Without exception, a C-level executive’s job is value creation. The challenge is providing the key tools that connect their work directly to value creation. For the Chief Financial Officer (CFO), the solution is relatively straightforward, given the quantitative nature of their work. For the Chief People Officer (CPO), the solution is much tougher, given the type of work they do – or is it?
The problem is that most CEOs believe that the job of the CPO is to run an excellent HR function that serves all employees well. In fact, the key direct reports of CPO must run an excellent HR function that serves all employees well, led by the head of talent, the head of compensation and benefits, and the like.
The CPO’s job is to serve the CEO’s most critical talent needs, namely, those directly connected to enterprise value creation. But how?
First, we must distinguish human capital from talent capital. Human capital includes all employees serving in all roles in an organization, and they are the responsibility of the most senior leaders of the HR function.
Talent capital includes only the employees sitting in the critical roles required for value creation and comprises a list of likely 50 or fewer individuals.
This small group of individuals is the domain of the CEO and, therefore, the most important responsibility of the CPO.
Since the CEO’s job is driving value creation and improving shareholder returns, then their work should be laser-focused on allocating both financial capital and talent capital in time to achieve those goals. The CFO serves the CEO in the first assignment by ensuring the company has enough financial capital when and where it matters, and the CPO serves the CEO in the second assignment by ensuring the company has the right talent capital when and where it matters. With this information, the CEO can inform the Board of the company’s status, progress, and course correction against its plan for value creation and shareholder returns.
Just as the CFO utilizes the P&L, the cash flow statement, and the balance sheet to manage the company’s financial capital, the CPO needs a similar set of tools to manage the company’s talent capital.
The CFO’s tools help the CEO answer the question: Have we allocated our financial capital properly to achieve our ambition?
However, these tools only address half of the challenge because it is talent that has to execute on the financial capital bets the company is making to achieve its desired value creation goals.
Therefore, the CPO must help the CEO answer the question: have we allocated our talent capital properly to achieve our ambition? And more importantly perhaps, if not, what should be done about it to deliver the on-time value creation plan and shareholder returns that the CEO has committed to? The tools required to answer these questions are the Value Agenda, the List of Critical Roles, and the Talent Capital Balance Sheet.
The first tool is the Value Agenda, a one-page view of the top five to eight hotspots representing significant current and future value creation. This group of “value” hotspots comprises the enterprise's overall ambition and represents its clear business pivots and objectives. The value agenda aligns the CEO and the executive leadership team by crystalizing the strategic priorities for the business to act on.
The second tool is the List of Critical Roles, or the talent capital sitting in the roles that represent likely 80% of the company’s ambition illustrated in the value agenda.
This list of critical roles is derived by defining the work at the value hotspots and identifying which roles across the organization will be required to drive the desired value creation.
Then, the design of each critical role is analyzed for key execution risks that will prevent on-time value creation. Finally, the readiness of the incumbent talent in each critical role is assessed and scored against the risks identified in the work challenge and the role design. This last step matches the incumbent talent’s experiences and capabilities against the specific jobs to be done defined in the work required for value creation. With this list, the CEO and the executive leadership team can monitor the enterprise value creation progress regularly and adjust as needed.
The third tool is the talent capital balance sheet or the value-ranked dashboard of an organization’s talent capital, which provides a snapshot of the risks to value creation across the list of critical roles and value hotspots.
This tool includes a forecast of the probability of on-time value creation by each critical role in the company’s talent capital.
With this balance sheet, the CEO and the executive leadership team can identify patterns of value leakage across the enterprise and define the fewest, most impactful interventions to mitigate the risks in time.
In order to drive value creation, the CPO must become the CEO’s talent capital advisor in the same way that the CFO is the CEO’s financial capital advisor. By using the key tools outlined above, the CPO can provide the CEO with unique and invaluable information that impacts the timing and magnitude of a company’s achievement of its value creation plan. No one else can drive key talent allocation when and where it matters the most.
To do so, the CPO must forecast the value the individuals in each critical role on the talent capital balance sheet will deliver in their jobs rather than assess each individual based only on their capabilities and past experiences.
This value forecast approach analyzes both the demand for talent (critical roles) and the supply of talent (talent capital) in an organization at critical points of value creation to predict the probability such a match will succeed.
The resulting prediction is called a click score.
A click score is a forecasting tool derived from a detailed analysis of a critical role, its work, and its incumbent talent to predict the probability of on-time value delivery. Each click score represents a composite assessment of three factors: the work challenge, the role design, and the talent match.
As such, a click score consists of a work score, a role score, and a talent score that, when combined, predict not only potential outcomes but also execution risks to the value creation.
Forecasting value is similar to forecasting other important business results. The process is the same: gathering data from relevant sources and, using analytical tools, assessing the probabilities of certain outcomes occurring in the future. The purpose of such a forecast is to connect talent demand with talent supply dynamically to make value delivery possible. With time, practice, and the right tools, these forecasts improve, and so does the company’s value creation.
For CEOs to drive enterprise value creation, they need the CPO to provide talent capital allocation information, just as the CFO provides capital allocation information.
The three tools for this job outlined above result in the key metric of the click score to forecast value delivery where it matters most.
Armed with this information, CEOs and business leaders alike can see in real-time the highest risks to value creation across the business and intervene in time to win.