Looking beyond talent in human capital value creation
“When you have the right leader at the top—everything else falls in place” –a common refrain, particularly in the PE space. The role of Talent - assessing it, onboarding and developing it, succession planning for it - in driving value creation is a business case that is nearly 30 years in the making. But it’s only one chapter in a rapidly evolving human capital value creation playbook.
Talent matters, but so do critical organization factors—from the most tangible, like organization structure, to the more invisible--including culture and ways of working. We all have examples of good leaders in toxic environments who begin to spoil as well as average leaders in high performance cultures who step up. Assessing these organization factors explicitly and with the same level of rigor early in an investment cycle provides the investor and CEO a more robust playbook for driving the Value Creation Plan.
Historically, when diagnosing organizational challenges, many are quick to categorize the issue as structural OR a talent-based. That distinction, however, is a false choice. Untapped value usually lies at the intersection of strategy, talent, and organization design. This belief is a guiding force behind our organization performance assessment framework.
The interplay in action
The interplay of these factors is most apparent when one factor shifts significantly as described in this familiar story of a company navigating an ownership change that included a carve out from a global multi-product conglomerate to a stand-alone business. To be successful, the carve out required several shifts, including a strategic pivot toward product innovation driven organic growth over M&A to fuel expansion, and a structural shift from senior leaders reporting into global functional heads to reporting into a CEO with full P&L ownership. Historical leadership strengths in functionally siloed, player-coach execution proved ineffective in the face of new demands for creativity, cross-functional influence and accountability, and strategic planning.
The strategic shifts triggered structural changes which then highlighted talent gaps and newly required leadership behaviors. New priorities quickly emerged, including the need to redesign the top structure, establish several new executive leadership roles, upgrade the majority of the senior leadership team members and rewire how the executive team operated. Understanding the connections across talent, organization, and strategy helped inform the board’s prioritization of key actions required to transform the business while minimizing the amount of business disruption.
Expectations are ramping up
A little over a year ago, Ted Bililies, HBR article asserted that PE needs a new talent strategy. The article was a compelling call to action for investing in the Human Capital Executives at PE firms, focusing more attention to better assessment, development, and succession planning of portco leaders, and helping make HR departments pivot from the tactical to the more strategic, amongst others. While it took 30 years to see Talent get its due attention, a new set of expectations is coming into view. Increased focus around assessing organization performance health and broader assessments of human capital due diligence are taking hold. Understanding how to effectively assess and design for the interplay among strategy, talent, and organization design will push deal teams, human capital execs, and portco leaders alike to expand their perspective around the ever-evolving dynamics of organization performance.
Where to start?
By taking a more holistic approach to assessing and addressing human capital performance beyond assessing and developing talent expands human capital’s contribution to value creation. Here are some good places to start.
1. Translate the Value Creation Plan into a Human Capital Performance Scorecard. Most value creation plans have an obligatory priority focused on human capital topics, like building a culture of accountability or a scalable organization design. Important factors, but too generic to measure. Instead, for each VCP priority, the scorecard should articulate relevant and specific requirements for structure, cross-functional alignment and decision mechanisms, and cultural pivots, beyond talent performance expectations.
2. Map your VCP to your top-level leadership structure. Your top-level structure should reflect what is strategically to the business. How quickly can you connect accountability for delivery of the VCP to leadership? Is there clear line-of-site to execution and decision ownership, above and beyond the leader’s capability and capacity to execute?
3. Prepare the leadership team for execution. The first and foremost mission of a leadership team is to deliver the value creation plan. It’s not a solo act; and the strengths and shortcomings of individual leaders alone rarely sink the plan. Rather, it’s the collective action, alignment, speed and focus—or lack thereof- of the leadership team that determines success. Investing time up front to establish how the team must work together to deliver is essential.
What would you add to the mix?