Too many fast-growing born-digital businesses take shortcuts with HR and talent management. They can get away with that only for so long, and then the consequences strike. Those that infuse discipline and rigor into their talent management strategies—early on—will stand the best chance of sustaining their earlier successes far into the future, even in the face of unprecedented challenges such as the COVID-19 pandemic. 

This article is part of our Born-Digital study, where AlixPartners set out to research born-digital companies' unique blend of strengths and challenges and identify the most pressing needs and areas of focus needed to sustain their success.  See all the articles in our series here.

“Culture is key. It is very rare that a management team understands how to hire and who to hire for the time when the company becomes much larger and more complicated. Companies are almost always behind on this topic, and we almost always strongly encourage them to hire a world-class chief talent officer to get on the journey quickly. It is a critical path.”

— Senior private equity executive

It’s no surprise that given their rapid growth rates, when it comes to steering the areas of talent management and human resources (HR), born-digital companies are almost always behind in applying the elements of best practices: recruitment and retention, providing feedback, career development, employee rewards and compensation, workforce diversity, organizational design, executive alignment, and succession planning. And, we find that three other conditions often exist.

A limited HR function causes the bulk of execution to fall to a severely overtaxed line management team, with predictable results. 

  1. When a satisfactory HR function exists, it is typically understaffed both from capability and scale standpoints. 
  2. Many HR professionals continue to recruit, develop, and align digital talent and teams by using the rearview mirror.
  3. In other words, HR professionals are using frameworks and work-skills definitions that are usually based on those used by analog companies and those pertinent to more traditional talent management practices.

When born-digital companies are in the stages of rapid growth, they must both recruit and retain people with various capabilities that are in high demand. In an environment like this, an argument could easily be made that a world-class HR function is the most important ingredient for sustained success. But we find that at virtually every born-digital company, management, boards, investors, and employees say they feel that HR is an underdeveloped area and one in need of genuine leadership. 

By strengthening their leadership on this front, born-digital businesses can not only sustain successful growth; they can also better position themselves to respond quickly and flexibly to unprecedented challenges, such as those arising from the pandemic.

Talent management practices reported by born-digital companies:

19%

prioritize documentation of expectations and metrics in fostering board :: executive alignment.

35%

reported having succession plans in place for their CEOs and other senior leaders.

62%

reported that their turnover rates were at or above industry norms.

BORN-DIGITAL'S PRIORITIZED AREAS TO INVEST IN FOR GROWTH

Born-digital companies rated the area of talent and culture low on the list of areas to invest in for growth—as fifth out of six options—followed by organization and governance in sixth place. However, born-digital companies consider talent and culture as their second biggest current challenge—second only to operations.

bd 9 growing up digital chart 1 talent priority

“You have to not only bring talent but also bring different people—from the kinds of people who start a business to the kinds who can run it. We had to hire a whole HR department of people who carry the battle scars.  Then, on top of the normal HR challenges, you have to scale the people you have. Companies go from founders to professional managers and from early, small-company employees to later, large-company employees.  Not only do you have to deal with people management issues, but now you also have people turnover.”
— Born-digital company board member

TOP 3 STRATEGIES TO ATTRACT, RECRUIT, DEVELOP, AND RETAIN TALENT

Both born-digital and traditional companies prioritize focus on competitive salaries and the work environment to attract and retain employees. Born-digital companies rated development opportunities as number three, whereas traditional companies rated autonomy as number three.

Another aspect of effectively integrating and running HR processes at born-digital companies that merits mention is the degree of integration between HR and the line operation. In a company that has been around a long time and that is not growing as rapidly as it used to, it’s possible to build an HR function that is more independent and that operates as a service to the operations of the business. In our interviews with born-digital line managers, we detected a strong need for HR to be tightly integrated with business operations because things are moving and changing so rapidly that without tight integration, HR runs the risk of being too disconnected from the business to be effective.

 

“The question is, what's the role of HR?

"As a company breaks out of the evangelist process and as the halo effect of the founder ceases to be the recruiting draw, HR talent by itself cannot step up to leading in that area. Recruitment now falls to the line, which is not our core competency and which does not allow us to scale with reliable and predictable human capital talent.

"And though it’s likely the most important thing to do, we don’t focus on becoming world-class. HR folks are just too removed—not close to the business. And the farther up you move in HR, the more removed you get from the business.” 

— Born-digital senior operating executive

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