Talent Management Best Practices: Identifying and Developing High Potential Leaders

Hello, everyone. Well, first let me say that it is a pleasure to be here. I would be among a very exciting panel of speakers today and it would be great to be back on campus. I would like to share with you today a project on

talent

management

best

practices

in the healthcare industry, which you will see, many of the findings from this study apply across industries and across all disciplines; However, I will address some of the specific details about health care, particularly that my colleagues Warren and Deborah, we will address some of the contextual issues at a single site that is part of this study before continuing, I would like to thank several partners who helped support this project, first and foremost, Kiefer, a national executive search firm who will help sponsor the project and partner with participating organizations and I would like to thank several GSB M students who played a key role in The support of the project, Dave Letterman, Michael Iraq and recent graduate Rachel Ingo, played a key role, so I thank them.

Well, a quick preview of the presentation, first I want to explain why

talent

management

and a strategic execution of HR

practices

is more important now than ever in a context of this recession economy, which is a bit contrary to popular actions, as we will talk a little and share with you a little about the objectives of the project and the research. Methods This was a qualitative study that was conducted over a period of a year and a half and ultimately I would like to share with you a

best

practice model for executing talent management in this period of recession we find ourselves in. , mainly from a pair.

Definitions just to set the scene Proper talent management is not simply a different term for human resources practices, but the strategic execution of a series of human capital systems that are directly related to achieving strategic competitive advantage. Okay, so this is not the administrative aspect. The type of staff support role that HR has traditionally been associated with clearly comes from a value-added space, so as you can see from the model, here are some of the common activities associated with management including things like onboarding newly hired executives to avoid burnout or burnout. Rotation 360-degree multi-source feedback systems to develop

leaders

extensive assignments cross-functional assignments that are intended to develop

leaders

hip competencies, so the goal here is added value from a strategic perspective, not traditional administrative functions, now the first question, I'm sure Many of you are wondering, "My goodness, in a period of recession, how can we possibly support these programs?

Aren't these companies cutting costs and reducing their cost structure?" we're going to back up, in fact, that's very much the case, right, a lot of companies typically, if they're not making drastic workforce reductions, they certainly pull out of these types of investments. The argument I would make, based on a lot of empirical research, is flawed. In fact, numerous long-term benefits accrue to companies that maintain investment in talent management systems. I consider the following data first: Corporate financial performance indicators for companies that invest for companies that score one standard deviation above the mean in their industry on talent management practices. meaning they make it a priority it's something they hang their hat on they don't cut it and run during times of recession these are just a sample of the long term benefits that accrue first the market value is measured by the Tobin's Q or Market Value Divided by Replacement The cost of assets we see for companies that score above the median and their peers is approximately $18,000 per FTE compared to their peers. industry the same for return on equity growth rate about $3,800

high

er per FTE again for those companies that score and are one standard deviation above me for their industry group and also for evidence ref Li $1,600

high

er per FTE for companies that actually make this a stock well and again this is in the context of current conditions, consider some other evidence Jeffrey Pfeffer and his colleagues at Stanford University looked at IPOs in Silicon Valley.

The result here is the survival rate after five years for those companies that make talent management a priority again, measured relative to their peers, one standard deviation above the mean, about 32 percent higher than chances of success. then this is because the formative years of companies I will consider some other evidence of annual turnover, a very common result associated with good talent management should have low turnover, consider some findings by Cassio and his colleagues, approximately forty percent annual decline to full-time. Turnover For companies that make this a priority Huge cost savings, okay, here are a couple more results: Employee productivity, a pretty simple metric which is annual sales divided by total FTE or workforce company, we see a very similar pattern for companies that really value talent management practices again. those that achieve a higher innovation score than their peers, we see approximately a thirty-eight percent increase in annual revenue per FTE, we are talking about significant productivity gains if four companies that remain committed ultimately, and this is something with Regarding workforce demographic trends, there has certainly been a lot of talk. a little, what is this baby boom generation going to do to companies?

Well, it will create many challenges. Consider some data from the Bureau of Labor Statistics that we see for the same age cohort, that is, demographic groups that most talent management practices target, and it is For managers in their 30s and 40s, we see enough of a reduction in supply for those eligible and likely to be targets of talent management systems, whereas we see an increase between 2008 and 2018 for that group of baby boomers, so the implication here is pretty clear. To become more precise and more skilled in executing these practices over time, you have to get it right, and for those students in the room, you will be quite familiar with these findings, if you don't get it right, they will leave you. we are going to pull the talent from the organization we analyzed in this data was taken from the annual capital report and from Saratoga Price Waterhouse of the USA.

We see clear generational differences with respect to turnover, if you do not treat travelers well, your talent will drive them out the door, so these findings present a fairly persuasive argument for not reducing resources during periods of recession, in fact, maintaining investment and the purpose of this project is exactly what I would like to share with you and it is a sample of best practices from companies in The healthcare industry maintains its commitment to these systems during a very difficult period, so some specific objectives that I would like to unlock are: what is an exemplary municipal management system, what do they specifically do? these companies, how they run these programs and even more specific focus on the topic of

identifying

leadership, what high

potential

leaders look like, those who are early in their careers and who will probably make a lot of substitutions, how they identified how they develop throughout the system and we are going to do this in the healthcare industry, why healthcare for several reasons, one like many industries are susceptible to this 550 crisis, so in the next five years they can lose approximately 50% of members of your senior management team, so if you are a member of the human resources organization it is very discouraging, so you have to accelerate development over time to replace or you have to go out and buy talent from outside, which is usually not very successful.

Turnover rates are typically higher. You have to go out and look for talent abroad. very discouraging set of trends. I have a comparatively short hospital tenure for hospital CEOs compared to others, although times have certainly changed in the last two years. Turnover is typically a little higher, so healthcare organizations have to make these difficult decisions more frequently. pressure on the talent management system and then finally, historically, a relative lack of sustained investment in talent management compared to other industries, healthcare has been admitted and we'll hear a little bit about that at a bit late to the game, they don't have There is quite a bit of work on the runway for these investments, so from our perspective this is a conducive environment, let's take a look again to recognize that the sponsoring organization with kefir played a tremendous role in connecting us to the team of research with participating organizations here, a criterion used to select the Show again how we achieved excellent exemplary multi-hospital systems with a minimum of three sites in three hospitals.

I'll share with you some descriptors in a moment, demonstrated best practices and talent management, are known in your industry, for example, external ratings as best. Bakkal's type of help place to work was a criteria and ultimately a track record of effective succession decisions that have managed system CEOs and senior management team members who resigned quite effectively, so those are the criteria used to select the organizations that we ended up with 15 of these national best practice systems so what do these systems look like? Just a quick overview of the average of fifty-four thousand or so employed or should I say an average of thirty-eight hospitals or medical centers with annual revenue in 2009, just over nine billion and the average for the states. in their network of service delivery systems, five, so these are our national healthcare systems in general, okay, again, research methodology, this was a qualitative study.

I sat down with a Kiefer partner to interview each of the human resources directors or administrative directors. officials from each of these systems to ask them how exactly they execute this talent management process. Well, this is what we learned. We learned a fairly linear six-phase or multi-step best practice for talent management and we'll look at each of them in a moment establish the business case define high-

potential

leaders identify high-potential leaders communicate this high-potential designation who among our personnel are our high flyers develop high potentials and then evaluate and use metrics to drive results I will go through each of these in a moment So, first of all, ABS in the business case, the human resources officer is an organization that had They were very skilled at persuading their fellow senior management team members and the board of directors and, to a large extent, the Compensation Committee and the board of directors to value talent management, and they did so in three ways. of strategic priorities talent management serves the streets strategic priority workforce demographics and diversity initiatives here is an example: You see the excerpt on the right from systems revolved around entering the medical education market and idea was that we are going to generate revenue and our new market by building a medical school a very, very different business and certainly a strategic decision clear implications for human capital who among our staff are the best are prepared to lead that effort do we have the institutional knowledge and experience to do it or do we have the institutional knowledge and experience to do it? we have to go out and partner with other organizations it is a clear case of companies with best practices that link the talent management system with the strategic initiative strategic priorities of the organization the demographics of the workforce again all participants cited that this is a lever really persuasive to use to make this a priority establishing the business case in your system.

An interesting result here with respect to healthcare was the issue of minority representation among the executive ranks. We hear that in a recurring theme our boards of directors and our senior management teams are there at the local level in the hospitals or in the headquarters. The system level of ethnicity, culture and gender simply does not reflect our workforce or the communities we serve.we serve, so this ended up being another lever that these organizations used to try to persuade their colleagues that we need to make this a priority even When times are tough and this period of recession, the next step is to define the highs potentials, what are they like?

Who, in the context of health systems, what is a high-potential leader? How do we undertake that definition process again? These organizations use the current business strategy or strategic initiatives the system is trying to achieve leadership competencies and preparation and motivation on the part of these potential leaders is one way to define this is what high potential looks like to us here are a couple of examples first one business strategy the system on the right is a human resources manager, she is describing a completely new strategic plan and vision that her system developed over several years and required her office, in this case the human resources function completely redesign the leadership competency model, how they define what leaders are intended to do and this adds drastic implications for their evaluation systems, another traditional HR function, so again this idea of ​​trying to marry practices as much as possible of account management and current business strategy, other descriptors of what high potential looks like in Once again, the healthcare system is not necessarily related only to the competence of healthcare organizations.

It is this question of having a systemic view of the organization that we want people. We are going to define high potential leaders as those who not only look at the business through the silo of their work unit, their functional area or their medical center, we are going to define

identifying

high potential leaders as those who have an entrepreneurial lens and that is very difficult to do, it only works in one part of the organization, which I will share with you in For a moment, what are some of the development interventions to improve these vision systems.

How did these companies try to develop a systems perspective at the core? Leadership conference of their high potentials very, very difficult to do, these companies do it well, the next day the stage or phase in this best practice model is the process of identification and this one is, I mean, very tedious, but certainly quite detail-oriented, so For those people who have been involved in this, the audience will share their appreciation for the process that these systems use or what are called sessions talent review. These are essentially human resources professionals partnering with members of the local management team to participate. meaningful dialogue about who among our staff meets this exaggerated high-potential model of care that we have defined, so it is the actual process of identifying high-potential leaders among the work team.

Here are some of the really important steps they use as part of This talent review session is number one, trying to avoid the pitfalls of replacement planning and this is extremely difficult to avoid and that is the replacement of any leader. It's just your direct report or your right hand, very, very difficult to do. Take a broad view of the business organization to say no talent and those people who should be promoted and given development opportunities should ideally come from anywhere in the organization. We don't want to just go into a continuous replacement mode that is not exemplary practice.

So in fact, these systems, these organizations take it to the extent possible, a broad view of the talent system, it's hard to do that if you don't know where the talent is distributed across five states, dozens of hospitals, it takes a lot of discipline to execute this. So avoiding the silo approach or what is sometimes called talent hoarding, I am not willing to give up my best and brightest development opportunities elsewhere because somehow that does not allow me to achieve my operational objectives as a unit or hospital. CEO, so this institutional focus on taking a system perspective is very, very important, okay, critical tools again, this goes into a little bit of detail, some of you might be familiar with General Electric's nine box tool and it is essentially a way we operationalize what has high potential. simply compare a candidate's performance on one access to job performance results compared to the other axis and that is their leadership competency, so typically what companies do is simply establish a grid of all level staff management and compare or plot your job performance against your leadership competencies. and if it is in the upper right quadrant, which generally suggests that your high-performing employee meets business results, patient safety, employee turnover, etc., but also meets leadership competencies, it embodies the competencies of the whole of skills that the system prescribes.

This was very consistent. these these systems here, the old General Electric model, this nine box approach was quite common in dissipating organizations. Well, perhaps one of the most contentious outcomes or decisions that many talent management systems or organizations have to make is how explicit you are about who it is. There are two extremes on that list. Some organizations use color coding. If you are green, it means you have high potential, it means you perform well, you achieve your goals and business results, you are a good leader, as demonstrated through your 360 results from multiple sources and so you know if you are green If you are in that place where you are going now the other extreme is the secrecy approach and that is the high potential list that is kept under lock and key very few people know about it and sometimes it tends to create a little bit of lack of trust and transparency and that It can also generate bad seeds for trust in the system.

We found a very different approach with these best practice systems, what they do is essentially designate make this high potential designation and implicitly communicate it to these talented employees through very advanced development plans, so instead of saying boy, meet Jane Doe, their high flyer, performs quite well, has high potential on our list, the communication was much more implicit. and that was, we're going to give you very rigorous assignments, very exclusive development opportunities, it's going to put you in positions where we're going to really push you and, by virtue of your aggressive development plan, you're going to know that you're on that high potential list, right? okay, so that the The focus here was to move away from the status I am a hypo I am a high flyer I am green I am red and much more here is my development plan due to the success I have had or on the contrary I am in more of a role recovery and needed to meet my results or first locally.

Well, this is partly because I think I mentioned here the healthcare culture that exists and this was echoed by most participants with some hesitation to create in and out groups. there's a lot more of a sense of being inclusive, being a little bit more family-oriented rather than bifurcated, you know, the high-level ones and those that are on different development plans, so this healthcare culture I think contributes to this desire. to avoid really strict designations, okay, next phase.

developing

high potential leaders these are the nuts and bolts of good, we've identified it, we defined what high potential looks like, we've gone through a pretty rigorous identification and coding process through these talent review sessions, now what do we do with them, how do we do it?

Developing these particular competencies, particularly that system-wide view of the organization, is really important. This is what we hear from these organizations. It is not surprising that they adopted this GE model or a traditional General Electric model, that 85% of participants develop kurz at work, their experiential learning in the classroom. Assessments are important, but the real way to develop leaders and competencies is in work assignments, project-based assignments, and that's exactly what we heard. One of the vehicles these organizations used were leadership academies or leadership institutes and now, particularly novel, they are not bricks. and the deadly brick and mortar, forgive me, institutions like the Crotonville facility at General Electric, these are simply internal leadership development programs that host multiple experience development opportunities and are exclusive and that is, essentially only high potentials are achieved through this process.

Some examples of extensive and cross-divisional tasks, active learning projects in which high potentials are placed in teams. I know, for the business students in the audience, you are quite familiar with this process. We put them in teams and asked them to do a lot of rigorous tasks. activities Same approach here these active learning teams spend a year addressing a substantial system-level challenge get them out of their functional and/or local vision of the organization get them into high potential with high potential teammates from different backgrounds. parts of the organization to address the system-wide challenge, for example, the changes in Medicare, excuse me, the changes in health care legislation in recent years, particularly last fall, have created a great vehicle to explain what these changes mean for our system, so it would be a typical high potential project to go out and spend six months collecting data meeting with various constituents and trying to understand that problem for our system and then report your findings to the senior management team;

It would be a very common type of activity so that this leadership academy or institute becomes a kind of general vehicle for

developing

high potentials. Well, just some design features again. This methodology is not particularly novel, but the fact that it is indicative of best practice systems I think is an important finding. This is this investment in the camp. Really important internal development programs. This is what a typical Leadership Academy looks like. Approximately 35 participants again. This is a review of the 15 organizations. 35 high potential leaders who are selected to participate. They are selected based on several criteria, as seen in the transparency. here diversity at the management level they try to get multiple levels of seniority, functional and operational diversity is really important and again they go back to the demographic challenges that endanger ethnic diversity in healthcare, trying to push and get better representation and multiple levels of analysis that this is one way to do it.

Here at these academies, again, this type of opportunity is exclusive to the high potential, they meet approximately 12 days a year, it is a year long project, one of the key best practices for this intervention is fun and learning, since a high potential does not. stop when this once this program concludes the best systems actually put these participants who complete these projects in some type of role as a result of the outcome of their project so that there is some continuity it's not just that I completed the program I graduated now I'm coming back to my local hospital and continue my duties, there is some kind of continuity that takes place as part of this, it is very important, best practices, okay, one last phase or find this problem of how these systems evaluate how Its infrastructure is effective and equally important.

How can I get people to accept? A lying manager is a member of staff. Why would you support this program? How do you make it a cultural part of the system? There are three main levers that these systems use one, it is not surprising that the incentives align. By the time you start playing around with performance appraisal reward systems and hazard pay that get people's attention, that was clearly a lever that these systems pulled using a balanced scorecard approach to appraisal metrics. very common and then involving the board of directors mainly, there was greater participation with discussions about compensation for the CEO in relation to talent management, in addition to involving the board of directors in active learning projects, there is another way to involve them, so here's what it looked like here's a dashboard and maybe my colleagues Warren and Deborah are going to talk a little bit about what this looks like in practice, but here's just a sample of the systems that track how effective our talent management system what is the highest internal external ratio for leadership positions if we do our work internally, presumably we will be able to develop people whoare ready to assume those roles we do not have to depend on external talent it is not that that necessarily works or not sometimes it is not necessary it is a very common metric to say that our system works high potential for success in new roles perhaps just in a very intuitive way are successful and in their new position, high turnover potential, not just annual turnover, but those who are on our hypo list of internal external hires for strategic positions, for example, the CF hospital local CFO position that was cited It is a very important position from a strategic point of view. benchmarking data Saratoga Institute PricewaterhouseCoopers and other professional organizations that track what companies rate as best practices many of the Crispian systems track themselves and then percentage of senior leadership roles with at least two candidates ready now do we have a strong base?

Another way to integrate and get support is the incentive program, but we found that for many of these systems, in fact, they would put at risk the payment of a significant portion of executive compensation related to talent management results, so In fact, several systems increase. 25% of the CEO and senior management team at compensation risk was tied to their talent management results. The saying goes and you understand what is being measured, this emphasis that we cannot expect management and line staff to support us unless we solve pocketbook problems, that is exactly what we find with this with these organizations, Ok, I only have a few minutes left.

What we would like to share with you is an independent analysis on how effective all of these organizations were in terms of results. I actually asked them what they use to track metrics as to how successful they are, but if we think about some of the employee productivity turnover and other statistics, we compared these best practice systems to a sample of reps. of the healthcare industry, how successful they are in results, so consider the following date. I looked at employee productivity, annual executive searches and fees, and external talent retention, so take a look at how these 15 best practice systems compare to their peers.

Annual revenue per FTE was again analyzed, which It's a pretty simple employee productivity outcome. How productive are our staff? We see a fairly significant difference. Twenty-six percent difference in employee productivity. You can see the purple or pink line. over a five-year period, those are the fifteen systems in our study and the blue line looks at a sample of comparable systems, so we see an increase of about $35,000 per FTE for companies that actually qualify as best practices, which is a big jump in employee productivity. That provides some support that these systems are demonstrating powerful results to mean annual searches again if we except for the moment that an appropriate marker is how often to rely on external talent.

In fact, we are developing talent from within. Comparing the number of annual searches again to the sample systems we see over a five-year period, just over five fewer annual searches for C-suite positions we compare best practice organizations to a sample of comparable systems, so which again does not mean that sometimes it is not like that. It is necessary to go out and buy executive talent, but in the long term, over a five-year period, this provides some evidence that they are able to acquire talent within the organization and a superficial statistic of our annual search fees. The dollar cost the investment that you have to make to enable it and telling it over and over again um most of the research tells us that it's a little bit more difficult in terms of incorporating and acculturating external executives into the organization, which presents a different challenge, so So if we look over a five-year period, we see a pretty significant difference in annual search fees, an average of about $500,000, so again it seems to lend itself to this cost argument for taking the reduction seriously. of the cost structure, we may make a serious decision about our talent management. architecture, okay, one last one.

I think this is also indicative of a relevant metric and that is years of job placement, so once we actually hire external executives, how long do they stay? How successful are we at onboarding them and getting them involved? the organization and again comparing these best practice systems with a comparable sample, we see an average jump of 82% in a five-year period and that is that we keep them internally, we keep them engaged when we have to go outside and that is also indicative again from a very advanced talent management system. Well, I better stop now. I have a very close time.

One thing I wanted to share with the group. I was able to share just some of the general themes of these best practice phases. I'm more than happy to share in more detail what some of these systems and activities look like within each phase. Do not hesitate to contact me to request more information. Happy to share it with you. Thank you for your attention and joy the rest of the day. You mentioned minority positions or lack thereof, have you figured out why that is so much a part of the local demographic system, for example some of our participating systems operate out of Midwestern hospitals in places like Iowa and just a function of local demographics ?

I think we will hear in the next session the topic of socialization was also asked. It's one thing to have high potential in, say, the Detroit, Michigan area, and want to facilitate development, let's say in a case I just heard about this morning and this is a recurring theme. A high potential, very talented African American executive, we want to expose her to a new context. The opportunity is set at an Iowa facility and part of the challenge is not only on the job, but also the local community and socializing becomes a challenge. of just the demographics that these hospitals continue to be in, so I had a slide that talked about executive compensation as incentives.

Are there other types of incentives that you've looked at that have worked and incentives that haven't in these types of scenarios? Well, with respect to reward systems and the performance management process, primarily, you know what are the performance appraisal practices that we use to make sure that we get buy-in at multiple levels and that starts with the compensation committee discussions with the CEO and the senior management team and that cascades down. through the system, I think part of this is an important way to get what is measured and address pocketbook issues. The other way, I think, is to select and develop people who appreciate human capital and human development people. that would really see the connection because to be fair, they are there, there are several that don't and these types of practices are just a cost center and the ideas that don't add strategic value, so I think part of that is selecting and promoting people who share that philosophy and it's a very data-driven argument, but with respect to the organization in this study, clearly a very instrumental way to do it is through incentive payments, just out of curiosity, in developing leaders of high performance in that particular area.

If you found any practices that involved behavioral assessments and/or executive coaching in that part, if that played a role in the development process, in fact we have the interventions that I shared in this presentation were clearly a short list, so if we had To see a broader approach, we saw executive coaching, we saw very rigorous mentoring programs that had a real substantive focus, we saw the Assessment Center methodology, where high potentials were brought to system headquarters and executed through a series of Very rigorous assessment approaches in basket exercises. discussions in groups of leaders, etc. and rigorous use of assessment such as 360 multi-source tools, so there is no doubt that they play an important complementary role in terms of development, they are not off the table.

I think the responsibility or emphasis was clearly on how to put people into action-oriented development experiences and part of this I think is also to be fair, these systems, in comparison, are very resourceful, they're quite large, they have the ability to have a broad spectrum of development opportunities, including also an assessment. As project-based, you see a big 10-15 year cycle, executive management compensation is a multiple of the lowest employee to the highest employee and how it goes down and back up every 10-15 years or so, have you done a measuring hypoarousal? compensations as firm performance slowly increases, has there also been a direct relationship before firm performance has increased in relation to this executive hypocompensation?

No, it's a great question. I would say research, whether it's on compensation or other indicators. of high potentials is actually quite formative, from my point of view, the field is just at a point where they are starting to get serious about defining what my potential means to us so that we can hire them over time. They've looked at, you know, incidents. of promotability, which is the promotability rate once you're on that list and if we're actually doing it, if we put them in meaningful experiences, they should have a faster promotability rate. We are defining the right people, but it is a very valuable question to track that and others, this is again to reflect perhaps that the organizations that were studied, certainly are at the forefront and are just getting to this point in the architecture of some of those long-term results weighted for the compensation shelter.

It hasn't been addressed yet, but it's certainly worthy of study, but those long-term studies over 10, 15, 20 years worked as a model. That's right, you will find that at least my experience has been the support and the timing for those longitudinal studies, they are usually few and far between, but it is Very, very worthy, in fact, one of the ones that I think we are trying to achieve with the Applied Research Center is to support those types of efforts in which we have commercial partners to achieve this, a very, very valuable cause.