Edward E. Lawler III

Excerpted From: “Talent: Making People Your Competitive Advantage” (Jossey-Bass, April 2008)

Talent Matters

In the last several decades, an avalanche of business books, articles, speeches, and seminars have stressed the importance of human capital – people – in gaining competitive advantage. Executives seem to be paying attention. According to a 2006 survey of senior executives from all over the world, the two most important management challenges are:

• Recruitment of high-quality people across multiple territories, particularly as competition for top talent grows more intense
• Improving the appeal of the company culture and work environment

Fifty-five percent of the respondents to that survey reported that they expect to spend more time on people management than on technology in the next three years. More than 85 percent of the respondents said that people are vital to all aspects of their company’s performance particularly their top strategic challenges: increased competition, innovation, and technology.1

What’s more, according to another 2006 survey of over a thousand global CEOs, 72 percent are more concerned about the availability of individuals with key skills than they are about energy and commodity prices and intellectual property rights.2

Apparently, people are front and center on managers’ radar, as well they should be. Increasingly, companies in a wide variety of businesses are finding that people can be their number one source of competitive advantage. But it is not enough for leaders to say that people are important, or to put people issues high on their mental to-do list. What is needed are organizations that are designed and managed—from the boardroom to the front line—in ways that optimize attraction, retention, and performance. I call this type of organization human-capital–centric, or HC-centric.

Today, most organizations are still managed in a bureaucratic, structure-centric manner, and they have been managed that way for decades. In these companies, you’ll often hear managers at all levels talking about the importance of people, but the walk really doesn’t follow through on the talk. Their managers do make an effort to see that they attract and retain the people they need to make their bureaucratic structure operate efficiently, but they are not designed to make their human capital a competitive advantage.

In one of my favorite Dilbert cartoons, the boss says, “I’ve been saying for years that ‘Employees are our most valuable asset.’ It turns out that I was wrong. Money is our most valuable asset. Employees are ninth.” When asked what came in eighth, he says: “Carbon paper.” I realize that not everyone remembers carbon paper, but I hope those of you who don’t still get the joke—and the real point: Lip service and window dressing are not enough.

To be clear, a bureaucratic, structure-centric approach to management can still work. A modest effort to attract, retain, and motivate talent is all that’s needed in some organizations, because it achieves good enough performance from their human capital, and people are not their primary source of competitive advantage.

But for companies that are truly competing on the performance of their people—their human capital—it is not enough. They need to adopt an HC-centric approach to organizing. It is not just about controlling people costs because they are among the highest—it is about how well people perform, because their performance is the critical factor in determining whether the organization is effective.

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1 Deloitte Touche Tomatsu and the Economist Intelligence Unit, Aligned at the Top (2007)
2 PricewaterhouseCoopers. “9th Annual Global CEO Survey: Globalisation and Complexity; Inevitable Forces in a Changing Economy” (PricewaterhouseCoopers, 2006), p. 2.