Why Great Leaders Are Great Talent Scouts
“The secret of my success is that we have gone to exceptional lengths to hire the best people in the world.” — Steve Jobs
Imagine if a music label stopped searching the world for the next sensation. Or fast-growing tech executives stopped tapping their networks to find the best engineers and marketers.
It’s pretty easy to see what would happen. Each organization would eventually stagnate and die.
You don’t need to be Sony Music or Steve Jobs to see that the same principle applies. That’s because in most organizations, the quality of the people you hire — particularly in key roles — can make or break a great organization. After all, today’s new recruit is tomorrow’s superstar.
Bottom line? If you manage people — whether you’re an entrepreneur or Fortune 100 executive — you must also be a part-time talent scout. Because the task of future key hires is simply too important, too strategic — and too time-sensitive — to leave fully in the hands of others.
Instill a culture of talent scouting
“I have three open positions; I was close on one, then the candidate said no. So, three months later, I’m back to square one.” — CFO
What you sense is true: employees today are much harder to find and harder to keep. According to 2016 US Bureau of Labor Statistics, average tenures in America have decreased to 4.2 years — while a recent CompData survey shows a 13.5% voluntary exit rate (up sharply from 10.4% only 5 years ago) across all industries.
That means if you’re not scouting for your key roles on an ongoing basis, you’re running the risk of a gap — and a long journey from a cold start — when a key person resigns. Then it’s a matter of hurry-up-and-wait: the process takes too long, promising people get snapped up by rival companies, and everyone ends up frustrated.
That’s why it’s critical to instill a culture of talent scouting within your organization. After all, the opportunity cost of dealing with talent in a reactive, transactional way — of not having already scouted potential candidates, in collaboration with your search partners or internal recruiters — is probably higher than the incremental cost of making the mind-shift I’m suggesting here.
Always be scouting
Just as sales people need to mind their “ABCs” — always be closing — managers and leaders should spend a chunk of their time every week either looking for great talent to hire, or keeping their eyes peeled for talented people on the inside they could cultivate.
The task is not as daunting as you may think. We’re living in an era of unparalleled connectivity and accessibility. Never before has professional talent been easier to scope out and contact. LinkedIn, Facebook and other social media can give you a great idea where to look. And they’re only the tip of the networking iceberg.
Maybe part of the problem is that managers are not compensated for the scouting they’ve done, nor do they get bonuses for being “scout of the year,” or “closing” on candidates that were on scouting lists. Maybe they should.
Be proactive: Take (more) ownership of recruitment
If you’re scouting consistently for your key current roles and future needs, you should be sending a list of interesting potential candidates to your recruiters or search partners, and getting their feedback — not vice versa.
Related: How's Your Leadership HUI?
Isn’t it more strategic to tell your recruiter or search partner, “Find out how we can get her in here in the next year or two,” than to say, “Go source me a list of people for VP of Sales”?
And one other note: people sometimes return. So-called “boomerang hires” are increasingly commonplace — those high voluntary turnover rates also mean talent will sometimes fly right back to you. Part of instilling a scouting culture involves welcoming your best people back on their way out. When it comes to onboarding, you’re already halfway there.
Great talent elevates everything
Why is it worth it for managers and executives to incorporate scouting into their mindset and workflow? Because great talent is immeasurably valuable to an organization — a source of competitive advantage whose benefits accrete over time.
Great talent elevates everything — your results, culture, morale, and your ability to lead. Instill in yourself and your team the expectation that scouting out great talent is a top priority. And you will, over time, advance what your organization is able to achieve, in a sustained way.
In that sense, you can look at scouting as a gift that keeps on giving.
An Emerging Theme In Thematic Investing
Exchange traded funds (ETFs) are popular vehicles for market participants looking to engage in thematic investing. Thematic investing looks to take advantage of future growth trends, including disruptive technologies. Given that forward-looking approach, stock-picking in the thematic universe is equally as hard, if not harder, than in traditional market segments.
Go back to the late 1990s, before the bursting of the Internet/technology bubble. Back then, investors stood an equal chance of selecting E-Toys over Amazon or some no longer in existence networking equipment maker over Cisco.
“History is littered with examples of prospering industries with no indication of which company will come to dominate the industry,” according to Nasdaq. “This suggests that successful thematic investing is more about selecting baskets of investments rather than single securities.”1
The ALPS Disruptive Technologies ETF (DTEC) provides basket exposure to a broad swath of thematic investments. DTEC features exposure to not just one or two emerging technologies, but 10 such themes on an equal-weight basis.
The 10 themes represented in DTEC are as follows: 3D printing, clean energy, cloud computing, cybersecurity, data and analytics, fintech, healthcare innovation, Internet of Things (IoT), mobile payments and robotics and artificial intelligence (AI).
Generally speaking, fund issuers have been quick to respond to disruptive and transformative technologies, bringing products to market to tap these themes. Prior to DTEC coming to market late last year, there were ETFs devoted exclusively to cloud computing, cybersecurity, robotics and other themes featured in DTEC. However, few use the basket approach to themes employed by DTEC.
February, a rough month for U.S. stocks, highlighted the advantages of DTEC's multi-theme methodology. Seven of the 10 themes found in the fund finished the month lower, but DTEC was able to outperform the S&P 500 on a monthly basis.
Focusing on individual themes can be rewarding over the long-term, but not all investors have the risk tolerance for such a strategy. Consider this: the Indxx Global Robotics & Artificial Intelligence Thematic Index jumped more than 48% in 2017. That type of performance is enough to seduce many investors, but that same benchmark slipped 7.60% in February, generating monthly volatility of 34.10%.2 Said another way, that robotics and AI index's February slide was more than triple the loss experienced by DTEC during the month.
While it probably is not accurate to call the indexes devoted to individual disruptive themes “old,” many use old school weighting methodologies. For example, the two largest components in the ISE Cloud Computing Index are Netflix, Inc. (NFLX) and Amazon.com Inc. (AMZN). Only two members of the S&P 500 have larger market values than Amazon while Netflix currently has a larger market cap than Wal-Mart (WMT) and McDonald's (MCD).
Holdings subject ot change as of 12/31/17
For its part, DTEC not only equally weights its 10 disruptive themes, but its 100 components as well, potentially reducing single stock risk in the process. As the chart below confirms, equally weighting stocks is rewarding across sectors and market capitalization segments.
Past performance does not guarantee future results
Annualized returns for the past 10 years show seven of the 11 S&P 500 sectors, when equally weighted, outperform cap-weighted equivalents, according to S&P. Three of those seven sectors – financial services, healthcare and technology – are prominent parts of DTEC's roster.
1 Source: Nasdaq Dec. 28, 2015 https://www.nasdaq.com/article/what-thematic-investing-is-and-its-strengths-and-risks-cm559209
2 Source: ETF Replay data
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus which contain this and other information call 866.675.2639 or visit www.alpsfunds.com. Read the prospectus carefully before investing.
An investment in the ALPS Disruptive Technologies ETF (DTEC) may be subject to substantially greater risk and volatility than investments in larger and more mature technology companies.
There is no assurance that the market developments and sector growth based upon the themes discussed in the article will come to pass.
ALPS Disruptive Technologies ETF shares are not individually redeemable. Investors buy and sell shares of the ALPS Disruptive Technologies ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.
The content and opinions expressed in this article are that of the author and not the views and opinions of AAI. In addition, AAI assumes no responsibility to ensure the accuracy of the content written by the author.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus. Past Performance is not indicative of future results.
The fund is new and has limited operating history.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Disruptive Technologies ETF. AAI is affiliated with ALPS Portfolio Solutions Distributor, Inc.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.
S&P 500®: A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
S&P SmallCap 600®: A capitalization-weighted index that measures the small-cap segment of the U.S. equity market.
S&P MidCap 400®: A capitalization-weighted index that measures the mid-cap segment of the U.S. equity market.
Indxx Global Robotics & Artifical Intelligence Thematic Index: The Indxx Global Robotics & Artificial Intelligence Thematic Index is designed to track the performance of companies listed in developed markets that are expected to benefit from the increased adoption and utilization of robotics and Artificial Intelligence ("AI"), including companies involved in Industrial Robotics and Automation, Non-Industrial Robots, Artificial Intelligence and Unmanned Vehicles.
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