Financial markets are in turmoil and the credit crisis is creating economic havoc. Credit has tightened to the point that even good companies are finding it nearly impossible to get the necessary credit to run their day-to-day business. While this scenario is playing out in the capital markets a similar crisis is developing in human capital markets.

Talent more crucial than ever

Cash may be king, but when it comes to human capital - talent is king. And in bad times, talent is even more important. Talent has become the key differentiator between success and failure.  Ultimately, companies without sufficient talent will fail.

Yet companies looking to fill key leadership positions are finding it ever more difficult to locate and attract serious talent. This is a systemic problem that has developed over decades. Without an immediate, concerted effort to remedy this situation, many companies will find it impossible to attract the necessary talent and will fall into downward cycle to a place called “mediocrity.”  Once there, companies will be in a constant battle to just hang on.  Victims of a profound talent squeeze. The only cure for individual companies is an intense focus on talent acquisition, talent development, and talent retention. And it must begin now!

Demand is up, supply is down, it’s that simple

The need for talent has grown dramatically as the global economy has expanded. But little has been done to replenish or grow the talent pool. In some industries and job functions the talent pool has been diluted to the point of crisis. And this situation will only get worse. Just one example is the lack of sufficient, talented, aviation and aerospace engineers. Across the board, companies are finding it difficult to fill key engineering leadership positions.

It’s gotten to the point where a decreasing number of talented engineering executives are simply being shuffled around, while nothing is being done to rectify the lack of engineering management talent. Recently Airbus announced it finds itself unable (shockingly!) to find sufficient qualified engineers and engineering managers within the EU and that it is engaging in a global effort to recruit talent from around the world.

What happened?

Talent dilution! And talent dilution coincided directly with advancements in transportation and telecommunications that made executives extremely mobile.  In 1959 when the first passenger “jet” aircraft took to the air in North America, the executive search business was a tiny cottage industry. Twenty years later when over 2,400 jet passenger aircraft were flying over North America, the search business had turned into a billion dollar industry.  Twenty five years later, with 3,500 jet aircraft flying in the skies, the executive search industry had grown to over $7 billion in annual revenue.

Connect the dots

As it became easier and easier to poach talented executives, companies became weary of needlessly training talent for fear of losing them to competitors. In the spirit of “if you can’t beat them, join them” many companies began cutting their investment in talent development and over time, relied more and more on external recruiting to fill leadership roles.

This trend was only exacerbated when corporations began aggressively cutting extraneous costs. Let’s face it, costs that aren’t directly enhancing profits inevitably become expendable.

Even companies that rarely use executive search began slashing development budgets, thus putting their companies in a precarious situation. It’s just not sustainable to rely almost entirely on internal promotions while simultaneously cutting development efforts. Over time, fewer and fewer positions are filled with real talent. Instead positions are filled with long time, well connected bureaucrats relying exclusively on their relationships rather than their talent.

For companies that do rely heavily on external recruiting and no longer produce talent in-house means these companies have willingly sacrificed their self-reliance.

While the shift to external recruiting has worked reasonably well for several decades; today the need for talent outstrips supply. Without replenishing the talent pool, there just aren’t enough talented executives to go around. And companies need to adapt.

Act now!

Companies are gambling with their future if they do not act. There are a number of things companies must start doing now:

1. Shore up the talent. Good enough just isn’t anymore. And companies cannot rely on the open market indefinitely to recruit talent. So get the talent you can, while you can.
2. Make mentoring and coaching skills a key requirement for all executive hires. These are unique skills that not all of us possess. Great executives with mentoring skills will help grow and groom other talented executives. This is only possible if a serious focus is placed on such competencies during the recruitment phase. Unfortunately, when talented executives without mentoring skills leave, companies are typically forced to go outside for replacements because nobody was groomed to take over. This is a travesty.
3. Adjust to the rising cost of talent. The cost of talent today is a bargain compared to what it will cost when talent becomes even more scarce.  The market determines the rate for talent, not a company’s internal salary scale.  Companies need to refocus their compensation parameters from a simple cost consideration to a value consideration. Get comfortable paying people commensurate to the value they provide the company.
4. Start investing more time, effort, and money on internal development.  Just putting a high-level priority on grooming talent can create a fundamental shift in the amount of time and effort spent on such activities. And recruiting and elevating natural mentors is a very efficient way to grow talent.
5. Talent retention is imperative. Everyone knows that it’s much easier to hold on to an existing customer, than it is to gain a new customer. So too with talent.  Acquiring new talent is much more difficult.  So work hard to keep talented executives motivated, challenged, well compensated, with a real opportunity for advancement.

Recently we were asked to conduct a secret search for a position that was currently occupied by an incumbent who had no idea he was about to be replaced. We declined.

Dealing with a hire before you fire situation is very touchy. My advice is to be extremely wary of using such an approach and to restrict its use to only the most extraordinary circumstances.

The simple truth is that a “hire before you fire” approach hurts companies more than it helps. Not only does it send a poor message to candidates, it sends a horrible message to current employees.

Your conduct is symbolic of who you are

How a company conducts a search for new employees creates a snapshot of the kind of company it is. Is it an open, honest, ethical environment? Is it a company people can respect? These questions are answered in part by the way you conduct your search.

The real question you need to ask is what kind of company are we? And what kind of company do we want to be? This should guide your actions. Even though a crucial employee may decide to leave prematurely if they learn they are going to be replaced, it’s the honorable thing to share this information. Of course, making contingency plans in case that employee does bolt prematurely is part of what good companies do. But attempting to actively go on the open market and fill the position in advance is another thing altogether.

Searches cloaked in secrecy create unintended consequences

Companies that engage in hire before you fire searches are usually oblivious of the unintended consequences. Secret searches are often difficult. Primarily because confidentiality is paramount. Often recruiters may not divulge essential information to candidates such as the company name, location, or other crucial details.

Mediocre or desperate candidates might accept this level of secrecy, but great talent definitely does not. “Come back to me when you can divulge all pertinent information,” one typically hears from talented professionals. And to their credit - it’s the answer I want to hear from them. Why? Because if they’re too interested in a position shrouded in secrecy, it makes me question if they’re really that good. Additionally, if they learn that an incumbent is unaware of the search and they see nothing wrong with it, it makes me wonder what kind of ethics and values they would bring to the company. Let’s face it, if a company is doing something sneaky, I have to assume willing candidates are quite willing to be just as sneaky.

One thing companies must understand is that every word, every behavior, every action, is evidence to potential candidates of the kind of organization they are dealing with. Everything communicates.

Our practice has turned away several hire before you fire assignments. What we have been willing to do in certain cases, is to prepare the search, conduct necessary research, identify the people we would want to approach, etc, so that we can jump into the search, full-speed, as soon as the incumbent has been informed of the company’s decision to replace them. Only then will we typically contact anyone about this search. Taking this approach frees us from maintaining secrecy and allows us to perform the best search possible, while reducing the lead time for bringing in candidates.

Search is more than just finding an executive

Of course the primary goal of any search is to find a suitable placement, but how you conduct a search is a a public display of the kind of organization it is. Don’t believe that simply because a search firm is running the search that your company won’t take a hit. The search firm you select and the way they run the search is equally telling as the interactions a candidate experiences with your company. After all, you hired this search firm, so the expectation is that you endorse their work and stand by how they represent you.

What’s more, engaging in a hire before you fire search is extremely damaging to your employees. It creates uncertainty and distrust. Don’t be surprised if a number of your employees start wondering if they might not be next.

But if all these factors don’t dissuade you from pursuing this approach, consider that such searches are often flawed, resulting in candidates who are not the strongest. Typically they are only incrementally better if that. And what kind of victory is that?

So think again and realize the upside to tackling the situation with integrity. Doing so will result in better results and a better reputation.