John Christian Authors

Talent Management, an Interview with Edward E. Lawler III

January 25, 2017

Edward E. Lawler III, Distinguished Professor at the Marshall School of Business, talks about how the nature of employment has changed

Business has changed, specifically the relationship between management and employees. Once upon a time, companies offered careers—long-term, stable employment wherein the employee filled a narrowly-defined role. In past generations, it was common to spend an entire working lifetime at a single company.

But with globalization and the ratcheting-up of competition, employers have both the ability and the need to be more nimble. Edward E. Lawler III, Distinguished Professor of Business at the University of Southern California, Marshall School of Business, expounds on the new model, which he terms “talent management.” This new paradigm focuses on the critical needs of a business, and finding the right people that can fulfill them. It is a model that is highly flexible, and also much more open about the needs of the company and how employees fit in with them.

Q. You’ve published over 50 books on organizational strategy, management, human resources and other topics in almost as many years. How have corporate challenges in these areas changed over time?

A. They have changed in many, many ways. I think the global economy has made an enormous difference in how people think about designing organizations. Technology has changed dramatically, particularly the information technology piece of it, and that has had a big impact on how you can manage and how you can treat people. Those changes in many ways have made my area of interest much more important, that is human capital, because in today’s environment access to the right human capital, the right talent, has become a very important source of competitive advantage for organizations. The global supply of talent has made a big difference in where people do work, what kind of work is done, and how people work.

The options that organizations have with respect to where they do work is a good example, and we see it playing out both politically and economically depending on where the talent is located at the right price. Organizations can now much more easily move work to the place where they can get the best value for their dollar, in ways that simply were not possible 20, 30 years ago. That is partly technology and partly just political openness to work being moved around the globe. Yes, there are a lot of restrictions and limitations on trade and the movement of work, but compared to the past it is much more possible to produce major products like computers, autos, and software from work places around the globe, that don’t necessarily match where you are going to sell the product.

Q. What are some of the key challenges to managing talent? And are corporations doing a good job on average?

A. It does depend somewhat on where you are in the world. For the last 20 years I’ve been doing a survey of large corporations in terms of their HR practices and the last couple of rounds have included data from China (Lawler, E., and Boudreau, J., Global Trends in Human Resource Management, Stanford Press, 2015). It is notable that the Chinese companies tend to be much more traditional in their HR policy, practices, and the way they staff and manage HR. They take a more traditional bureaucratic job-focused approach, one that has been around for centuries. Whereas if you look at European and US companies, they are moving toward what I call a human capital orientation. They have changed polices around job security, stability of employment, and are much more focused on talent development and work relationships that are more transactional, and often don’t involve the career element that they used to involve 10, 15 years ago. We are seeing in companies a new talent management model slowly but surely developing. It combines short-term type employment for some people and relatively brief periods of employment (three to five years) for a significant part of the workforce, to give organizations a kind of agility that they haven’t had traditionally.

And of course there are more rewards for performance in the West as another factor. We also have seen the decline of unions, which provided a number of restrictions on organizations. In the United States they have become a less and less important factor. One exception to that is public service, government employment, which still has strong unions.

Q. Can you explain more the differences between the old approach and the human capital approach?

A. A number of features are different. The old model focused on having a job whose characteristics did not typically change and looking for somebody to fit that job. The human capital model focuses more on the talent that individuals have. It is much more “what is our strategy, what are our difference-making skills, where can we find people with those skills and how much do we need to pay them so that we can be the employer of choice for them.” So in some ways it is more of a competency-based, or skill-based way of thinking about talent, versus a job-based approach where we have a task and we need somebody to perform it.

Q. Did the change in models happen because the nature of work changed?

A. Certainly the nature of work has changed. As I said, it has become more mobile and diverse in terms of what situations you can do work in. Increasingly the simpler work is done by machines and computers. What we are left with is stuff that is more difficult to do, and you can’t often do that with an organization that doesn’t have a focus on getting the right talent, developing the right talent and rewarding the right talent for their performance. You certainly still, of course, have fairly low-skilled labor in various parts of the world and that’s all going on, but on top of that, or separate from that, is this evolving infrastructure of companies that are moving toward talent doing more complex things and doing the simpler things with technology.

Q. So we are thinking, for example, about the difference between people who assemble cars versus the people that design them, right?

A. Actually, the auto industry is one that I spent a lot time working on years ago when I was at University of Michigan. At the time there were many repetitive, 50-second cycle jobs on the assembly line, and a little bit of robotics. You go there today and you will see far fewer people and many of them will be monitoring and setting up automated processes and not actually touching the product—that’s being done by machines. And a lot of the scheduling and speed of the assembly line is determined by computers. That is what dominates the auto industry today, and as a result not as many jobs are leaving the US as there used to be, because you need skilled people to do them. So it makes a lot less sense to outsource or move offshore from the United States at least many of the jobs that are left in the factories. They are skilled jobs, whereas the jobs that used to receive high pay weren’t skilled and could be done elsewhere by less well-trained much cheaper labor or by machines.

Q. You have singled out Google as a company that has done a terrific job at talent management. But not every company is a Google. How can an average company do it?

A. You’re correct in saying Google is an outlier. Very few companies can afford to have 40 or so PhDs using smart data to decide how much to pay people and who to hire, and measuring the performance of individuals on an ongoing continuous basis, and providing all sorts of perks and extra benefits to make sure they can attract and keep the best and the brightest. They are an exception. You also get into a cause and effect issue: maybe they can provide these benefits because they have done really well financially.

What most organizations can do is focus more on how talent is managed relative to their business strategy, and make smart decisions about how talent can provide them, with a competitive advantage. Most organizations have at least a set of tasks that need to be performed at an above-competitor level. If they can identify those and figure out what talent that they need to get a competitive advantage, that will be a difference maker. They can look for people they can attract with particularly good packages, become more individualized or differentiated, segmented as some people call it, in terms of how they treat their talent and really focus on the talent that makes a difference.

This is in contrast to the bureaucratic model, which treats everybody the same is the least disruptive and is the easiest to explain and justify. It is also the best way to avoid unions because they aren’t going to get complaints about unfairness or preferences.

The newer models say, what we need to do is think about how we can get a competitive advantage, and we have to be open about that and up front with that. I have argued for public pay and more open information about what is going on, which is still resisted in most of the Western world, so you can show people what the strategy is, how you are implementing talent management practices as a portion of the strategy, and you can justify it on that basis. This is better than saying we treat everybody equally here, and maybe we do a little more for the better performers, but we can’t tell you what we do, at least in terms of dollars, and of course we reward seniority and so forth.

Q. You’ve recently written against too many benefits, for instance free workplace childcare or unlimited vacations. Office ping pong tables also come to mind. What is the smart way to use extra benefits?

A. I’m a bit ambivalent about some of those extras, in the sense that it may be that they make a significant enough buzz impact that they improve a company’s brand as an employer to the point where they do pay off for the company. Looking at this issue goes back to research that I did in the 1970s when in the US people began introducing what is called cafeteria benefit plans that gave people choices that included cash. It turned out that many benefits are valued less than their cost. When all is said and done, if you ask people if they want cash equal to the cost of the benefit, or the benefit, by and large people want the cash.

What we did then, and a number of companies have built it into their systems now, is suggest more choice for people so they can pick a benefit package that fits their values. Where I work I have multiple different insurance plans that I can choose from, which makes sense because people here have very different lifestyles, very different risk tolerances and of course at very different ages you have very different preferences.

So my concern about the Silicon Valley thing, at least from a return on investment point of view, is that some of the things that they are giving out, free meals, or dry cleaning services is that they may not be well valued relative to their cost. But that may also create buzz and make you a magnet employer. I think Google now says that they get two million job applicants a year. That improves their selection ratio to a level that is mind boggling, in fact it is probably a negative because they have to process all those applications.

Q. What do companies need to be looking at right now to be more agile and adaptable today?

A. Obviously a whole bunch of things. I think a fundamental point, at least on the talent side, is what is your contract with your employees? What is your basic proposition around how long can they expect to be employed, what they have to do to continue to be employed, what you are going to do and what they need to do to make a successful employment relationship.

One extreme is a company I have written about with my coauthor Christopher Worley (Built to Change, Jossey-Bass, 2006), Netflix. The thing I like about them is that they are very, very clear. Basically they put the responsibility for development on the employee. What they say to people is: Look, you have a job here, a very well-paid job, as long as your skills match what we need. Then the question becomes who is responsible for seeing individual skills meet what the company needs. And they say, we take some responsibility, we’ll try to give you information about what is happening, what skills we need, but we can’t guarantee that we are going to be right, or that your skills will match what we need in the future. So be prepared to not be an employee here. Ironically, their HR VP who lectured us on the advantages of this system lost her job because the organization decided she was no longer what they needed in the HR function.

I say all that because Netflix has successfully made several transitions in the way they do business in a relatively short time. There aren’t very many companies like that around. Most aren’t agile enough to make a major change—Kodak, Xerox.

Q. But is there some part of that very open statement that is hostile?

A. Oh definitely, it doesn’t attract everybody! But they say: That’s good. We don’t want to employ everybody. We need the agility and the flexibility that we get from that kind of employment relationship. But while you are here we will treat you really well. We’ll tell you where we are going, we will pay you above market wages, we’ll treat you well and we will have a good relationship. I’m not big on the existence and importance of age differences, but I think this does go over better with many younger employees, people that have grown up in a generation where they may not want a career with a company and so on.

When I was graduating: I interviewed with AT&T and they said, we are not offering you a job, we are offering you a career. And if you don’t perform at a high level, you won’t keep going up the management hierarchy, but you will still have a job. The ultimate of course is to keep going up the hierarchy. But if you don’t prove to be that kind of person, that’s okay you will still have a job.

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