A Developmental Network & Relational Savvy Approach to Talent Development:: A Low-Cost Alternative

Abstract

Research at the executive compensation firm Equilar found that the average direct compensation for externally hired chief executive officers (CEOs) in 2005 was $8.94 million, while for internally hired CEOs it was $5.81 million. When Jack Welch retired from General Electric Co., one of the unsuccessful contenders for his job, Bob Nardelli, was hired to be the CEO of The Home Depot Inc. Not only did the company pay a huge premium for going outside the organization for a new chief executive, but also, the outside hire was not successful. And the Home Depot experience is not unusual. In fact, at the executive level, the failure rate for external hires runs about 40–60 percent. The situation of inserting a new member at a very high level into an organization, where the company’s culture is strongly felt, is similar to transplanting an organ into a person’s body. In spite of the use of immune system-suppressing drugs, the body, in defending itself, often puts up strong resistance to the new member, and the transplant fails. Companies, like people, are human systems, and the higher the level, the stronger is the resistance to an outside hire. Thus, there are major benefits for organizational performance for an organization that can develop its own talent internally. However, Wharton labor economist Peter Cappelli reports that companies are cutting back on their expenditures for training employees and developing managers. He argues that as employee tenure declines, companies will be motivated to spend even less in the future: ‘‘If my employees are going to leave anyway, why should I train them for a competitor?’’ Therefore, it appears that there is a crisis in the development of human talent, especially executive and management talent. And one issue seems to be the cost involved. Here, we would like to propose a low-cost way of dealing with this crisis: organizations should implement practices that enhance employees’ relational savvy – their adeptness with developmental relationships – so that employees are empowered to build their own developmental networks. The quote, ‘‘Give aman a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime,’’ is apropos here. Rather than assigning a small group of employees formal mentoring as the sole form of relational support, why not equip a larger number of employees with the tools to further their own development?