A New Focus for CEOs: From Financial Capital to Human Capital

Articles

Published 21 June 2018

When leading an organisation, how can executives adopt a talent-first mindset?

As the business and operating landscape become more complex and fluid, business strategy has evolved to be about adapting to a constantly changing environment and seeking out and seizing new opportunities. In response, companies need to deploy talent in new ways to remain competitive. Recently released management book, Talent Wins, shows what happens when the CEO elevates HR to the same level as finance within an organisation. Authored by thought leader and expert on corporate governance, Ram Charan; global managing partner at McKinsey & Company, Dominic Barton; Vice Chairman at Korn Ferry, Dennis Carey, the book shares tangible ways to evolve an organisation to prioritise talent as much as profits.

The authors state that oftentimes, CEOs and CFOs work together closely. In your organisation, does your CHRO spend as much time meeting with your CEO as your CFO does? Charan, Barton, and Carey state the importance of identifying who the CEO spends their time with, and that the way to elevate HR to same level as finance in the organisation is to bring the rigour that companies bring to financial capital to human capital. “Talent practices used today were designed for predictable environments, traditional ways of getting work done, and organisations where lines and boxes defined how people were managed,” the authors state.

How can CEOs focus on developing a more holistic, talent-first mindset?

1. Think platform, not structure

Rigid reporting lines and a matrix structure often do not provide the flexibility and agility needed to be competitive in today’s world. Does the customer benefit from a hierarchical structure, or would they benefit from a company with a talent platform? It may depend on the industry. Chinese electronics company Haier evolved from a hierarchical structure to a marketplace system where users drive product decisions. CEO Zhang Ruimin recognised the importance of getting as close to the customer as possible. What better way to do this than to ask for their input in decisions?

Charan, Barton and Carey wrote, “Back in 2005, eyeing a future that seemed atypically unpredictable, Zhang set about proactively transforming Haier into a company that could react quickly to changing consumer tastes in a volatile economy.” Zhang saw the need to be an agile company, and so they evolved to better serve their customer base.

1. Forge a G3

“Effectively deployed, the G3 is the mechanism that will create the future of your organisation,” explain Charan, Barton, and Carey. A G3 is a consortium that includes the CEO, CHRO, and CFO. Each C-suite executive has joint accountability and responsibility. The G3 makes decisions based on analysing financial and people data.

An example of an effective G3 is at Tata Communications. The CEO, CFO, and CHRO meet regularly to discuss important business decisions, and this began during an important restructuring of the company. One of the effects of the regular meeting between the G3 was that Tata Communications’ CEO, Vinod Kumar, gave line responsibility of a new business unit to his CHRO, Aadesh Goyal; Goyal was “put in charge of a company subsidiary that offers payment solutions to banks, a growth target for the business,” explain Charan, Barton, and Carey. This shows how a close working relationship between C-suite executives can lead to unique opportunities for the business.

A G3 elevates HR to the same level as finance.

The union also gives the CEO more balanced insights and an alternate point-of-view as he or she makes critical decisions.

1. Groom the critical two percent

An organisation’s critical two percent are the employees who create disproportionate value. They are not necessarily the senior leaders or employees with very senior titles. Rather it is the key people in the company—from designers, scientists, sales team, influencers, and support staff—who others rely on. The critical two percent can also include emerging leaders.

Charan, Barton, and Carey share this advice for identifying the two percent: “Once you know who they are, you can maximise the value they create by understanding their skills and needs, listening to what they’re telling you, continuously developing their skills, customising their career plans, and constantly assessing their roles in the future of the company.” The G3’s responsibility is to find the people who can help the company advance and create the opportunities that let them shine.

An example of a company who has identified their critical two percent is Japanese conglomerate Fast Retailing (parent company of Japanese clothing giant – Uniqlo). Recognising that the future is uncertain and that digital will impact everything for them, the company identified their two percent. Founder and owner, Tadashi Yanai, explains that the two percent is not made up of senior leaders. “Most are merchandisers and marketers, but three are from HR, three from finance, and four from R&D [research and development],” he explains. The critical two percent is made up of 38 young workers from diverse regions and all levels of the company.

Yanai explains that the group of 38 brings a fresh perspective while the senior leaders are expected bring in their expertise and wisdom. This allows Fast Retailing to be ready for the future while relying on senior leaders to give advice based on previous experience.

The role of CEO: complex as ever

CEOs must set strategy, lead and inspire, and positively impact the culture of the company they lead. They must also make informed decisions and be agile in an often uncertain and volatile environment. In Talent Wins, Microsoft CEO Satya Nadella says that CEOs should know talent as well as they know the finances. Though this is no small ask, CEOs who implement these three focus areas will be on his or her way to leading a talent-first organisation where CEOs have a pulse on the people and are prepared to be competitive in the future of work.