Talentism

15

Capital preservation is no longer a reliable method of opening, winning and sustaining new markets. The commercialization of human ingenuity is increasingly the path to better returns (both in growth and cost reduction). And when innovation becomes ever more important experience and education become less predictive of success. K-12 and university education systems are focusing on short-term measures of highly static skills sets: ability to read and comprehend simple information at a basic level; ability to use basic computation mechanics, elementary methods of communication and a cursory knowledge of history and literature. As Sir Ken said in the video I posted earlier  “(In our world) creativity is as important as literacy.” Unfortunately for us all, the entire education system is geared towards producing better machine-age workers on a farming-sensitive schedule. But even machine-age companies are changing their structures to compete in this new world where the creative is as important as the literate (witness what GE is doing with Ecomagination). As I said before, the education system is assuming that the world needs more investment bankers and academics, both notoriously difficult positions to achieve (and both of increasingly questionable value in a world that is creating as much as it is managing, moving and  measuring). None of these skills is important in adding and / or creating value in the corporate environment of the future.

14

As we have explored before, experience and education are decreasingly effective as means of determining whether an individual will be able to produce a suitable amount of value for the investment required (ROI). When the game was capital preservation (the basis of most risk adverse corporate policies) it made sense to homogenize the risk profile of any potential hire by proxying your decisions to the deans of admissions of prestigious academic institutions or to the hiring managers in other organizations which experienced consistent economic success or had a good brand. So a person attending Princeton and rising through the ranks at GE is going to be less of a risk than a person who walks off the street having barely graduated high school. The Ivy leaguer most likely has the analytical skills needed for most machine and information age management and product development, and they likely have the bland professional demeanor that clients / customers need to feel comfortable doing business with your organization, since most capital used in buying transaction was concentrated in the hands of people who were bland themselves. Whether a hire or promotion can really produce value or not was (and is) secondary to whether the output and the behaviors of the individual employee were predictable and safe.

13

For all the formalized systemization of business analysis (starting with Fredrick Taylor, traveling through Drucker and moving through Porter and Hammer, amongst others), business is still much more art than science. This is incredibly discomforting for all the MBAs that have been drilled in case method and six sigma. But the simple fact is that in business people are given titular power in a hierarchical, militaristic structure where the relative influence of the position is predicated on the individual’s ability to accurately predict the future, which as we all know, is much more art than science. I used to think that elevation was based on ability to execute ever larger tasks of ever greater value with decreasing amounts of waste, developing more complex and effective teams and influencing key constituencies to achieve ever greater levels of output, but I have long since given that up as being too Pollyannaish. Over the many years of participating in large organizations, I have come to the decision that the people who elevate other people are making a bet: this one is going to be able to predict the future better: what we should create for which markets, and who should be a part of the team to make that happen. All of it is about predicting the future, which is tough, because humans are notoriously bad at this mission-critical activity. As Sir Ken said in the video I posted “Nobody has a clue what will be happening in five years time… the unpredictability of (the future) is extraordinary.” Remember, this is a guy who got knighted because he spent a lot of time predicting the future accurately (specifically how society would require different ways of educating students), at a conference attended by many of the top minds in the world. None of them would confidently make predictions for what the future would look like two years out. And yet managers are asked to make those types of guesses all the time. It takes years for someone to become fully comfortable inside the average large corporation, and it takes years to bring products to markets and see whether they will take. So the person you are elevating in the corporate hierarchy today is being held accountable for making the right decisions in a world where the sheer amount and velocity of data makes most of the decisions merely educated guesses. And since the people who make the decisions about who should occupy these ever higher levels of control are as genetically hamstrung as the people they so elevate, those king makers (and their agents in the recruiting and HR departments), look for convenient short-hands that will reduce the risk associated with the hiring or promotion of that individual. The most common shorthands are experience and education. And this is where all the trouble starts.

12

Unleashing the inherent creative potential of human beings, reducing the power and presence of structures that incentivize people to produce waste and destruction as a necessary output of their production, changing the way businesses are valued to encourage them to invest more in creating knowledgeable, wise and constructive free agents in open markets (both internal and external).. this will hopefully be the legacy of Talentism. Obviously this is massive change on a global level. Such change can seem daunting, perhaps even so grandiose as to be unworthy of our attention. But I believe that we can start having an impact on the corporate system to bring this new vision into being, and I believe that the first step happens in the recruiting department.

11

Nothing I am saying here isn't understood by every business person who reads it. Growth means innovation. Cost control will increase profits (recent record profits by many large companies can testify to that), but at a certain point you have to grow or die. Innovation is the key to growth. Companies will need access to a certain type of talented individual (or group of individuals) in order to be able to continue to grow at the rates that they have in the past. Again, structural advantages (brand, access to capital, switching costs, etc.) will be decreasingly important, as those advantages are based on capital and information advantages (also known as information asymmetry) which are fast disappearing. Being able to attract the right talent, rapidly commercialize the outputs of that talent and extend the power of the talent investor through increasing the reach, value and velocity of information in their social networks will be the new advantage. This will require new thinking, approaches, processes and skill sets throughout the corporation, but most of all in HR. I predict that by 2020 we will see the first signs that finance is fighting to get a seat at the table and HR is the de facto control agent in corporate decision making. This will involve a wholesale replacement of the standard HR department with new “Talent Investment” and “Talent Operations” departments, just as HR replaced the old personnel department. The days of 'payroll and picnics' will come to an end.

10

Innovation will continue to increase in value as capital continues to commoditize. This trend will continue for the foreseeable future. The factors that are driving this (western policies that value wealth over work, the corresponding accumulation of capital in private individual’s hands who have enough disposable income to take high risk investing to new extremes, the application of that capital in corporate markets as a way to seek more predictable returns, demographic changes that shrink the available labor pool, education challenges which will continue to diminish the inherent capacity of people to add value in innovation-dependent environments, the increase of free agency as a corporate employment standard, the decreasing cost of infrastructures needed to create and commercialize at the mico-transaction level, increasing information transparency where IP rights and brand identity decreasingly have leverage in customer buying decisions and the inevitable march towards health care in the U.S. which will be decoupled from employers which will further drive free agency employment conditions) are not likely to diminish in any foreseeable future, and these factors will drive the continued value of innovation and the decreasing value of access to capital.

9

At the same time that innovation is growing in importance capital is decreasing in importance. It makes sense: there has been an unprecedented globalization of wealth creation and access to capital sources. Aggregation of wealth in the hands of people who get paid for getting the cash to move quickly (otherwise known as increasing the velocity of capital) means that the allowance for risk in capital markets has dramatically risen (so much so that the Fed is starting to look at the lending practices of banks in LBOs since the terms of the deals are so favorable to the borrower). It’s simply an economic law of averages: more money chasing a relatively stable number of deals means that the bets have to be bigger and the number of potential deals increased by looking for other avenues for deploying capital (the present LBO craze). So at the same time that creativity is becoming ever more important to wealth generation, capital is becoming decreasingly expensive (as measured by the total cost of acquisition and maintenance of that capital). Further, the means of production (those things which enable the commercialization of creativity such as software, hardware, financial services and networks) are easily accessible by everyone. It is cheaper in real dollars (not opportunity cost of time spent) to set up a website than it is to get the average fast food dinner for two.

Same Game, Different Team

Sometimes I feel caught in the middle. My language and concepts seem too esoteric for hard-nosed business people, and my focus on increasing economic effectiveness seems to pedestrian for academics. I get to live with the blank stares of corporate executives every day, so that I have grown relatively used to. But for some reason I am always hopeful that people who spend their lives thinking about education will understand me better. The greatest disappointment is when I realize that the academic professionals who are engaged in education are just as invested in continuing a bad system as the corporations believe they are. I realize that modern western education systems are really good at producing three kinds of professions: academics, investment bankers and attorneys. Since all three work in the field of analyses, they are all deeply invested in making sure that the education system continues to pump out more of them, however damaging that may be.

Perhaps it is just my native cynicism, but I don’t think that there will be a spontaneous societal recognition of the need for changing education, nor will there ever be a conversation amongst powerful people about ideas that will result in fundamental changes to our education system. Systemic inertia and myopic self-interest being what they are, nobility, goodness and wisdom are not the best way to get a bureaucracy to change what it does.

But that doesn't mean all is lost. I do believe that if you can get alignment between what is right and what is good, between what corporations need to succeed in the creative age and the capabilities of education to increase the generative capacity of wise, connected and emotionally aware agents in an open civil society where production of value is assessed on the basis of true cost and sustainability… then you will start to change the education agenda.

Just as organizations have had to go through the “mission / purpose” exercise in order to align their productive capability with an ever-more dynamic market landscape, I believe that once schools understand that what they do doesn’t get their products (educated children) jobs (and therefore doesn’t get them money), they will start to change their behaviors and fundamentally examine why they exist and how they deliver value.

Inevitably the education academics will change the subject and move to America's weakness against other countries in standardized testing, especially math and science. I think they are using this as a blunt instrument to show that the education system is working but inefficient; that we are doing the right things in education, but just not hard enough or with enough focus and fervor. They are dangerously wrong.

I don’t believe that a solid grounding in deep math and science is a prerequisite for future economic success in western economies. Saying that we should be concerned because we are falling behind other countries in standardized testing is exactly that same as equating America to a football team whose front linemen are small compared to other teams. The logical conclusion from this data is that we need to get bigger lineman in order to compete.  So we start building up our linemen and buying better, bigger front line talent at the same time another team comes out with the west coast offense and makes running up the middle less of a competitive advantage. In short, you can achieve the objective of optimizing a certain capability but lose the game anyway.

Learning math and science are not ends in-and-of themselves. They are means to increasing production in economic and scientific endeavors. We may all be competing on the same field, but limiting how we play the game to the standard model will surely result in a loss for the United States.

We can’t use the old linear progression type of thinking in assessing future competitive dynamics. You would think that China would have to put in a copper-based communications capability before they could progress to cell phones, but you would be dead wrong. As is reported on the Earth Policy Institute website in February 2005:

Nowhere is the explosive growth more visible than in the electronics sector. In 1996 China had 7 million cell phones and the United States had 44 million. By 2003 China had rocketed to 269 million versus 159 million in the United States. In effect, China is leapfrogging the traditional land-line telephone stage of communications development, going directly to mobile phones.

The U.S. will not be competitive in the long-term in analytical skills. The simple fact is that a middle-class kid from the U.S. will never be as competitive as a poor kid from China in math and science on the playing field of pure rote learning and fundamental mechanics. It’s not a xenophobic generalization. It is a recognition that China is going to invest more in math and science education than the U.S., that a middle class American won't wake up hungry and thinking that a good math and science education is the only way to get food and that the kid in China is going to have access to cheaper goods and services than the kid in U.S. In short, the problem is structural: it’s an economics, cultural and initiative problem more than anything else. This means we are playing the same game (global economics) but we need to put a fundamentally different type of team on the field in order to “win” (however loosely that may be defined).

Again, all is not lost. Far from it. Even innovations in math and science will be far more dependent on Einstein-types of skills (fundamentally reformulating the problem to arrive at a totally different perspective and solution) than Newton-types of skills (increasing precision in the description and prediction of a phenomenon).  While Einstein clearly understood math, it was not his forte. He was first and foremost a creative who was given the space to think differently because he wasn’t deeply embedded in the physics community of that day which was proclaiming that all things that could be discovered about physics were in the past.

Leveraging the comparative cultural advantage of the U.S. in a creative economy (openness to failure, experimentation and connection across cultural and economic boundaries) should be our first goal. It aligns what is good (increasing the generative capacity of all children, independent of race, creed, color or disability to produce sustainable value that benefits them and the buyer) with what is right (providing more jobs for more people while decreasing the cultural, societal, environmental and economic waste created by those jobs). I believe that the structural deficiencies of the corporatist system that feeds a consumerist dependency on individual gratification as the heart of economic prosperity is at the core of a lot of what ails us. Of course, I could be totally wrong. But one thing I learned long ago is that it is better to be clear than certain. And on this, at least, I am clear.

8

The modern corporatist system propagated itself unattended and almost without check, with the exception of the labor movements of the late 1800’s and 1900’s, which put a different but equally destructive system in play – that labor, like capital, is a value unto itself, regardless of how it is employed or the value it produces. Then things seemed to be turning around in the early 1980’s, when the advent of access to relatively cheap computing meant that an increasing number of companies competed in the realm of applying knowledge. Since knowledge was the unique province of the human being (as opposed to mechanical leverage, which was the domain of machines), people started to become more important than equipment. Then we moved to the place where knowledge was cheap and easy because of the interconnected capabilities of cheap computing resources. Competitive advantage started to go to companies that could commercialize creativity (the most common meaning behind the term “innovation”). As an increasing number of companies compete based on their ability to take human being’s ideas and turn them into consumable products and services, and as the infrastructure for commercializing those ideas becomes ever cheaper to access, utilize and extend, creativity becomes an ever increasing component of competitive advantage. In addition, as the excellent slideshow below demonstrates (a huge thank you to Gautam Ghosh for originally exhibiting this slideshow, whose wonderful blog covers many aspects of innovation can be found here), innovation is increasingly seen as part of process excellence and cost cutting.

7

We are creatures of our cultural heritage, all cogs in a system to which we contribute but can't possibly comprehend. We may never have been soaked with the hose, but we know not to go get the banana. I once heard Senge describe the war between our rather static biology and the complexity our systems as "driving ever faster into the growing darkness of a foggy night while dimming your headlights."  And so it is with business practice. Our tendency to value capital over the creative capacity that makes that capital possible is as old as western society itself (native people's and hunter / gatherers avoiding similar fates since ownership, and the capital that comes with it, was not a common concept in their cultures) . But the systems that would ensconce bad practice into self-perpetuating systemic oligarchy took on a regrettably predictable trajectory during the 1850’s and 60’s. It was during that time, with mass migrations from rural to urban and from agrarian to industrial production that we saw the general “employment identity” come to bear. This identity is based on the belief that access to capital is the equivalent of intellectual superiority, and that securing an investment is harder than finding an employee. Or, put another way… the basic employment identity says: money is expensive, labor is cheap and rank is based on merit. These temporary structural anomalies (for they are not permanent parts of a free market system but artifacts of demographic realities, class structures and resource allocation) created a deep-seated, but rarely examined, belief that there was a justifiable link between success, ability and fairness. That was not (and is not) true, but few wanted to admit that the most open economic system in the history of the world was a rigged game. If you were white, male, connected, safe and analytical, you could probably make a good go of it. If you were colored, female, disconnected, adventurous and creative you would probably die of starvation. Not always, of course, but the probabilities were clearly against you. For most of modern western economic history this power imbalance driven by capital was great for managers and bad for workers. In the creative age, it will be bad for both.