22-1Types of Accounting Changes1. Change in Accountin.docx

22-1
Types of Accounting Changes:
1. Change in Accounting Policy.
2. Changes in Accounting Estimate.
Errors are not considered an accounting change.
Accounting Alternatives:
useful historical trend data.
Chapter 22: Accounting Changes and Error Analysis
LO 1
LEARNING OBJECTIVE 1
Discuss the types of accounting
changes and the accounting for
changes in accounting policies.
Background

22-2
Three approaches for reporting changes:
1) Currently.
2) Retrospectively.
3) Prospectively (in the future).
IASB (IAS 8) requires use of the retrospective approach.
Rationale - Users can then better compare results from one
period to the next.
LO 1
Changes In Accounting Policy
22-3
-cost to LIFO.
-recovery to percentage-of-completion method.
Change from one accepted accounting policy to another.
Examples include:
Adoption of a new policy in recognition of events that have

occurred for the first time or that were previously immaterial is
not an accounting change.
LO 1
22-4
Retrospective Accounting Change Approach
Company reporting the change
1) Adjusts its financial statements for each prior period
presented to the same basis as the new accounting
policy.
2) Adjusts the carrying amounts of assets and liabilities as
of the beginning of the first year presented.
3) Makes an offsetting adjustment to the opening balance of
retained earnings or other appropriate component of
equity or net assets as of the beginning of the first year
presented.
LO 1

22-5
Illustration: Denson SA has accounted for its income from
long-
term construction contracts using the cost-recovery (zero-profit)
method. In 2019, the company changed to the percentage-of-
completion method.
Management believes this approach provides a more appropriate
measure of the income earned.
For tax purposes, the company uses the cost-recovery method
and
plans to continue doing so in the future. (Assume a 40 percent
enacted tax rate.)
Retrospective Accounting Change: Long-Term
Contracts
LO 1
22-6 LO 1

ILLUSTRATION 22.1
Comparative Income
Statements for Cost-
Recovery versus
Percentage-of-Completion
Methods
22-7
Data for Retrospective Change Example
ILLUSTRATION 22.2
Construction in Process 220,000
Deferred Tax Liability 88,000
Retained Earnings 132,000
Journal entry
beginning of
2019
LO 1

22-8
Retained Earnings Adjustment
Retained earnings balance is €1,360,000 at the beginning of
2017.
Before Change
LO 1
ILLUSTRATION 22.4
22-9
LO 1
Retained Earnings Adjustment
After Change ILLUSTRATION 22.5
22-10
Illustration: Cherokee Construction Company changed from the
cost-
recovery to the percentage-of-completion method of accounting
for

long-term construction contracts during 2019. For tax purposes,
the
company employs the cost-recovery method and will continue
this
approach in the future. (Hint: Adjust all tax consequences
through the
Deferred Tax Liability account.) The appropriate information
related to
this change is as follows.
LO 1
2018
2019
22-11
Instructions: (assume a tax rate of 35%)
(a) What entry(ies) are necessary to adjust the accounting
records
for the change in accounting principle?
(b) What is the amount of net income and retained earnings that
would be reported in 2019? Assume beginning retained

earnings
for 2018 to be $100,000.
LO 1
2018
2019
22-12
35%
Percentage- Cost- Tax Net of
Date of-Completion Recovery Difference Effect Tax
2018 780,000$ 610,000$ 170,000 59,500
110,500$
2019 700,000 480,000 220,000 77,000
143,000
Pre-Tax Income from Long-Term Contracts
LO 1
Journal entry (recorded in 2019)
Construction in Process 170,000

Retained Earnings 110,500
22-13
Restated Previous
2019 2018 2018
Pre-tax income 700,000$ 780,000$ 610,000$
Income tax (35%) 245,000 273,000 213,500
Net income 455,000$ 507,000$ 396,500$
Beg. Retained earnings 496,500$ 100,000$ 100,000$
Accounting change 123,500
Beg. R/Es restated 607,000 100,000 100,000
Net income 455,000 507,000 396,500
End. Retained earnings 1,062,000$ 607,000$ 496,500$
Income
Statement
Statement
of Retained

Earnings
Comparative Statements
LO 1
22-14
22-15
Changes in Accounting
Estimates
Examples of Estimates
1. Bad debts.
2. Inventory obsolescence.
3. Useful lives and residual values of assets.
4. Periods benefited by deferred costs.
5. Liabilities for warranty costs and income taxes.
6. Recoverable mineral reserves.
7. Change in depreciation estimates.

8. Fair value of financial assets or financial liabilities.
LO 2
Describe the accounting and
reporting for changes in
estimates.
22-16
Prospective Reporting
Changes in accounting estimates are reported prospectively.
Account for changes in estimates in
1. the period of change if the change affects that period only,
or
2. the period of change and future periods if the change
affects both.
IASB views changes in estimates as normal recurring
corrections
and adjustments and prohibits retrospective treatment.

LO 2
Changes in Accounting Estimates
22-17
Illustration: Arcadia HS purchased equipment for $510,000
which
was estimated to have a useful life of 10 years with a salvage
value of $10,000 at the end of that time. Depreciation has been
recorded for 7 years on a straight-line basis. In 2019 (year 8),
it is
determined that the total estimated life should be 15 years with
a
salvage value of $5,000 at the end of that time.
Required:
prior years’ depreciation expense?
No Entry
Required
LO 2

22-18
Equipment $510,000
Property, Plant, and Equipment:
Accumulated depreciation 350,000
Book value (BV) $160,000
Statement of Financial Position (Dec. 31, 2018)
After 7
years
Equipment cost $510,000
Residual value - 10,000
Depreciable base 500,000
Useful life (original) 10 years
Annual depreciation $ 50,000 x 7 years = $350,000
First, establish book
value at date of
change in estimate.
LO 2

22-19
Book value $160,000
Residual value (if any) 5,000
Depreciable base 155,000
Useful life 8 years
Annual depreciation $ 19,375
Second, calculate
depreciation expense
for 2019.
Depreciation expense 19,375
Accumulated depreciation 19,375
Journal entry for 2019
LO 2
22-20

Accounting Errors
Types of Accounting Errors:
1. A change from an accounting principle that is not generally
accepted to an accounting policy that is acceptable.
2. Mathematical mistakes.
3. Changes in estimates that occur because a company did
not prepare the estimates in good faith.
4. Failure to accrue or defer certain expenses or revenues.
5. Misuse of facts.
6. Incorrect classification of a cost as an expense instead of
an asset, and vice versa.
LO 3
Describe the accounting for
correction of errors.
22-21

adjustment to the beginning balance of retained earnings in
the current period.
rections are called prior period adjustments.
prior statements affected, to correct for the error.
LO 3
Accounting Errors
22-22
Illustration: In 2020 the bookkeeper for Selectro plc discovered
an error. In 2019 the company failed to record £20,000 of
depreciation expense on a newly constructed building. This
building is the only depreciable asset Selectro owns. The
company correctly included the depreciation expense in its tax
return and correctly reported its income taxes payable.
LO 3
Example of Error Correction

22-23
Selectro’s income statement for 2019 with and without the
error.
LO 3
What are the entries that Selectro should have made and did
make
for recording depreciation expense and income taxes?
ILLUSTRATION 22.17
ILLUSTRATION 22.17
Error Correction Comparison
22-24
ILLUSTRATION 22.17
ILLUSTRATION 22.18
Error Entries
LO 3

22-25 LO 3
ILLUSTRATION 22.18
The £20,000 omission error in 2019 results in the following
effects.
22-26
Retained Earnings 12,000Correcting
Entry in
2020
ILLUSTRATION 22.18
LO 3
Prepare the proper correcting entry in 2020, that should be made
by Selectro.
22-27
ILLUSTRATION 22.18

by Selectro.
Entry in
2020
Reversal
LO 3
22-28
ILLUSTRATION 22.18
by Selectro.
Entry in
2020
LO 3

Accumulated Depreciation—Buildings 20,000
22-29
Illustration: Selectro Company has a beginning retained
earnings
balance at January 1, 2020, of £350,000. The company reports
net
income of £400,000 in 2020.
LO 3
Single-Period Statements
ILLUSTRATION 22.19
Reporting an Error—
Single-Period Financial
Statement
16

2
STRATEGIC TALENT
MANAGEMENT
T
he dramatic changes that are taking place in the world are trans-
forming work and organ izations so signifi cantly that
traditional
approaches to talent management are, at best, obsolescent. In
many cases they are obsolete. Th ey were designed for an era
of stability,
predictability, bureaucratic management, traditional fi
nancial account-
ability, little information technology, and slow change. Today
we are
in a world of rapid change, diversity, the high strategic
importance of
human capital, globalization, triple- bottom- line
accountability, and
radical advances in technology. In most corporations, all of
these as-
pects are pres ent today; and many of them are dominant
themes.
Talent management needs to change in ways that respond to
how
organ izations, work, and workers have changed and will
continue to
change. Doing this requires using the six talent management
princi ples
that will be reviewed in this chapter as a guide. Th ey need to
be the basis
of all talent management practices and systems that an organ
ization uses.

TA L E N T M A N A G E M E N T S H O U L D B E
S T R AT E G Y D R I V E N
As is shown in fi gure 2.1, talent management needs to be
driven by an
organ ization’s strategy and the capabilities it requires for it to
be eff ec-
tively implemented. Every strategy is only as good as an organ
ization’s
ability to implement it, and its implementation is only as good
as its
501-67676_ch01_6P.indd 16 3/24/17 9:18 AM
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EBSCO Publishing : eBook Academic Collection (EBSCOhost)
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Strategic Talent Management 17
talent’s ability to execute it. Because of this, organ izations
need to be
sure that the capability demands of their strategy (e.g., agility,
low- cost
production, etc.) can be met with re spect to how talent is
managed. If they
cannot be met, then the strategy needs to be changed. Th is
relationship
between strategy and talent is why fi gure 2.1 has a two- way
arrow be-
tween “Strategy” and “Capabilities.”
Th e fi ve most impor tant talent management practice areas are
iden-
tifi ed in fi gure 2.1. To some degree they are in de pen dent of
each other,
and they will be treated separately in the chapters that follow.
Yet they
are interdependent in many ways and need to fi t with each
other. Th us,
they are connected by two- way arrows in the fi gure, and as we

examine
each one of them, we will consider issues of fi t with other
talent man-
agement areas. Only by using talent management practices that
fi t an
Strategy
Figure 2.1
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of-use
18 Reinventing Talent Management
organ ization’s strategy and fi t together to create an integrated
talent
management system can an organ ization be eff ective.
Th e real ity that talent has become the key resource of many
corpora-
tions mandates that it be a major determinant of most
corporations’
business strategies and that it be managed in ways that support
strategy
implementation. Much of the writing on talent management
empha-
sizes that strategy should drive the talent management practices
of
corporations. Given the importance of talent, it is hard to argue
against

this point. To be successful, a strategy needs to be supported by
the
right talent management practices. But thinking of strategy as
deter-
mining talent management is not the best way to state or think
about
the interaction of the two.
Yes, talent management needs to be infl uenced by an organ
ization’s
strategy, but its strategy needs to be driven by the talent that is
available
to it and how it can be managed. A strategy that cannot be
implemented
or executed eff ectively because of talent availabilities and defi
ciencies is
not a good strategy. It is just as likely to lead to poor orga
nizational per-
for mance as one that is based on incorrect assumptions about fi
nanc-
ing, marketing, or production.
Perhaps the most obvious area in which talent should drive
business
strategy involves the availability of talent. Th e key to
implementing
every strategy is the ability of an organ ization to recruit and/or
develop
the talent it needs to implement and operate the strategy. Th us,
there are
a number of questions that every organ ization must ask when
it devel-
ops its strategy: What is the right talent, and do we have it? If
we do not
have it, can we recruit and/or develop the talent we need to
implement

this strategy? Can we structure and design talent management
practices
that will lead to the type of talent we need to be motivated and
willing to
commit to the eff ectiveness of the organ ization? If the answer
to either
of the latter two questions is no, then the case is clear: the
strategy will
not be eff ective and should not be adopted.
Th ere are numerous challenges to an organ ization’s recruiting
the
talent it needs to implement a strategy. For instance, there
simply may
not be people in the labor market that have the right skill sets,
or the
organ ization may not have the assets it needs to make an
attractive of-
fer to the right talent. Th ere are also many reasons why it can
be diffi -
cult for an organ ization to develop the talent it needs; these
include the
501-67676_ch01_6P.indd 18 3/24/17 9:18 AM
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willingness and ability of current employees to develop new
skills and
competencies, or the lack of the expertise needed to develop the

skills
of both existing employees and new ones.
In many ways, there is a great deal of similarity between the
factors
that are critical in recruiting new talent and those that are
involved in
obtaining fi nancial capital when a new organ ization is formed.
New
organ izations do not have a track rec ord, and they need to sell
the prom-
ise of future payoff s to talent. Not surprisingly, one of the
major things
that causes the demise of many start-up organ izations is their
inability
to attract the kind of talent they need to be successful.
At the forefront of any discussion of talent availability should
be a
consideration of alternative approaches to accessing talent. For
a host
of reasons ranging from agility to cost and availability, the best
way for
an organ ization to get the talent it needs may not be by
employing it on
a full- time, permanent basis. Consideration needs to be given
to the
wide variety of talent access approaches that are available
today and will
be increasingly available in the future. Th ese include contract
employees,
gig workers, employees borrowed from other organ izations,
workers hired
through temporary agencies, and a host of other ways to
temporarily
obtain talent. Organ izations increasingly need to think of

themselves
as being made up of constantly changing teams that assem ble
talent to
meet the per for mance demands of a changing market.
It is increasingly common for organ izations to take into
account the
availability of talent when it comes to implementing a strategy
that has
been deci ded upon. Talent availability is increasingly driving
decisions
about where organ izations locate their operations. Further, an
increas-
ing number of organ izations are using technology that allows
talent to
work anywhere, and at any time.
Most executives do recognize that implementing a strategy
depends
not only on having the right talent but also on being able to
motivate
and direct the talent to behave in ways that are strategically
appropri-
ate. But what it means to operate in strategically appropriate
ways and
how this can be accomplished is not always well thought out
during the
strategy development pro cess; instead it is left for “ later.”
Leaving talent management considerations for later is a big
risk,
because it may not be pos si ble to design an organ ization that
has talent
management practices that are conducive to the implementation
of the

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business strategy. It is during the development pro cess that
organ-
izations need to deal directly with how the organ ization can
obtain and
manage the right talent for a strategy to be implemented
successfully.
Th e next question should be, Does our organ ization have
these practices
and, if not, can we implement the right talent management
practices?
Simply adopting a series of best practices with re spect to
rewards,
per for mance management, recruiting, se lection, and
development is
rarely the right answer to creating strategically appropriate
talent man-
agement systems. Diff er ent strategies require diff er ent
systems. Organ-
izations must start with an understanding of what the talent
management
options are and an understanding of how the many options that
exist
impact the be hav ior of individuals and organ izations.
Overall, developing strategic talent management practices is a

critical
and challenging task. To be done well, it requires an extensive
knowledge
of the alternative methods of talent management as well as an
under-
standing of how they relate to the kind of orga nizational
culture, compe-
tencies, and capabilities that are required to implement and
operate a
strategy. It also requires realizing that talent management
practices may
soon be outdated, especially with the way work and organ
izations are
changing. Few “silver bullets” exist that can solve all talent
management
prob lems or can be strategically relevant for years or even de
cades.
B A S E D O N S K I L L S A N D C O M P E T E N C I E S
Traditional organ izations are built with a job- oriented,
hierarchical
mind- set. As a result, how employees are treated and managed
depends
more on the job they are doing than on their per for mance,
skills, com-
petencies, and needs. In the traditional hierarchical bureaucratic
organ-
izations of the past this may have been defensible, but it is not
in today’s
world of work and will be even less so in the future. Th e
management of
talent needs to be designed to focus on the needs, skills, and
competen-
cies of individuals. Th is is the single most impor tant thing

that the tal-
ent management system of an organ ization can do to ensure
that the
organ ization will perform eff ectively and be prepared to deal
with a dy-
namic environment. It means focusing on what skills individuals
have
501-67676_ch01_6P.indd 20 3/24/17 9:18 AM
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and on what skills might be needed for an organ ization to be
eff ective
and evolve in an agile, strategically appropriate way.
In a job- based organ ization, how talent is treated is primarily
deter-
mined by the hierarchical position it has. Th is includes how
and how
much employees are paid, how they are selected, the training
they re-
ceive, their mobility, where they park their cars, where they
work, what
kind of furniture they have, and so on. In a skills- and
competency-
based talent management system, the key drivers— pay,
recruiting and
se lection, training and development, where someone is located,
and how

someone is treated— shift . Such a system is focused on what
skills an
individual has vis- à- vis what skills the organ ization needs to
be eff ec-
tive. Par tic u lar attention needs to be paid to determining and
develop-
ing the skills that make a diff erence in orga nizational per for
mance.
An organ ization will develop the per for mance capabilities
that are
aligned with its strategy, and the ability to change its
capabilities when
the strategy calls for it, only if a skills- and competencies-
based focus
exists. Th us, it is critical that the organ ization’s talent
management sys-
tem and practices be based on skills and competencies.
P E R F O R M A N C E F O C U S E D
Th e talent management systems in an organ ization need to be
focused
on the type of per for mance it requires from its talent to be
strategically
successful. Th e types of per for mance needed may vary from
individual
excellence to outstanding levels of group, unit, or orga
nizational per for-
mance. Most bureaucratic talent management systems fail to
take into
account the complexity and importance of diff er ent types of
orga-
nizational per for mance. Th ey usually promise promotion and
merit-

based salary increases to the “best performers” and on the basis
of
se niority. Th is oft en is not the right approach, particularly
with re spect
to promotions and to creating talent management systems that
support
orga nizational eff ectiveness. It ignores or fails to focus on the
critical
per for mance be hav iors and talent development motivators
that are
needed to make the organ ization eff ective and that therefore
should be
the focus of talent management systems.
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What is needed to develop talent management systems that are
cor-
rectly per for mance and development focused is a strategic
analy sis
of the type of per for mance an organ ization needs from
individuals,
groups, and the total organ ization to implement its strategy. Th
is needs
to be followed by a pro cess that uses the results of such an
analy sis to
motivate and develop the kinds of be hav iors the organ ization
needs at

all levels and in all segments to be eff ective. Th ese be hav
iors then need
to become the key to what is rewarded, how talent is recruited,
and how
it is developed.
We can take as an example an organ ization in which
cooperative and
team be hav ior is very impor tant. Th e right approach to
rewards may be
a group- or organization- wide incentive plan (e.g., a profi t-
or stock-
option plan) rather than a traditional merit salary increase plan.
It may
also include training and development that focuses on
cooperative
team be hav ior. Fi nally, it might include a recruiting and se
lection sys-
tem that is targeted at hiring talent that performs well in team-
based
organ izations.
An impor tant feature of every organ ization should be the
attraction
and retention of high- performing individuals with key skills.
Th is ties
directly to the real ity that in today’s work world the individual
per for-
mance of key contributors plays an increasingly impor tant role
in the
overall per for mance of many organ izations. Because of the
growing
complexity of work and organ izations, individuals can
increasingly be
the diff erence between an organ ization that is successful and
one that

just survives or, for that matter, fails. Th e real ity is that more
and more
people are in critical positions in organ izations because their
individ-
ual per for mance has a major impact on the overall per for
mance of their
organ ization.
Increasingly, it is not enough to have someone who just gets the
job
done. For many types of work, organ izations need people who
get
work done at higher levels than that being done by their
competitors.
Th is can only be accomplished by having talent management
systems
that focus selectively and strategically on the per for mance of
individ-
uals, teams, and the organ ization as a whole. Par tic u lar
attention
needs to be focused on work that is done at very diff er ent
levels of ef-
fectiveness and has a key impact on orga nizational per for
mance. Stra-
tegically impor tant work that is performed at very diff er ent
levels of
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eff ectiveness by individuals and groups is where the right
talent man-
agement systems can have the largest positive impact on orga
nizational
per for mance.
Overall, talent management practices need to be aligned with
each
other and the organ ization’s strategy and structure to create the
mix of
individuals and work units that can perform at a level that
makes a dif-
ference. Th is can only be done if they focus on competencies,
their im-
pact on per for mance, and competitive advantage rather than on
issues
of fairness, se niority, and hierarchy.
TA L E N T M A N A G E M E N T S H O U L D B E A G I
L E
Th e rate of change in what organ izations need to do, how well
they need
to do it, and how fast they need to do it is continuing to
increase. Th e
only way to respond to this is to have an organ ization that is
agile. Th e
only way to create an agile organ ization is to have talent
management
practices that create talent agility.
What does talent agility require? It takes having talent
management
systems that are able to respond quickly and strategically to
constantly

changing labor markets and business strategy conditions. It is
not a
matter of having one or two agility practices; it requires a
totality of
management practices that allow organ izations to adjust the
kind and
the amount of talent they have and the be hav ior of their talent
on a con-
tinuous and rapidly changing basis.
Th ere are a variety of types and degrees of per for mance
change that
organ izations need to make in a rapidly changing environment.
As a
result, no single approach to creating an agile talent
management sys-
tem exists that is ideal for all organ izations. Organ izations
may be able
to develop a suffi cient level of agility simply by constantly
training and
developing the employees they have. For de cades this was
adequate in
the automotive and telecommunications sectors, but today it is
unlikely
to be suffi cient because it cannot produce the rate of change
and amount
of change that is needed. It also may be very costly because of
training
costs and lost work time. To change more rapidly and at a lower
cost,
these sectors and others need to change their talent by hiring
individu-
als who already have the skills they need or using talent that is
not
employee based.

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Th e best approach for an organ ization to take depends on the
na-
ture of the business it is in, the labor market conditions it
faces, and
the rate and kind of change that is needed. What is clear is that
an
organ ization’s talent management policies and practices need
to be
driven by the kind of change that it faces and by the specifi c
needs that
it has for talent and per for mance. Once those are established,
it is a
matter of putting in place the types of reward systems, career
develop-
ment programs, se lection programs, employment arrangements,
and
other talent management policies and practices that will lead to
the
levels and kinds of agility that the organ ization needs to
respond to its
environment.
Historically, organ izations including General Electric and IBM
were
admired for their career approaches to talent and for the kind of
devel-

opment programs they had for their talent. Th ey provided
careers, not
jobs, and off ered extensive development and training
experiences. Many
rewards were based on se niority and hierarchy, and employees
might re-
ceive gold watches aft er twenty- fi ve years of work for the
com pany. Today’s
rapidly changing environment has made many of those
approaches obso-
lete. As already noted, in most cases organ izations simply
cannot change
rapidly enough by using training and development programs to
change
talent. Because of this, they cannot promise their employees a
career,
much less a job.
What an organ ization can promise is information about what its
cur-
rent business and talent needs are and updated timely
information
about how those needs are changing. Further, they can make
themselves
an attractive place to work for individuals who have the skills
and capa-
bilities needed at a given point in time. Th ey also can adopt
what Netfl ix
does with re spect to severance: the com pany promises its
employees
high pay while they work there, and a generous severance
package if
they are no longer needed; but what it cannot (and does not) do
is prom-
ise every one long- term job security. Th e reason for this is
obvious: like

many organ izations, Netfl ix cannot predict with a high level of
certainty
where the business environment will go and what its future
talent needs
will be.
All that most organ izations are able to do is control what
happens
today and put in place agile talent practices that will enable
change.
Th ey know their staffi ng needs will change in ways they
cannot predict.
501-67676_ch01_6P.indd 24 3/24/17 9:18 AM
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Th us, instead of talking about job security, they need to
promise to fully
inform individuals about what they think the organ ization’s
future will
hold and to treat people appropriately given the business
situation.
Creating an agile talent management culture in an organ ization
is
not a matter of simply changing one part of its talent
management sys-
tem. Every part needs to be changed, starting with the
attraction and

se lection pro cess and continuing through the per for mance
manage-
ment pro cess. Th e emphasis needs to be low on long- term
commitments
and high on communicating what the talent management
situation is
and what the organ ization will do to help individuals adjust to
any
changes that may occur.
Th e most diffi cult talent management agility issue is
balancing reten-
tion and realistic promises about what the future holds. Putting
great
emphasis on promising a future for individuals whose skills
may be out-
dated can lead to short- term retention but serious long- term
prob lems
for an organ ization, including wrongful discharge lawsuits and
a cul-
ture of mistrust and deception. On the other hand, not retaining
talent
can lead to recruiting prob lems, extremely high levels of
turnover, and
all the costs and dysfunctions that are associated with turnover.
Organ-
izations must create talent management practices that do not
over-
promise with re spect to the future and underdeliver with re
spect to the
pres ent. Th ey must deliver a workplace experience and culture
that at-
tracts, retains, and motivates the kind of talented individuals
that are
needed to operate an agile organ ization. Talent management
cannot

be based on se niority and security.
S E G M E N T E D A N D I N D I V I D U A L I Z E D
Th e talent management pro cesses and practices of most organ
izations
adhere to a “standardization and equal treatment approach” that
is ori-
ented toward treating people who hold similar positions in the
same
way. Standardization is said to be the key to fairness, and
fairness is said
to be the key to good talent management. Sameness also leads to
econo-
mies of scale. Treating every one the same makes training, rec
ord keep-
ing, and a host of other talent management practices less
complex and
less costly.
501-67676_ch01_6P.indd 25 3/24/17 9:18 AM
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Certainly, sameness does represent one approach to fairness, but
it is
not the only approach or necessarily the best one. An alternative
to
sameness is to defi ne fairness as treating individuals the way

they need
to be treated based on their needs, abilities, and per for mance
and what
is needed to make their organ ization eff ective. Based on what
we know
about the future of organ izations, work, and workers it is clear
that
treating every one the same is unlikely to be the best approach
from
either an orga nizational eff ectiveness point of view or an
individual
preference point of view. People diff er, and organ izations
need to focus
on how to take advantage of and accommodate these diff
erences in light
of their needs for per for mance.
Th e growing diversity of the workforce immediately makes the
idea
of similar or identical treatment being the best treatment for
every one
null and void. What is good for a seventy- fi ve- year- old is not
likely to
be as good for a twenty- fi ve- year- old, even though they may
be doing
relatively similar work or working in the same function or unit.
Simi-
larly, what may be the best career model for an individual with
a key
orga nizational skill set may not be the best for an individual
with a
skill set that is not critical to an organ ization’s source of
competitive
advantage. Th e same is true for an individual with a
competency that is
scarce and in demand versus one who has a competency that is

easily
available in the labor market.
Standardization needs to be replaced by a reasonable approach
to
segmentation and individualization when it comes to how talent
is man-
aged. Th e challenge is to create approaches to compensation,
job secu-
rity, development, se lection, and other talent management
practices that
are legally defensible and fi t the diversity of the workforce and
the rap-
idly changing business environment that dominates today’s
world of
work.
Th e operationalization of a segmentation approach can be
facilitated
by giving individuals greater choices so that they can create a
work en-
vironment that fi ts their preferences. It also can be enabled
through
technology that makes pos si ble administrative systems that
allow indi-
viduals to make choices about when, where, how, and why they
work.
Th e emphasis needs to be on reasonable individualization
because
without clear limits there is the danger that every employment
deal in
an organ ization will become a personal deal that is constantly
changing.
501-67676_ch01_6P.indd 26 3/24/17 9:18 AM

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Th is could result in a level of complexity so great that it
overwhelms any
administrative capability that an organ ization can create and
manage—
even while taking advantage of the power of modern
information
technology.
Th ere is no simple, generally applicable solution to the
challenges that
are created by the need to treat diff er ent segments of the
workforce dif-
ferently. But it certainly is much more impor tant and pos si ble
to do it
effi ciently and eff ectively today than it was before the web-
based talent
management systems that currently exist were available to help
compa-
nies administer their human resources (HR) programs.
It is increasingly impor tant that organ izations develop and
imple-
ment segmented, individualized management practices in all
areas
concerned with how they manage talent. Th ere are few organ
izations
that should promise the same treatment to all employees when it

comes to
key talent management issues. Of course, to some degree
organizations
never have; executives have always been treated diff erently
from other
employees; hourly and salaried employees have always been
treated dif-
ferently. Th e reasons for this range from legal requirements to
the diffi -
culty and cost of implementing diff er ent practices for multiple
groups
of employees.
Th e diff erence today is that organ izations have a greater need
to adapt
and expand their approaches to treating people diff erently than
they did
in the past when they treated employees the same under an
umbrella of
fairness and effi ciency. Th ey need to communicate that the
traditional
job- level- based approach is no longer eff ective; it cannot be
made to fi t
a workforce that varies as much as the individuals in today’s
workforce
do— not to mention diff erences in when, where, and how they
work.
Companies need to replace the old approach with one that
provides
more choices and is aligned with the work to be done.
TA L E N T M A N A G E M E N T S H O U L D B E E V I
D E N C E B A S E D
Given the importance of talent management practices and
systems in

organ izations today and their greater importance tomorrow,
they need …
45
4
SELECTING TALENT
T
alent se lection decisions are an increasingly impor tant
determi-
nant of success. For many organ izations they are the most
impor-
tant decisions they make, oft en committing the organ izations
to high costs and major investments in time and analy sis. It is
not new
that se lection decisions are impor tant. What is new is their
growing
importance as a result of human capital becoming a more
critical de-
terminant of orga nizational eff ectiveness. Also new is the
technology
that can be used to make them, and the need to shape the se
lection pro-
cess to fi t the new workplace and workforce.
E F F E C T I V E S E L E C T I O N
Th e se lection pro cess needs to be carefully integrated with the
attraction
pro cess. In many re spects, se lection is a continuation of the
attrac-

tion pro cess as it oft en plays a critical role in the decisions
individuals
make about whether or not to accept a job off er. Th e se
lection pro cess
says a great deal about what an organ ization stands for and
how it oper-
ates; thus, it very much determines what kind of individuals
will work
for an organ ization and shapes its culture.
As an impor tant part of the employer brand of an organ ization,
the
se lection pro cess must build on what is said about the
potential em-
ployer in the attraction pro cess and give individuals accurate
informa-
tion about what it will be like to work for the organ ization if
they are
selected. If it does not, the organ ization runs the risk that
individuals
will have false expectations and will become turnover
candidates before
501-67676_ch01_6P.indd 45 3/24/17 9:18 AM
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Work
the organ ization gets a signifi cant return on the investment it
has made
in selecting, hiring, and training them. Th ere is also the risk
that it will
be a negative experience that will drive away good talent.
In addition to being carefully integrated with the attraction pro
cess,
the se lection pro cess needs to be an eff ective step in the
onboarding
pro cess. It should introduce talent to the organ ization in ways

that
emphasize the organ ization’s key features with re spect to per
for-
mance, learning, change, culture, management style, and
interpersonal
relationships.
Th e se lection pro cess needs to refl ect the realities and
challenges of
staffi ng in today’s environment. It needs to focus on the skills
individu-
als have, make a valid assessment of what they can learn to do,
and de-
termine if they are a “good fi t” for the organ ization’s
management
approach and leadership style. In par tic u lar, it needs to focus
on those
skills that are critical for an organ ization’s eff ectiveness. In
many cases
the pro cess needs to go beyond assessing what is needed to do
an exist-
ing set of tasks or a given job; it also needs to refl ect what an
individual
can learn to do that is relevant to the business strategy of the
organ-
ization and the rapid changes that are occurring in the world of
work.
Given the complexity of most organ izations, multiple se lection
pro-
cesses may be needed. Th e most obvious basis for segmenting
the
se lection pro cess is whether or not the individuals being hired
are
development candidates. It may be that certain employees are
being

hired for an assignment that requires immediate per for mance,
and
the key issue is whether or not they can perform a set of
existing tasks.
On the other hand, they may be entering an area where a signifi
cant
amount of learning is required and the expectation is that they
will
continue with the organ ization through multiple changes in
work
pro cesses, technology, and organ ization design that require
continual
learning. As a result of this, employment candidates will need
to be
able to adapt to situations where development over a period of
time is
critical.
It is fair to say that a lot is expected of the se lection pro cesses
that
organ izations use. It is also fair to say that many of them have
not met
those expectations. Th ey have attracted the wrong individuals,
they
have resulted in wrong se lection decisions, and they have given
talent
501-67676_ch01_6P.indd 46 3/24/17 9:18 AM
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Selecting Talent 47

unrealistic expectations about what work life is like. While the
se lection
practices of many organ izations have continued to fare poorly,
the im-
portance of se lection has increased.
Th ere has been an enormous amount of research done on what
makes
for good se lection decisions. It has produced some useful
guidelines
concerning what a good se lection pro cess should look like
when deal-
ing with the many complexities and challenges of hiring. Th
ere are
multiple practices that are appropriate for producing good se
lection de-
cisions and for helping talent make informed decisions about
whether to
join an organ ization. Th ese guidelines can be used to develop
se lection
pro cesses that fi t the new world of work and workers.
Th e major point that should be front and center when it comes
to
organ izations making decisions about who to hire and what
type of po-
sition to hire them for is that “past be hav ior is the best
predictor of
future be hav ior.” Th is is particularly true when the
environments and
work are similar. Th us, it is very impor tant to gather
information about
how applicants have behaved in the past and to base hiring
decisions on
that information. Th is is particularly impor tant when

individuals are
being hired into positions where they are expected to begin
performing
well immediately aft er they are hired.
T H E W O R K R E C O R D
Since past be hav ior is the best predictor of future be hav ior,
there is no
better predictor of how an individual will perform in the future
than
how they have performed in the past. Th is means that when
individuals
are being hired, organ izations should do every thing they can to
fi nd out
how the individual has performed in similar situations. Not
surpris-
ingly, the more similar the past situation is to the one where an
individual
will be working, the greater the predictive power of past per for
mance
data. Increasingly, data on individuals’ past per for mance
exists; in many
professions it is widely available.
Sports is a very vis i ble example of the great availability of
per for-
mance data. Just about every statistic you can imagine is now
avail-
able about the per for mance of athletes, starting from their ju
nior
high school years. Sophisticated and complicated mea sures are
computed
501-67676_ch01_6P.indd 47 3/24/17 9:18 AM

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and used to make decisions about the eff ectiveness of football,
bas-
ketball, and baseball players. In this re spect, sports may be a
bit of an
anomaly with re spect to mea sur ing the eff ectiveness of
employee
per for mance, but it does not have to be many. Organ izations
already
have extensive data about the eff ectiveness of salespeople,
technical
people, and the like. With the growth of big data and the
increased
monitoring of employee be hav ior through apps and wearable
location
and activity monitors, more and more information is available
about
individuals’ per for mance. Th e challenge is to get good data
and to use
it in a way that produces good se lection decisions.
Many organ izations begin the data gathering pro cess by asking
job
applicants to complete an application that focuses on their
educational
and work history. Th is is a good fi rst step as long as the
application is
not so diffi cult to complete that it drives good applicants
away. Increas-

ingly, organ izations are using apps as a way to make the
application pro-
cess more user- friendly. Such companies as Deutsche Bank,
Ernst and
Young, and Microsoft are using smartphone apps that help
people fast-
track the recruitment and se lection pro cess by playing games.
Th is can
encourage more applicants and send positive information about
the
organ ization and its culture, thus contributing to the attraction
pro cess.
It can also provide organ izations with behavioral data that can
be
scanned for relevant experience and skills.
Organ izations oft en ask for references, and they can provide
useful
information, but there are always issues of credibility and truth
when
data are gathered in this way. Th us, it is very impor tant that
organ-
izations do every thing they can to determine the validity of
data about
the past per for mance of any individuals they hire. Th is may
involve hir-
ing vetting companies to look at the rec ords of individuals and
get data
about their work and education history. Th ere is also the
option of ask-
ing individuals for their work rec ords and accomplishments and
then
testing that against other sources; this is not only a good way of
deter-
mining whether individuals are a good hire from a per for
mance point

of view but also a way to test their credibility and honesty.
Frequently
individuals do not provide valid information when fi lling out
job
applications.
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Selecting Talent 49
I N T E R N S H I P S , G I G S , A N D S I M U L AT I O N
S
Without question, the best way to give individuals information
about
what it is like to work in an organ ization and to give that organ
ization
information about whether an individual can do the job is to
have them
actually work at the job or a simulation of it. Th is is always
better than
doing interviews or using tests that give information about
people’s
personalities, skills, and abilities but may not predict job per
for mance.
Having job candidates actually do the job tells an organ ization
if indi-
viduals can accomplish specifi c tasks; it can also make it clear
to those
individuals what it is like to do the work the organ ization

wants them to.
One in ter est ing pro cess that can be used to test individuals is
the
blind audition. In symphony orchestras, this involves
auditioning for
jobs behind a screen so that the hiring man ag ers are forced to
pay
attention to what matters most: how well those auditioning
play their
instruments; the man ag ers are not distracted or infl uenced by
appear-
ance, race, gender, and the like. Th ese blind audition practices
fi t well as
an initial screening pro cess for collecting work samples from
writers,
coders, customer ser vice representatives, researchers, and
others who
are being considered to do technical and administrative work.
Th ere are multiple ways to have individuals do the work that
the
organ ization has to off er without hiring them on a regular
employment
basis. Th e most obvious is the use of temporary work
programs, such
as internships, contract hires, and temporary assignments.
Internships
have long been used as an eff ective se lection device. Many
companies
use them as a way to attract, test, and ultimately select college
and high
school students as well as others who are interested in
developing them-
selves. Th ey combine a realistic job preview with a work
sample, and

thus can improve both the attraction and se lection pro cesses of
an
organ ization. Th ey are an eff ective way to select and manage
talent in
the new world of work and workers.
Temporary work assignments and internships can last a matter
of
hours or many months— even years. In many re spects, the
longer the
time period, the better. Th is gives the organ ization time to
observe indi-
viduals actually doing the work that they would be doing as
employees
and gives individuals a chance to see what the organ ization and
the
501-67676_ch01_6P.indd 49 3/24/17 9:18 AM
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work is like. Admittedly, it is one thing to be a regular
employee and
another to be a temporary employee or intern. Even so, the
temporary
work assignment is a much better way to give potential
employees a
sense of what the organ ization and the work is like versus
having them
observe it or having somebody explain it to them. And,

needless to say,
it is also the best way to test whether they can do the work.
Th e information technology revolution provides many new
opportu-
nities to have individuals do work for organ izations before they
become
regular employees. Gig sites provide the opportunity for organ
izations
to get work samples that can be very valuable in determining
what an
individual can do and whether the organ ization wants to
employ some-
body for a gig or on a regular basis. Technology also provides
the op-
portunity to simulate work situations in ways that have not been
pos si ble
before. Simulations can be interactive and can test the responses
of ap-
plicants to evolving situations and technical prob lems; they can
make
testing much more realistic and therefore more valid. Video
games may
also be a good choice, as they have the potential to create
simulations
that test the judgment and analytic capabilities of potential
hires. Th ey
have the advantage of putting individuals in work situations and
being
able to see how they analyze and respond to them.
Overall, the best way to judge if potential employees can do
some-
thing is to have them do it, not to ask them or others (past
employers,
coworkers, etc.) whether they can do it. Of course, it may not

always be
pos si ble to observe somebody performing work, so it may be
necessary
to get data about their per for mance history. Th is can be
extremely valu-
able when the source of the data is credible and the work that
the ap-
plicant has done previously is similar. If the job entails
producing a
manuscript, fi lm, advertisement, or other identifi able product,
a good
substitute is an assessment of the work product itself.
Unfortunately, job
candidates themselves are frequently not a valid source of per
for mance
data and it is oft en impossible to fi nd someone who is.
A B I L I T Y A N D P E R S O N A L I T Y T E S T I N G
For a variety of reasons, organ izations cannot always obtain a
work
sample: applicants may require specifi c training for the work to
be done,
or the work may simply be too complex or involve too long a
time span
501-67676_ch01_6P.indd 50 3/24/17 9:18 AM
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Selecting Talent 51

to do for those who are not actual employees. It may not even
exist in
“doable” form because the fi rst work of applicants is to
develop the proj-
ect or work that they will be doing. In these cases, an
intelligence or
targeted ability test may be the best choice.
Standardized psychological tests can be useful when they mea
sure an
ability like intelligence, which is critical to most or all work
that might
be performed by job applicants. Skill and ability tests are
particularly
useful when the work entails learning to perform tasks that
applicants
may not have any prior experience with.
Organ izations have used many diff er ent personality and
interest tests
for de cades. Th e most popu lar and most frequently used of
these is the
Myers- Briggs Type Indicator; among other questions, it asks a
job ap-
plicant to say whether he or she would rather be considered a
“practical
person” or an “ingenious person” and whether he or she is a
“good
talker” or instead “quiet and reserved.” One estimate is that
over fi ft y
million people around the world have taken the test.
Th e research evidence shows that, in most cases, personality
tests are
not valid predictors of job per for mance. Th ere is reason to
believe that

they can be predictive for some kinds of work (e.g., customer
contact
roles), but that as a general rule they are not good predictors of
per for-
mance and thus should not be used for se lection unless they
have been
shown to be valid by studies that are specifi c to the work that
will be
done by the talent being tested.
I N T E RV I E W S
Th e most frequently used se lection tool is the one- on- one
interview.
Most interviews are unstructured (the interviewer asks what
ever he or
she wants) and oft en turn out to be rambling conversations
between the
interviewer and the job candidate. Not surprisingly, most
interviews
have little or no validity when it comes to predicting the per
for mance
of job candidates or the length of their employment. Despite
this, the
interview continues to be the most frequently used se lection
device.
Many man ag ers feel that they can make good se lection
decisions
about job candidates based on their ability to do interviews.
Research
on se lection decisions does not support this conclusion; it does
show
that most man ag ers believe they can make good decisions, but
it does

501-67676_ch01_6P.indd 51 3/24/17 9:18 AM
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not support the notion that they actually do so. Interviews are
also
fl awed with re spect to giving job candidates an accurate view
of what
work will be like once they join an organ ization.
Th e validity rec ord of interviews suggests that it may be best
to never
have interviews as part of the se lection pro cess in the new
world of work
and workers. Th e prob lem with this is that most applicants
want to have
interviews so that they can meet the individuals they will
potentially be
working with and for, and man ag ers also want to know and
have a say
in who is hired. Having them approve a new hire aft er an
interview also
helps commit them to a successful onboarding of that hire. Th
us, rather
than eliminating interviews, the best solution is oft en to direct
inter-
viewers toward the realistic preview and attraction side of what
an ef-
fective se lection pro cess needs to accomplish and have them
play little

or no role in actual hiring decisions.
As far as contributing to valid se lection decisions and
attraction, it is
critical that interviews be structured and guided by a
predetermined list
of key questions and points. Th ere is a large amount of
evidence that
shows that when there is little structure to interviews,
interviewers tend
to ask questions that are inappropriate, invalid, and in some
cases dis-
criminatory, unethical, and even in violation of labor laws. For
exam-
ple, they sometimes ask about childhood experiences, what job
applicants’
parents are like, what their hobbies are, and a whole list of
things that
are not valid predictors of the future per for mance of the
prospective
employees.
Adam Bryant interviews chief executive offi cers and publishes
the re-
sults every Sunday in the New York Times. He always asks,
“How do
you hire?” Th e CEOs all report on what they ask in interviews
and al-
most without exception they ask about something that is not
likely to
be a predictor of per for mance. For example, “If you had all the
money
in the world, and you had one year to live, what would you be
doing?”
or “What do you do on weekends?”

Questions should be directly targeted at evaluating how well
indi-
viduals have previously performed work that is similar to the
work that
they are applying to do. Th e same structured questions should
be asked
of all interviewees so that comparisons can be made. Th e
questions need
to focus on the kind of skills needed for someone to do or learn
how to
do the work they are being hired to do. Th ere is evidence that
this type
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Selecting Talent 53
of interview can be valid in selecting some employees. When
structured
interviews are done, there is also much less chance that the
interviewer
will ask questions that are inappropriate, invalid, or
inaccurately com-
municate what it is like to work for the organ ization.
It oft en makes sense to have structured interviews that are
guided by
information technology. To assure that the right questions are
asked
across multiple interviews, a key list of questions can be

developed and
sent to all interviewers. As the interview pro cess unfolds, the
interview-
ers can connect with each other about what has been answered,
which
issues to pursue, and which question should be focused on. Th
is is a
good way to improve the practice of interviewing and to ensure
that in-
terviews are valid, ask reasonable questions, and are not
repetitive.
Interviews should be structured in a way that informs job
candidates
about what will be expected of them and what it will be like to
work in
the organ ization. Giving the job candidate a good preview of
what work
will be like is a much more achievable goal than having the
interviewer
make a valid hiring decision based on information that is
provided by
the job applicant in response to interviewer- created questions.
Making an interview eff ective requires training the interviewer
to
deliver the right kind of information and to ask appropriate
questions.
It is not an easy task, but it is one that can be accomplished and
will
lead to much better results than unstructured, rambling
interviews
that focus on what an untrained interviewer thinks will predict
whether
or not the interviewee will be a good employee.

Th e point made earlier about past be hav ior being the best
predictor
of future be hav ior suggests that structured interviews should
focus on
asking individuals what they have done and how they behaved
in previ-
ous job situations. Interviews should be constructed to carefully
look at
the responsibilities individuals had in previous jobs and to get
them to
talk about par tic u lar incidents in the workplace that they
encountered
and how they responded to them. Job applicants should also be
asked
what kind of tasks they performed, what knowledge was
required to
perform them, and how they dealt with new challenges and
learning
opportunities. It may also be eff ective to ask what they learned
from
their past work and how they will approach work in the future.
It is worth repeating that the interviews should be considered
part of
the attraction pro cess. Clearly, job applicants develop feelings
of like or
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dislike for interviewers during the interview pro cess. Th is can
make a
big diff erence in whether they end up completing the se
lection pro cess
and accepting a job if it is off ered. It is thus impor tant that the
inter-
viewer conduct the interview in a way that produces a positive
dialogue
with the job applicant.
Fi nally, there is the possibility of having interviews that have
no in-
fl uence on se lection decisions. I have seen this approach work
well in
situations where there is a clear rec ord of candidate per for
mance avail-
able; it is assessed, the hiring decision is made, and then the
individual
is invited to an interview. Done well, these interviews can
provide a
chance for the interviewers and interviewees to exchange
information
about the culture and climate of the organ ization and to start
the on-
boarding pro cess of those individuals who will ultimately be
hired.
S O C I A L M E D I A
Th e increasing use of social media can provide organ izations
with new
means to fi nd out about an individual’s past be hav ior. Th ey
can simply
go to prospective employees’ Facebook accounts or other
postings and

see what kind of interests they have, how they behave, how they
respond
to friendships and networks, and so on. Th e challenge with
information
gleaned from social media is determining its relevance to the
work to
be performed.
In many cases, social media information may be irrelevant
because
the issues in it are very diff er ent from those of the work
situation. Th ere
may, however, be instances in which individuals on social
media forums
state things or behave in ways that are simply unacceptable and
do not
represent what a com pany would like its employees to be
known for.
Looking at be hav iors that are extreme also can provide
meaningful
warnings about how individuals might represent the com pany
and how
they might behave in the workplace.
Perhaps the best way to think about the relevance of social
media is
that it is a new and potentially useful source of information.
Social me-
dia forums should be treated as just one source of information
about
how an individual behaves, but they are a valid source of
information
about be hav ior. What candidates post on social media is an
example of
how they represent themselves and therefore a pos si ble
indicator of how

they will behave in the workplace.
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Selecting Talent 55
VA L I D AT I O N
Validation is a must for all se lection pro cesses. For a number
of reasons,
it is very impor tant that organ izations determine whether the
methods
and pro cesses they are using to select employees produce valid
deci-
sions. Th e results of the se lection pro cess need to be tested on
a con-
tinuing basis against turnover, absenteeism, productivity levels,
and
other per for mance mea sures. Given the rate of change in the
world of
work, old results are not good enough. A few years ago,
continuous val-
idation may not have been necessary; today, as work and
workers change
at an accelerating rate and new sources of data multiply (e.g.,
social
media, gaming, etc.), validation should not be looked at as a
one- off but
as a continuing pro cess. Validation should look at all the ele
ments in

the se lection pro cess that infl uence fi nal decisions. It should
also al-
ways involve looking for new practices that will improve the se
lection
pro cess.
In jobs where there is a high variance in per for mance, a small
in-
crease in the validity of the se lection pro cess can result in an
enormous
gain in the per for mance of individuals and ultimately in the
per for-
mance of organ izations. In the cases where the top performers
are ten
to twenty times more productive than average performers
(which is of-
ten true for technical work such as soft ware engineering), even
a small
increase in predictive validity can result in a big per for mance
gain. In
such work situations, having a valid se lection pro cess is
particularly
impor tant.
Validation is impor tant not just because it can lead to
improved se lection
decisions, and better cost and productivity numbers in an organ
ization;
it also provides a defense against lawsuits, charges of
discrimination,
and unfair employment actions. Th is is where information
technology
and the era of big data come into play. It is much easier today
to get per-
for mance data about individuals, and to use data analytics to
determine

how predictive the vari ous parts of a se lection pro cess are.
D E C I S I O N M A K I N G
In traditional organ izations, job applicants are interviewed and
se-
lected in a highly hierarchical pro cess; they are interviewed by
man ag-
ers and the hiring decision is made by their boss- to-be and
maybe his
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or her boss. Future peers, subordinates, and other employees
have
little or no participation in the interview and se lection pro
cess. Th is
traditional hierarchical management approach does not fi t the
new
world of work and workers because it fails to build a
commitment to
the outcome of the pro cess and ignores helpful information that
future
peers and subordinates may have about whether a job candidate
should
be hired.
Many technology fi rms and some retail fi rms (e.g., Whole

Foods)
recognize the importance of including future coworkers from
all
organ ization levels in the se lection pro cess. Th ey have
future peers
and subordinates interview job candidates and in some cases
vote on
the se lection decision. Th is has the obvious advantage of
building
their commitment to the success of the new hire …
1
1
THE CHANGING WORLD
OF WORK, WORKERS,
AND ORGAN IZATIONS
W
ork, workers, and organ izations are changing in signifi cant
ways, and at an ever increasing rate, and there is every rea-
son to believe that both the degree and the rate of change
will continue to increase. Most of these changes have signifi
cant and
profound implications for how talent should be managed.
Simply stated, many of the old princi ples and practices
concerning
what makes for good talent management are obsolete as a result
of the
changing nature of work, workers, and organ izations. What
used to be

good or best practice—or at least good enough practice— with
re spect to
how people are recruited, selected, trained, developed,
rewarded, and
evaluated simply does not fi t today’s workforce and
workplaces. Th ese
strategies, practices, and policies have become increasingly
obsolete,
and virtually every activity that organ izations engage in with
re spect to
how human capital is managed needs to be changed to become
a best
practice in this new world of work. Th is includes many of
today’s best
reward, se lection, and development practices.
So far the talent management princi ples and practices of most
organ-
izations have not changed signifi cantly in response to this new
world
of work. Th ey still follow a job- based bureaucratic model,
focusing
on job descriptions, equating fairness with sameness and se
niority,
and are managed by human resources (HR) functions that are
not
501-67676_ch01_6P.indd 1 3/24/17 9:18 AM
C
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.
Work
changing as fast as the world of work is. Th is has resulted in
numerous
books and articles that are critical of HR, some of which
suggest “blow-
ing it up.”
Th ere is considerable evidence that the HR functions in most

organ-
izations are not strategy driven and are not changing as fast as
they need
to. Table 1.1 pres ents data from my global survey of large
corporations.
Th e survey, which is done every three years, mea sures the
views of
se nior HR executives on talent management and their organ
izations’
practices. It is the only study that has mea sured change in HR
practices
on a global basis. Th e results show that between 1995 and 2016
there
were no signifi cant changes in how HR spent its time. In
every country
Table 1.1 Percentage of current time spent on vari ous HR roles
in the United States
HR ROLES
MEANS
19951 19982 20013 20044 20075 20106 20137 20168
Maintaining rec ords:
collecting, tracking,
and maintaining data
on employees
15.4 16.1 14.9 13.2 15.8 13.6 15.2 13.2
Auditing/controlling:
ensuring compliance
with internal
operations, regulations,

and legal and union
requirements
12.2 11.2 11.4 13.3 11.6 12.5 13.0 12.0
HR ser vice providers:
assisting with
implementation and
administration of
HR practices
31.37 35.05,7 31.37 32.07 27.82 30.4 25.71,2,3,4 25.92
Development of HR
systems and practices:
developing new HR
systems and practices
18.6 19.2 19.3 18.1 19.2 16.7 19.0 20.96
Strategic business
partners: being a
member of the
management team;
involvement with
strategic HR planning,
orga nizational design,
and strategic change
22.0 20.36,7 23.2 23.5 25.6 26.82 27.12 28.12
Source: Edward E. Lawler III and John W. Boudreau, Global
Trends in Human Resource
Management: A Twenty- Year Analy sis (Stanford, CA:
Stanford University Press, 2015). Results from
2016 are new, and were not included in the 2015 book.

Note: 1,2,3,4,5,6.7,8 Signifi cant diff erences between years (p
≤ .05).
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Changing World of Work, Workers, and Organ izations 3
studied HR has spent and continues to spend most of its time on
rec ord
keeping and providing administrative ser vices.
Th e good news is that the major changes that have and will
occur in
the world of work are identifi able and will likely to continue
to be. As a
result, it is pos si ble to make fairly defi nitive statements as to
what the
world of work will be like in the future. Th is in turn means
that it is pos-
si ble to specify what organ izations should do with re spect to
talent
management to be eff ective moving forward.
Talent management should become increasingly strategy driven,
skills
based, per for mance focused, agile, segmented, and evidence
based.
Before specifying in detail what talent management should look
like, it
is impor tant to identify recent key changes in the world of

work and why
they demand new approaches to talent management.
G L O B A L A N D C O M P E T I T I V E O R G A N I Z
AT I O N S
Organ izations now increasingly operate in global business,
social, and
po liti cal environments because the products, ser vices, and
customers of
most large corporations are multinational. Many industries are
domi-
nated by major competitors that are global in their operations;
they pro-
duce products that are created on a global basis and targeted at
global
markets. Th is is true for the energy, automotive, and
information tech-
nology industries, and for major ser vices such as fi nance,
consulting,
and advertising.
Yes, there are still many businesses that are local, but they
represent
a decreasing percentage of the total business that is done in
such places
as China, the Eu ro pean Union, and the United States. Even
those
organ izations that do not operate globally are significantly
affected
by the organ izations that do; they compete for labor with them,
and
oft en find themselves doing business with and at times
competing
with global organ izations.

One in ter est ing example of the growth of globalization in the
last
twenty years is provided by food ser vice and package delivery
compa-
nies, both of which continue to “go global” at a rapid rate.
McDonalds
and Starbucks are prime examples of U.S. national food ser vice
organ-
izations whose reach has become global in a relatively short
period
of time. FedEx and UPS have both gone global with their
delivery
501-67676_ch01_6P.indd 3 3/24/17 9:18 AM
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operations. Information technology concerns such as Google
and
Microsoft have also gone global and in turn made it pos si ble
to connect
organ izations’ worldwide operations.
One of the most impor tant features of the global business
environ-
ment is the ability it provides to internationally source the
production
and delivery of products and ser vices. Information technology
has made
it pos si ble to globally source talent for soft ware development

as well
as phone sales and customer ser vice. Many of the most obvious
exam-
ples of this global sourcing are in the manufacturing sector:
many prod-
ucts are partly or completely produced in countries that have
low labor
costs and, in some cases, easy access to natu ral resources that
aid low-
cost production. As a result, an increasing number of organ
izations now
face global competitors rather than just local ones. Th is is true
of both
ser vice organ izations and manufacturing organ izations.
A major factor that has led to the highly competitive, rapidly
chang-
ing global business environment that exists today is the
availability of
fi nancial capital. Th ere is— particularly in developed
countries—an
increasing amount of venture capital available; as a result,
individuals
and organ izations who wish to create new businesses or grow
existing
ones can access the fi nancial backing they need relatively
easily. Th ere
is no reason to believe that in the foreseeable future this supply
of
capital will decrease; the best prediction is that there will be
an ever
greater number of start- ups on a worldwide basis in de cades to
come
and, as a result, the business environment will become
increasingly
competitive.

Strongly supporting the argument that more competitors will be
cre-
ated is the real ity that more technology will be available to
create new
businesses. What happened in the case of information
technology—
with smartphones, personal computers, and tablets replacing
type-
writers, telephones, adding machines, and mainframe
computers, and
with social media creating new businesses—is likely to happen
in other
areas.
Th e globalization of business makes talent a global resource,
and that
raises many talent management issues. Organ izations
increasingly can
and need to go where the “right” talent is available for the best
price to
be competitive. Th ey need not only to source talent globally to
be com-
petitive but also to make good strategic decisions about how
they man-
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age talent coming from diff er ent national cultures. One clear
implication
of this is that an increasing number of organ izations will need
to man-
age talent eff ectively on a global basis, dealing with
governments and
other cultures— and the complexities they create— with re
spect to all
talent management issues.
Perhaps the greatest impact the global business environment
will
have will be on the need for organ izations to consistently
improve their
per for mance. What is good enough today will not be good
enough to-
morrow. Th is point was captured in the quality lit er a ture de
cades ago by
the argument for continuous improvement, and it is even truer
today.
In fact, not just continuous improvement but dramatic
improvement is
oft en needed— not just in quality but in speed, cost, and
innovation.
T E C H N O L O G Y I S A M A J O R D I S R U P T O R
Technology— particularly in the form of information
technology and
intelligent computing— will increasingly be a major disruptive
force
when it comes to how, when, and where work is done and how it
should
be managed. Many previously repetitive, tedious tasks have
been taken
over by technology, and virtually all organ ization

communication has
changed dramatically as a result of such advancements. Th ey
will con-
tinue to have a major impact on when, where, and how work is
done as
well as what work is done. Already many individuals can and do
work
anywhere, at any time and, in many cases, with anyone.
Th ere is also little doubt that we are just at the beginning of
the in-
formation technology revolution. What people do, and when,
where,
and how they do it, is going to change dramatically and
continuously
over the next de cades. How their per for mance is monitored
and mea-
sured is also sure to change.
Organ izations are increasingly going to need to be able to
quickly
change what they do and how, when, where, and how well they
do it, as
well as deciding who will be responsible for doing it. And they
will
need to change as technology makes certain products and ser
vices ob-
solete as well as the means of producing them. Just as no one
sits at a
typewriter today and prepares letters, in the future it is very
unlikely
that people will sit at a personal computer and send e- mails. It
is inevi-
table that, increasingly, manufacturing tasks will be done by
smart

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machines and by companies that globally distribute production
based
not just on labor costs but also on the quality and nature of the
work-
force, infrastructure, and technology in other countries.
Technology is driving and enabling the economy and organ
izations
to use an increasing number of part- time and freelance
crowdsourced
workers who do work that has traditionally been done by full-
time em-
ployees. Th e app economy is upon us, and it creates the
opportunity for
organ izations to use vari ous types of employment relationships
that are
fl exible, adaptable, and can be driven by their changing needs
for both
skilled and unskilled workers.
Technology is impacting where and how work is done, and we
are
just at the beginning of this revolution. People will
increasingly have
the ability and all the tools needed to do many kinds of work
and to

connect with others around the clock and year round— virtually
any-
where in the world. A key issue is how organ izations develop a
work-
force, and how they coordinate and evaluate the per for mance
of
individuals who are not necessarily colocated but can
communicate
quickly and easily with each other.
Advances in computer hardware, algorithms, and data analytics
will
increase the work that machines do and migrate many kinds of
work
from individuals to technology- based operations. Intelligent
computers
are now capable of learning, playing complex games,
responding to cus-
tomers, and performing complex medical diagnoses and even
some
surgeries. Th is is an area where the rate of change is likely to
accelerate
as digital assistants are able to provide an increasing number of
ser vices
in response to voice commands and IBM Watson– type
computer sys-
tems are developed. In addition, the Internet is creating a world
in which
machines can connect and perform in ways that once required
humans.
Th ree- dimensional printing is changing manufacturing, and
virtual
real ity is changing entertainment.
Th e challenge for organ izations is to fi nd the optimal balance
be-

tween human- and machine- controlled operations and decision
mak-
ing. It is unclear how the new technologies will aff ect the total
number
of jobs that exist, but one clear outcome is that there will be
fewer and
fewer simple repetitive tasks, less human monitoring needed,
and less su-
pervision performed by man ag ers. Another result will be that
an increas-
ing number of employees in complex organ izations will be
“knowledge
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workers” of one kind or another. Others will be talent that
will be asked
to work anywhere, at any time, on complex assignments that
involve
developing new technology and programming it. And more and
more
knowledge work will be done by computers as they develop
more ana-
lytic and decision- making capabilities.
Th e best estimates tell us that organ izations are just at the
beginning
of the disruption caused by changes in how, where, when, and

with
whom people work. Technology is moving rapidly in terms of
the capa-
bility it has to solve prob lems, pro cess data, learn,
manufacture prod-
ucts, monitor activities, and connect people. Global organ
izations are
likely to be leaders in the use of technology to increase their eff
ectiveness
in the areas of cost control, product design, production,
marketing, sales,
and internal operations. In order to do this they will need to be
leaders in
changing how they manage talent.
W O R K F O R C E D I V E R S I T Y
In most organ izations, many changes in the composition of the
work-
force have already taken place. Th ese organ izations’
workforces are much
more diverse than they were just ten years ago, and there are
many
reasons to believe that we will see continued growth in their
diver-
sity; this is particularly true in developed countries that have
laws
against discrimination based on age, race, sexual orientation,
gen-
der, or gender identity. Th e growing emphasis in technical and
man-
agement education on the inclusion of minorities and women is
another major contributor to workforce diversity. Th e age
range of
the workforce is going to go up, the gender balance is going to
shift ,

and the workforce is going to include more transgender and
ethnic
minority people. Overall, most organ izations will have
increasingly
diverse workforces with re spect to every impor tant
characteristic of
human beings.
Diff er ent age groups think about careers, and the features of
organ-
izations, in diff er ent ways. Th is seems to be a product of not
only aging
and maturation but also of the real ity that people from diff er
ent gen-
erations have diff er ent experiences at any given age. As a
result, they
look at work diff erently at any given point in time. Every new
generation
is likely to think, act, and look at work and careers diff erently
when
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compared to how previous generations did when they were that
age,
because the world is in a constant pro cess of change.
Organ izations are just beginning to feel the full impact of age

discrimination legislation and increases in life expectancy. Th
ese
factors are leading more individuals to continue working into
their sev-
enties and eighties, and to a workforce that has more age
diversity. Th is
is likely to become even more common as health care delivery
systems
improve and people have longer life expectancies—
particularly in less-
developed countries as their health care systems improve.
Another
contributor to longer work careers is likely to be the need to
earn enough
money to “aff ord” retirement.
Organ izations can no longer assume that they are dealing with
a
homogeneous group when it comes to the many features of
individuals
that are age related. Th ey need to be able to manage and or ga
nize adults
of virtually all ages.
Overall, organ izations must be able to manage individuals that
dif-
fer in age, gender, race, sexual orientation, and national origin.
As a re-
sult, there will be very few organ ization and talent
management issues
for which there is an eff ective “one size fi ts all” approach.
S U S TA I N A B L E P E R F O R M A N C E
Th e demand that organ izations perform well has expanded
over the last

several de cades in the sense that it is not enough for them to
improve
solely in terms of the quality of the products and ser vices they
produce
and their fi nancial per for mance. Th ey are increasingly being
asked to
perform better in how they impact the environment, the society
in
which they operate, and their employees.
Th e social movement that demands that organ izations perform
bet-
ter in the social and environmental areas has gained
considerable mo-
mentum in the past de cade and will continue to do so. It has
resulted in
new laws involving pollution and how employees are treated.
Not sur-
prisingly, it is putting the greatest amount of pressure on organ
izations
in developed countries. Th ey are under pressure to change the
way they
operate and to change the way their suppliers and subsidiaries
in devel-
oping countries operate and do business when it comes to their
im-
pact on the environment and how they treat their talent.
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As the world becomes more conscious of the importance of
sustain-
able corporate per for mance, there is little doubt that
corporations will
increasingly be held accountable for their global impact on the
environ-
ment, their employees, and the socie ties in which they operate.
Th e de-
mand that corporations meet what are oft en called triple-
bottom- line
standards and report on their per for mance is growing. As of
yet this is
certainly not being undertaken by a majority of the corporations
in
either the developed or the developing world, but there is
signifi cant
movement in this direction.
Prime examples of organ izations moving toward triple-
bottom- line
per for mance accountability are Google, Starbucks, and
Unilever; they
are ahead of the curve and showing some positive results. Th e
more suc-
cessful they are, the more pressure there will be on other
corporations
to follow their lead and perform well in all the areas of
corporate
sustainability.
A C C E L E R AT I N G C H A N G E
Th e changes discussed thus far in globalization, diversity,
technology,

and sustainability point to a very strong and impor tant point:
the rate
of change is likely to continue to be rapid and increasingly
disruptive
with re spect to traditional models of how organ izations are
designed
and how they manage their talent. Most of our models of talent
man-
agement and organ ization design assume a stance toward
change that
is episodic— that is, they argue for an analy sis of the situation,
an im-
plementation of changes that are needed, and a period of
stability until
the next period of change needs to occur.
It is now well established that the traditional change model is
no lon-
ger appropriate because it operates too slowly. What is needed
instead is
a continuous change approach in which organ izations are agile
and ca-
pable of constantly changing the ways in which they operate. Th
ey cannot
rely on periods of stability during which they can perfect recent
changes
and plan for the next ones. Rather, they need to be constantly
experi-
menting and changing what they do and how they operate in
order to
respond quickly to the rapidly changing environments they face.
To do
this they must have talent management practices that support
experi-
mentation, agility, and change.

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TA L E N T I S C R I T I C A L
For de cades, many chief executive offi cers (CEOs) and se
nior executives
have said that talent is their organ ization’s most impor tant
asset. In fact,
this may not have been true for many of them, and it is clear
that they
have not acted according to this mind- set. Without question,
for a few
organ izations talent always has been their most critical
resource and
they have treated it that way. But in the future talent will be
the most
impor tant asset for virtually every organ ization. Simply
stated, the
changing nature of the work organ izations do and the rapidly
chang-
ing, highly competitive environment they face will make it
impossible
for most organ izations to perform well without the right talent.
As a result,
talent will become the asset that makes the diff erence between
winning
and losing.

For most organ izations, talent has always been a major
expense. In
developed countries, a common estimate is that 70 percent of
the costs
of a typical organ ization goes to pay and benefi ts. If you add
to that the
cost of recruiting and managing talent, the total cost of labor
oft en ex-
ceeds 70 percent by a signifi cant amount. Th us, it has always
made sense
to do a reasonable job of managing wages, benefi ts, staffi ng
levels, and
work per for mance.
But this situation has changed. Most of the changes mentioned
so far
in this chapter concerning work and organ izations mean that
decisions
made about talent are increasingly becoming the diff erence-
making de-
terminants of orga nizational per for mance and not just key
determinants
of an organ ization’s costs. Diff erences in talent per for mance
eff ective-
ness increasingly lead directly to diff erences in overall orga
nizational
per for mance. Because of this, superior talent management
results in
superior orga nizational per for mance. Th ose organ izations
that attract
and retain the right kind of talent and treat it, reward it, develop
it, and
deploy it correctly, perform better than those that simply fi ll
jobs with
people.

Admittedly, in some organ izations talent does not make a great
dif-
ference with re spect to orga nizational per for mance. Many
bureaucratic
organ izations have been designed and structured so that
individuals do
not need to perform at a superior level; they simply need to
perform at
an adequate level. In many simple repetitive jobs in
manufacturing, data
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entry, and maintenance, there is no opportunity for talent to
perform
at an exceptional level, and there is little advantage to an
organ ization
if someone performs at an exceptional level; an adequate level
is suffi -
cient. Th is is particularly true with re spect to the work in an
organ ization
that does not make a great diff erence with re spect to orga
nizational
per for mance.
Th e situation is diff er ent, however, when the per for mance
of organ-
izations depends on advanced technology, knowledge work, and

high-
value- added work. In this situation, which exists in technology,
fi nancial
ser vices, the entertainment industry, and many other fi elds, the
best-
performing talent is many times more valuable than the rest
because it
can make a signifi cant diff erence in orga nizational per for
mance. Simi-
larly, in customer ser vice situations, when individuals have to
deal with
knowledgeable and discerning customers the diff erence
between good
ser vice and outstanding ser vice can have a direct and signifi
cant impact
on the bottom line of the organ ization. Th us, it makes sense
for such an
organ ization to focus on attracting, retaining, and developing
individ-
uals who perform at not just an acceptable level but an
outstanding one.
Th e globalization and growing complexity of work are two
additional
changes that make talent an increasingly critical resource for an
organ-
ization; they make organ izations and work more complicated
and require
talent to have a broader understanding of management, orga
nizational
eff ectiveness, the global economic situation, and local cultures
and norms
to perform well. Th is means that getting the right talent may be
more dif-
fi cult, but it also means that it can provide a signifi cant
competitive ad-

vantage when that talent is obtained and managed eff ectively.
Th ere is one additional point to be made about attracting and
retain-
ing the right talent in today’s and tomorrow’s work settings:
such eff orts
have become more costly, and they will continue to be. It has
always
been true that training, turnover, and replacement costs depend
on the
complexity of jobs that are being fi lled. For some simple jobs,
the cost is
oft en only equal to a few weeks of pay; as a result, high levels
of turn-
over are not a major cost for an organ ization. With complex
work, the
need for talented and well- trained individuals makes the cost of
turn-
over much higher: it is oft en equal to six months or a year’s
salary.
It is particularly impor tant that organ izations that perform
knowl-
edge work and complex customer ser vice work do an
outstanding job
501-67676_ch01_6P.indd 11 3/24/17 9:18 AM
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of attracting, retaining, and developing the right talent. Th ey
can gain
a competitive advantage by doing this simply because they
have lower
turnover costs, but that may be the least signifi cant result when
com-
pared to the resulting per for mance improvements that come
from hav-
ing a motivated engaged knowledgeable workforce.
One direct eff ect of talent becoming a more impor tant
determinant
of orga nizational eff ectiveness is that it brings more
bargaining power:
talented individuals can oft en “write their own tickets” when it
comes
to work deals. Th is has been true in sports and entertainment
for
de cades, and has resulted in some amazing compensation and
benefi t
deals; now it is increasingly becoming true for “superstar”
executives and
technical contributors. Th e amount of high- power talent most
organ-
izations need is going to increase as the complexity of their
products,
work, and ser vices increases. Th us, the eff ectiveness of an
increasing
number of organ izations is going to be determined by how eff
ectively
they attract, retain, develop, and manage their major talent.
Fi nally, the rate of change in the work environment and the
agility
required by organ izations to deal with it increases the
importance of

maintaining talent agility. Th ere is an …
32
3
ATTRACTING TALENT
T
he increased importance of talent makes it crucial that organ-
izations have the right talent. Th e staffi ng pro cess begins
with the
recruiting pro cess; it needs to be structured and operated in a
way that attracts talent that is aligned with the organ ization’s
strategy
and to do so in a way that prepares recruits to be eff ective
employees.
Accomplishing this requires integrated recruitment, se lection,
and
onboarding pro cesses that are targeted to attract, retain, and
motivate
individuals who can execute the business strategy.
Th e most impor tant step in the pro cess of building a talent
manage-
ment system that is able to attract and retain the right talent is
the orga-
nizational branding. Based on their reputation, visibility, and
the
condition of the labor market, organ izations need to create a
brand and
a recruiting pro cess that attracts and retains the talent that will
enable

them to be eff ective.
T H E S T R AT E G Y- D R I V E N B R A N D
Th e branding and recruiting pro cess of an organ ization should
be
driven by and supportive of its business strategy. Th erefore,
developing
an employer brand that attracts the right individuals should be
an
impor tant consideration in an organ ization’s business strategy.
Th e
business strategy will be a failure if it does not lead to the
attraction of
talent that can execute it. A key test of any business strategy
should be
whether it leads to and is supportive of an employer brand that
will
attract and retain the talent that is needed.
501-67676_ch01_6P.indd 32 3/24/17 9:18 AM
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