By Andrew R. McIlvaine
The word "risk" is finding its way into human resources considerations with increasing frequency. Take by way of example, the 2011 Lloyd's Risk Index, a poll of 500 C-suite and board-level executives that was released in December. Lloyd's found "talent and skills shortages" to be the No. 2 risk facing businesses, up from 22nd place in 2009. The No. 1 risk in the latest index was "loss of customers," while "reputational risk" was No. 3.
"We have gone from a credit crunch to a talent crunch, despite the unemployment picture," said Lloyd's CEO, Richard Ward, in announcing the findings.
In addition to their concerns about skills shortages, he said, CEOs are also worried about having leaders and managers who can help them navigate today's difficult business environment.
These findings come as no surprise to Orlando D. Ashford, senior vice president and chief human resource officer at New York-based Marsh and McLennan Cos. Inc.
"If you think about the financial meltdown of 2008, it was driven by human capital risks -- you had major companies being brought down by the investment decisions of a few people," said Ashford.
"The struggle to get employees healthier, fill critical positions even in the midst of high unemployment, develop employee skills -- these are huge issues," he said.
The loss of key talent, poorly engaged employees, and ineffective hiring and talent-management strategies serve as prime examples of human capital risks that too often fly under the radars of human resource officers, according to Ashford.
With respect to ineffective talent-management strategies, he said, a common risk many firms face is human resources leaders who may be too focused on getting talent to join and stay with the organization at the expense of "making sure they're being optimized to create value for the business."
Some of the largest companies in the country -- including PepsiCo, Johnson Controls Inc., PricewaterhouseCoopers and UnitedHealth Group -- are taking actions aimed specifically at ensuring their talent is optimized and engaged so they can thrive, not just survive, in a global economy. The need for protecting against the shortage is an urgent one, considering the only constants on this turbulent worldwide stage appear to be unpredictable growth patterns, skills shortages and technological change.
Research suggests one of the biggest predictors of success in any role is "learning agility," said Ashford, or the ability to "assess a situation and flex your style and approach to deliver outcomes in a challenging situation."
"One of the ways in which you can manage and mitigate human capital risk is if you can hire more people with learning agility, who can figure out the best approach in an ever-changing situation," he said.
Learning agility has become a focus at PepsiCo, the Purchase, N.Y.-based food and beverage conglomerate, as it transforms itself from a company known primarily as a maker of soft drinks and snacks to one that also emphasizes healthy, or what it calls "Good for You," products such as vitamin water, fruit juices and oatmeal.
"When I joined the company back in 2000, $3 billion of our revenue was 'Good for You'-derived," said David Henderson, the company's chief talent development officer. "Today, it's $13 billion, and we're planning to take it to $30 billion by 2020."
To that end, the company is looking to diversify its array of talent, looking to incorporate outside perspectives as well as skills to ensure it has what it needs as it continues developing new healthy products and more "sustainable" manufacturing processes, said Executive Vice President and Chief People Officer Cynthia Trudell.
"Learning agility and curiosity go hand in hand, and curiosity is the precursor to innovation," she said.
In addition to poor talent optimization, low levels of employee engagement represent another human capital risk companies can't ignore, said Ashford.
At Milwaukee-based Johnson Controls Inc., an employee-engagement survey conducted five years ago that had an 82-percent participation rate revealed workforce engagement levels of 56 percent and "leader effectiveness" scores of 55 percent, said Simon Davis, the company's vice president of talent strategy and organizational excellence.
While those numbers were considered "average" for a manufacturing company, they were below average for industry in general, he said.
At this point, a big risk for the company would have been to simply move on, said Davis. JCI, a mammoth organization with 150,000 employees and operations in areas ranging from automotive parts to heating-and-air-conditioning controls, was -- like many companies during the recession -- struggling to stay profitable and innovative while absorbing employees from smaller companies it had acquired in recent years.
"One thing we know about surveys is that if you ask people their opinion, the best thing you can do is first listen, then share the feedback and create action plans," he said. "The worst is to ask and then do nothing."
All leaders are now required to have quarterly reviews with the employees at their locations to talk about the business' performance and results, and how employees can help their respective business achieve its goals, he said, adding that many leaders hold monthly reviews on these topics.
"I think people appreciate being talked to honestly and openly about the state of the business, but ultimately, they've got to have confidence that leaders in the organization have a vision and can find a way forward," he said.
In addition, the company launched "Vision Week," an annual event focused on a "core value" at the company that includes presentations from the CEO, webcasts and "fun events."
Since these efforts began five years ago, engagement levels have steadily risen. Last year's survey revealed engagement levels and leadership effectiveness ratings were up 16 percentage points since the survey began, to 72 percent and 71 percent, respectively, with a participation rate of 90 percent, he said.
At New York-based PricewaterhouseCoopers, a failure to keep its millennial employees engaged could put more than just its organizational capabilities at risk. Of the 3,000 college graduates it hires each year, many will -- after spending eight or so years at the professional-services firm -- go on to hold management positions at large companies. So the human resources team is taking extra steps to engage them and understand their priorities, mindful that they could one day be potential clients of the firm.
At UnitedHealth Group, "talent mobility" has become the new mantra for the company's efforts to avoid the risk of losing its high-potential employees while ensuring they're being developed in accordance with the company's needs.
The Minnetonka, Minn.-based company has a cadre of "talent brokers" within its human resource department who work with both high potential employees and managers to find new opportunities for the high potential workers and ensure they're prepared to move on.
The high potential workers work with the talent brokers to craft a development plan based on the employee's career aspirations and the company's talent needs. As part of the plan, the brokers identify what the employee needs to do in terms of further development to ensure they're "move ready," said Phyllis Dozier, UHG's vice president of talent development.
"The idea is to retain these high-potentials by making it easier for them to find new positions within the company," she said.
Heather Lemke, vice president of talent acquisition, said the talent brokers help promising employees "synthesize what they're learning, and then help them formulate a plan to ensure alignment with the organization's needs."
It's expected that high potential employees will participate in at least six networking sessions per year with company executives, with the brokers facilitating the process, said Lemke.
The goal is to ensure the company's executives and recruiters are aware of the talent that already resides within the organization, rather than reaching outside the organization to meet their needs, she said.
The company plans to measure managers' success at producing talent, said Dozier, including process-based measurements such as conversations around development and coaching, and "event-based" measurements, such as a person on the manager's team being promoted to a more senior position elsewhere in the company.
"The way we explain it to the leaders here is, just as you manage a portfolio of assets that you market to customers, you also need to have a talent portfolio and aggressively manage it to ensure maximum returns on the investments we're making," she said. "That really resonates with them."
Andy McIlvaine is senior editor of Human Resource Executive magazine, a sister publication to Risk & Insurance®. A longer version of this story was first published in the January/February issue of HRE.
April 13, 2012
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