“Talent Management: Adding Value to the High Performing Organization” HPO CHANGE CONFERENCE March 3,2004 Michael Friedman, F&L Group, Houston, Texas

F&LF&L Group 2 Talent Management Answers These Questions! WHO is the best candidate for a particular job? WHAT technical skills, experience & leadership competencies does each employee possess? WHERE can each employee best be deployed? WHEN is right time for new job? HOW will employees discover what skills are necessary to make a job or career move?

F&LF&L Group 3 We need to prove the economic value of Talent Management … and we can

F&LF&L Group 4 13 “High Performance Work Practices” Predict Economic Performance -1 S.D.+1 S.D. HUMAN ASSET VALUES Real Challenge: Shift Performance of ALL Human Assets Variable-2 S.D.-1 S.D.Typical+1 S.D. ~13.7% Best Practice: +2 S.D. ~27.4% Revenue Per Employee$ 117,011$ 144,055$ 171,099$ 198,143$ 225,187 S.D. Revenue Per Employee$ (54,088)$ (27,044)$ -$ 27,044$ 54,088 Profit Per Employee$ 20,241$ 24,041$ 27,841$ 31,655$ 35,441 S.D. Profit Per Employee$ (7,600)$ (3,800)$ -$ 3,800$ 7,600 Shareholder value Per Employee$ 252,720$ 271,360$ 290,000$ 308,640$ 327,280 S.D. Shareholder value Per Employee$ (37,280)$ (18,640)$ -$ 18,640$ 37,280 Turnover %32.46%25.41%18.36%11.31%4.26% S.D. Turnover %14.10%7.05%--7.05%-14.10% Becker, B.E. and M.A.Huselid, P.S. Pinkus and M.F. Spratt (1977) Human resources as a sources as a source of shareholder value. In Ulrich, D., M.R. Losey and G. Lake (Eds) Tomorrow’s HR Management. New York, NY: John Wiley & Sons

F&LF&L Group 5 In an award-winning study by Mark Huselid, of about 1,000 publicly held U.S. firms, a one standard deviation increase in Talent Management practices (i.e. employee recruitment and selection procedures, incentive compensation, performance management systems, extensive employee involvement and training)... Produced $27,000 more in sales per employee Almost $4,000 in additional profit per employee Decrease turnover significantly Source: The Leadership Machine by Michael M. Lombardo and Robert W. Eichinger, 2001, p. 162 RESEARCH SUMMARY

F&LF&L Group 6 You might already have developed a set of competencies-but are they just sitting on a bookshelf someplace? They should be more than just a checklist of behaviors or values If you ’ ve got the right set, competencies should translate into improved performance Let ’ s Talk About Competencies

F&LF&L Group 7 Competencies We know what they are- skills, behavior & attributes that “separate the best from the rest”. Competencies are like muscles. You can see the difference. Competencies explain Δ P

F&LF&L Group 8 Competencies Explain Δ Performance Reliably measurable characteristics of a person that are causally related to (statistically predict) performance. 1 “ standard deviation ” is the metric for measuring economic impact. » Skills – What a person has to be able to do » Knowledge – What a person has to able to know » Behaviors – How a person behaves to perform his/her role or job; observable SUPERIOR: +1 SD above mean (top 15%, ~ best 1 of 10)  +1 

F&LF&L Group 9 What Competencies are Worth We know the value added (EVA) from competency development = 1 “standard deviation ” is the metric for measuring economic impact PRODUCTIVITYAverage 100% Job Complexity Low Moderate High Sales 1 S.D. above mean +1 S.D.-1 S.D. Threshold or adequate =minimum acceptable 13.5%0%50%86.5%100% Percent of People in a Job SUPERIOR performance ~ Top 1 in 10 in a job +19% = 119% +32% = 132% +48% = 148% % = %

F&LF&L Group 10 A Model for Competency-based Talent Management Succession Planning CHOICES ARCHITECT ® AMBIGUITY ARCHITECT ® Performance Management PERFORMANCE MANAGEMENT ARCHITECT ® Employee Appraiser™ Performance Manager™ Training and Development LEARNING ARCHITECT ® CA – Development Planner Resource Architect Recruiting & Selection RECRUITING ARCHITECT ® Coaching and Feedback VOICES ® LSA Coaching for Development™ Career Development FYI-For Your Improvement CA-Development Planner Book or Software CA-Development Planner Plus Software CA-Development Planner Plus Online CAREER ARCHITECT ® Expert System Team Capabilities TEAM ARCHITECT ® Organizational Capabilities ORGANIZATION ARCHITECT ® Vision & Business Strategy Competencies

F&LF&L Group 11 Competencies: Essential for Building Talent Maps

F&LF&L Group 12 Building Our Maps Research tells us what High Performers and High Learning Agility folks look like- they have specific competency patterns (‘Normative Studies’) Step 1 Research tell us what key technical skills, experiences and competencies are needed for a job Step 2 Talent Mapping Brings These Together…..

F&LF&L Group 13 Talent Mapping… the BIG picture “Talking Talent” Session 9 – Cell Matrix Role Profiles (by Family) Based on Business Growth Strategy Demand - Supply = Talent Gap Build/Buy Decision BuyBuild DemandSupply Associates hired with the needed competencies, experiences and functional skills Executed Development Plans Demand = Supply

F&LF&L Group 14 Each manager would assesses their direct reports on 3 data points: Performance Learning Agility Readiness To Advance All managers guided through the exact same process. BUILDING A TALENT MAP- THE PROCESS

F&LF&L Group 15 Learning Agility: The Magic Multiplier Δ Performance Performance (Developmental)Experiences Learning Agility Competency x = Learning Agility The ability and willingness to learn from experience = Experiences Job Changes, in-place assignments, hardships, people, feedback, workshops, courses, readings

F&LF&L Group 16 Recognized functional, technical, managerial expert Can be counted on, especially in tough times Consistent top performer Is a good developer of subordinates Usually performs well under all conditions Would be difficult to replace in kind Works independently with little or no supervision Easily learns new technologies and/or functions Clever problem-solver Thinks strategically Changes Behavior easily Has wide interests Low tolerance for marginal processes or people Deals with ambiguity/complexity well HIGH PROFESSIONAL vs. HIGH POTENTIAL

F&LF&L Group 17 4 High “Professional” 2 Future High “Professional” 1 Low Performer 3 Inconsistent Performer 5 Experienced “Professional” 7 High “Professional” 9 High “Potential” 8 Future High “Potential” 6 Future High “Potential” POTENTIAL PERFORMANCEPERFORMANCE 10 Highest Potential The “Strategic Few” The Leadership “Pipeline” First line of development (7,8,9,10) Next line of development (5,6) Less learning agility More learning agility Less than effective Highly effective 0 Not Classified 9-CELL MATRIX /TALENT MAP

F&LF&L Group 18 ? Top positions Potential successors to top positions ? ? Senior positions ? ready now ? ready in 1-2 years ? ready in 3-5 years Potential successors TALENT MAPPING ANSWERS THESE ??

F&LF&L Group 19 Talent Mapping Means…. Having an in-depth look at all associates, (beyond what may be offered from the HRIS)- including competency evaluation, experience, technical skills, interest, and mobility Providing a real time view of 'bench strength' of critical positions or functions Identifying critical gaps in the workforce plan to improve the accuracy of 'build/buy/borrow' staffing decisions Evaluating the skill level of different groups to pinpoint exact training needs (instead of 'shotgun approach') Providing “People Intelligence” Reports to management, e.g. Human Capital Balance Sheet, Mobility Index, Potential Successor’s Report

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