In workshops with business leaders, my research colleagues and I often ask: How would you divide 10 points between talent — individual competencies, workforce, people, employees, human capital — and organization — workplace, organization capabilities, systems, teamwork, culture — and their relative impact on business results?
While many people have personal opinions on this question, we have done research on it with more than 1,200 businesses and 32,000 people. We have determined both the quality of their organizations and the competencies of their people for these businesses. We then regressed these two domains on the financial and stakeholder results from the business.
While other factors such as strategy, industry, operational excellence and culture impact business results, we were able to divide the relative impact of talent and organization on business and stakeholder results. We found that organization has four times the impact of talent on business results. These are dramatic findings and imply an 8 to 2 ratio in our 10-point allocation with executives. While this work was done within human resources departments and with HR professionals, the results can be generalized to other settings.
Consistent with our 80/20 finding, we find similar patterns where organizations have more impact than individuals. For instance, in the Academy Awards, the winner of the leading actor or actress Oscar is in the movie that wins best picture Oscar about 20 percent of the time. Or, in team sports like basketball, hockey and soccer, the leading scorer is on the team that wins the championship about 20 percent of the time. Music groups outperform individual artists, when the group breaks up, about 80 percent of the time. Individuals may be champions, but teams win championships.
Talent matters, but the organization matters more. These findings have enormous implications for CLOs. CLOs are the architects of ideas with impact. They encourage learning for both individuals and organizations. In many cases, learning focuses on individual leader competencies and how individual leaders recognize and master the competencies they need to be effective.
Given our findings, CLOs might want to pivot to define and build more effective organizations. They can begin by understanding what it means to have an effective organization, which has shifted from a focus on:
- Morphology: Organization has clear roles and responsibilities that can be improved, like re-engineering and accountability
- Systems: Organization has processes that can be aligned such as 7S, STAR, organization health to
- Capabilities: Organization has capabilities required for success.
Capabilities represent what an organization is known for and is good at doing. Capabilities include how the organization patterns its collective human intelligence and activities through integrated infrastructure processes, structures, incentives, skills, training and information flow.
CLOs charged with building stronger organizations can do organization audits to determine which capabilities are most critical given their organization’s unique strategy. They can then convene learning experiences to create these organization capabilities through both personal leadership behavior and management practices around people, performance, information and work. By so doing, CLOs can build organizations that outlast any single individual leader.
Our data do not call for companies to abandon training individual leaders; instead, they should pivot to create stronger organizations. In our research with 1,200 businesses, we tried to identify which capabilities CLOs should focus on. We studied the effectiveness of how well a business demonstrated one of 11 capabilities and the impact of each on a six-item measure of business results.
Using these criteria, our findings suggest that CLOs should focus more of their efforts on creating capabilities for external sensing, or bringing external information into the organization, along with speed and agility, innovation and managing culture. When CLOs focus their learning agenda on these capabilities, they will build more competitive organizations.
The war for talent has gone on too long for most companies. It is time to win by shifting the focus from managing talent to creating the right organization. Organization has four times the impact of talent on business financial results and stakeholder value. When CLOs understand the importance of organization and focus on creating stronger organizations, they may have even more business impact.
Dave Ulrich is the Rensis Likert Collegiate Professor of Business at the Ross School, University of Michigan, and a partner at the RBL Group, and co-author of the new book “Victory Through Organization: Why the War for Talent is Failing Your Company and What You Can Do About It.” Also contributing to this article were David Kryscynski, assistant professor of strategy at Brigham Young University’s Marriott School of Management; Mike Ulrich, assistant professor of business management at the Huntsman School of Business, Utah State University; and Wayne Brockbank, clinical professor of business at the University of Michigan’s Ross School of Business. Comment below or email editor@CLOmedia.com.
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