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IBM’s Challenge

IBM’s global business strategy (refer to Figure 1-1) was created in response to key challenges faced by the firm and similar global companies. Issues of talent development and retention, knowledge creation and transfer, and sustaining business impact can each be tied to clear trends facing the company.

The well-noted “War for Talent” concept as articulated by the McKinsey & Company14 report reflects the increasingly competitive market for talent, leaders, and innovative knowledge workers. This report declared that knowledge or talent is now the key factor in driving the effectiveness of many organizations today and in the future. Thus, a company’s capability to attract, develop, and retain talented individuals provides a competitive advantage as the war for talent persists. Issues such as social capital, communities of knowledge, and talent management have replaced some traditional human resources topics of hiring, staffing, and performance evaluation. The McKinsey research included surveys of 13,000 managers and executives across more than 120 companies, along with case studies of 27 leading companies. It found clear evidence that better talent management leads to better performance. On average, companies that did a better job of attracting, developing, and retaining highly talented managers earned 22 percentage points higher return to shareholders. Unfortunately, as the authors noted in the report, organizations have a long way to go in being prepared for the ongoing talent war. Thus, organizations like IBM needed to face several issues impacting its current and future pipeline of knowledge within the organization—its people.

The first clear challenge is that the global war for talent means that top organizations around the world must pay more attention to the impact of high employee turnover, particularly among diverse employee segments. For example, Ernst & Young discovered that a lack of retention of women was costing the firm about $150k annually, in addition to causing a decrease in client satisfaction because the people responsible for their projects frequently changed.15 Nortel Networks faced difficult challenges after three years of widespread layoffs and a decline in share values. It made the retention of the remaining talent within the company a strategic priority to help stem the negative trend. Deloitte management made the decision to focus more strongly on developing its international talent in the late 1990s but could only recruit about 1% of the organizational global workforce to participate. To meet this challenge, they created a Global Development Program, which began by understanding what attracted potential candidates to work at Deloitte internationally. Its focus on global retention helped Deloitte design an effort to double the number of participating countries and employees in these efforts. Deloitte executives see this strategic focus on global workforce development as a factor in the company’s 2002 11 percent growth in global revenue.16

The significant impact that employee turnover has on key performance metrics is not unique to these few companies nor to IBM. This disturbing trend was highlighted by the findings of the most recent “corporate leavers survey.” Conducted by the Level Playing Field Institute, this study showed that each year across the United States, more than 2 million professionals and managers voluntarily leave their job because they feel that they are treated unfairly.17 This study concludes that voluntary turnover costs for U.S. firms in 2007 reached a staggering $64 billion dollars. This research also showed how employees who left their firms later provided information that discouraged potential customers and job applicants from working with their former employer. Thus, ignoring retention issues may impact future recruitment of talent and new customers into the organization. Also disturbing was the finding that people of color were three times more likely to report that workplace unfairness was a key reason for their voluntary exit compared to white males. The clear message from these studies and other corporate examples for IBM is that turnover and the loss of human capital is an expensive proposition that negatively impacts an organization’s competitiveness.

The second challenge involves generational differences that are causing a dramatic change in what employees expect from their employer, as well as how they view the meanings of work and career. A great deal has been written, particularly in the United States, about the impact of “Generation X” and the emerging “new millennials” and their requirements for a satisfactory workplace environment.18 These changing demographics are providing a talent pool of potential employees who expect a very different workplace than traditional organizations may provide. For example, members of Generation X have the following expectations about the work environment:

  • Bureaucracy will be replaced with more participatory management
  • The value of the employee shifts from being defined by tenure toward an emphasis on accomplishments, and open communication is facilitated throughout the organization
  • An employee-friendly work environment is cultivated that includes respect, learning, collaboration, work-life balance, and a sense of purpose19

Similar observations are now being offered in terms of values and workplace preferences for those in the next generation of new millennials.20 After several decades of research trying to identify the key drivers of employee turnover, it is clear that supportive relationships that build what is frequently called “relationship wealth”21 are essential, and are becoming increasingly important to new generations of employees (for example, Generation Xers and new millennials). What this suggests to companies like IBM is that organizations must not simply look to attract and retain talent, but must focus on employee development and ultimately engagement of talented knowledge workers.

The third challenge is that the particular issues faced by the IT industry may require a somewhat unique approach to workforce development and utilization. The vital role that knowledge and intellectual capital play within the IT industry has been recognized by a number of industry leaders. For example, Microsoft CEO Bill Gates noted in his speech before the Joint Economic Committee of Congress that, “The lifeblood of our industry is not capital equipment but human capital.” Similarly, Intel CEO Andy Grove commented that today’s global economy “is all about human resources.” In a speech at INSEAD, IBM CEO Sam Palmisano argued that, “We need to think seriously about issues in a global—not just a multinational context...the new skills we’ll need to develop...and the new kinds of organizational culture that will be required.” Each of these leaders within the IT industry points to the demands for knowledge workers, the challenges faced within this dynamic industry, as well as potential solutions.

IT effectiveness has been clearly linked to the pool of available knowledge professionals across a wide variety of IT specializations. As demand increases yet the supply remains stagnant, those with valuable skills, knowledge, and expertise will seek out the best options.22 In one research study of human capital within the IT industry, the profile of the typical IT worker was found to be distinctly different than that in other industries. IT professionals were found to typically be younger workers who have less of an investment in a firm-specific employment relationship compared to older and more long-term employees.23 This means that they utilize a different cost-benefit perspective to determine whether to join, stay, or leave any organization or employer.

In addition, change within the IT industry happens at a rapid pace, which has a significant impact on career opportunities and mobility for people within the field. The issue of “knowledge obsolescence” or having expertise that is no longer in use or that has been replaced by newer knowledge and technology is a challenge for these workers. Career stagnation, or what is called “career plateauing” which creates a feeling of being trapped in one position with little opportunities for growth and change, is also a key concern.24 What this means for IT and IT-related organizations is that the need to develop an approach to recruiting, training, and developing employees must be done in a manner that is flexible enough to meet the challenging demands for these talented knowledge workers.25 Employees within the IT industry require access to rapidly changing information,26 broad information sharing within the workplace, and flexible opportunities for competency development. Interestingly, a number of studies also focus on the need to go beyond traditional monetary bonuses and rewards to effectively drive performance and retention among IT professionals.27

Clearly this array of challenges highlights the need for an innovative set of solutions for companies like IBM. To outline a response, IBM examined the market trends, but then focused on internal analysis and benchmarking to determine the specific issues within the IBM culture. Several key questions were raised. What is the nature of recruitment, retention, and development across the business enterprise? How was the climate and culture of IBM viewed by current and potential employees? Did people see the existing employee support system, including mentoring, as useful? The response and revitalization of mentoring came as part of IBM’s response to these critical questions.

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