As globalization ratchets up the level of competition among multinational companies (MNCs) and forces them to sharpen every aspect of their business strategy, managing the organization’s human resources on a global scale has become a matter of keen interest to senior leaders. Getting the right people with the right capabilities deployed to the right spots in the organization is no longer just a baseline requirement for doing business; it is now a critical competency that may determine winners and losers in the marketplace. Of special concern is the development of future leaders able to navigate and exploit the complexities of a global business environment.
ORC Worldwide, under the auspices of Industrial Relations Counselors, Inc. (IRC), has conducted a special study of the global-scale processes that successful MNCs use to identify and develop such leaders. Thirty-one companies participated in the interviews, focus groups, survey, and follow-up briefings that constituted this study of global talent management (GTM). Of the 31 MNC participants, 16 are in the United States and 15 in Europe.
What Is Global Talent Management?
Talent management comprises the integrated processes and programs companies use to create and deploy an effective workforce. Companies have been concerned with many of these processes, one supposes, since the dawn of capitalism, but with globalization of the modern business firm has come a greater need for some level of centralization, consistency, and integration in their application.
Like everything else, the talent management system derives from the organization’s business strategy. Once that strategy is set, the company needs:
Workforce planning, to determine the competencies and skills it will require, taking into account demographic, social, economic, and educational trends.
A staffing strategy, a map to guide the organization in its efforts to fill the gaps between its existing workforce and the workforce it needs to achieve its business strategy. The staffing strategy must identify existing resources, find sources for needed talent not already resident in the organization, and develop an employment brand and recruiting tactics that will attract that talent. This task becomes exponentially more complicated when the company has to rationalize its staffing strategy on a global scale, as more factors enter the equation: relative costs, flexibility, and availability of labor; expatriate assignment costs; knowledge-transfer requirements; and familiarity with local markets.
Talent identification and gap analysis—evaluating performance and potential of individuals and determining where the organization and individuals are lacking core capabilities.
Development programs to help individuals gain the skills and competencies required for the company to meet its goals.
Who Is Being “Managed”?
The primary focus of talent management is usually trained not on the human resources population as a whole but on the people that differentiate this organization from others. We might all be valuable, but in terms of who really makes a difference to the company’s ability to beat its competition, some of us are unquestionably more valuable than the rest. The purpose of the global talent management system is to identify those people worldwide and make sure they are optimally developed and deployed. Multinational companies are especially concerned with how they will assure themselves of future leaders capable of understanding and managing complex operations flung across the world and serving diverse markets, so they have developed competency models to describe what those leaders will need to be able to do, and talent review, succession planning, and executive development programs to maintain the supply.
For this reason, the IRC study focused specifically on senior leadership, and especially on the pool of high-potential talent within that population. Other populations that might also be the subject to centralized talent management efforts include employees with special skills that differentiate the company from its competition or are critical to its business, expatriate employees, or early-in-career individuals slotted for fast-track development.
Outline of the Talent Management Process
Every day companies face decisions at the corporate, business unit, regional, and local level about how to acquire and utilize talent in the most effective—and cost-effective—way. The degree to which these and other talent management questions are handled consistently throughout the global firm varies greatly. In most European and American MNCs, however, the talent management process shares a typical framework and some common features. The process usually rolls up from local or lower-level units. Typically, the cycle begins at the location or departmental level, with an analysis of staffing needs for some time period into the future and a review of talent in that unit. The information is passed up to the larger geographic, business line, or functional unit, and from there enters the corporate talent review process.
Corporate talent reviews are the mechanism for managing the “corporate asset” talent group—those individuals expected to make significant contributions to management at the corporate level and whose careers therefore warrant oversight by the headquarters. Generally held on an annual basis, these talent reviews involve the CEO and his or her senior management team as well as the corporate GTM leader (if there is such a position), or the head of HR. The number of employees in the corporate asset group may vary between 200 and 1,500, depending on the company.
The core of the process is a meeting at which each geographic, function, or business unit presents its needs analysis, identifies individuals considered to be key or high potential, and recommends promotions, transfers, and development plans. When it works best, the talent review meeting is an open forum for debate and negotiation through which senior management gets to know key individuals, works out how those people will get the experience necessary to test and train them for the next level of responsibility, tracks performance issues, and ensures a free movement of talent across the organization. During the discussions, the senior management team works out a common vocabulary and set of criteria defining the capabilities required of the next generation of global leaders and sets GTM policy and strategy, all of which cascades back down the organization.
The IRC Study of Global Talent Management Practices explored this process in detail. The rest of this article reports its findings on how companies structure themselves to manage the process and the specific practices that appear to be associated with talent management success.
How Companies Are Managing GTM—The Survey Findings
GTM Responsibilities and Structure
The IRC study found that the most important structural determinant of GTM success is the degree to which the CEO, the board of directors, and the GTM leader are involved in GTM-related activities. In short, the more time and effort devoted to GTM by those in senior positions, the greater the payoff in the organization’s ability to identify and develop high-potential talent.
According to the study, level of CEO involvement positively correlates to effectiveness in a number of areas:
Overall GTM performance
Developing high-potential managers currently at a level one or two promotions away from the top tier of the company—defined in the IRC survey as level II (see sidebar on the next page for definitions used in the survey)
Continuing to develop abilities of level II managers who are capable careerists, defined as solid performers but not designated as high potential
Developing managers who consistently demonstrate company values
Identifying high-potential senior managers from smaller markets outside headquarters or economically dominant locations
On average, CEOs devote 16 percent of their working time to global talent management, participating in such activities as talent reviews, approving the succession plan, speaking publicly about GTM, mentoring high potentials, etc.
The involvement of the board of directors in GTM tends to be passive. The boards of most companies receive annual briefings on the succession plan for level I executives—the CEO, COO, and their direct reports. But in almost half (46%) the companies that responded to the survey, board members also provide personal input into assessment of key individuals, and in more than a third (39%) board members meet with key high potentials throughout the year. Companies in which the board participates in these last two activities report higher effectiveness at identifying and developing high potentials in level II.
All the companies participating in the survey attempt to predict their talent needs for some point in the future. Most take a relatively short-term view. Thirty-eight percent attempt to predict as far out as four years or more, but half look only two to three years ahead, and 12 percent look at time frames of under a year. Eighty-five percent have some kind of formal forecasting process, usually a structured discussion among management about the implications of business strategy for workforce planning.
Talent Assessment Process
Most respondents believe that an assessment process involving frank, open discussion of candidates is most effective, both for identifying talent and for increasing the visibility of high potentials across the global organization. Europeans are more likely to use tools in these meetings to help them make comparisons among employees—for example, a standard or profile or performance/potential matrixes. Americans, on the other hand, tend to have more positive views of the effectiveness of their talent review meetings, perhaps because 80 percent of American respondents believe their discussions are “very open” or “completely open,” compared with 55 percent of European companies.
Sixty percent of American companies say their high-potential lists are very dynamic—names on the list change frequently, individuals taken off the list may be reconsidered at a later date, and so forth. Only 36 percent of European companies consider their lists to be very dynamic. This may help explain why European companies are more likely to tell employees they are designated as high potentials, while American companies tend to be more reticent, relying on general messages—say, that the employee is highly respected—or implicit clues, like special assignments or rewards.
Nearly all (92%) the surveyed companies apply essentially the same talent review process in their various organizational units, and they use a variety of methods to ensure that criteria and definitions are applied consistently throughout the global organization. Companies that implement more of these steps to ensure consistency report better overall GTM success.
Despite the fact that level II managers are considered “corporate assets” in 85 percent of participating companies—that is, for purposes of planning and development the managers themselves are of interest to the corporation as a whole, not just their functions or business units—31 percent of participants leave it up to the business unit or manager to decide whether they should have development plans. Sixty-two percent require development plans of all level II managers, and 8 percent require them for high-potential level IIs.
The majority of companies rely on monitoring by the global HR function to ensure that development plans have been implemented. In fact, those companies that put HR in charge of monitoring implementation report more success at developing both high potentials and career level II managers.
The most important developmental experiences are considered to be those that give the high-potential manager a broad view of the organization, experience outside his or her comfort zone, and visibility. Such experiences include, for example:
Being included in critical meetings
Participation on special project teams
Assignments across business units
Participation on global task forces
Assignments on cross-functional teams
International assignments of two to three years’ duration
Of least use for this purpose (although there may be other reasons for offering these experiences) are training programs conducted by outside providers (training houses, universities, etc.), responsibility for a different geographic region while remaining located in the home country, and service with outside business, professional, or nonprofit organizations.
For many companies, allocation of developmental assignments is sometimes complicated by other priorities, especially cost containment or a strategy of localizing management positions. The survey found that when assignments are scarce because of budget constraints or low turnover among incumbents, the favorite strategies for providing developmental opportunities are to enrich the current job or assign the individual to a cross-functional project. Of those companies that must balance the twin goals of promoting local nationals and providing global development opportunities, more than half reserve certain positions for expatriates. Instead (or in addition), some rotate positions between local and expatriate staff.
Thirty-eight percent of participating companies consistently evaluate assignments upon conclusion to determine whether developmental objectives were met. Notably, 54 percent do so only sometimes, and 8 percent never do.
Retaining High Potentials
The main tactics used to motivate and retain high potentials is to give them more challenging assignments at relatively frequent intervals and to provide something extra in terms of pay and bonuses. The tactic that correlates statistically with success at motivating and retaining level II high potentials—assigning them mentors or coaches from the level I executive team—is also the least used.
“Deep Reach”—Identifying Future Leaders
Almost all respondents conduct talent reviews of employees below level II to identify potential future leaders, while over half conduct talent reviews for all professional employees. Participants’ comments suggest, however, that the talent review process below level II is, at least in some organizations, “patchy,” and “differs greatly” across business units and departments.
In 36 percent of participating companies, level I executives are involved in reviewing high-potential level III employees, those a promotion or two away from level II. This practice correlates positively with a number of aspects of successful GTM programs, including:
Identification and development of level II high potentials in general
Development of managers who demonstrate company values
Earning a reputation for “home growing” leaders
Review by global function heads is also linked to greater effectiveness at identifying and developing high-potential level II managers in general and, in particular, those from smaller markets outside the headquarters or economically dominant locations.
Only a third of respondents consider international experience to be very important for development below level II. (Another third consider it somewhat important.) There are regional differences on this issue, however. Fifty-five percent of European companies indicate that international experience is an important criterion for moving from level III to level II, compared with 21 percent of Americans.
Although there were a few variations, in general line managers and GTM leaders and European and American companies rate the GTM programs in their companies very similarly. On average, participants are most satisfied with their ability to identify and to motivate and retain both high-potential and career level II managers, develop managers who demonstrate company values, and predict short-term talent needs.
The areas where participants are least happy with their companies’ effectiveness include dealing with poor performers, developing high potentials from small or nondominant locations, developing solid careerists, and predicting long-term talent needs.
The barrier considered most obstructive, on average, is managers’ reluctance to release top talent. Line managers view “lack of integration with other management processes” and “unwieldiness of the process” as somewhat more problematic than GTM leaders do, suggesting that the process may be less comfortable for them than for those who are responsible for managing it.
Twenty percent of responding companies do not apply any metrics to their GTM programs. Among those that do, the most common metrics are female representation numbers, turnover rates among high potentials, and the number of level I positions with identified successors. Development is the least measured aspect of talent management. Few companies track whether planned developmental moves take place and, if they do, how effective the experiences have been.
What Does the Survey Tell Us?
Overall, the IRC survey shows a picture of large global companies doing a good job of knowing their global human resources and a fairly good job of developing global leaders. But the survey also suggests room for improvement, in such areas as:
Developing high-potential managers from smaller markets or less dominant locations
Improving talent-tracking systems and making it easier for managers in various locations to access information about talent
Further diversifying the ranks of top leadership
Ensuring consistency of processes and criteria used to assess, develop, and track talent across all units
Asserting some form of global oversight and support for systematic identification and development of talent earlier in employees’ careers
The learnings from the survey point to specific actions companies can consider for attacking each of these problem areas. Among them:
Monitoring implementation of development plans
Increasing the attention spent on GTM by the CEO and the individual with direct responsibility for the GTM function (who may also manage other HR processes)
Placing greater importance on international experience and cross-cultural ability
Conducting talent reviews of all professional employees
Using a variety of methods for ensuring process consistency, such as providing print and online tools, training HR staff to facilitate the process, training line managers, requiring higher-level sign-off on process steps, etc.
Tracking more development metrics
Finding ways to encourage senior managers to think of their high-potential staff as “corporate assets” rather than hoarding them for the business unit
GTM managers on the whole are well aligned with line management. Line managers see themselves as a close partner in the talent management process. There are some differences in how the two groups view certain important questions, such as what criteria should be used to select high-potential managers and what barriers interfere with the company’s ability to manage global talent; these concerns should be double-checked in each company to ensure a clear understanding among all parties.
The study did not attempt to analyze how well GTM strategy and practice support global business strategy in participating organizations. Nor did it look at the other end, to examine how well the company’s total human resources system and its individual elements (compensation, expatriate administration, performance management, staffing, etc.) align with the global talent management strategy. That is an investigation each company would be wise to undertake individually.