EXECUTIVE SUMMARY

THE TALENT MANAGEMENT IMPERATIVE RICHARD S. WELLINS, PH.D., SENIOR VICE PRESIDENT, DDI LOUIS LIU, MANAGING DIRECTOR, DDI GREATER CHINA

EXECUTIVE SUMMARY — THE TALENT MANAGEMENT IMPERATIVE

TANG QIUYONG, GENERAL MANAGER, HROOT

FUELING CHINA’S BUSINESS GROWTH Economic reform, the opening up of markets, and accelerated business growth over the past 30 years have contributed to making the Chinese economy one of the world’s largest. Chinese organizations have both contributed to and benefited from this robust, unprecedented growth; however, in the post-financial crisis era, both the Chinese economy and Chinese organizations are at a crossroads. The low-cost labor, resources, and capital that characterized past economic expansion no longer appear to be sustainable. A new economic development model defined by capital investment, upgrading industrial capability, and organizational transformation means new challenges— especially given the soaring costs of both raw materials (oil, iron ore, etc.) and labor caused in part by fluctuating currency exchange rates. This transformation marks an important and necessary change for China’s sustainable development and modernization.

The effectiveness of this transition and the key to future growth will depend largely upon the quality of talent. The financial crisis provided an opportunity for Chinese organizations to determine how to forge synergy and build competitiveness to minimize the effect of the changing macroeconomic environment on short- and long-term development. As with computers, hardware is not enough. You need software, as well. A company’s “software” is its talent management system. Therefore, improving talent management is of great and fundamental importance to the long-term viability and growth of Chinese organizations. The purpose of this report is to highlight the strategic role of talent management in driving business performance in China. We will also explore the effectiveness of current talent management practices and identify best practices in the execution of effective talent management. This report draws on a study of talent management in Chinese organizations. For this study we analyzed and explored how to build a competitive talent management system, one that aligns with the transition afoot in China today. We also discuss the proven ways in which talent management supports business strategy.

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The research discussed here confirms that talent management leads to sustainable development and competitive advantage. At the same time, the research sheds light on the differences in approaches in talent management in Foreign-owned Enterprises, State-owned Enterprises, and Private-owned Enterprises, and the approaches required by leaders in these types of organizations to formulate a suitable talent management strategy for the future. Among the questions that define these approaches: What is required to formulate an effective talent management strategy? For Foreign-owned Enterprises, State-owned Enterprises, and Private-owned Enterprises, what are the differences in where they are now and where they need to go? What talent management practices are influential in business strategy execution?

The survey cited in this study was conducted over a period of seven months, from December 2009 through June 2010. Using standardized questionnaires, we collected data from top management teams and HR managers from different regions, industries, and types of companies. By using HRoot’s online survey system, 603 questionnaires were collected, out of which 542 (89.88%) were deemed valid. More than three-quarters (75.82%) of respondents were HR professionals. One-third (33.63%) were from the top management ranks. Respondents were from a variety of different industries; 54.27% of the respondents were from Foreign-owned Enterprises, and 11% were from State-owned Enterprises. Twentysix percent of the organizations represented have more than 10,000 employees. The survey was analyzed along with 457 questionnaires from organizations with more than 200 employees. The report findings were compiled based upon analysis of the questionnaire responses as well as through several structured interviews.

EXECUTIVE SUMMARY — THE TALENT MANAGEMENT IMPERATIVE

In order to find the answers to these questions, DDI, together with HRoot, recently surveyed and interviewed leaders and HR professionals from hundreds of Chinese organizations.

METHOD

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KEY FINDINGS Working with thousands of clients worldwide to address their talent challenges, DDI has accumulated rich experience and insights, and has developed sound, proven approaches to talent management. Through our work on this study, including analysis of both the qualitative and quantitative data, we have compiled the following key findings: FINDING #1: Different types of Chinese organizations have different priorities for 2010-2011 and beyond.

Against the backdrop of macro-environmental changes, focusing on the right future business priorities is particularly important and made the top-three lists for all types of organizations (see Table 1). All organizations agree upon the importance of improved execution of their strategies. Both Private-owned Enterprises and Foreignowned Enterprises see managing change as a crucial priority. TABLE 1

TOP THREE BUSINESS PRIORITIES OF DIFFERENT TYPES OF CHINESE ORGANIZATIONS IN 2010-2011

Rank 1

2

3

SOEs

Crafting the right strategies for future business growth..............47%

POEs

Improving execution of business strategies................................52%

FOEs

Crafting the right strategies for future business growth..............44%

SOEs

Fostering innovation....................................................................43%

POEs

Crafting the right strategies for future business growth..............48%

FOEs

Improving execution of business strategies................................40%

SOEs

Improving execution of business strategies................................39%

POEs

Adapting to change quickly and effectively.................................36%

FOEs

Adapting to change quickly and effectively.................................38%

EXECUTIVE SUMMARY — THE TALENT MANAGEMENT IMPERATIVE

KEY: SOEs: State-owned Enterprises POEs: Private-owned Enterprises FOEs: Foreign-owned Enterprises

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FINDING #2: Organizations with greater talent management maturity outperform competitors compared to organizations with low talent management maturity.

We asked organizations to rate their talent management maturity in terms of the integration of their core HR systems, software capabilities, strategy currently in place, level of senior-level support, and skill levels of managers to support the strategy. The data shows that organizations with different levels of talent management maturity differed in the quality of their talent management practices (see Figure 1). The gap in performance levels between high talent maturity and low talent maturity was the smallest in employee satisfaction and the highest in quality of leadership.

Percentage rating organizational performance better than competitors

FIGURE 1

TALENT MATURITY AFFECTS ORGANIZATIONAL PERFORMANCE

50% High Maturity

Low Maturity

45% 40%

43%

44%

42%

39%

35% 30% 25% 20%

25%

22%

21%

15%

12%

10% 0%

Retention of Quality Employees

Employee Engagement

Quality of Leadership

Employee Satisfaction

EXECUTIVE SUMMARY — THE TALENT MANAGEMENT IMPERATIVE

% of Respondents

FINDING #3: Developing leaders and employees is the greatest challenge facing Chinese organizations now and in the future.

Developing leaders and employees for key future roles (3.5 years from now) and developing the leadership skills of existing managers are cited as two major priorities for China’s organizations now and in the future. During our interviews, many HR directors said that strong leadership is a must if their company is to develop in a sustainable manner. At the same time, leaders have a direct impact on execution, because they can motivate staff and help improve engagement so that employees make greater contributions to the company’s success.

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FINDING 4: Organizations have more confidence in “hard power” than in “soft power.”1

According to the survey, we conclude that companies are more confident about hardpower outcomes—quality of products and services, financial performance, productivity— than they are about soft-power outcomes, including retention of quality employees, employee engagement, quality of leadership, and employee satisfaction. In particular, 17% of the companies admit that their leadership is worse than competitors’ while just one-third of this percentage—only 6.4% of organizations—report that the quality of their products and services is worse than their competitors’ (see Figure 2). Organizations seem to have focused more on hard power than on soft. FIGURE 2

COMPANY’S PERFORMANCE IN THE PAST THREE YEARS COMPARED WITH COMPETITORS’ 17%

Quality of leadership

44%

12%

Retention of quality employees

47%

9%

Employee engagement

58% 42%

11% 0%

36%

36%

13%

Financial performance

39%

52%

Quality of product and service 6% Productivity

42%

52%

13%

Employee satisfaction

39%

45%

36% 20%

Worse than competitors’

40%

54% 60%

About the same

80%

100%

Better than competitors’

EXECUTIVE SUMMARY — THE TALENT MANAGEMENT IMPERATIVE

FINDING 5: Great organizations focus more on talent strategies; poor-performing companies

5

focus more on performance management.

We compared companies that performed well in terms of both workforce and talent outcomes (top 20%) with those that did not (bottom 20%;). The top practice for topperforming companies in 2010-2011 is formulating effective talent strategy. Organizations with better performance are future-oriented and focus more on macro-strategic issues. Meanwhile, companies in the bottom 20% designate day-to-day performance management as their priority. They tend to focus more on the present, as opposed to dealing with more forward-looking talent issues.

1The concept of soft power was popularized by an American scholar, Joseph Nye, to describe the culture and value power of a country. Soft power, as defined by Nye, contrasts with hard power, which is defined by economic and military might. © Development Dimensions International, Inc., MMX. All rights reserved.

FINDING 6: Talent management impacts business performance.

Through our data analysis, we found that the maturity of talent management (in terms of the integration of the core HR systems, software capabilities, level of senior-level support, etc.) correlates not only with the talent management outcomes, but also with the business performance of the company. Figure 3 shows that when business impact (as defined by quality of products and services, financial performance, and productivity) is high, talent maturity is high, as well. FIGURE 3

TALENT MATURITY IS RELATED TO BUSINESS IMPACT

4.4

Business Performance Index

Top (n=120)

3.27

4.12

Middle (n=227)

2.94

3.77

Bottom (n=63)

2.9

0

1

2

3

Level of maturity (5-pt. scale)

EXECUTIVE SUMMARY — THE TALENT MANAGEMENT IMPERATIVE

Future Maturity

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Current Maturity

4

5

CONCLUSIONS AND RECOMMENDATIONS This report presents a number of discrete findings around the business challenges driving investments in talent along with a picture of effectiveness of specific talent management practices and implementation factors. We compared and contrasted—for the first time—the state of talent management in State-owned Enterprises, Foreignowned Enterprises, and Private-owned Enterprises. Across all company segments we conclude that:

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2. The current state of talent management in China is mediocre at best. Respondents are far more satisfied with their business performance

3. Not surprisingly, the small group of organizations in our study that focus on effective implementation of their talent management systems benefit from stronger talent management practices. The key message here is that it’s not just about having a leading-edge system, it’s also about how that system is implemented and supported. 4. Finally, our data supports other global research that shows a strong link between effective talent management and business performance.

EXECUTIVE SUMMARY — THE TALENT MANAGEMENT IMPERATIVE

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1. There are a range of top business priorities facing Chinese organizations that are “talent dependent.” Crafting the right strategies, adapting to constant change, improving execution of business priorities, and fostering innovation are directly linked to the ability of organizations to build a strong talent pipeline.

(e.g., revenue, margins) than they are with the indicators of strong talent management systems (e.g., quality of leadership, employee engagement). Only a few talent management practices and implementation factors receive satisfactory effectiveness ratings. This perhaps suggests that many organizations are focused on short-term business performance at the expense of focusing on talent management.

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