Why Not Trade Surplus Talent with Other Firms? A Lesson Learned From Sports

Aug 31, 2009

home_sport_390x109If you want to be strategic and make quantum steps in performance, look outside your familiar zone. Step beyond the best practices in your industry and find new ways to leverage your resources, including talent.

In fact, the best way I know to learn about radical new approaches and innovations is to examine the best practices from organizations operating completely outside your industry. I call this practice of adapting “unheard of” practices from other industries parallel benchmarking.

It is known as parallel benchmarking because you are learning from completely different industries that still, however, share a parallel problem. The practice that I am suggesting that your firm consider is from baseball and involves “trading” surplus talent with other firms.

If you want to make dramatic improvements in business practice, you need to study how best-performing firms in completely different industries attack your problem.

If you want to go beyond merely talking about outside-the-box solutions, consider changing your approach and focus on “likely to be laughed at” talent-management solutions like those emerging around Twitter and YouTube, and developing a “talent trading” program.

Almost all firms at some point have a surplus of employees that results from changing business conditions. Unfortunately, the typical approaches for getting rid of surplus employees are cost-containment approaches that provide no payback to the firm.

The most common approach, where corporations lay off surplus talent, is a lose-lose approach. You release talent and get no remuneration for it, despite having invested in it for years via salaries and training. At the same time, you also incur huge costs because you pay for severance, outplacement services, and damage to your employer brand reputation.

But what if there was a solution where instead of releasing talent, you could exchange or “trade” talent with other firms and get something of value in return? Now that would be a talent-management breakthrough that would make any CFO smile.

Trading Employees Is Not Uncommon

Firms routinely loan employees to initiatives with their strategic partners and joint ventures; not-for-profits periodically exchange talent when their funding priorities or levels change; and federal agencies exchange employees on both a short-term and permanent basis using interagency exchanges and loans.

The military also periodically exchanges talent among the different branches of the services in order to fill talent needs or to acquire knowledge or best practices.

While the practice is common in each of these instances, the benchmark industries to study with regards to the practice are professional sports and entertainment, where trading is a required business practice.

Sports Trading Is a Perfect Model

If you managed the Yankees or Manchester United and you had an excess of skilled players in a particular position, you would make a deal and trade that talent to another club for players in a skill area where you had a significant need (or for cash). In professional sports, managers who simply release talent are considered as failures because they got nothing in return.

In Major League Baseball, for example, trading between teams in the same league and between different leagues is such an integral part of the talent-management process that trading isn’t given a second thought. Incidentally, the most desirable and high-impact trades don’t involve “losers,” but rather, top performers. These sports franchises are just like any business enterprise — they are for-profit corporations striving to maximize their talent ROI by always getting something of value … for something of value.

A Business Example: The Value of Trading Employees

Let’s assume you were a computer firm like Apple, and you wanted to get into the music business by developing a music player. You could train your current employees who have computer backgrounds, but that would be time-consuming, expensive, and difficult because no one at your firm really knows the music industry.

At the same time, another firm, like Sony, that was going through tough times might have surplus talent with extensive knowledge of the music industry. Because Sony might be interested in gaining a better understanding of Internet video transfer and the process of innovation at Apple, Sony might be willing to trade some of its excess music talent for individuals involved in the Internet video transfer or innovation process at Apple.

Because the traded employees from Apple’s video-on-demand set-top box division would be going into a high-priority area at Sony, they might be excited and willing to accept the trade. The Sony employees facing a layoff would probably be thrilled, both with the chance to be sought out by experts and with their renewed job security at Apple.

Advantages to the Corporation

In addition to the obviously higher-talent ROI, there are other benefits that can accrue to an organization that develops a trading process, including:

  • Expanded talent acquisition opportunities – mutually agreed-upon trades can be easily made with large customers or strategic partners. In contrast, direct recruiting from them is simply out of the question because it would damage the relationship. As a result, trading gives you an opportunity to acquire talent from organizations that were previously off-limits.
  • You may get the entire team – in recruiting, you acquire individuals who are independent and haven’t worked together as a team. However, in cases where a company is closing down a facility or a particular area of business, trading might provide you with an opportunity to acquire or “lift out” an entire intact team. Bringing on a cohesive unit might enable them to get up to speed almost immediately.
  • Acquiring best practices – because you’re trading with high-performing firms, not only do you get talented individuals but with them, you also get the opportunity to better understand and learn the best practices of the “sending” firm.
  • High-quality talent – because poor performers are generally excluded from trades, if you make accurate trade assessments, you will be getting quality, trained talent. This talent’s shortcoming is that the firm has a surplus of talent or skills in that particular area (using a basketball analogy, you’re getting a talented seven-foot center merely because the team already had one more seven-foot center than they could carry on their roster). Trades can also include a “return” clause or a penalty if the traded employee turns out to be less than they were billed as.
  • Delaying is possible – in the case where an organization doesn’t currently need more talent of any kind, the two exchanges of employees need not be simultaneous. The “sending” firm can delay their selection and receipt of their talent to a more opportune date (an employee to be named later).
  • Fewer negatives – there are fewer retaliation issues and legal problems associated with trades because they are negotiated and all of the parties involved have agreed. In contrast, direct recruiting from competitor firms can result in back-and-forth raiding, which can generate lawsuits and drive up salaries.
  • Fewer turnover surprises – employees may see layoffs coming and go to another firm with little notice. In contrast, if they see that you’re actually trying to help them find a better opportunity at another firm, they may be a little less active in their job search. And with a trading process, you have sufficient advance notice of who is leaving and when, which makes it easier to prepare for any vacancies as a result of lost talent. When large-scale raiding is going on, corporations need to put significant resources into retention.

Questions about the Process

If you’re skeptical, you probably have some questions about the trading process.

Here are some typical questions and their answers:

  • Who would want these surplus employees? – in baseball for example, the highest quality talent are the most frequent trade targets. Surplus in this case merely means you have too much of it, not that there’s anything wrong with it. In almost all cases, these are valuable employees with important skills; they just happen to have skills (or work in a job) where the firm has more than enough labor available. In the case of a facility closing, these may be exceptional individuals who are just not willing to relocate.
  • Why not just recruit them away? – traditionally when a firm sees “talent” that it wants at a firm, it merely attempts to recruit that individual or team away. Unfortunately, recruiting can be expensive and time-consuming. If your firm has a weak recruiting team, it won’t be able to acquire the same quality of talent as it could get from trading. It’s also important to remember that if you focus exclusively on recruiting individual talent, you still have done nothing to limit the millions in losses that occur when you lay off surplus talent that you’ve invested in over the years, without getting a penny in return.
  • Won’t employees refuse the trade? obviously your employees could refuse the trade because employees cannot be “owned” by their employer. But it’s important to note that it’s fairly common for key baseball players to have formal “no trade clauses.” However, all that these restrictive causes really mean is that you have the burden to make a convincing case to the employee that the new situation will be better for them. In other cases, obviously employees who are facing layoffs wouldn’t require much convincing, while others could be given a bonus for accepting the trade. Incidentally, traditional recruiting of “currently employed individuals” always includes a significant “convincing” element (to convince them to leave one firm for another), so that same convincing process just needs to be adapted to this trading approach.
  • Who should be involved in the trading effort? normally the trading process should be managed by the recruiting function. You should start by making the business case to get managers and the CFO on board. The trading process itself requires managers and a personnel function that can accurately identify surplus talent within your own organization. It also requires a trading team with the capabilities of assessing the quality and the value of talent that is located within other organizations. The head negotiator must be capable of putting together a “win-win” trade, where both teams and the player are clearly convinced of their direct benefit. Managers should be rewarded for successfully trading away surplus talent and for acquiring excellent talent in trades.
  • Who should we offer in trade? firms should develop surplus talent or redeployment lists that “look forward” at the firm’s talent needs at least one year out. In addition, a component needs to be added both to the workforce planning and to the performance appraisal processes to identify individuals who we cannot afford to keep or retrain. The retention, redeployment, and development teams should also be asked to identify individuals that are likely to leave (and thus offered for trade) because of the restricted opportunities within our firm.
  • What should we ask for in return? obviously the key to a great trade is that both sides perceive that they are getting great value (and this is even more important when trading with customers or strategic partners). The key to success here is to work with your trading partner to get them to pre-identify what they would consider to be the most desirable talent and skills. If you target firms that are in trouble and they can’t handle more employees, the trade might include a significant cash settlement rather than an equal “talent for talent” trade.
  • Which firms should we trade with? start by looking at “best practice firms” within your own industry. Then look at “parallel industries” that use similar technologies, that have similar customers, or that have equal or faster innovation and growth rates. Also target firms that are seeking to expand into your industry.
  • Are there typical “sports trading” options that I should utilize? many managers are big sports fans, so they almost instantly understand the “sports trading” mentality, and because sports coaches are experienced in arranging difficult “trades” for outsiders, it’s a good idea to try some “sports” trading options to improve your trading success. Here are eight ideas to consider:
  1. 2 for 1 exchange – propose a two “B” players for one “A” player exchange.
  2. For a player to be named later – propose accepting a surplus employee now in exchange for an opportunity to have one of equal value (but unnamed) at a later date.
  3. Offer a slate – instead of offering a single employee trade, instead offer a slate of candidates from both firms.
  4. Pay a fee – offer to accept a fee in cases where the firm is willing to accept your talent but it has little desirable talent to offer in return.
  5. Delay the transfer – offer to keep the traded employee on your payroll for a limited period of time until the “receiving firm” is ready to orient and train them.
  6. From major league to AAA – if you are a well-known firm, seek out second-tier firms or smaller sized firms that would be thrilled to get anyone from a top firm for the prestige or in order to learn their best practices.
  7. Ask for deal sweeteners – when negotiations are stuck, directly ask their team to propose a list of potential “deal sweeteners” to move the negotiations on. Also try to identify in advance any deal-breakers.
  8. Best practice for talent – offer the firm the opportunity to learn one or more of your firm’s “best practices” in exchange for their surplus talent.

Final Thoughts

Large-scale layoffs are a negative ROI business practice because you are giving away a resource in which you have invested millions. Not only are you giving them away, but you have no control over where they go.

In fact, released employees might go directly to your competitors, further compounding your losses. A better approach would first provide you with some control over where they go, as well as provide your firm with a direct quid pro quo for this released investment.

Initially, the idea of trading surplus talent with other companies might seem outrageous, but the practice has proven to be a winner. If you want to make a quantum leap in performance, it only makes sense that you need to make a quantum change in your business practices.

As crazy as it might initially sound, if you’re in a labor-reduction mode, a formal talent-trading process may be the highest ROI activity available to you!