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Building a Sustainable Leadership and Talent Management Strategy Craig R. Gill, Deloitte & Touche Building a Sustainable Leadership and Talent Management Strategy Craig R. Gill, Deloitte & Touche USA LLP ISE/ CHRMS Breakfast Seminar October 20, 2006 0

Agenda 1. The Talent Challenge Ahead: Beyond Demographics 2. Effective Leadership and Talent Management Agenda 1. The Talent Challenge Ahead: Beyond Demographics 2. Effective Leadership and Talent Management Strategies 3. Sustainability: Becoming Part of the Business Cycle 4. Lively Discussion and Debate Copyright © 2005 Deloitte Development LLC. All rights reserved. 1

1. The Talent Challenge Ahead: Beyond Demographics Assertions: Demographic shifts in the workforce are 1. The Talent Challenge Ahead: Beyond Demographics Assertions: Demographic shifts in the workforce are real They pose both a threat and an opportunity Sustainability lies in expanding and realizing potential Copyright © 2005 Deloitte Development LLC. All rights reserved. 2

Demographic shifts in the workforce are real We know that… – The Baby Boomers Demographic shifts in the workforce are real We know that… – The Baby Boomers are aging (some of us) – There is lower population growth in most developed nations – The workforce is becoming more diverse (gender, race, national origin) Source: U. S. Bureau of Labor Statistics Copyright © 2005 Deloitte Development LLC. All rights reserved. 3

Demographic shifts in the workforce are real …and there is a skills gap in Demographic shifts in the workforce are real …and there is a skills gap in developed countries… Western Europe • By 2050, 60% of the working age population will be people over 602 • Germany has seen engineering graduation rates decline by a third since 19952 U. S. • The US Department of Education estimates that 60% of all new jobs in the 21 st century will require skills that only 20% of the workforce possess 1 • US colleges and universities will graduate only a fraction of the number of scientists and engineers that will retire through 20181 1 2 3 4 Japan and South Korea • Within 10 years, 26% of the Japanese population will be over 65 years old 3 • By 2050, the percentage of the South Korean’s over the age of 60 will jump to 41% of the population from 14% today, an increase of more than 300% 4 Corporate Leadership Council, Managing the Workforce Planning Process, August 2004 Deloitte Research Corporate Leadership Council Hewitt International Report, October 2003 Copyright © 2006 Deloitte Development LLC. All rights reserved. 4

Demographic shifts in the workforce are real …while wage inflation and attrition in emerging Demographic shifts in the workforce are real …while wage inflation and attrition in emerging markets is decreasing their attractiveness as an alternative labor market… China • Only 50% of Asian executives believe the supply of skilled labor is adequate • Labor force will begin to decline by 20171 Eastern Europe • Difficulty fielding critical talent due to cultural assimilation into the business; limited experience working in a multi-national organization; inadequate people management and communication skills 4 1 2 3 4 China Population and Development Research Center Innovation in Emerging Markets, Deloitte Research, 2006 “HR Considerations For Entering The Asian Labor Market”, CLC, June 2005 “Resourcing in Eastern Europe”, Feb 2004, CLC Copyright © 2006 Deloitte Development LLC. All rights reserved. India • Salaries for supervisory positions rose 20% in 2005 2 • Indian companies are increasingly focused on developing employees to drive retention as the war for talent grows increasingly competitive 3 5

Demographic shifts in the workforce are real …and larger costs of social benefits compete Demographic shifts in the workforce are real …and larger costs of social benefits compete for funding of traditional talent management programs • While U. S. wage growth remains flat relative to inflation other employee costs, such as health care benefits, continue to rise rapidly 1 • Top five adjustments manufacturing organizations are likely to make over the next 12 months to cover the costs of employee healthcare coverage 2: U. S. Health Care Costs per Employee 9. 2% 2005 10% 9. 9% 2006 est. 8% 6% 4% 2% 0% 1 2 1. Increase expectations of employee productivity 2. Increase the costs of consumer services/products 3. Decrease other employee benefits (e. g. , retirement benefits, retiree health care coverage, pension, etc. ) 4. Decrease hiring of new staff 5. Decrease employee salaries/raises Hewitt Associates Society of Human Resources Management (SHRM) Copyright © 2006 Deloitte Development LLC. All rights reserved. 6

Demographic shifts pose a threat and an opportunity • Threats: • • Skilled job Demographic shifts pose a threat and an opportunity • Threats: • • Skilled job migrating to developing countries – public policy issues Unmanaged immigration into developed countries Reduction/loss of traditional pensions and paid healthcare Pushing the same buttons and expecting different outcomes • Opportunities: • U. S. remains healthy, active and growing – strength in our diversity • Pension/healthcare portability offers a new employment deal -- from “indentured” to “free agents” • Impetus to innovation – SUVs or hybrids? Copyright © 2005 Deloitte Development LLC. All rights reserved. 7

Sustainability lies in expanding and realizing potential We have choices: • Create less, or Sustainability lies in expanding and realizing potential We have choices: • Create less, or different, work (reengineer, automate, export work) • Add more skilled workers (import talent) • Get more out of the people we’ve got (increase yield) Copyright © 2005 Deloitte Development LLC. All rights reserved. 8

Sustainability lies in expanding and realizing potential Challenges to increasing the yield: • Rising Sustainability lies in expanding and realizing potential Challenges to increasing the yield: • Rising expectations – will this create dissatisfaction? • Diminished ambition – will this work against businesses? • What do workers want? • Who’s going to manage this? Copyright © 2005 Deloitte Development LLC. All rights reserved. 9

2. Effective Leadership and Talent Management Strategies Assertions: Traditional talent management is not up 2. Effective Leadership and Talent Management Strategies Assertions: Traditional talent management is not up to the challenge A new model focuses on develop, deploy and connect Role of the “people manager” is essential Goal of leadership development is sustainability Copyright © 2005 Deloitte Development LLC. All rights reserved. 10

Traditional talent management is not up to the challenge Acquire Develop Deploy Retain Largely Traditional talent management is not up to the challenge Acquire Develop Deploy Retain Largely a function of Assignments for training expenditures “A” Players Heavy reliance on external Driven by compensation recruitment to meet benchmarks and surveys immediate needs Deficiencies • Minimal alignment with business strategy • Less effective given labor market realities • Does not maximize the “yield” Copyright © 2006 Deloitte Development LLC. All rights reserved. 11

A new model focuses on develop, deploy, connect 1. Develop 2. Deploy Acquire Retain A new model focuses on develop, deploy, connect 1. Develop 2. Deploy Acquire Retain Develop Build capability through on-the-job learning 3. Connect Deploy Broaden and deepen capability through stretch assignments Connect Create networks and highquality relationships that maximize performance Advantages • Focused on productivity of critical talent • Creates dividends for acquisition and retention Copyright © 2006 Deloitte Development LLC. All rights reserved. 12

A new model focuses on develop, deploy, connect In an environment of skills shortages A new model focuses on develop, deploy, connect In an environment of skills shortages and limited resources, the focus must shift from managing “A” players to “A” positions From “A” Players How do we support our top performers? To “A” Positions How do we support our most critical positions? A Critical Workforce Segment. Based Talent Strategy Copyright © 2006 Deloitte Development LLC. All rights reserved. 13

A new model focuses on develop, deploy, connect Building a critical workforce segment strategy: A new model focuses on develop, deploy, connect Building a critical workforce segment strategy: example Business Unit Strategic Plan Build new technologies Grow Asia Sales and Marketing HR, Finance, IT, Supply Chain Business Development HR Business Partner AP Analyst Global Key Account Mgr Sales Analyst Technology Platform Mgr Demand Planning Mgr Strategic Support Core Support Critical Position Strategic Support For Core Support Positions For Critical Positions – regardless of level • Reduce talent investments or outsource • Increase access to investments and For Strategic Support Positions build talent by feeding from strategic • Maintain investments and buy talent support positions Copyright © 2006 Deloitte Development LLC. All rights reserved. 14

A new model focuses on develop, deploy, connect Workforce planning focuses HR programs levers A new model focuses on develop, deploy, connect Workforce planning focuses HR programs levers that will most effectively meet the business demand for critical talent 1. Talent Demand Forecast Driven by business plans and workforce attrition 3. Talent Management Objectives 4. Talent Management Programs 2. Talent Supply Forecast Internal and external labor market factors Serves to define: • Future business demand for critical talent • Opportunities presented by the external market • Potential to maximize existing talent Copyright © 2006 Deloitte Development LLC. All rights reserved. 15

A new model focuses on develop, deploy, connect Workforce Planning Example: conducting workforce planning A new model focuses on develop, deploy, connect Workforce Planning Example: conducting workforce planning for Product Engineers • Reduce attrition • Increase transfers in 60 40 Promo In Voluntary Attrition Trans In • Improve productivity • Increase promotions Reduced attrition and productivity Trans/ Promo Out 20 Incremental Demand External Hires Reduced external hires 0 FY 06 Copyright © 2006 Deloitte Development LLC. All rights reserved. FY 07 FY 08 16

A new model focuses on develop, deploy, connect Develop: Ensuring that critical workforce segments A new model focuses on develop, deploy, connect Develop: Ensuring that critical workforce segments are acquiring cutting edge skills to drive innovation Capability Develop Deploy Performance Commitment Alignment Connect Copyright © 2006 Deloitte Development LLC. All rights reserved. • Formal training helpful for meeting specific requirements • Learning is social in nature - people learn through their interactions with others, especially when tasked with real-life issues • People are more committed to the learning that occurs when they are “tested” in ways that matter, especially when they collaborate with or are accountable to others 17

A new model focuses on develop, deploy, connect Deploy: Strategic deployment of critical workforce A new model focuses on develop, deploy, connect Deploy: Strategic deployment of critical workforce segments will enable intensified growth Capability Develop Deploy Performance Commitment Alignment Connect Copyright © 2006 Deloitte Development LLC. All rights reserved. • People learn the most in jobs that stretch them to grow, tap their unique skills, and fuel their imaginations • The best organizations avoid pigeonholing people based on the confines of their resumes • They also employ formal systems to manage performance - And they offer frequent dialogue and feedback 18

A new model focuses on develop, deploy, connect Connect: Connecting talent in critical workforce A new model focuses on develop, deploy, connect Connect: Connecting talent in critical workforce segments converts knowledge into productive action Capability Develop Deploy Performance Commitment Alignment Connect Copyright © 2006 Deloitte Development LLC. All rights reserved. • People-to-People: Cultivate highperformance networks of highquality relationships (i. e. , Co. Ps, knowledge management programs) • People-to-Purpose: Build and sustain a sense of personal and organizational mission • People-to-Resources: Manage knowledge, technology, tools, capital, time, and physical space to achieve professional and business goals 19

Role of the people manager is essential Why? • Employee engagement/ attitudes key to Role of the people manager is essential Why? • Employee engagement/ attitudes key to performance 1 • Employee engagement drivers are clear 2 • • Challenging and exciting work Career growth Learning and development opportunities Good boss • “Best Places to Work” highly correlated to management practices 1. 2. Copyright © 2005 Deloitte Development LLC. All rights reserved. Corporate Leadership Council, 2005 Career Systems International; Towers Perrin 20

Role of the people manager is essential Evolving role of “Management”: • From jobs, Role of the people manager is essential Evolving role of “Management”: • From jobs, to skills and outcomes – rethinking the nature of work • From managing performance, to coaching and building commitment • From “ 30 years at hard labor”, to using flexibility as a business advantage 1. 2. Copyright © 2005 Deloitte Development LLC. All rights reserved. Corporate Leadership Council, 2005 Career Systems International; Towers Perrin 21

Goal of leadership development is sustainability Best practices are clear; execution is mixed: • Goal of leadership development is sustainability Best practices are clear; execution is mixed: • Only 34% report being effective at identifying future leaders 1 • Rigor and objectivity key in identifying and developing successors 2 • P&L management or P&L-like work • Executive talent management focused on replicating high-quality leaders 1. 2. Copyright © 2005 Deloitte Development LLC. All rights reserved. Conference Board Charan, Harvard Business Review 22

3. Sustainability: Becoming Part of the Business Cycle Assertions: CEOs are under fire, but 3. Sustainability: Becoming Part of the Business Cycle Assertions: CEOs are under fire, but “getting it” Talent management is an essential part of business planning HR is growing in importance, if… Copyright © 2005 Deloitte Development LLC. All rights reserved. 23

CEOs are under fire, but “getting it” Average tenure now 3 -4 years. Great CEOs are under fire, but “getting it” Average tenure now 3 -4 years. Great job--all you have to do is: • • Make the numbers, every quarter Please the Board Please everybody else Have clean books (watch those stock options!) Outwit the competition, everywhere Find ways to keep growing Not sleep Stay balanced • How do we get sustainable talent management on their agendas? Copyright © 2005 Deloitte Development LLC. All rights reserved. 24

Talent management is an essential part of business planning Using the language and the Talent management is an essential part of business planning Using the language and the rhythm of business: • SYSCO retention strategies = 10 cents per share • Care. First HR in the strategy and business planning sessions • Thomson business planning and succession cycle Copyright © 2005 Deloitte Development LLC. All rights reserved. 25

HR is growing in importance, if… …we envision and manage HR as a business HR is growing in importance, if… …we envision and manage HR as a business What Business is HR In? Copyright © 2005 Deloitte Development LLC. All rights reserved. 26

HR is growing in importance, if… …we lead talent management to the next level HR is growing in importance, if… …we lead talent management to the next level of analytical rigor and results • They are beginning to “get it” • HR gaining access to “the table” • What are we going to say once we get there: talent market segmentation at Microsoft Copyright © 2005 Deloitte Development LLC. All rights reserved. 27

In Summary • Talent challenge opportunity to rethink work, value and meaning (“work” as In Summary • Talent challenge opportunity to rethink work, value and meaning (“work” as sustainable human enterprise) • Talent management: hunting/gathering farming – Biggest challenge: growing better “farmers” • HR has to take the lead in making the business case – Growing role of HR decision science: HR as “agronomist” Copyright © 2006 Deloitte Development LLC. All rights reserved. 28

Your Turn… Lively Discussion and Debate Time! Copyright © 2006 Deloitte Development LLC. All Your Turn… Lively Discussion and Debate Time! Copyright © 2006 Deloitte Development LLC. All rights reserved. 29

Thank You! 30 Thank You! 30