The Talent Masters – Bill Conaty and Ram Charan

24 Aug

If businesses managed their money as carelessly as they manage their people, most would be bankrupt. —- Opening sentence of “The Talent Masters.”

General Electric, which has long been the gold standard in developing world-class leaders. For the first time, Conaty, the former senior vice president for human resources at GE.  and Charan, one of India’s top human resources experts and adviser to many firms worldwide,  reveal how GE carries out an instantaneous, same-day-succession when a key leader leaves – an event that all too often causes chaos elsewhere as recently seen at Hewlett Packard and the Tribune Company. Conaty and Charan also detail how GE integrates an outsider into its hard-nosed, driven and close-knit culture.

Authors show how a few large and mostly mature companies – some with experience over many years and some newcomers – have “embedded in their culture the habits of observing talent, making judgments about it, and figuring out how to UNLEASH IT.” Companies highlighted include General Electric, Proctor & Gamble, HUL, Goodyear, UniCredit, the Texas Pacific Group. They fully appreciate that talent is required for value creation and good numbers. 

  1. How Proctor & Gamble, for decades, has been the forerunner for developing global leaders by intensifying both their capability and capacity to embrace emerging market and consumer insights.
  2. Why Hindustan Unilever CEOs and other top managers travel more than five times per month to remote villages to spend hours coaching recent recruits.
  3. How, in a world ever more sophisticated, Agilent turns talented technologists into general managers versed in both the technical complexity of their specialties as well as a deep understanding of how the business makes money.
  4. How Goodyear, a tired rust-belt company, LG Electronics, an inwardly focused Korean firm, UniCredit, the Italian bank transforming itself into a pan-European institution, and private equity firms like Clayton Dubilier & Rice and Texas Pacific Group, two companies once viewed as “Barbarians at the Gate,” rapidly reinvented themselves using the seven talent master principles of Conaty and Charan.

These companies “analyze talent, understand it, shape it, and build in through a combination of disciplined routines and processes, and something even rarer and harder to observe from outside: a collective expertise, honed with continuous improvement in recognizing and developing talent. These companies have disproved the myth that the judgment of human potential is a “soft” art.” 

Charan and Conaty note that Talent Masters place “stretch” bets for three good reasons:

  1. People facing stretch situations are not likely to be overconfident and are eager to learn more from others. 
  2. Stretching people helps to retain talented people who are keen to advance.
  3. Successful stretches attract better candidates in the future because ambitious and capable people will know that they won’t have to wait for slots to open. 

“Talent Masters” turns managerial succession upside down – “Rather than finding people to fill positions, this approach puts the emphasis on opening paths for leaders to grow their talents and become ever more capable.” 

Charan and Conaty have organized the book into three sections: 

  1. First, an insider’s look into GE’s much admired talent management system and why it works.
  2. Second, a look into a wide range of approaches by Talent Masters from a number of other companies. 
  3. The third and last section shows the application of talent master by companies who have entered the “talent growth” game recently. 

A decade after Jack Welch stepped down as chief executive of General Electric; he still commands remarkable respect as a management guru. The company he once led has lost its magic, the business processes he developed to battle bureaucracy have become bureaucratic themselves, and many of the “graduates” of the Jack Welch School have since stumbled—think Bob Nardelli at Home Depot or Jim McNerney at Boeing. Yet Mr. Welch and the management mythology surrounding him continue, untarnished.

“The Talent Masters” rests on three principles that characterize the Welch approach to management: (1) A focus on Talent Development: Mr. Welch and the other “talent masters” in the book—we also hear from folks at companies including Procter & Gamble and Novartis—claim that they spend more than a third of their time developing their people. (2) Differentiation: Talent masters create a meritocracy by constantly evaluating their people—a process which, in Mr. Welch’s case, was ridiculed by critics as “rank and yank.” (3) Candor: This is the ultimate Welch trademark: ruthless honesty in evaluating the performance of people and businesses.

I agree with Conaty and Charan that Steve Jobs is the typical “talent master.” Few others possess his combination of intelligence, temperament, energy, and determination when the objective is to sustain generation of what Jobs characterizes as “insanely great ideas,” then dominate markets with the products those ideas suggest. However, all of us can be “more like Steve” if we are willing to become more smart in terms of (a) identifying a person’s talent more precisely than can most other people by observing and listening; (b) strengthen our abilities through constant and intense practice; (c) make better judgments by mastering “integrative thinking” (i.e. “the tendency and the capacity to hold two [or more] completely opposed ideas” in his head and then “without panicking or simply settling for one alternative or the other” to “produce a blend that is superior to either opposing idea”; and master, also, their people skills when involved in various social processes and interactions.

Whereas Steve Jobs is the typical “talent master,” General Electric is the typical “talent master” organization. “When a valued leader does leave the fold – even one who may seem crucial at the moment – the people in charge know what to do. They understand the business, know the candidates’ strengths and development needs (not weaknesses), and are well prepared to fill the slot with the right match quickly – even in a matter of hours. The goal is clear: no pause, no time for people to empathize, no negligence in decision making, and no opportunity for the competition to steal talent.”

Conaty and Charan offer a case in point. “When Larry Johnston resigned [to become CEO of Albertson’s], GE set itself a new record for speed, naming his successor and three others down the line in half a day and announcing the changes before the day was over. That performance has been the model to shoot for ever since. GE does not allow a top leadership vacuum to exist, even for a day.” The institutional response to Johnston’s unexpected resignation was possible only because GE had (and continues to have) “robust talent pipelines and same-day succession plans” in place and operational. The rapid response also demonstrates “the strength and power of the GE system of talent mastery, one centered on the Session C system.

The authors compare GE’s rapid-fire performance in replacing Mr. Johnston with what happened recently at Hewlett Packard, when Mark Hurd was forced to step down after carelessness involving a marketing consultant. The company, the book says, came “unhinged.” For the third time in little more than a decade, the HP board felt compelled to pick a chief executive from the outside—an implicit acknowledgment of failed succession planning. Robust talent pipelines, C Sessions, and same-day succession plans are worthless without people who know how to make the most effective use of them. The development of talent therefore requires the mastery of skills needed to sustain that development.

Conaty and Charan also show the forgiving side of Mr. Welch’s GE. They tell the story of Mark Little, who in 1995 was promoted to vice president of engineering at the company’s Power Systems group. Following his appointment, the group missed its numbers three times in a row, and Mr. Little was demoted. He suspected that his career at GE was over. Instead, executives there worked with Mr. Little to assure him that he still had a future and to help him rebuild his career in a position that made better use of his talents. Today he is the senior vice president in charge of the corporate R&D center, and one of the company’s top 25 executives.

A particularly interesting chapter involves Hindustan Unilever, Unilever’s $3.5 billion Indian subsidiary. The company routinely evaluates candidates for management jobs by putting several applicants together to discuss a specific business issue in a group. This allows the company to see how they interact with each other and who has leadership potential.

Another informative story comes from Adrian Dillon, Skype’s chief financial officer. Mr. Dillon tells of how, early in his management career, when he was working at Eaton Corp., he was approached after a meeting by his boss, the company’s CFO. “That was a great meeting, but your problem is that you still think your job is to be the smartest guy in the room. It’s not,” the man told him. Instead, Mr. Dillon was told, his job was to “make everybody in the room think that they are the smartest guy in the room. You have got to teach them what you know and what you do, not tell them.”

The ever-practical Conaty and Charan identify five specific organizational “How-Tos”:

  1. Get all senior leaders centrally engaged in talent recognition and selection
  2. Hire for demonstrated leadership, not just for credentials
  3. Learn as much as possible about values and behavior before hiring
  4. Be humble enough to hire “outsiders” but ensure cultural assimilation
  5. Be totally honest about who has greatest leadership potential

They also identify five specific “How-Tos” for the individual:

  1. Make talent development an obsession
  2. Drill down deep to the specifics of each person’s talents and potentiality
  3. Give frequent, honest, and specific feedback
  4. Make talent development a core competency with accountability
  5. Provide intellectual challenges and opportunities for additional growth

Talent is a resource, an asset, not a title or position. Most knowledge transfers in any workplace occur informally during interactions between and among those involved. To varying degree, each person should be both a “teacher” and a “student.”

Lessons Learned:

  1. Don’t be afraid to single out stars: It may be politically incorrect, but measuring and labeling employees is regularly practiced at all “talent factories.” Top companies do regular reviews and assessments of all employees. At GE, employees get divided into three groups based on their potential. At Hindustan Unilever, people who show leadership potential are put on a list and referred to as “Listers”.
  2. Get involved: Even at big corporations, personal involvement between the CEO and high-potential employees is a key. According to The Talent Masters, GE CEO Jeff Immelt knows intimate details about his company’s top 600 employees, including their business goals and their family situations. At Hindustan Unilever, managers keep dossiers on “Listers.” Of course, getting to know employees is a lot easier at a small company, so there’s no excuse not to. Talk to your key performers and find out their goals and ambitions, but also be aware of what might hold them back, whether those are personal characteristics or gaps in training—and devise plans to get over those humps.
  3. Provide feedback: Top executives at talent factories don’t just gather data on their high-potential employees; they give them ongoing feedback about performance. Again, this is simple to do in a small company, so get out there and make sure you’re giving feedback—both good and bad—to employees you want to groom. Don’t think you have time? Think again: Jack Welch and A.G. Lafley, former heads of GE and P&G, claim to have spent 40 percent of their time on personnel issues. That’s how important it is.
  4. Invest in offsite training: GE spends $1 billion a year on employee training; Novartis sends top employees to regular off-site training sessions. This may be beyond your budget, obviously, but there are still plenty of ways to provide high-potential employees with additional learning opportunities. Pay for them to join industry associations and have them take advantage of training opportunities, conferences and seminars. If they’re interested in additional education such as professional certification or an MBA, maybe you can’t contribute to their tuition—but you can give them flexible hours, time off when needed to study or otherwise make it easier for them to achieve.
  5. Offer in-house training: Match high-potential employees with senior mentors. Hold brown-bag lunches where top performers read the same business book and discuss it, or share books they’ve read that are relevant to the company’s goals. You can also offer cross-training so high-potential employees can learn more about each other’s jobs.
  6. Create generalists: It’s easy for top performers to become experts in a certain role, but “talent factories” focus on creating generalists, not specialists. To get the most from talented employees, they should know how to handle a wide range of functions.
  7. Set stretch goal: In addition to all the training, development and encouragement, don’t forget real-life learning. Top companies often give high performers “stretch” assignments—also known as “baptisms by fire,” “accelerator experiences” or “crucible roles.” Sound painful? It can be, but throwing a talented employee into the deep end and letting him or her figure it out can be a great learning experience—and it’s a sure way to build management skills.

Criticisms:

I was attracted to “The Talent Masters: Why Smart Leaders Put People Before Numbers”, because of the implied promise in its title that herein lies a confirmation that people really do matter in generating business performance. The content disappoints, as the material is a collection of repeated stories and well-known stories about several long gone CEOs. The focus on GE and Jack Welch is old news. By the way, has the GE model proved to be successful outside GE? Is it still effective at GE today? 

There is total absence of metrics and hard data. Why didn’t the authors identify numbers that correlate talent initiatives to business performance? The real reason Jack Welch became famous at GE is because he grew market cap from $12B in 1981 to $375B when he retired in 2001. Does that mean that Jeffrey Immelt and team have killed the GE talent machine since GE market cap has dropped to $197B today? Or is the mastery of talent has no direct relationship to business performance? Perhaps business performance is more a function of environment, regulatory issues, competitive landscape, M&A or luck. At any rate, the authors don’t weigh in on this one or GE post-Welch.

Also, how did the Goodyear CEO get classified as a talent master? He joined that company in late ’00 when the stock was $18.01 / share and left in late ’10 with a share price of $10.93 – a destruction of about $1.75B in shareholder value over a decade. Hardly a master of anything.

In “Good To Great”, Jim Collins determined through research that in his 11 great companies, of the 42 CEOs that served during the study period, only 2 were outsiders to the company before becoming CEO. Do Conaty and Charan have any thoughts on where the talent that the Talent Masters use comes from? Are they internal or external? The comment by the authors that a “blend” is necessary is not helpful. It would be interesting to determine performance variations between companies that engage in a continuous cycle of outsider executives versus those that emphasize internal talent for promotion.

One of the few charts in the book (page 216) shows a “Market Focused Business Model” which is an insult to the great corporate leaders who profitably grew their businesses long before the executive tenures profiled in “The Talent Masters”. The Talent Master Tool Kit (pages 257 – 273) is right out of a basic HR leadership guide from the 70s. These pages reflect nice and common sense strategies.

Understanding how talent impacts business performance is a field suitable for detailed analysis.

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