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The (Civil) War for Talent

“Let’s get right to the point: companies focus far too much on measuring returns on invested capital rather than on measuring the contributions made by their talented people.”
—Lowell L. Bryan, "The New Metrics of Corporate Performance: Profit Per Employee," The McKinsey Quarterly

Much has been written about the casus belli that have precipitated the war for talent. All these arguments assume that this war is being fought solely against external threats—the impending retirement of the Baby Boomer generation, the insufficient number of highly skilled younger workers, and so forth. That’s only half the battle, however. In reality, the war for talent is also being fought within companies, against enemies entrenched just as deeply as those foes on the outside. These internal enemies are the structural and organizational forces that have kept companies from elevating talent management to its deserved position.

If this internal war needs a battle cry, the above quote from Lowell L. Bryan, a senior partner at McKinsey & Company, should serve nicely. As Bryan convincingly argues in the McKinsey Quarterly article cited above and in his new book, Mobilizing Minds (McGraw-Hill, 2007), the talent deficit isn’t just an understaffing issue. It’s an undervaluing issue. Long accustomed to judging everything according to financial results such as return on invested capital, says Bryan, companies have overlooked the fact that “the real engines of wealth creation today… [are the] intangibles created by talented people and represented by investments in such activities as R&D, marketing and training.”

Because such intangibles don’t show up on conventional balance sheets, most companies don’t consider them core business assets. Consequently, the practices that support those intangible assets—including the practice of talent management—have traditionally been regarded as secondary endeavors, not something that’s integral to the company’s strategic agenda.

Just how much assets are we talking about here? Bryan uses an intriguing formula to arrive at a rough approximation of the value of intangibles: the market capitalization of a company minus its invested financial capital. Using that formula, Bryan figures that the intangible capital of the world’s 150 largest companies was $7.5 trillion dollars in 2005, compared to $800 billion in 1985. In a similar vein, management consultancy Accenture has calculated that intangible assets, such as knowledge capital and worker skill, account for as much as 70% of a company’s market value.

Clearly, the old platitude “our people are our assets”—usually met with a good deal of eye-rolling—is now a bottom-line fact, even if its underappreciated. Such a fundamental shift demands a strategic response, but the reality is that companies still persist in putting talent management on the back burner. It would be hard to imagine a company failing to change if it was faced with a similarly dramatic turn of events in its financial environment. Yet how many have changed the way they do business to take into account this new reality about talent?

It’s time that talent management is elevated from a vague function of HR to a central business goal. The paradigm of this approach is Google, the search engine company deemed America’s best place to work by Fortune magazine.

No organization demonstrates awareness of the potential and importance of talent management better than Google. While it’s famous for the lavish perks it offers employees, such as free gourmet food, Google’s appreciation of talent goes well beyond such superficial tactics. The company has seamlessly integrated talent management into the core of its business model. It is such a vital element of Google’s business, in fact, that in its 2006 annual report the company explicitly stated that “our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization.”

One of the most celebrated examples of Google’s talent-centric approach is its strict policy that all engineers are allowed one day each week to work on their own pet project. The so-called 20% time policy is interesting because it represents a marriage of talent management and business strategy. Viewed as a talent management initiative, the policy is a major factor in Google’s success in recruitment and retention. The company lures top prospects into the fold with the promise of considerable amounts of autonomy, a value that’s particularly important to the free-thinking and freewheeling types that make up the ranks of talented engineers.

On the flip side, the 20% time policy serves equally as well to achieve business ends. It has directly resulted in a number of new products and services that have enhanced Google’s business. Neither is the policy an open invitation for engineers to pursue vanity projects. It plays as much of a role in Google’s growth strategy as does the company’s capital allocation, and is treated with the same rigor and scrutiny as would be a high-stakes investment.

Google’s overall business goal, according to the company, is “to organize the world’s information and make it universally accessible and useful.” It never loses sight of that goal. Organizing information and making it accessible and useful is at the heart of the 20% time policy. After all, by empowering engineers to engage in their own intellectual pursuits, Google as an organization is doing what Google as a search engine does—facilitating the exchange of information.

In other words, the talent management aspect of the 20% time policy is perfectly in keeping with Google’s strategic direction. There’s no internal struggle over what place talent management has in Google’s structure, because it is just as much an organic part of that structure as any other operation.

Of course, Google is a special case. It would be unrealistic to expect every business to reach that blissful state of integration. At most companies, there will only be at best a truce between talent management and the structural forces that oppose it. A truce, however, is not the same as surrender. A truce can often mean victory for all sides. Growing your business means growing your people. Companies that take this to heart will win the war for talent—inside and out.