The Hindu Business Line : Differentiation — the only path to managing expectations

With employee expectations reaching dizzy heights, differentiation of talent is the key. This first of a three-part series on this complex subject introduces the concept and traces its emergence as a talent management practice.

Central to the philosophy of differentiation is the approach of assessing performance on a relative basis.

Employees like it when it is good for them and hate it when it is bad for them. Human resource pushes for its implementation with a heavy heart. Managers abhor it. CEOs believe it is good for the organisation but would like HR to get the job done. Welcome to the world of differentiation which, in my opinion, is the only path to managing today's employee expectations that have already reached dizzy heights!

There is nothing else in the field of human resource management that evokes as much of a cocktail of emotions as the subject of differentiation does. In fact, it is this diversity of views and opinions, differences in perspectives and interpretations that make differentiation of talent in India such a difficult task.

Differentiation defined

What is differentiation of talent all about? What is the business case for differentiation? What is the current situation in India? Why is it such a complex subject? Is there a model to help manage it any better? Why is it critical to managing expectations of employees? Is there life beyond differentiation? These are some of the questions we will try and answer in this three part series starting now.

According to Webster's Dictionary, to differentiate is to constitute a difference between; to perceive and indicate the difference of or between; to discriminate.

In an organisational context, Differentiation is the process of discriminating between or among people based on some predetermined criteria. People are typically differentiated on the basis of performance, potential, tenure, seniority, criticality of job, specialisation of skills, and so on.

Differentiation forms the basis for decisions regarding pay increases, a wide range of rewards — short- and long-term, career progression, eligibility for leadership or other coveted positions and for the conferment of other special privileges and benefits.

What is central to the philosophy of differentiation is the approach of assessing performance on a relative basis, in comparison with others/peers rather than on an absolute basis against pre-determined goals.

Differentiation basics

As illustrated in the mind map, differentiation is basically a means of managing outcomes which can be many. The criterion is typically performance or potential and the mechanism is through a system of ranking or forced distribution of ratings.

The comparison is within or across teams, functions, divisions or the entire organisation, normally by levels of impact. Organisations adopt differentiation under two typical circumstances:

When they have to find a way of distributing a limited pool of rewards among a large group of eligible employees such that the most meritorious get the lion's share.

When they need to search for and find from a large pool those people who hold the most potential for future positions and in whom they can make a significant amount of investment for development.

As much as differentiation leads to the identification of winners, it also leads to the identification of losers and their eventual separation from the organisation.

The use of "Force" has been central to driving differentiation because left to them, managers tend to resist differentiation and are content with assessing performance and potential only on absolute terms. Overtaken either by their need to be nice to their team members in the interest of securing short-term performance or blinded by closeness of their relationships most managers just don't do it!

The emergence of differentiation as a talent management practice

The process and practice of differentiation formally came to India with the entry of multinationals. These organisations had been practising differentiation in their home countries almost instinctively for years for the simple reason that meritocracy has been very central to the way they have managed things in every sphere of life. They have also been driven by the economic pressures of having to use the available budgets to reward the most deserving employees.

The onset of economic liberalisation in India and the entry of a new set of multinationals naturally led to the spiralling of compensation levels in India.

Being forced to make adjustments to remain competitive, Indian organisations naturally decided to pay market compensation only to those employees who were comparable to market in the first place. This led to the shift in focus from internal equity to external equity — from across the board to selective rewards.

With the increasing dependence on performance management systems to not only plan and secure performance but also take pay decisions, it became necessary to use a more stringent mechanism to support such administrative decisions.

In a culture like ours where giving a very low rating is generally considered a blow to the morale of the employees, managers preferred to give ratings that made the employees feel good. The use of a forced distribution system coerced such managers to make difficult distinctions amongst their people and bring out the true picture.

Employee satisfaction surveys have always pointed out that good performers feel unrecognised and inadequately distinguished from those who are clearly not performing at comparable levels. In the interest of retaining and motivating such good performers, organisations have had to use some form of differentiation.

In summary, the inability of managers to discriminate combined with the external pressures to attract and retain the best by paying differently paved the way for differentiation as a practice in India.

(To be concluded)

(The author is the founder and CEO of totus consulting, a strategic consulting firm that designs and implements HR systems and process for organisations across industries. He can be reached at ganesh@totusconsulting.com)

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