Think of talent as an asset and management as a process. Much of the attention on talent management has been on the process and the tools to manage that process.
Learning has to do with the creation of a specific asset, the human capital that fits the business model of the firm. The importance of the specific human capital asset is seen by looking at tangible assets such as machinery, software and information systems. These assets represent value to their organization only when they align with the business model of the enterprise — coal rail cars do nothing to help Google complete Internet searches, and the computer servers that help Google are incapable of moving finished consumer goods from West Coast seaports to Midwestern markets and, thus, have only limited value to a shipping company. So it is with learning.
Human capital assets differ from tangible fixed assets (those on the balance sheet) in some important ways. Learning investments an organization and its employees make actually create human capital. Virtually no company makes its own fixed tangible assets — it purchases them.
The Industrial Age bias of purchasing tangible assets carries over to talent management in the 21st century with purchasing talent from the outside, i.e., recruiting talent. And in the strictest sense, this is accurate because talent only can be procured. It cannot be developed.
There are many additional forces that influence the expansion of human capital to recruiting over internal development. Unfortunately, the global demographics will make recruitment ever more difficult over the next 15 years.
There is an alternative to purchasing human capital assets (recruiting) that does not exist with fixed tangible assets. Companies have the potential to develop their own stock of human capital through learning. One additional refinement is valuable before exploring how learning can be used to expand the stock of human capital assets in the organization.
With current usage, the word “talent” is being used as though it were synonymous with human capital. It is not — human capital encompasses four dimensions: talent, skills, knowledge and experience. The value of each dimension differs, as do the processes required to create the greatest value for the organization.
To The Gallup Organization and the positive psychologists, talent represents the strengths of a human that result from connections in the brain formed early in life, well before the teen years, let alone those of a professional career. According to Gallup, those connections and the strengths (talents) they create cannot be learned later in life. Under this definition, the process to manage talent is to identify and then align it with job roles to maximize the engagement of the person in the role that matches his or her inherent strengths.
Under this definition, learning does not affect talent. Learning affects skills, knowledge and experience, and the cumulative effect of all four constitutes a firm’s human capital assets. (Independent of this discussion, the general usage will no doubt continue to be talent as the icon for human capital.)
Another perspective on learning involves experience. The Labor Department estimates as much as 70 percent of what a worker knows about successfully performing a job comes from direct experience gained from doing the job itself.
Another way to look at this is to conclude that 70 percent of the knowledge an employee has about doing a job is learned through on-the-job experience. This makes the process of on-the-job experience a “freebie.” It is a process that creates human capital asset value without forcing the company to actually spend any additional funds. It comes as a result of doing the job.
This means 30 percent of the knowledge required to learn activities is outside on-the-job experience. Thus, organizations need to develop a plan and commit resources to implement a learning strategy to develop that 30 percent.
The remaining two dimensions of human capital (skills and knowledge) are developed differently. For the most part, skills are taught. The know-how exists external to the learner, and the development of the skill can be taught by an expert in the skills — an expert develops the skills, and a trainer teaches the skill to learners. The process is largely one of transfer of information from the expert or trainer to the learner.
For example, the skills required to program a Web site are defined by the structured rules of Internet programming languages and the structure of the Web itself. Likewise, the skills required to sell a complex product or service are dictated by the characteristics of the product or service, not the characteristics of the person receiving training.
This makes training a process of know-how development by the expert (product or compliance expert, for example), combined with delivery in the form of teaching by “trainers.” This process is largely the transfer of information from the expert to the learner. Through that transference, the enterprise’s overall human capital assets are increased by having more employees with the skills required to implement the specific business model.
The role of knowledge development is much more complex. Knowledge has more to do with the development of learner capabilities than the assimilation of external information. The learner has much more responsibility in the development of knowledge and takes a far more active role in the deployment of the final know-how.
With learning, the process is much more about internal development than external assimilation, and the outcome has more to do with the development of capabilities than with storing information. Of critical importance are learner attributes, including:
- Synthesis: This is a very important capability in the global world, where knowledge is being created at an accelerating rate. Being able to acquire, evaluate, select and prioritize information is a valuable asset for the organization.
- Analysis: This is the ability to derive conclusions and implications from information and organizational priorities. The development of analytical capabilities involves disciplined thinking and logical constructs that can stand up to third-party scrutiny.
- Critical Thinking: This is the capability to challenge the status quo, as well as innovate and implement change, which is so important in the highly dynamic global economy. Critical thinking relates to the formation of alternative scenarios and to think through “What if?” scenarios, such as the entry of a new competitor into existing or emerging markets. For example, the iPhone’s emergence requires significant critical thinking on the part of existing suppliers of conventional cell phones.
- Communications: This is the ability to express ideas in forms that others can understand and act on. One of the biggest “missing elements” corporate leaders identified is the ability to communicate through both spoken and written media. These capabilities are indeed learned, largely through trial and error, along with feedback from communications experts.
In addition to developing human capital assets through training, education and experience, learning has a second important role in human capital management. If we return to the contemporary usage of the word “talent” as representing a firm’s human capital assets, then the critical second question in the management of that asset is the same question that applies to the management of tangible fixed assets on the balance sheet: What management processes and practices help the organization protect those human capital assets from loss? From a management or process point of view, the challenge is to commit resources to protect against the loss of those critical assets.
With fixed tangible assets on the balance sheet, the organization actually creates positions and spends real money to protect against future asset loss. Financial firms spend money to hedge security positions. Manufacturers buy insurance policies against the risk of fire, floods and other natural events that have the potential to damage or destroy the value of the fixed assets. Another action firms take to protect balance sheet assets is to deduct depreciation from the income statement to free resources to repair, replace or upgrade the asset over time.
The point is that firms spend real money to protect and enhance assets on the company’s balance sheet. For the management of human capital, a similar approach needs to be taken — real resources have to be committed to replenish and restore the buildings and the equipment. Everyone from senior managers to Wall Street executives expect the company to reinvest to offset depreciation and keep the tangible assets current. Depreciation and reserves to deal with depreciation are common in balance sheet accounting.
When it comes to human capital assets, no approach comparable to depreciation exists in their management. It might be premature to expect funds to be committed to replenish and restore human capital as a standard management process. Senior managers and Wall Street simply are not ready to embrace the notion that more than 80 percent of the value being created today is related to intangible assets, including talent, and less than 20 percent is related to the fixed tangible assets on the balance sheet.
In the future, organizations will reserve more resources to replenish the depleted human capital assets. Until that time arrives, remaining competitive requires that every avenue to protect the human assets developed through training, education and experience be retained to the maximum degree possible.
This is where learning plays a second role in talent management — it is important to protect the human capital assets against loss from uncontrollable risk events, much like a fire or an earthquake in the case of a building.
In the case of human capital, the loss is the departure of the employee who has received the training, education and experience and is such a valuable asset to the firm.
Unlike the loss from a fire in a factory, which might be partial, in the case of the human asset, the loss is complete. The value of the asset created by the firm’s investment is always total or, in some cases, worse than total. The latter phenomenon occurs when the human asset with the talent, skills, knowledge and experience goes to a direct competitor. In such cases, not only does the investing firm lose the human capital asset, the value the investing company created becomes a competitor’s asset, making the total loss even greater than the book value of the human capital asset.
The good news is that learning can not only enhance the value of the human capital asset in the first place — it can work to help retain that asset against the departure of the employee. Contrary to common myth and some early academic research, when combined with selective promotion and salary action, learning is a strong retention activity.
An organization’s talent represents an asset, and learning is the activity that enhances the asset’s value. In the face of highly unfavorable demographic trends, this makes the learning targeted at internal development far more attractive than the historical option of solely recruiting the talent from outside the firm.
On top of the asset enhancement learning delivers, it operates as an insurance policy against asset loss, as it works to improve the retention of the human capital asset to the benefit of the investing organization.