Sneak Peek: Achieving Talent to Value & Other News

Welcome to my newsletter. I hope to share insights and ideas from myself and the team at CEO.works in this space.

As I recover from an amazing -yet short- trip to Italy to watch my kids play ball for the Hungarian National Baseball and Softball Teams, I wanted to briefly share something I have been working on with my friend and partner, CEOworks Co-Founder Sumeet Salwan . We have been reimagining the Talent to Value Company to serve our clients better and, though this isn't published yet, I am thrilled to give you a sneak peek:

Worried about attracting and retaining the very best talent for the most important work your company needs to get done? You are not alone. According to the Conference Board, talent attraction and retention ranked as the #1 internal concern of CEOs globally at the beginning of 2020.* Creating new business models and innovative cultures ranked

second and third. Putting attention and energy into a business’s strategy and operations will set them right in most cases. But talent concerns somehow seem to linger, no matter how much attention senior executive leaders give them. Even when we focus the majority of our time and energy on allocating financial and human capital to our best advantage, we still lie awake in the middle of the night worrying about talent. Something is definitely wrong here.

Talent is not the problem. The problem is we are not spending the time we have for talent in the right way.

Traditionally, we place strategy, finance, and talent in separate buckets. When it comes to?thinking about people, we focus primarily on either the top three or the top 100 senior roles in our organization’s hierarchy. This siloed, hierarchical approach assumes two things. One, if a CEO gets their top team right, positive effects will trickle down and result in bottom-line improvements for the company. And two, current talent management tools are sufficient. This approach, which puts so much faith in hierarchy and invests so much time on talent, has historically proven to be the long path to value. Today’s reality calls for more speed and a much shorter path.

Participating in more than a hundred mobilizations over the last three decades, we have learned CEOs actually limit their success, if not fail, when they don’t assemble the right talent quickly enough at precise points of high leverage and critical need in their organization. Our experience has been that it is usually about 50 roles or less that drive 80 percent of a value agenda. Twenty-five roles or less drive 50 percent.

With the right talented human beings in these few critical roles, value gets realized, and the company stands a real chance of winning.

That is why we believe concentrating on critical roles is the most efficient and effective way to rapidly redeploy human capital.

Talent to Value

Change hits, sometimes suddenly and without warning. Value shifts. Money moves quickly to keep up. Talent gets redeployed slowly, lagging behind both money and value. In an era of slow, incremental change, this chain of events might not be a problem. Not so in today’s world of rapid and almost constant disruption. Nowadays, change doesn’t hit and shift value just once. It hits again and again, at an ever-increasing rate. Consequently, talent redeployments lag farther and farther behind money and value. Hardly surprising, then, that leaders often feel as if they are caught inside a pinball machine, perpetually playing “catch up,” when they really want to be lining everything up to take aim at the eight ball of success.

A company will only truly be ready to take that shot when these three essential elements of the business—its value agenda, financial capital and human capital—line up again.

Fortunately, we are already mastering the ability to move financial capital quickly. The introduction of digital and mobile technologies along with machine learning, among other things, have accelerated the evolution of the world’s financial systems and markets. We can now transfer money between companies and within business units almost instantaneously. What we haven’t mastered yet is the rapid redeployment of talent to the most critical work for creating and capturing value. That is because, up until now, we have been playing to win with theories and tools that were designed for yesterday’s world. Our talent trickle-down theory, which depends on getting the right CEO in place to solve all the company’s problems, has proved as much of a failure as the similar theory in economics. Our talent strategies are biased toward building supply and are, therefore, less likely to be connected in a precise, dynamic way to shifts in demand. Existing talent management tools are nowhere near as flexible and fast as we need them to be to keep up with today’s exponential rate of change and support value creation and capture tomorrow. Just consider the days we spend developing succession plans, only to have the situation change and leave us with prepared candidates who do not match our current needs.

That is why we developed an innovative, evidence-based methodology to quickly line up the right talent with a company’s value agenda and set them up to succeed. This five-step Talent to Value process sets up a company to play to win by effectively and rapidly redeploying human capital from points of lower return in the organization to points of higher return.

T H E F I V E S T E P S

Achieving “talent to value” is a matter of producing a nearly perfect match between the talents you assembleand the value your company is trying to create.

The Talent to Value process aims to design the best combination of talent in each critical role. Some combinations will just naturally produce a resounding “click”: the talent is so well matched to the work to be done and the role that, together, they pose little risk to the value expected of the role. Other combinations will not “click” without some form of intervention on the role, the work or the talent. Calculating a company’s click ratio reveals whether the organization has achieved “talent to value” yet—or not—and offers valuable insights into its readiness to create and capture value.**

Why Value Comes First

This thinking has evolved significantly from where we started early in our careers. Years ago, our work, like anyone’s in HR, was primarily focused on the “top jobs” in an organization’s hierarchy. Time and experience would reveal the fatal flaw in our thinking: whenever we thought of “top jobs”, we always looked at the top roles in the organization’s hierarchy.

In our roles at Unilever, we departed from this thinking and focused on better matching talent to the critical roles adjacent to where value was being created in the organization. There was an imperative to double the share price quickly. The problem? In the large businesses which weren’t growing, our best talent was trapped in the organization’s history and hierarchy. When we looked at where the value would be in the future, we discovered it rested in smaller, emerging markets and in a nascent beauty care business. The opportunity to create and capture large tranches of value in these places was huge, but the talent we had in those areas were not “big” people. When we put the right talent in those places, the share price more than doubled.

About a decade ago, Sandy had an opportunity to really fine-tune this value-centric playbook. When the Blackstone Group, the world’s largest private equity firm, hired him, they already had an enviably high success rate when it came to improving the businesses in which they invested. Interestingly, they had specifically brought him on board to help improve their success rate on the talent side of the equation.

The first thing he did when he arrived at Blackstone was conduct a comprehensive assessment of what had and hadn’t worked when it came to leadership talent in 180 companies (80 that had been in their portfolio in years past, plus approximately 100 more in which they were currently invested). What he noticed right off the bat was that, of the companies that had started to seriously bend the value curve upwards in their first 12 months, eighty percent of them had produced successful outcomes. Quickly getting the right talent in the key leadership roles early in the game was one of the factors that helped them achieve such fast starts. Most of these early curve benders went on to generate a return of 2.5 times or greater on Blackstone’s initial investment.

Looking more closely, Sandy saw that 22 of Blackstone’s most successful portfolio companies went even further.*** They didn’t fill those critical leadership roles with “developing” players: they interpreted them as value “hotspots” and intentionally filled them with talent that had the right capabilities and experience to generate the value everyone was counting on them to deliver. The Blackstone team, in these success cases, hadn’t hesitated to hire new C-suite talent when necessary and move senior executive leaders into roles where they were a better match with the work to be done. The financial results their companies achieved told him this was the way to go.

Over the last decade, the way we play the game hasn’t changed significantly. According to global consulting firm AlixPartners, PE firms in 2019 were replacing 58% of their portfolio company CEOs within the first two years of investment and 73% over an investment’s lifetime. A whopping 83% of PE firms also reported unplanned CEO turnover was eroding IRR and lengthening hold times.****

[Interestingly, global management consulting firm McKinsey has noticed the benefits of the rapid redeployment of key talent. One of their recent surveys found that public companies who moved quickly on reassigning high performers to work on the organization’s most critical strategic priorities were 2.2 times more likely to outperform their competitors in terms of total returns to shareholders than respondents who moved slowly.]*****

In our current practice at CEO Works, we are also seeing that Talent to Value interventions at the level of critical roles have a positive impact. We have intentionally implemented our process in 25 portfolio companies, connecting the best talent possible to the vital few critical roles that drive the delivery of both today’s and tomorrow’s sources of value. All 25 companies are producing between 3x and 3.3x returns within planned investment timeframes.

What we have learned in all this is that we have to connect our talent practices “to value”. When change hits and value shifts, it is not enough to move money quickly. We have to put aside the organizational hierarchy, focus on the value agenda, and efficiently and rapidly redeploy our best players to where it matters most. Knowing this approach to leadership talent can keep the value curve bending upwards for more organizations than we can serve directly during these challenging times, we have chosen to share the key concepts of Talent to Value with you in this paper.

Notes

*Survey: Business Leaders Start 2020 with Lingering Concerns about Talent Shortages & Recession Risk, January 2, 2020. Accessed March 17, 2020 at https://www.prnewswire.com/news-releases/survey-business-leaders-start-2020-with-lingering-concerns-about-talent-shortages--recession-risk-300980320.html .

**The click ratio is the number of critical role?talent combinations that “click” divided by the total number of critical roles under review (either at a Table, in a business unit, or on the company’s List). The higher the click ratio, the readier the company is and the lower the risk to the value agenda. The lower the click ratio, the more that has to be done to get ready and the higher the risk to the value agenda. One way to improve click ratio is to embed the Talent to Value process in an organization’s performance management practices.

***Sandy Ogg. /move: The CEO’s Playbook for Capturing Value (Advantage Media Group, 2018). Six case studies featured in this book outline some of these successes.

****Fred Crawford. “Will a New CEO Sink or Swim? Cultural Fit Makes the Difference”, Chief Executive, June 25, 2019. Original Source: Investment Success Isn’t Just About the Numbers: It’s About the People, AlixPartners 4th Annual Private Equity Leadership Survey. Accessed March 16, 2020 at https://chiefexecutive.net/will-a-new-ceo-sink-or-swim-cultural-fit-makes-the-difference/ , https://emarketing.alixpartners.com/rs/emsimages/2019/Pubs/EI/AP_Private_Equity_Leadership_Survey_ , and https://www.alixpartners.com/media/12507/fourth-annual-pe-leadership-survey-report-2019-part-2-first-100-days.pdf .

*****Results of 628 public company respondents in McKinsey survey of 1,820 participants on their talent management practices conducted November 14 through 28, 2017. Referenced in Mike Barriere et al’s “Linking talent to value”, McKinsey Quarterly, April 2018. See also footnote #8.

The full whitepaper will be available in our shop soon. Stay tuned!

Noteworthy: Welcome Joydeep Mutsuddi to CEOworks!

I couldn't sign off without first extending a warm welcome to our newest talent addition, Joydeep Mutsuddi , a global CHRO, with a wealth of experience in Health Sciences, who has led a portfolio company for one of the most reputable PE firms, and someone who has been working at the intersection of talent and value for some time. I am truly looking forward to his future contributions. I hope you will join me in wishing Joydeep a warm welcome to the team and much success!

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