I spoke with Claudio Fernandez-Araoz, author of the new book “It’s Not the How or the What but the Who: Succeed by Surrounding Yourself with the Best” about the linkages between HR and innovation perspectives to drive business value. It is a great read and is in-line with some of my thinking about the role of HR in driving innovation success in large corporate organizations, so I wanted to have a chat and gather his thoughts.

AF: Tell me about the book and what it is about?

CFA: — The book is about how to succeed by surrounding yourself with the best people and helping them thrive. This is often the opposite of what we tend to do.

It starts with an examination of how and why we should surround ourselves with a diverse set of people in order to succeed in life and business. We then look at what skills and talents are valued in the new economy, followed by an examination of what people and teams need to be effective in this new economy. At the end we look at how all of these trends and issues impact society.

As a macro example we contrast Jamaica and Singapore, which were twins in terms of their development in 1965, but have taken drastically different development paths since then, in part, based on their valuing and focus on talent. Ultimately the book examines which types of people will attract the most rewards and implement the most benefits to business and society.

Where have you seen organizations focus on these newly needed skills, and use them to drive value creation for their business?

Companies dramatically under invest and lack the drive to make the correct people management decisions. This has direct parallels to how companies address innovation. The CEO of BankOne once said, we only invest 3% of our time in recruiting and we invest 70% of our time correcting these mistakes. I have read your previous article around HR working more closely with innovation teams and agree with your central hypothesis that there needs to be more partnership in order to drive business and cultural value.

There are so many parallels between people and innovation management, especially in addressing the fail fast approach to innovation. What are some examples that you have seen?

Ultimately the book examines which types of people will attract the most rewards and implement the most benefits to business and society.

As individuals and businesses, we prefer to stay with the devil we know, without taking into account the huge opportunity cost of not making changes. Leaders of large organizations on average tell me that they would only rehire 50% of their direct reports.

There is a tendency to procrastinate, so there needs to be incentives for organizations to make the right hiring decisions, and if they make the wrong decisions, accept it, make an adjustment, learn and move on. Clearly, it’s the same with innovative thinking. Jack Welch talks about rewarding and penalizing
those involved in the hiring of a new employee based on the first-year review of
that individual.

On the flip side of this, the Indian division of Unilever is called Hindustan Unilever and at last count there were 400 alumni of this organization that were CEO’s at other organizations. This raises the question, of how that company can be such an amazing factory of leaders? In part this is driven by leaders bonus depending on the overall quality of the leadership teams, including the quality of hires and development of their people. So you really need to place these incentives or you procrastinate.

What are some examples where you have seen leadership development efforts push an organization towards a new cultural model, rather than reinforcing the existing cultural markers?

Every year I teach an executive university class on talent management and the worst practice that I see from students is around job rotations, which paradoxically is one of the most important practices for leadership development.  Research shows that future business leaders in Japan are some of the best in the world, but senior leadership actually is less than average in terms of performance and results. This diminishing performance is based on the fact that employees tend not to change companies and often spend their entire careers within specific divisions. This lack of diversity in experience hinders leadership performance, as well as innovative thinking.

Another example is from your homeland, where ANZ Bank in Australia wanted to move from a domestic to a more regionally focused Asian bank. To support this effort they created an amazing leadership development program, where high potential employees were encouraged to take new jobs every 2-3 years. The focus of each new role was to add 1-2 additional levels of complexity, such as a new language, new industry segment, new products, etc. New experiences and influences were rewarded, rather than penalized.

GE and McKinsey follow similar approaches to encouraging the development and success of new competencies for emerging leaders in order to stay ahead of their competition.

I have lately been reading a lot about companies hiring employees for potential value creation, rather than based on prior experience. Do you see many other companies doing this and how do you see this trend expanding?

Scarcity of talent is a real issue and companies need to invest in their people.

I actually don’t see enough of this kind of thinking and part of the reason I wrote my new book was to actively promote this approach to companies and leaders. The issue is that the previous criteria for success (such as physical strength, experience, IQ, etc.) remain important, but are not enough in the new economy.

Potential is important because of the rapidly changing world we live in. Leaders need to be more adaptive because who knows what environment we will be working with in 5 years. Secondly, scarcity of talent is a real issue and companies need to invest in their people.

There does need to be more focus on how these corporate organizations are focusing their hiring, development and retention strategies around the potential for value. And that can be big change for businesses, because it could involve more risk and potential failure.  Ultimately this is about creating a culture where failure is allowed, and procrastination and inertia are avoided. Jeff Bezos from Amazon has repeatedly said that they have a high hiring bar that drives their success. It is the same as what drives innovation.

Thanks for your time today. It’s been a great conversation.

By Anthony Ferrier

About the Author

Anthony Ferrier is a well-regarded executive, entrepreneur, advisor and thought leader on corporate innovation. He has worked with organisations in the US, Europe, Asia and Australia to develop effective innovation strategies that guide organizational change and build cultures that encourage the development of new products and solutions. Anthony has worked with organizations such as Transport for NSW (Australia), Department of Defence (Australia), Bristol-Myers Squibb (US), Fidelity Investments (US), Pfizer (US), Volkswagen (Sweden), Ergo Insurance (Germany), etc.. He currently leads innovation and commercialisation efforts at Swinburne University, and previously led The BNY Mellon global innovation program, as well as co-founding two successful tech-driven consultancies. He has a Master of Commerce (University of Sydney) and Bachelor of Economics (University of Newcastle).