value • As circumstances evolve the preferred arrangement (actually parts of it) will evolve and shift

  8. How Arrangement Value can shift over time Higher IB$ IC$ IB$ IC$ EB$ EC$ EB$ EC$ > > More value by including more parts within the firm Arrangement Value IB$ IC$ EB$ EC$ < More value by relying more upon the marketplace Future Time 1 Time 2 Time 3

  9. General Moral Lesson • Organizations are (hopefully) opportunistic arrangements to best achieve their priorities through processes and resources: • But Time is a player here! • Things change (what, how, where, etc.) • Arrangements can and do become obsolete (i.e., no longer best way to achieve …) • Ergo, a strategic priority should always include the wherewithal to remain flexible in how we arrange ourselves

  10. TM Moral Lesson • Talent is one of the resources required in any human activity (even if done by oneself) • Talent can come various forms: • Raw - hire someone to do the work that leads to a finished product/service (the intra-firm oriented solution) TO • Nearly finished product/service that is “tweaked” for final sale (the marketplace oriented solution)

  11. TM Moral Lesson cont’d • No 1 size/form for access to talent seems appropriate: • Differences based on “jobs to be done” within business processes • Shifts over time due to new marketplace oriented solutions • Open new options, changes due to technology, new suppliers, etc. • Close off options, changes due to regulatory and the like, changes in technology, supplier shifts, etc.

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