Talent Management for Corporations: Developing Internally or Hiring Externally?

Introduction

The concept of talent management can be defined as the process that a company utilises in order to develop an employee’s skills during their time in the company (Ross, 2013). Basically, it can be considered as the means by which a company enables employees to take on an assortment of jobs as well as to manage their progress up the corporate ladder through a variety of leadership roles (Ross, 2013).

Do note though that talent management is not limited to merely developing employees that are already within the company, rather, it also encompasses a company’s capacity to anticipate the needs of various departments and hire from outside sources (Klein, 2014). This is where recruiting campaigns and executive search firms enter into the picture wherein an extensive vetting process is implemented in order to utilise the pool of candidates that have already applied for the position advertised or use the executive search firm in order to hire a needed executive from another company (Klein, 2014).

Based on the definition of talent management that has been presented so far, it can be seen that there are two distinct paths that a company can choose when it comes to placing someone within a managerial position. The first path involves the company utilising its own internal roster of employees in order to determine which individual should be placed on “the fast track” so to speak for a managerial position (Ewerlin, 2013). The second path involves bringing in an outside manager into the company in order to handle the responsibilities of a given position (Ewerlin, 2013).

It is based on these two approaches that this paper will attempt to examine the advantages and disadvantages of the aforementioned methods of talent placement and determine which method is the most effective. Through this analysis, it is expected that a greater understanding of present-day talent management practices can be developed which should contribute towards the literature and analysis surrounding the subject.

What is Talent?

Within the context of managerial operations, talent can be defined as an individual’s capacity to properly manage employees under their care utilising a myriad of strategies in order to accomplish goals that are in line with the operations of the company (The Alliance: Managing Talent in the Networked Age, 2014). As such, talent for managers is their ability to put into effect plans that focus on accomplishing goals as set forth by the company. This can encompass a wide range of possible end goals such as having sales quotas, performance metrics, and an assortment of other means of measuring their performance based on what the company expects out of them (The Alliance: Managing Talent in the Networked Age, 2014).

From the perspective of Majeed (2013), human resources in the form of talented individuals should be considered a valuable commodity for companies since this type of personnel can often bring about higher levels of performance, better strategies and other similar positive traits which contribute towards increasing operational effectiveness. Thus, for many companies, the search for talent is often one of the most fundamental aspects of the hiring process. Do note though that talent is not limited to merely being a resource that can be gained through acquisition (i.e. the hiring process utilised by companies or through executive search firms), rather, it can also be brought about through development (Majeed, 2013).

One way of understanding the concept of talent and its capacity to be acquired or developed can be seen in the work of Tansley, Kirk & Tietze (2013) which focused on talent management practices in the current corporate landscape. Tansley et al. (2013) stated that there is no such thing as absolute certainty when it comes to talent acquisition in the hiring process. This is especially true in cases where a company attempts to focus on developing talent from within.

The process of internal talent development takes away this level of uncertainty by focusing on developing an employee through training programs, experience and an assortment of other practices so that they can acquire the necessary skills and capabilities to be considered talented within a particular field. In the case of managerial operations, this manifests itself via a company investing time and resources into an individual in order for them to become exemplary in terms of knowledge, skills and the capacity to innovate (Stevens, 2008). One way in which this particular process can be seen is in the case of Japan wherein there is an unspoken tradition where employees of major corporations are considered to have “jobs for life”.

This practice evolved through the unique business culture within the country wherein exchange for employees having absolute loyalty to the company they are working for (i.e. they do not leave for better salaries elsewhere) they are in effect given a considerable level of job security and are given extensive training so that they can move up in the company (Stevens, 2008). This strategy has proven to be quite effective in developing talented individuals within Japan’s corporate landscape as evidenced by the effectiveness of the strategy from the 1960s till the mid-1990s (Romans & Lardner, 2005).

However, it should also be noted that by 1999 to 2007, operation stagnation occurred in several Japanese companies wherein due to their insular method of operations there was a distinct lack of internationalization (Romans & Lardner, 2005). The end result was that Japanese companies stagnated within the country with their rivals in South Korea and China overtaking them due to these locations embracing internationalisation to a greater degree (Romans & Lardner, 2005). It is due to such a scenario that the concept of talent acquisition enters into the picture.

Talent acquisition within the context of managerial operations involves acquiring managers or leaders that possess the needed set of skills to be able to not only operate with the guidelines set by the company but to improve operations as well (Schilling, 2007). This was seen in the case of Japan wherein from 2001 till the present, there has been a shift in the hiring practices the various corporations within the country implemented wherein they focused on getting more foreign CEOs and executives in order to be more “internationalised” when it came to the focus of the company and how it would penetrate new markets in the global marketplace (Schilling, 2007).

Based on the case example that has been presented, it can be seen that talent development and talent acquisition are two important factors when it comes to talent management within corporations. Each factor has its own place within the current HR landscape and, as such, will be discussed in greater depth in the succeeding sections of this paper.

Understanding the War for Talents

As noted in the previous section, talented individuals are a valuable asset to have in any company and, as such, it can be stated that there is a “war for talent” that is currently occurring among the various corporations in order to get managers and leaders that would enable them to thrive. In order to better understand the current state of affairs, it is necessary to examine the work of Majeed (2013) and how it explains the nature of talent and how it impacts the operations of companies. Majeed (2013) explains that talented managers and leaders can help to propel a company forward in terms of innovative practices and management styles that create a competitive edge over their rivals.

Examples of this can be seen in the case of Jeffery Immelt, Steve Jobs, and Carlos Ghosn who exemplify the capacity of leaders to turn around companies and enable them to become incredibly successful (Majeed, 2013). This particular trait is not limited to the CEOs themselves; rather, it also encompasses the leadership capacity and innovative abilities of managers who are in charge of implementing the plans set forth by the CEOs.

When taking into consideration the fact that the quality of a company’s employees can either make or break the company, it is no longer surprising that when it comes to gathering talented individuals there is a considerable level of competition involved (Beechler & Woodward, 2009). This can manifest in a myriad of ways but often comes in the form of offering people high salaries, good benefits and other similar means of attracting employees (Klein, 2014). Aside from this, there are also counter-strategies that are also being implemented wherein companies do not want to lose the talented employees that they already have. These strategies come in the form of creating better working environments, incentivizing performance as well as a variety of similar strategies (Klein, 2014).

Basically, the “war for talents” involves the attempts of companies to get the needed amount of talented individuals while at the same time retaining the talented individuals that they already have (Beechler & Woodward, 2009). It is based on this that the next section will delve into the topic of identifying talent and what factors can be considered as a “must have” talent when it comes to managers.

Identifying Talent

The process behind identifying talent in managers can be broken down into different categories encompassing what a company is looking for in a manager. For instance, leadership capacity is one of the abilities that companies look for; however, identifying whether a person has such a capability is easier said than done given the lack of outward signs (Nijs, Gallardo-Gallardo, Dries & Sels, 2014). It is due to this that when attempting to identify whether a person has the needed talents it is often the case that a company has to rely on the experience of the individual in question and their accomplishments.

What must be understood is that the experience a person has in a particular position as well as the achievements they have to accomplish directly translate into the type of talent they have. As such, given the rather vague nature of identifying talent, it is necessary for an HR department to determine where a potential manager would fit in based on what they have accomplished thus far.

Why is Talent Management Important for the Long term Goals of a Company?

When examining the current methods of operation for corporations, it must be noted that companies that practice effective methods of talent management actually develop a certain degree of competitive advantage over their competitors. The reason behind this is actually quite simple, by retaining talented individuals and increasing their skills and competencies the company in effect creates a talent pool that can respond to a diverse amount of circumstances and develop methods of innovation that can enable a company to get ahead of its competition (Sonnenberg, Zijderveld & Brinks, 2014). Not only that, it reduces the inherent costs related to the search and hiring process.

All of this translates into the development of significant competitive advantage for the company which enables it to outperform its rivals. In their study examining HR practices and their effects on corporate performance, it was noted by Sonnenberg, Zijderveld & Brinks (2014) that an employee based competitive advantage manifested itself in improved operational capacities resulting in reduced errors and greater levels of productivity.

Issues with creating a star: Employee Retention

When it comes to creating a “star” (i.e. creating a talented manager in-house) the main problem that most companies face is the fact that there is always the possibility that the employee that they have groomed for a managerial position may simply leave for “green pastures” so to speak if a better salary and benefits offer is presented to them by another company. The end result of such an act is that all the time and effort that was put into developing the employee in effect becomes wasted. This is one of the primary concerns that most HR departments take into consideration when it comes to in-house employee development and, as such, supports the idea that hiring an already trained manager from outside the company is a better idea since they do not have to expend as much effort in the development process of such an individual.

From the perspective of Ewerlin (2013), developing a manager from within the rank of employees within a company can be compared to how an investor places money into a certain company. There are two possible routes that may occur, either the value of the investment goes up (which in this case the employee in question becomes a long term manager of the company) or the investment goes down (this manifests when the employee leaves the company). It is due to this that Ewerlin (2013) advocates for the implementation of an “as needed” talent management structure for company HR departments. This particular strategy focuses on evaluating the future needs of a company and determining what sort of manager would be best in a particular position.

One case example where this was applied was seen during the rapid expansion of Nestle into various markets in South East Asia. In the Philippines for instance, the company continued to expand its product line which resulted in the need to hire more external managers in order to keep up with the rapid expansion that the company was undergoing (Nestlé posts gains in Americas and Asia, 2009). This proved to be an excellent idea since it enabled the company to have experienced professionals in charge of various brands that it was developing at the time (Nestlé posts gains in Americas and Asia, 2009).

On the other end of the spectrum, another Fortune 500 company in the form of Convergys followed the philosophy of developing from within wherein nearly all its operation managers had been groomed and developed over time from within the ranks of the employees of the company (Woollard, 2010). Given its focus on business processing and call centre operations, this predilection towards developing from within is not surprising given the fast-paced nature of the business and the fact that within this particular industry there are high employee churn rates (i.e. the number of employees that leave the company versus the number of employees that stay) (Woollard, 2010).

Ross (2013) explains that talent management within a company often follows predetermined lines of development that are parallel with the path that a company chooses to take within a particular industry. Rapid expansion is often met with the need to bring in more managers from outside the company due to time constraints involved in developing managers from a company’s own rank of employees (Ross, 2013). On the other hand, if a company is in a period of consolidation as seen in the case of Nissan in 2001, it is often the case that developing from within becomes preferable given the need to prioritise managers that already have a history with the company and are better “equipped” via their already established relationships with various employees to adequately lead them.

Taking these case examples into consideration, it can be seen that when it comes to the issue of “creating a star”, the type of industry that the company finds itself in as well as the desired operations strategy of the company plays a pivotal role in determining what type of talent management strategy should be employed.

Employee Culture and its Impact on Talent Management and Acquisition

To better understand the advantages of developing a manager “in-house” via selection processes and training, it is important to analyse the case of Market Basket in 2014 and how it reflects on the relationship between the upper echelons of a company’s management division and the rank and file workers that help to run it. Market Basket is one of the largest supermarket chains within Massachusetts and is known for its exemplary prices and helpful employees (Jenkins, 2014).

Its success within the past decade has largely been attributed to the efforts of CEO Arthur T. Demoulas and his focus on minimising shareholder payouts while maximising investments into the company in the form of higher employee salaries, benefits and profit-sharing systems (Jenkins, 2014). Not only that, the CEO often visited the various Market Basket stores and interacted directly with employees and addressed their concerns personally whenever possible. This resulted in fierce employee loyalty towards the CEO and manifested via protests when he was ousted as CEO of the company (Jenkins, 2014).

Another factor that should be taken into consideration is the CEOs that were hired to replace Demoulas, namely James Gooch and Felicia Thornton. Employee concerns surrounding both CEOs centred on the possibility that they would change the current internal dynamic of the company which focused its efforts on reinvesting into employees rather than focusing on higher dividends for shareholders. In support of this argument has been the actions of Arthur S. Demoulas, the cousin of Arthur T. Demoulas, who was responsible for convincing the board to side with him when it came to removing the former CEO in favour of increasing the number of payouts to shareholders (Jenkins, 2014).

Thus, when taking into consideration the fact that the new CEOs were brought in to specifically change the internal dynamics of the company to be more investor-oriented, the employees realised that the advantages and privileges that they used to get under Arthur T. Demoulas would disappear result in them setting up protests in order to restore the previous CEO.

What this case example shows is that understanding the internal employee culture of a company is essential when it comes to managing people or a company. This is one of the issues that companies have to face when they bring in external managers since, more likely than not, there would be a period of acculturation necessary in order for the new manager to understand the inner dynamics of the organisation and adapt accordingly (Jenkins, 2014).

Unfortunately, there are three possible scenarios that may occur with only one of them resulting in a positive outcome. The first scenario involves the manager being able to successfully integrate into the internal dynamics of the company and continue to implement the same business culture strategies and employee relationships that the rank and file workers are used to. This is the best possible outcome, however, the work of Thunnissen, Boselie & Fruytier (2013) explains that while such a path is possible, it often takes a considerable amount of time and the period of transition often results in a drop in performance for that particular sector or department as the new manager tries to get a “feel” for how things work.

The second path is when managers attempt to supplant the already established dynamic with a strategy of their own design. This was the path that was observed in the case example involving Market Basket with the new CEOs being brought in to create a greater focus on satisfying shareholder demands for higher amounts of profit. As it was shown in the subsequent events that followed, this path has the greatest amount of volatility and can create a certain level of animosity between managers and their staff.

Thunnissen et al. (2013) go into greater detail regarding this particular path by explaining that when managers are brought in from other companies, they tend to bring a certain “mindset” with them when it comes to how they believe a particular department or store should be run. While such a thought process can help in improving efficiency in company operations, this does not mean that it is immediately compatible with what employees are used to or how they wish to be managed.

From the perspective of Tansley, Kirk & Tietze (2013), understanding the business culture that has been established is essential when it comes to any manager that has been brought in since this allows the manager to adjust their management strategies based on the situation at hand. To unilaterally enforce your own perspectives and ideas on employees without taking into consideration the internal business culture dynamic of the company is a disaster in the making. Such a management style is often met with high levels of internal resistance from employees and results in even greater drops in productivity than what was seen in the previous path.

The last path when it comes to bringing in an outside manager manifests itself as a compatibility issue wherein the manager in question is simply unable to adequately adjust and acculturate themselves into the business culture that is currently present within a company or department (Stevens, 2008). This is often seen in the outsourcing industry wherein foreign managers that have been put in charge of departments in other countries at times cannot understand or properly interpret the internal cultural dynamic that is present. This can also apply when it comes to managers that have been brought in from a completely different industry which results in a longer period of acclimatization (Stevens, 2008).

Based on what has been presented so far, it can be seen that the capacity to understand and adapt to the internal culture within a company is essential when it comes to managers that have been brought in externally, however, such a problem is not as prevalent when it comes to managers that have been “groomed” from within the company itself. Employees that have been developed from within the company culture understand what makes other employees “tick” so to speak and with this greater level of understanding comes the capacity to manage departments and other employees in a style that is immediately compatible with the internal employee culture.

Tansley et al. (2013) delved more into this perspective by explaining that the transitory period when promoting an employee to a management position is far shorter since they already know how things run and the various dynamics involved in the relationship between the management division of the company and the rank and file employees. Furthermore, there is also the fact that in-house developed managers already have a relationship with employees in the company and this facilitates the creation of better work relationships between the managers within a company and the various groups of employees. These factors translate into a better transitory period which has less of an adverse impact on company operations (Tansley et al., 2013).

While it is not the goal of this section to be overly biased when it comes to bringing in talent from outside the company, the fact remains that the transitory period that was mentioned is an important aspect to take into consideration since it can result in operational losses for the company. It is based on this that from the perspective of Tansley et al. (2013), it is better for a company to develop talent from within. Tansley et al. explain that this helps to curtail the aforementioned losses brought about by the transitory period.

However other experts in the field such as Downs & Swailes (2013) state that while developing a manager from within the company itself is a sound strategy, it should not be considered as a “one size fits all” means of resolving a company’s managerial issues. Downs & Swailes (2013) attempt to justify such a position by explaining that at times new perspectives and strategies are needed in order to help a company or department thrive.

One example of such a strategy in action can be seen in the case of Nissan when Carlos Ghosn became the company’s chief executive officer in 2001 (Levin, 2013). This was an unprecedented move in the history of one of Japan’s major corporations given the business culture at the time. However, in 2001 the company was $20 billion in debt and was continuing to haemorrhage money (Levin, 2013). Through a successful campaign of layoffs, factory closures and the implementation of a better supply chain model for parts, Ghosn was able to bring the company back into profitability within a year with Nissan exceeding industry profit standards within 3 years (Millikin, 2005).

This example shows how companies at times need to hire outside talent given the potential for them to implement strategies that they otherwise would not have thought of in the first place. For instance, in the case of Ghosn, his sweeping reforms which came in the form of mass layoffs was a strategy that was originally thought of as unthinkable for the Japanese business culture which focused on providing employees “jobs for life” whenever they became employees of a prestigious company (Millikin, 2005). However, it was this reluctance to terminate workers combined with the glut of employees that were draining company resources that actually contributed extensively towards the current problems faced by Nissan at the time (Millikin, 2005).

Through this section, two different perspectives have been showcased, the first shows how bringing in outside talent can result in a considerable level of backlash within the company while the other perspective shows how bringing in new talent can help a company revive itself through an infusion of new ideas.

Retaining Talent

When it comes to employee retention and performance, job satisfaction is the deciding factor behind several principles of corporate human resource development and, as such, should be examined from a multilevel perspective in order to ensure employees continue to perform adequately and stay longer with a company (Boudreau, 2013). There are many ways in which this can be accomplished ranging from mentoring, continuous job training and other such factors which contribute towards increased job satisfaction. Yet, it must be questioned which particular process is the most suitable for corporations and which is the most preferred by employees (Boudreau, 2013).

What you have to understand is that the reason such processes are important is due to the fact that they enable a company to acquire a distinct competitive advantage over their competitors within the same market. This can take on a variety of forms such as cost savings, fewer operational interruptions, higher levels of creativity and other such processes which improve the overall performance of the company.

Conclusion

Based on what has been presented so far, this paper has developed the conclusion that developing talent from within the company or relying on outside sources of talent is entirely dependent on the situation that the company in question finds itself in. There is no such thing as a “one size fits all” strategy that can be implemented in the case of talent management and, as such, it is important to identify what are the needs of the company prior to selecting a particular path of talent management.

It is important to note that as multinational corporations continue to expand into new markets it has become increasingly apparent that effectively integrating managerial practices found in one business culture to another often creates a mixed result. Since globalisation and multiculturalism have become synonymous aspects of the global market place companies need to respond to the diverse consumer and cultural demographics to which they sell their products and services to stay relevant. As such, proper talent management practices have become more important than ever within this type of business environment.

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