Legendary venture capitalist and Intel manager Arthur Rock once put it in a nutshell: "Nearly every mistake I have made in this business has been in picking the wrong people, not the wrong idea".
Ultimately, the success of a company depends on the people who shape and direct it.
Elsevier Food International, Vol. 7, Number 1, February 2004
Jens Abend and Thomas C.A.Tochtermann

Talent management, i.e. the management of executive-level human resources, deserves the special attention of top management, particularly in the consumer goods industry. It is all the more regrettable that serious consideration of this topic is blocked by two misconceptions. Firstly, talent management is often thought to be synonymous with recruiting, in other words, with the simple process of hiring executives and the promising youngsters who will succeed them one day. In reality, talent management covers a broad range of strategic human resources tasks: developing and appraising employees on the basis of systematically defined objectives, rewards and loyalty-building activities, appointments to positions, management of attrition.
Secondly, talent management often bears the stigma of 'genius cultism'. It is accused of fixating on the 'brilliant individual' and potential top manager who is then stylised as a hero. This misconception has undoubtedly been triggered by the public idealisation of a handful of successful entrepreneurs and managers like Bill Gates, Richard Branson, or Bernie Ecclestone. Unfortunately, it diverts attention away from the fact that business success is invariably a team effort. Correctly understood, talent management will always be team management. A company is more than the sum of its individual employees' intelligence. At the end of the day, what matters is how these employees combine to produce the work.

The key to higher profits and returns
Companies that are aware of the importance of talent management and act accordingly are in better shape than others. High-performing talents do make a substantial contribution to higher profits and returns across both industries and functions, as the following three examples illustrate:
• In the USA, McKinsey investigated whether the profitability of a factory correlated with the quality of the factory manager. The outcome was remarkable. The factory manager classed as an A-talent achieved more than 100 per cent higher results than a C-talent (see figure 1).
• A similar analysis at an American financial services provider revealed the same trend. Here, the difference between A and B talents was less but the result was still around 50 per cent in additional revenues (figure 2).
• The picture is the same in the consumer goods industry. According to a US study, the net profit earned by a top store manager in retailing exceeds the average by €100,000. In large stores, the difference actually rises to €200,000. Top district managers achieve a difference of €2 million per annum, and A-grade regional managers a whopping €5 million. Applied to the German retail industry, this means that an A-grade regional manager earns his company €9 to €12 million more net present value than an average colleague over the course of his career ('lifetime net present value') (figure 2).

To reap the benefits of talent management, companies have to understand that talent management is actually a separate and important task that demands just as much top management attention and just as stringent processes as, for example, implementing a strategy. However, the most important thing of all is a 'talent mindset', in other words, a basic attitude that reflects the special importance of talent management. In companies with a strong talent mindset, the value of developing talents is firmly anchored in both the processes and the mentality. Successful executives are aware of the importance of talent. In excellent companies, almost half of the managers consider improving the talent pool to be one of the three top corporate priorities. In average companies, only 30 per cent rate it that high.
Consumer goods companies need to catch up.
It is chiefly this talent mindset that many consumer goods manufacturers and retailers lack. Initiatives such as a young executive development programme here and there or individual projects conducted in isolation are just not enough. It is high time for companies with a talent management gap to put this topic on the agenda and start changing for the better.

Four macroeconomic trends indicate that the importance of talent is set to grow:
• Increasing need for highly skilled employees: at the beginning of the 20th century, only around 14 per cent of all work was knowledge-intensive and required a high skill level. Today the figure is more than 50 per cent and rising (figure 3).
• Increasing demand for management talents: as the number and sophistication of management tasks increase with globalisation, cross-functional interaction, and faster technological progress, so does the need for competent leadership. In a survey of top managers, 99 per cent considered that the top 200 managers in their own companies did not have adequate skills. Furthermore, only twenty per cent of respondents considered that their companies had sufficient management resources to pursue all market opportunities.
• Shrinking supply of young managers: while demand is going up, demographic trends in Germany are heading in exactly the opposite direction. Although the total pool of potential workers is growing, we are seeing a decline in the group of 35 to 44 year-olds, the most important segment for management. This group peaked in 2002 and is set to shrink by around 27 per cent over the next 20 years (figure 4).
• Greater readiness to change companies, but not to move house: it is becoming increasingly difficult to hold on to good people in the long term. Ten years ago, a German manager would take 2.9 jobs on average during his or her career. Today the figure is 5.2 and a hike to around seven is expected by the year 2010. Typically, the employee of today is likelier to change his company than his hometown. Almost 90 per cent of jobless people say they would not move to another city for the sake of re-employment, or that they would do so with extreme reluctance.

The current depressed state of the economy makes it crucial for companies to close the gaps in their human resources management, in particular at the executive level.

A disaster scenario
Most companies will be hit by the approaching crisis in the management market. For consumer goods companies, however, it could spell disaster.Even now, they are seeing a degree of erosion in both recruiting and human resources management. Three indicators bear witness to the problems faced by many consumer goods companies in winning top talents and retaining high performers in the long term:
• The consumer goods industry is not the preferred choice of career starters. The European business graduates' top 20 of ideal employers lists only five consumer goods companies (none of them German), while the engineers only cite two, and in low rankings at that.
• The corporate hierarchies of many consumer goods manufacturers and retailers are still built on age, not exactly an enticing prospect for young talents. 'Home grown' managers are mainly preferred for senior positions. External hires at this level are rare and meet with resistance. In addition, salary structures and incentives are often rather unattractive. It is hardly surprising, then, that young talents steer clear of the industry and established ones move on.
• Absent and under-nurtured talents only compound the industry's problems. The biggest challenge for its retailers and manufacturers today lies in identifying sources of growth in stagnating markets. An important part of this search is directed at new and 'horizontal', i.e., cross-organisational trends and market opportunities. To track these down, companies need talents who are not fixated on functions and products but can see and grasp broader possibilities. To put it another way: why are successful new formats such as Starbucks, mostly developed by outsiders? Why does the consumer goods industry have such a disappointing innovation yield, despite investing up to five per cent of sales in R&D? Why are successful innovations so thinly scattered?

Skim the cream
The current depressed state of the economy makes it crucial for companies to close the gaps in their human resources management, in particular at the executive level. The optimisation process will have to be recognised and initiated at board level and starts at a different point in every company. One constant, however, will be the importance of developing an integrated, holistic approach in accordance with the five classic disciplines of talent management: recruiting, staff appraisal, development, rewards, and attrition management.
Recruiting staff is like making acquisitions. The best bargains are to be had on the down cycle. While other companies freeze recruitment, yours can skim the cream. It always makes sense to assess your team regularly and to check it for gaps. Now is an ideal time to close those gaps. After all, in an ailing economy, there is really no reason to make your competitive position even worse by working with mediocre staff.