Edge Perspectives with John Hagel

Attracting Talent in Spikes and Firms

If you want to create wealth, find and address scarcity.  Chris Anderson proclaims the economics of abundance, but abundance in certain areas inevitably generates relative scarcity in others. 

Emerging Scarcities
I have posted in the past about the growing relative scarcity of attention. This is a key factor in the growing power of customers and their ability to squeeze margins of firms, especially in times of great abundance. There’s another scarcity that will also squeeze margins of firms, at least in the near-term.  That’s the relative scarcity of talent. In times of great abundance, the ability to stand apart from all the others becomes increasingly valuable and this in turn depends upon the ability to mobilize talent. In more and more domains, talent is capturing growing premiums.  Between pressure from customers and talent, corporations will find it increasingly challenging to capture economic value in times of great abundance because they have not yet mastered the techniques required to address the new scarcities.

These two scarcities are related at multiple levels.  As just one example, the growing power of customers resulting from the relative scarcity of attention increases the need for sustained innovation which in turn increases the relative value of talent.

Talent in Spikes
Richard Florida recently did a great post summarizing the role of talent in driving regional economic development (by all means, don’t miss the study by Edward Glaeser on “Cities, Information and Economic Growth" cited in Richard’s post).  Reading this account, I couldn’t help but think about the role of talent in driving value creation for the firm. One of the most important observations Richard makes is:

While most economists . . . continue to conceptualize human capital as a “stock” or “endowment” of a given place – either you have it or you don’t. But the reality is that human capital is a flow. The key question thus becomes: What factors shape that flow and determine the divergent levels of human capital across regions?

Human capital, or talent, is definitely not a stock, especially in rapidly changing times. Talent flows readily across geographies (immigration laws permitting – for a fascinating comparison of trends in immigration laws in seven high income countries, check out this report and then this discussion of "brain drain" from rural to metropolitan areas in the US), attracted by opportunities to realize greater economic value. Talent similarly flows across institutional boundaries. 

But talent also flows in the sense of more rapidly evolving and developing in times of great change. Today’s talent is tomorrow’s incompetence, unless the talent is continually refreshed. People with talent generally realize this.  They increasingly seek out geographic and institutional homes that will help them to refresh their talent more rapidly. This is one of the reasons that the spikes – geographic concentrations of economic activity, innovation and talent - Richard talks about will become more rather than less important. They provide fertile ground for refreshing talent more rapidly.

Talent in Firms
Firms are a different matter.  They may or may not do a good job of refreshing talent.  There’s a reason that people keep citing General Electric for its talent development practices – most corporations are not very good at it.  Unfortunately, certain management mindsets tend to limit the success of many firms. I’ll briefly mention five of these mindsets:

Attract and retain vs. develop.  When management focuses on talent, it tends to emphasize the challenges of attracting and retaining talent, while paying much less attention to the need to develop talent aggressively. Unfortunately, many executives view the war for talent as being won upon acceptance of offers to join the firm. From my experience, the firms that focus on developing talent more rapidly do the best of attracting and retaining talent. Word spreads and talented individuals seek out these companies.  Once in the firm, these individuals are less vulnerable to offers from other firms because they realize that their value will increase more rapidly if they stay with the firm that develops them more rapidly.

Training vs. learning.  When companies do focus on developing talent, they often emphasize formal training programs.  While these programs certainly have a role in talent development, they pale in comparison to the rapid learning that occurs when employees are put in situations that challenge them to get better faster on a daily basis.  Toyota does a remarkable job of this, expecting all of their employees, especially the front-line factory workers, to push the boundaries of performance.  For Toyota, talent is far from a static concept.  It is continually refreshed by defining and tackling performance issues throughout the company.

Attract and retain vs. access and motivate.  Talent strategies of companies often focus too narrowly on the talent that resides within the enterprise.  One of my favorite quotes is from Bill Joy, a founder of Sun, who noted that “there are always more smart people outside your company than within it.”  Few companies make a systematic effort to map the relevant talent that exists outside the company. Even fewer companies develop effective strategies to access and motivate that talent through networks of relationships, including positioning in relevant spikes around the world.  Internal talent will develop more rapidly when it interacts with relevant talent outside the firm through these networks. Don’t just focus on developing your own talent. Find ways to accelerate talent development in your business partners as well by defining challenging performance targets and then mobilizing your own talent to help these business partners become successful. Companies
that do this well will find leading companies approaching them to become business partners, creating a virtuous cycle in talent development.

Automation vs. amplification.  Too many companies have concentrated their IT investment on initiatives to automate processes – removing people wherever possible – rather than exploring how IT might be better used to amplify the talent of the people left.  New generations of collaboration tools, supported by new IT architectures, could help firms to more rapidly develop talent. Flexible e-learning platforms and collaboration on demand platforms represent just some of the opportunities available to harness IT for talent development.

Strategic importance of growth.  Growth offers many benefits to the firm, but one of the most overlooked is the value in terms of talent development. I have written about this here and here. Talent develops a lot more rapidly when firms grow rapidly because individuals are more frequently placed in new and challenging roles relative to individuals working with lower growth firms.  A low growth firm is often vulnerable to talent erosion.

At the most fundamental level, the rationale for the firm is shifting.  As JSB and I have written, the rationale for the firm articulated by Ronald Coase back in the 1930s – that firms exist to economize on transaction costs - is diminishing in importance as continued innovation in IT systematically drives down transaction costs.  In its place, we are seeing a new rationale for the firm emerge – firms exist to accelerate talent development. This is increasingly the reason why people choose to affiliate with firms.  They believe they can get better faster by working with others within the firm, as well as with others across firms, through the privileged relationships built by the firm. If firms can’t find ways to deliver on this promise, talent will exit and Tom Malone’s e-lance economy will flourish.

In a perverse way, geographic spikes and firms face opposite challenges.  As spikes form and achieve critical mass, network effects begin to take over and a virtuous cycle emerges – the more people that participate in the spike, the more valuable the spike becomes as a source of talent development.  In contrast, the larger the firm becomes, the more difficult it is to sustain high growth rates and the more likely that inertial forces will take over and limit the potential for talent development, setting in motion a vicious cycle – talent tends to leave to seek out more hospitable homes and growth slows even further.  The winners in the global economy will be the firms that can find ways to break this vicious cycle and harness network effects for talent development both within and across firms.

No Spike Is An Island

Metaphors can enlighten and imprison.  Richard Florida (welcome to the blogging world, Richard!) first introduced me to the metaphor of the spiky world as a contrast to Tom Friedman’s flat world. In an earlier blog posting, I made the case that both metaphors have value. I am especially drawn to the spike metaphor because spikes are where economic value gets created – the flat world is full of challenge while the spiky world is full of opportunity. If you want to make money, concentrate on playing in the spikes while never forgetting that you will be playing in a flat world.

Spikes create a powerful image, but at the same time the image can be misleading.  Spikes often suggest dense urban areas. Spikes tend to be static. Spikes tend to be isolated.  These elements of the spike image can be deceptive and undermine efforts to create and capture value from spikes.

Spikes - concentrations of specialized talent, economic activity and innovation – often are associated with dense urban areas.  Urban areas represent significant spikes of economic activity but spikes of specialized talent and innovation can be found outside major city centers. Sometimes, these latter spikes can generate major urban centers over time – witness the transition of Silicon Valley from orchards to dense settlement.

Here’s the paradox – in the flat world, spikes are where the action is, even when they are way out in the middle of nowhere.  An article in the Wall Street Journal by Timothy Aeppel on October 26, 2006 illustrates this with a great example from a spike that has escaped a lot of public attention.  It turns out that Warsaw, Indiana with a population of 12,500, has become a center for the design and manufacture of orthopedic devices.

As Aeppel reports

Three of the world’s five largest makers of artificial joints and related surgical tools have their headquarters here amid the lakes and fields of northeastern Indiana.  The local industry has grown so much that it’s now a regional force, with orthopedics companies popping up in nearby farm towns and the suburbs of Fort Wayne, about 50 miles to the east.

This small town now boasts 28 orthopedics companies within a seven mile radius. The article reports that 60% of the workers within that radius are “directly or indirectly engaged in orthopedics manufacturing.”

Apparently, this concentration of business began more than one hundred years ago with the establishment of a successful company making flexible splints to set broken bones.  Other companies spun out from this company over time and a rich infrastructure of specialized support businesses evolved.  The article notes:

Warsaw is dotted with small support businesses, from packaging firms that specialize in super-clean processes to machine shops. There are even multiple manufacturers of the plastic trays and cases needed to pack orthopedic kits. A total hip replacement, for instance, can require up to 22 cases of equipment and each case and tray is specially designed.

Warsaw’s emergence as a spike for orthopedic technology was helped by its location.  As the article notes, the town sits on a major highway connecting Fort Wayne and Chicago, connecting it to a major logistics hub.  Aeppel also points out:

The region surrounding Warsaw has long been home to the U.S. automotive and machinery industries, churning out a stream of skilled machinists, toolmakers and industrial engineers. Orthopedics makers opening up shop in Warsaw found a ready supply of skilled workers, particularly in recent years as the more-traditional sectors have slumped.

Warsaw, Indiana reminds us that spikes are not necessarily limited to dense urban areas.  Executives looking for relevant spikes could miss some very promising spikes if they restrict their search to large cities (even though that is where the best hotels might be).

The Warsaw story also reminds us that spikes are not static. Warsaw has come a long way in orthopedic technology since the splints that launched the first company in this spike.  Healthy spikes are highly dynamic, fueled by continuing innovation. Executives need to keep this in mind when they develop strategies to participate in spikes – what matters is the trajectory and pace of spike evolution, rather than the capabilities that exist at any point in time.

Finally, we need to remember that healthy spikes are rarely isolated. There is a risk that spikes can become too inward looking – after all, so much talent and innovation comes together within individual spikes that executives are often distracted from activity in other relevant spikes. The healthiest spikes maintain a broad focus on global markets and opportunities to develop links across spikes.

This is a potential red flag for Warsaw, Indiana.  The article mentions that the US is the biggest market for artificial hips and knees and that

The U.S. also effectively protects manufacturers in the sector with strict regulations for devices that go inside the human body.  Rather than risk problems – and crippling law suits – U.S. health-care providers buy their artificial joints from companies they know, which generally means buying American.

Given this amount of protection, I wonder how many of the Warsaw orthopedic technology companies are scanning the horizon in places like India to identify potentially disruptive technology and products. C.K. Prahalad, in his book, The Fortune At the Bottom of the Pyramid, discusses the extraordinary innovation in prosthetics technology, the Jaipur Foot, pioneered in India (case study available here). As I’ve discussed here and here, India is emerging as a center of innovative technology and processes for delivering high quality health care at low cost. Of course, Warsaw, Indiana companies are far ahead in orthopedic technology today, but remember: what matters is the trajectory and pact of innovation, not relative capabilities at any point in time.

AnnaLee Saxenian, one of the most insightful analysts of spikes around the world, has just written a marvelous book The New Argonauts: Regional Advantage in a Global Economy, which drives home the importance of connections across spikes. She investigates in particular the complex web of personal and institutional relationships that knit together entrepreneurs in Silicon Valley with a series of emerging spikes in such diverse areas as Israel, Taiwan, China and India.

Saxenian focuses on “the new Argonauts”, meaning “the foreign-born, technically skilled entrepreneurs who travel back and forth between Silicon Valley and their home countries.”  She observes that

The new Argonauts are undermining the old pattern of one-way flows of technology and capital from the core to the periphery, creating far more complex and decentralized two-way flows of skill, capital and technology.  They have created dynamic collaborators in distant and differently specialized regional economies, while largely avoiding head-on competition with industry leaders.  Silicon Valley is now at the core of this rapidly diversifying network because it is the largest and most sophisticated market as well as leading source of new technology. . . .

The rise of a network of regional economies with distinct and complementary specializations has the potential to change the nature of global competition, creating opportunities for sustained growth through reciprocal upgrading.

Silicon Valley represents an extraordinary spike in its own right, one that has prospered through several generations of major technology innovation.  Yet, increasingly the success of Silicon Valley hinges on its growing role as a major node in a complex and rapidly evolving set of relationships that span across many spikes around the world. The real opportunities for value creation no longer reside within individual spikes but instead surface across spikes.