Source: theHRDIRECTOR
Date: February 2007

Dr Anthony Hesketh from the Centre for Performance-led HR, Lancaster University Management School, looks at why businesses must take a fresh loo at the complexities of talent in order to stay ahead of the competition. 

It is that time of year again. New Year resolutions are being formed and broken with the usual alacrity. HR, too, is no stranger to the promise of a new beginning only to be thwarted by the harsh realities of everyday commercial life. But hope springs eternal. Meanwhile, barely into 2007, and – I’m sure, like the majority of theHRDIRECTOR readers – my inbox has already been bombarded with invitations to HR conferences offering me the chance to renew my HR function’s strategic vision; to square the circle of human capital measurement; and to undergo the now de rigueur Damascian conversion to HR business partner.

BEYOND HR FOR HR
However, it is these and many other similar approaches by email and post that convince me that what HR has on offer in 2007 is not on the minds of chief executives. Indeed, the only mention of HR in IBM’s comprehensive “2006 Global CEO Study” is to highlight how companies are increasingly seeking new strategic partnerships through outsourcing certain functions, including HR.

HR, then, has to think less about HR for HR and much more about how the function can enable CEOs to realise their key challenge, as identified by the IBM survey; namely, business model innovation. As one HR director of a global leading telecoms company put it to me recently: “We constantly have to meet the talent requirements of a business that demands new talent architectures to be constructed, implemented, reconfigured and then re-implemented again in line with the fast-evolving business strategy of our sector.” This requires a new perspective on talent. One which embraces the new capabilities required by business as a whole and not just HR, in order to move away from the high-cost, slow response, inefficient and antiquated business operations cited as a major issue by CEOs in the IBM survey. Of course, moving to a service-driven mindset underpinned by the requisite capabilities is easier said than done.

THE XCHANGING WAY
In order to shed light on this process I have, for the last 36 months, been tracking the development and implementation of the talent transformation projects conducted by Xchanging, a business process servicing provider, with a number of their customers including major corporations BAE Systems and Deutsche Bank.

I have been disappointed, if not entirely surprised, by the reactions of many professionals and advisors in HR who initially have found it difficult to grasp what apparent value can be gained by research into the back office functions of such organisations. What, they ask, can we possibly learn from the transformation of talent in the back office? My answer to this question is: a great deal.

Member of the Board and COO of Deutsche Bank, Hermann-Josef Lamberti, did not require such an explanation. “The securities processing partnership with Xchanging, signed by the bank in 2004, allows Deutsche Bank to continue in its strategic objective of focusing on core businesses while also benefiting from the resulting increases in operational efficiency,” he observed. And there it is again: that focus on strategic objectives. One of the reasons it appears Xchanging has succeeded where many other providers have failed, is its relentless focus on the value of the talent proposition. The company has a mindset and proven talent transformation model that delivers increased performance for its customers. Or at least this was what their marketing literature led me to believe. I was sufficiently intrigued to investigate further, and subsequently decided to conduct research. Surprisingly, perhaps, for the outsourcing sector, which has been accused of being overly secretive, Xchanging was only too delighted to open its doors and subject its tools for leveraging talent to rigorous academic evaluation. I believe the results offer HR directors and their charges a number of important lessons for the ongoing management of talent.

LESSON 1: MOVING FROM COMPETENCIES TO CAPABILITIES
In a world dominated by jargon, the distinction between competency and capability is easily overlooked. Competency has been the mainstay of HR’s offering for the last six decades. A plethora of academic and consulting house research has continually highlighted the message that finding the right mix of HR practices - the so-called magical high performance work systems, reaching their apex with the HR Scorecard - will deliver commercial improvements. And yet, even with such systems in place, the transformational results haven’t exactly been rolling in. As far as talent is concerned, organisations require a clear distinction between competency - relevant knowledge and expertise, and capability - the execution of this knowledge and expertise to reflect customers’ requirements, whether external or internal to their businesses. Leveraging the performance of talent is less about the enhanced development of the operational minutiae of recruitment, training or payroll – important though these processes are. Rather it is about understanding and being responsive to the needs of a business while at the same time being keenly aware of how a business - namely the boardroom, but other end-users, too - rate talent’s performance in delivering on the necessary strategic requirements. Crucially, such capabilities cut across functional domains. They are represented by a generic, service-orientated mindset that champions outcomes over and above processes: the end result
takes precedence over the process of getting there, with a relentless focus on service. ‘Xcellence’ is the term that Xchanging uses to refer to its application of the seven competencies summarised in Diagram 1 to drive productivity and service improvement.

LESSON 2: ENGAGEMENT IS GOOD; PERFORMANCE-ORIENTATED IS BETTER
It would be no exaggeration to describe the rise of the concept ‘engagement’ as exponential in HR circles. The race to measure the ‘satisfaction’ or ‘wellbeing’ of employees has been staggering. Well-managed, high performing talent is engaged talent. However, correlations between high levels of engagement and improvements in business performance have arguably proved elusive to date for many companies. Engagement is one thing, while focusing on the task in hand is quite another. Emphasis must be placed on executing the capabilities of talent to meet the services required by customers, whether internal or external. As the authors Larry Bossidy and Ram Charan argue in their study ‘Execution: The Discipline of Getting Things Done’, “execution is a specific set of behaviours and techniques that companies need to master in order to have competitive advantage.” 1 A focus on execution is the raison d’être of the Xcellence Methodology to drive productivity. According to Xchanging’s CEO, David Andrews, “People create results. Central to Xchanging’s quality approach is getting employees to focus their talents and energies on satisfying customers and improving services and processes.” Of course, making such a claim is one thing, but the everyday reality in many organisations is often a different story. Not so in the organisations investigated, as the results based on my
analysis clearly demonstrate.

LESSON 3: EMBRACE THE COMPLEXITIES OF EVIDENCE-BASED TALENT ARCHITECTURE
The aims of my research, now entering its third year, are threefold:
1. To establish the extent to which employees identify with Xchanging’s Xcellence methodology in general, and serviceorientated mindset in particular;
2. To explore how we might differentiate commercially and service-orientated employees from other employees; and
3. To identify how, if at all, the impact of service-orientated employees manifests itself in the actual performance of the teams to which they belong.

A SERVICE-ORIENTATED MINDSET?
I used a survey to ask Xchanging’s employees, including those transferred into Xchanging from customer organisations, how they rated their own capabilities and strengths against the criteria of Xcellence. In total I covered 67 specific areas of Xcellence. The headline results broken down across each of the seven capabilities comprising Xcellence are summarised in Diagram 2, below. Underlining the claims of Xchanging is a clear emphasis among its employees on ‘Service’. Moreover, when the survey was repeated again a year later the Service score increased significantly.

FROM TALENT TO WORLD-CLASS SERVICE EXECUTION?
Secondly, my aim was not just to examine how Xchanging staff rated their capabilities in the different areas of Xcellence. I also included in the survey additional questions to examine the level at which the execution of services for customers took place. My analysis of service execution took two forms:

• First, I explored the degree to which Xchanging employees were able to differentiate the relative importance of different business processes contained in their current day-to-day activities.
• Second, I designed an analytical model to examine the extent to which Xchanging employees recognised the distinction between short-term, current priorities against the mid- to longterm performance targets of their team (measured against quarterly performance targets). The results were encouraging. As might be expected, there was a relatively strong relationship between levels of capability in the specific areas of talent required by the Xcellence methodology and performance targets. This might be labelled the ‘high talent–high performance perspective’.

More surprisingly, perhaps, I found that those employees who placed a greater emphasis on what needed to be executed immediately in order to meet the longer-term performance targets of the team, were not necessarily those with the highest levels of capability or talent. Might this be a case of just not having the capability but knowing what to do with it? This would certainly explain why a lot of CEOs have been frustrated by the lack of returns from their significant investments in their people propositions. This suggested a third line of analysis; namely, the proposition that a commercial-, service- and performanceorientated mindset might have more impact on actual business performance than simply recruiting those with the requisite levels of capability.

CUTTING THROUGH THE RHETORIC OF PERFORMANCE
Might there be something here for HR professionals to learn about talent management and its impact on the actual performance of the business? Xchanging’s benefits approval process aligns cost savings to each capability area. Thus, the financial gains accruing as a consequence of each capability function are accumulated over time. The typical improvements delivered by the three-year stage are outlined in Diagram 3. Diagram 3: Productivity Improvements as % of Day 1 Costs

AND IN THE FUTURE?
These figures represent a clear return on investment in the capabilities across the specific areas of talent traditionally identified by HR. Should any circumspect HR director suggest the scale of these radical economies might not be easily replicated in the arena of HR services, I can also report that the BAE Systems’ HR, contracted under the aegis of Xchanging, has enjoyed similar savings during the period that my research was conducted. Meanwhile, the model has been further developed, to enable even stronger identification and understanding of the 67 attributes comprising Xcellence, in terms of which of them has the greatest impact on productivity and in which areas of capability. It means that Xchanging’s customers are presented with an unparalleled line of sight on their performance impact, with nearly 100 key variables identified covering capability measurement; engagement with Xchanging’s service-orientated values and mindset; through to the impact of Xcellence on actual
business performance measured in financial terms. This work has not always been easy because of the often complex business issues involved. But then the debate over the performance of talent has to move on to embrace these complexities. Those who hesitate on the grounds of lack of simplicity will inevitably be left behind.
1. Bossidy, L & Charan, R. (2002) Execution: The Discipline of Getting Things Done (London: Random House)