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Optimal use of talent for faster growth

Optimal use of talent for faster growth
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First Published: Thu, Sep 11 2008. 11 18 PM IST

Updated: Fri, Sep 12 2008. 11 31 AM IST
Not long ago, while interviewing a smart and articulate equity researcher for a role in a start-up, I was surprised to hear him tell me that he did not want the “hassle” of dealing with people and taking day-to-day decisions.
There is anecdotal evidence to show that access to the best talent is limited by virtue of a perception that roles in most of manufacturing and services are complicated. This trend is disturbing. Smart people ought to be interested in, and capable of, dealing with a complex mix of people and resources which go into large organizations.
As early as 1987, Fortune magazine ran an article lamenting the fact that, for the first time, more than 50% of MBAs (master’s in business administration graduates) from the Harvard Business School had chosen to take up roles in Wall Street or consulting. This was cause for much hand wringing, since for more than three generations Harvard had provided CEOs for many American corporations. “The image of a business school is that it produces captains of industry, now its only producing the well-paid lieutenants of Wall Street,” said the article. These concerns were, however, softened by the fact that during the period of the US’ rapid economic growth, the best minds had indeed worked for the US military industrial complex. India, in contrast, is in too adolescent a phase to be able to indulge in this luxury.
In India, too, we now see an increasing trend where financial services and securities trading firms and consultants recruit the best talent, often out of all proportion to their size or economic impact. These are all professions which require high levels of intelligence and multifunctional skills. However, several of these professions are advisory in nature and usually play a peripheral role in the type of decision making that influences the risk-and-reward value chain of an economy. If the US, with a century of progress, could have been concerned about the direction in which its talent is headed, should we, who have barely had 20 years of comparable fast growth, not also be concerned?
Is there a pecking order for the optimal use of talent in an economy? In an article written in 1990 in MIT’s The Quarterly Journal of Economics, Andrew Shleifer and Robert Vishny concluded that for a country to grow faster, its most talented people need to have a chance to organize the production and services of others. When such persons work in critical roles in large organizations, the economy grows faster. As an instance, the study produced the interesting insight that countries with more engineers per capita grew faster than those with more lawyers, presumably because engineers are better placed to leverage their skills over a larger scale.
At the heart of the Shleifer-Vishny study is the belief that the essence of great management is the ability to make the best choices based on potential rewards and risks in any given situation. Optimal growth is obtained when the best persons are directly making these choices. In light of this argument, is it, therefore, optimal for a country to have a disproportionate share of its brightest minds outside the chain of activities which maximize growth? Should there not be a realignment of incentives to ensure that a fairer share of the best talent is actually redirected into the real economy?
Different institutions have a role to play in achieving its end. Business schools need to focus their curricula towards roles that involve more organization, as opposed to the current focus on analytics. There is an onus on the media too, to be prepared to recognize the very real and different challenges of managing large organizations. Setting a price, hiring an employee, ordering a machine, opening a store are the decisions that make the real economy tick. The rough and tumble of consumer goods sales or of setting up a new hotel or rolling out a telecom network involve complexities greater than closing out large deals, but get little coverage.
However, the largest responsibility rests with the boards and managements of those companies which seem to be losing the war for talent. Compensation continues to remain the decisive factor in most employment decisions, but employees, like customers, fall into distinct segments—such as mid-career women, older workers, Gen X and Y, and so on. Each of these groups places a different value on different facets of the working mix. The opportunity to make real decisions, the ability to lead teams, the autonomy they enjoy, the opportunities to network and the balance between work and play, are all factors that need to be emphasized consciously by the senior management of the organization.
With a few exceptions, organizations rarely place frontline business leaders in the critical function of human resources. Rarely is the function empowered to take bold and aggressive steps to lift the hiring profile of an organization.
In 1997, when McKinsey and Co. undertook the definitive study on this issue in an article The War for Talent, it proved that hiring high potential individuals can result in a 50% higher level of productivity. It would be hard to disagree that people are the largest driver of innovation and growth. Even relatively small changes in ensuring that scarce talent is allocated in the best ways possible for India, can make a big difference. Hopefully, as there is increased recognition of this, more young managers will choose the messy but real challenges of managing people and large organizations as against the sterile ivory towers of analytics.
To read Govind Sankaranarayanan’s earlier columns, go to www.livemint.com/ruleofthumb
Govind Sankaranarayanan is CFO, Tata Capital Ltd. He will write every other Friday on issues related to governance. The views expressed in this column are personal. Write to him at ruleofthumb@livemint.com
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First Published: Thu, Sep 11 2008. 11 18 PM IST