•   Article   •   9 mins

Chances Are You’re Buying Too Much Talent. It’s Time to Build and Borrow.

The lifespan of large, successful companies has never been shorter. In fact, more than half of the companies in today’s S&P 500 index were not in it 20 years ago. 

Why the turnover? Some companies go private. Some merge or are bought out. Others stagnate or go out of business. It’s a trend that’s accelerating, with a further 50% of the S&P 500 estimated to be replaced in the next decade. And that projection might very well be understated because it doesn’t account for the devastating impact of COVID-19 on the global economy.

To stand the test of time, organizations need to figure out how to innovate and continually reinvent themselves. And more and more, a dynamic, comprehensive strategy for building skills and optimizing talent is key to that longevity.

A Winning Formula for Growth

Before we talk about how skills grow and evolve, let’s make sure we understand how companies that do stand the test of time grow and evolve. They aren’t just launching new and better products and services. They’re often relying heavily on inorganic tactics like alliances and mergers and acquisitions (M&A). Companies that strike the right balance of organic growth, partnerships and alliances, and M&A — in other words, a mix of building, borrowing, or buying growth are significantly more likely to not just stick around, but to outperform those companies that rely on just one mode.

Look no further than the four largest companies globally by market cap: Apple, Microsoft, Amazon, and Google. Since 2005, they’ve averaged an eye-popping 25% growth annually on the back of trillions of dollars in research and development spend, massive partner ecosystems, and hundreds of acquisitions. This is impressive by just about any standard, and it highlights an important question: How did they succeed while so many others fell by the wayside? 

While it’s impossible to attribute their success to only one thing, it’s clear that each of these firms are world class at accurately assessing the gap between the resources they have and the resources they need to grow. In fact, it’s been shown that assessing that gap is the most important factor in determining the success of a growth strategy.

When it comes to a company’s most valuable resource — its people — the buy-build-borrow lens can be equally helpful in thinking about talent as it is in thinking about growth. “People allocation is as powerful as financial allocation,” said Aon CEO Greg Case, whose close partnership with his CFO and CHRO ensures the company has the right talent to meet the challenges of the future.

Your Talent Strategy Is Probably Outdated

The use of buy-build-borrow tactics for an organization’s talent strategy can vary widely, depending on multiple factors including the industry, business model, and stage of maturity. Let’s start by defining each tactic.

Buy: This refers to the sourcing, recruiting, and hiring of external talent, including the acquisition of full-time employees as well as contingent workers.

Build: This is the development of employees through upskilling and reskilling initiatives.

Borrow: This is internal hiring and career mobility initiatives, including job rotations, stretch assignments, and internal gig work.

It should surprise no one that external recruitment commands the lion’s share of resources at most companies. The War for Talent, as first described by McKinsey more than two decades ago, focused almost exclusively on finding and hiring the best people at any cost — a zero-sum game of sorts.

External hiring is expensive. Build and borrow talent through a structure of internal mobility.

According to data from SHRM, an estimated 66 million roles are filled per year, with the majority of the $20 billion annual spend for HR technology going toward talent acquisition. On a per-employee basis, that shakes out at an average cost of more than $4,400 per external hire, almost double that of internal candidates, and more than three times the average annual investment in learning programs. 

Spending on external hiring often makes sense for organizations grappling with hyper growth, addressing diversity imbalances, or undertaking significant strategic shifts requiring an infusion of specialized skills or experience. But in general, an over-reliance on external hiring is simply bad business.

The costs of hiring externally don’t stop with recruiting. A growing body of research suggests that, compared to alternative strategies such as internal hiring, career mobility structures, or upskilling, hiring external candidates requires more compensation, takes longer, and carries more risk.

Compensating external hires is more expensive: They make 18% to 20% more than internal hires. Why? It’s partly because external hires often have more experience. But that’s not necessarily a recipe for success.

External hiring takes longer: The average time it takes to get through the interview process is about 22 days. It takes between 39 to 43 days to hire an external candidate.

External hiring carries more risk: It leads to lower performance ratings during the hired employee’s first two years as compared to employees promoted to similar roles from within. In addition, 20% of new hires leave within the first year. And external new hires are 61% more likely to be fired from their jobs than those employees promoted from within. People hired from outside often realize the job’s not what they signed up for, develop a poor relationship with their new managers, or never get onboarded, trained, or assimilated well. This is less likely to happen when someone internal, who already knows the company and its people, takes on a new role.

Taken together, these factors are inspiring the most advanced HR leaders to rebalance their strategies — and to put more focus on building and borrowing.

The New World of Work 

A closer look at how the world of work is evolving sheds light on why companies are putting more emphasis on creating a more balanced approach to their talent strategies.

Shifting worker priorities: Opportunities for growth and development have increased in importance for employees, even more than compensation in some surveys. This is especially true among millenials, a majority of whom prioritize career mobility and opportunities to learn on the job, differentiating them from other generations at work, according to Gallup. Despite this emphasis, only 39% of Millennials strongly agreed that they learned something new in the past 30 days that they could use to do their jobs better. The lesson for employers? They need to be more proactive about employee development.

Employees aren't learning enough

New and redesigned job architectures: A shift away from the traditional idea of one person to one job is moving organizations toward a more agile model of work, informed by a better understanding of how skills map to work. This, for example, lets an organization assign the right people to a project as needed. It’s possible they all come from different departments, with the understanding that the group will likely only work together for the duration of the project. After that, its members disband, joining other similar groups for new projects, or simply refocusing on their regular roles. In one inspiring example, European IT services provider Atos used this model to accelerate project engagement.

Evolving management practices: An organizational trend toward creating work environments that are less bureaucratic, more nimble, and give everyone the opportunity to learn, innovate, and flourish is gaining momentum. For example, Adidas trained a couple thousand frontline retail employees on how to think like business innovators. Then Adidas solicited their ideas. The company then developed thousands of ideas, sharing them in open meetings. For some employees, it was the first time they were excited and inspired at work.

Upskilling: The rapid pace of change driven by advancements in technology and business practices means that acquiring new skills is critical to career longevity. Whether grappling with the new reality of remote working or facing the prospect of learning new skills as a furloughed or laid-off employee, millions of people around the globe are learning that new skills like adaptability, resilience, and a growth mindset may be their most important assets

It all adds up to something quite compelling. These trends are forcing companies to rethink how they invest in, grow, and manage their people. 

And that means your talent strategy for the next 10 years probably won’t look like the strategy that worked (or didn’t) for the last 10 years.

What Got You Here Won’t Get You There

Although we’re no longer facing historically low unemployment, and while it appears that COVID-19 has softened the skills shortage, growing demand for new and emerging skills means that simply hiring outside talent doesn’t work as well as it used to. We’re entering a new era, one in which organizations are broadening their view of the talent supply chain and embracing a new way of operating.

More and more, companies are putting their people first to unlock competitive advantage and career mobility.

In July, researchers from McKinsey recommended that organizations “revamp their upskilling and retraining approaches, and adopt an agile approach to strategic workforce planning.” The intent was clear: Smart companies need to take a different approach to filling and deploying talent pipelines and embrace an approach centered around upskilling, reskilling, and career mobility. 

In other words, it’s time to build and borrow.

In these turbulent times, support for upskilling and the agility it affords has never been greater among senior business leaders. In fact, 82% of global executives at companies with more than $100 million in annual revenues project that these approaches will provide at least half the answer for addressing the skills gap, compared with only 30% for external hiring.

Support for Upskilling Grows

These changing attitudes toward skill acquisition and deployment don’t come from advancements in the science of learning or from strategic workforce planning. Rather, they’re driven by the emergence of a new blueprint for valuing and investing in people. 

A New Skills Operating Model

Companies that are upskilling and deploying their talent effectively are adopting a new approach that emphasizes internal rather than external resources.

This new operating model is designed around new investments in the data, tools, and processes that prioritize employee learning, skills, and opportunity. So what does it take for an organization to put this new build-borrow model to work?

First, this new model requires that companies take inventory of existing talent supply. It’s vital that organizations compile a complete picture of the skills and experiences of their people.

The next step is figuring out future skill needs, specifically which critical skills workers will need to drive business forward. Amid COVID-19, this is more important than ever. And it’s critical that this happens in an ongoing, flexible manner.

We like the way Diane Gherson, IBM’s former chief HR officer, put it: “We need real-time, sense-and-respond capabilities for skills as our businesses move to agile models and adopt new technology, exponentially changing the nature of work. In this environment, strategic workforce planning is relegated to the trash bin.”

Next, companies must provide access to tools and resources — to build and apply the skills that people want and companies need. Gone are the days of the traditional corporate university, organized top-down with a rigid view of careers and competency models.

Our research shows that most employees know the skills they need to perform better in their current roles and advance their careers. Tenaris SA, a global manufacturer and supplier of steel pipes, gave its 22,000 employees across 30 countries more ownership of their learning and career mobility and saw immediate benefits to engagement and skill development.

But building skills isn’t enough. Creating real business value happens when employee learning is connected to opportunity. This is a core tenet of the new talent operating model. And it really comes to life when organizations establish a marketplace that connects employee skills and skill development to ongoing, real-time internal opportunities for employees to explore new types of work.

With a talent marketplace, organizations can reallocate talent quickly, putting the right people in the right roles as needed. It’s about enabling agility and building empowered teams. In many ways, successfully executing a career mobility initiative requires looking at people and work in a more granular way.

A good example of an organization that’s embraced this thinking is BMO Financial Group. The company’s goal is “to move from matching people to jobs into matching skills to work, so we can be more nimble,” said CLO Gina Jenereux, who described how the company is taking a strategic view of the supply and demand of talent based on skills.

Similarly, Credit Suisse estimated eight-figure cost savings after implementing a program called Internals First. This program mandated that recruiters call candidates inside the company before contacting any from outside. In doing so, Credit Suisse reportedly shifted more than 10% of its more than 40,000 employees to new roles in 2016 through lateral moves, promotions, and other transitions.

It’s Your Culture That Gets You There

In the future, companies that are successful for the long haul will be those that take a balanced approach to developing and deploying their talent. 

To build an effective culture of learning, upskilling, opportunity, and career mobility at their organizations, business and talent leaders need to take stock of the investment required to ensure that everyone buys into the vision and change that’s required.

When a company’s senior executives champion skill development, it’s a recipe for building an effective learning culture. Employees need to understand and embrace their own development and feel empowered to design, grow, and achieve their career goals. And managers must adopt a mindset shift that enables talent to flow more freely across the company, supporting people who want to use their skills beyond their immediate teams.

Your organization may never be in a position to replace a company on the S&P 500. But, as we can now see, that doesn’t make your talent strategy any less important.

And no matter what your long-term business strategy prescribes for your company, surviving and thriving until you reach your next big milestone is critical.

Now more than ever, it’s clear that embracing a new operating model — a talent strategy that supports development and unlocks career mobility — can help you and your organization overcome any new challenges and stay competitive.

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