talent management
How organisations can achieve better returns on their talent management investment
Tackling
Many organisations avoid addressing human capital issues, preferring to focus on more tangible initiatives such as structural cost saving or outsourcing. The reality is that tackling talent management is no easy undertaking, but if you get it right, the results feed straight through to the bottom line >>
Contents
Executive summary 2
Tangible results from an intangible asset
The talent bonus Why organisations fail to achieve ROI from talent management
4 5
Talent management priorities are changing
Fit for purpose, not just best practice
Benchmarking best practice
10
How Hay Group has helped clients with cutting-edge practice
11
The Hay Group difference seeing the big picture
12
Conclusion
16
2 Tackling talent management
Executive summary
So youve cut costs and reviewed your go-to-market strategy. Why not turn to the tougher task of getting a better return on your human capital? This might first appear counter-intuitive. Putting time and money into such an intangible project, in a climate where management is focused on getting immediate, tangible returns might at first seem unwise.
Yet our research shows that the organisations making serious, structured investments in talent management also get the best results. The reason is simple. When you know what jobs require, find the right people to fill them, engage employees well and manage their development, you get better performance. Performance which has been shown to feed straight through to the bottom line. Theres no blueprint for talent management. Each organisation must fit its approach to its immediate needs and strategy. But there are some good practices. Not least of which is seeing talent management as the way to connect up individual people management practices so that they all pull in the same direction. In the best organisations talent management is more than the sum of its parts. Its what ensures the alignment and clarity needed from people to collectively deliver on an organisations strategy. Its how they renew and re-energise themselves so they keep winning in the future and adapt to changing markets and challenges.
2009 Hay Group. All rights reserved
Tangible results from an intangible asset
70 per cent felt their approach to talent management needed to change.
Many organisations shy away from the softer, people side of the business equation. Its messy and hard to get right. However theres a significant financial return for firms that do engage with it. In our annual survey with Chief Executive magazine, the 20 Best Companies for Leaders consistently outperform their peers in terms of return on share price.
Is it worth it?
Five-year Avg. Total Shareholder return 4.07%
0.54% 20 best companies S&P 500
20 Best Companies for Leaders 2006 as identified in the Chief Executive magazine study conducted by Hay Group
}
This equates to a dividend of many hundreds of million dollars for some. It helps explain why more than two-thirds of company valuations are based on the softer intangible assets: knowledge and know-how, brand, key relationships and their pool of talent. It also explains why helping manage talent better is the most rapidly growing part of Hay Groups own business portfolio. As the 20 Best Companies for Leaders show, talent management pays. The same survey also reveals that the organisations that get it right operate a virtuous circle, generating a return on their investment in talent. These firms fill more senior positions from within, strengthening their culture as well as saving on external recruitment costs.
Key:
20 best companies Rest of the companies
80% 63%
88% 75% 60% 72%
Source: Chief Executive magazine Hay Group Best Companies for Leaders survey 2006
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Mid-level manager positions filled from within Senior-level manager positions filled from within Chief executives promoted from within
4 Tackling talent management
The talent bonus
Many leaders intuitively know finding and growing high potential employees pays dividends. This intuition is backed up by work psychology meta studies, which look at trend results across all published research papers. For example, Hunter & Judieschs research quantifies the performance differential between average and high performers across a range of jobs of varying complexity.
Less than 25 per cent believed their talent processes would deliver the leaders they needed.
1.3x 2x
8x
The value of talent management: some headlines
1 In Hay Groups Best Companies for Leaders study, those with the best talent management practices outperformed the rest by eight times total shareholder return. 2 In a study by the Institute of Work on manufacturing, 20 per cent of the variation in productivity and profitability was down to better people management. Whats more, this was a better predictor of profitability than strategy, technology or R&D. 3 According to global pollsters Gallup, engaged employees in the UK take an average of 2.69 sick days per year; the disengaged take three times as much.
Source: 2-6: Macleod, David; Clarke, Nita, (2009), Engaging for success: enhancing performance through employee engagement, a report to government, London, United Kingdom.
} } }
Low complexity jobs e.g. manual or service worker Medium complexity jobs e.g. salesman, craftsman, manager, professional
Top performers
High complexity jobs e.g. chief executive, software developer, fund manager
Key:
Average performers
Source: The Psychologist Vol 22, No 9, Sept 2009, citing Journal of Applied Psychology
4 It is often quoted that people leave poor managers not poor companies. Employees working for talented leaders are 87 per cent less likely to leave, a huge advantage when replacement costs equal on average 1.5 x annual salary. Corporate Leadership Council 5 In organisations with strong talent and engagement practices, 67 per cent versus 33 per cent advocate their company to others. Gallup 6 Staff in local authorities rated as excellent for talent management had much better results than those in weak or poor local authorities. Mori
2009 Hay Group. All rights reserved
Why organisations fail to achieve ROI from talent management
The research and our consulting experience shows that theres clear, measurable value in talent management. However not all organisations invest in the right way to reap the benefits from it.
In our experience, there are many common challenges to meaningful, effective talent management. Here are the top ten.
Only 19 per cent agreed with: we treat our talent management process as seriously as we treat our annual budgeting process.
1 No clear vision by senior leaders on what talent management can do for the organisation 2 No clear, future-focused definition in terms of what to aim for what success looks like here 3 Talent management seen as the function of HR, not a business accountability supported by HR 4 No distinctive talent proposition that differentiates from the competition, or one disconnected from reality 5 The wheels of talent management spin but dont mesh line managers fail to address underperformance, even when chronic 6 Focus is mainly on development as the easy default option, at the expense of tough measures to get better deployment 7 Not enough quality time devoted to talent management 8 Line managers confuse performance with potential 9 Aspirational values and behaviours bear little relation to whats rewarded 10 Lack of talent management infrastructure and online systems
6 Tackling talent management
Talent management priorities are changing
Put your best people on your biggest opportunities, not your biggest problems. Its a route out of the downturn The economic crisis has led to a new focus on talent management. Organisations want to ensure that their efforts reflect strategic shifts in the marketplace, so that talent is aligned with new ways of operating and making money.
So in place of a reactive, tactical approach, firms are thinking more strategically, for example, identifying new target cultures, values and behaviours and integrating these so that they actually deliver. Talent management is also becoming less focused on the top levels of the organisation. The preferred approach is to include the engine room many, as well as specialists and contract workers. Engagement is also now seen as a key driver of performance. Helping leaders build engagement is now seen as a talent management issue.
The message from our research is that the best organisations are clear about what talent management means for them and how it will pay them a financial dividend. Taking a similar position, we see talent management as:
The connected disciplines put in place to deliver competitive advantage through the effective management of an organisations human capital. Those activities ensure you have the right people, at the right time, engaged in the right way, to deliver on your strategy now and in the future.
Senior leaders Middle management
Frontline management Employees
Indirect workforce Talent management is no longer limited to senior leaders
Talent management now focuses on the entire workforce
Hi gh
Sp ec
ia nt te po ls
s ist ial
2009 Hay Group. All rights reserved
A talent review can be both the burning platform and development bridge to the future.
Talent management builds organisations that endure Talent management helps organisations achieve sustainability and longevity. Its sobering to realise that of the firms that made up the FTSE 100 when it was inaugurated in 1984, just 23 survive today and even fewer exist in anything like their original form. The recent demise of some established household names only serves to emphasise how short-lived success can be. As a result, there is a dawning realisation that only by getting talent and succession management right can organisations reinvent themselves to keep winning now and on into the future. Talent management helps organisations change In Hay Groups experience, organisations and not just the major banks are increasingly seeking help to realign their cultures after major market and strategic shifts. They want to move towards more effective ways of operating and they want to ensure they get the best return from their prized assets their people.
We are witnessing a desire by organisations to create a new definition of who they are and what they need to be to win. They want to redefine what success looks like. And they want new values and behaviours to help them get there. For some, its the realisation that as their market strategy and ways of operating have shifted, so too must their approach to managing talent. This involves gaining consensus around new goals and success factors. For others, change might be brought about by the arrival of a new CEO, the drive for better financial results, a merger or acquisition or responding to government cutbacks. Whatever the reason, the common theme within talent management is a desire to reassess what has to be done differently in order to get a better return from human capital.
More than two thirds of company valuations are based on their softer intangible assets: knowledge and know-how, brand, key relationships and their pool of talent.
8 Tackling talent management
Fit for purpose, not just best practice
Only one in five CEOs is confident their current approach to talent management can deliver the leaders they need.
Theres no single, right way to tackle talent management. The appropriate approach varies from organisation to organisation. Hay Groups experience has taught us to avoid fixing on one answer. For some organisations, it works to have talent management focused on an exclusive senior few. For others it pays to be more inclusive of the productive many. In some organisations, the focus needs to be on development; in others the best return may come through better sourcing, assessment and deployment. The challenge is to understand what underlying business issues a change in talent management is trying to resolve. Solutions must be fit-for-purpose, rather than simply best practice. The key is to understand where each organisation is on its journey and what its aiming to achieve by upgrading its talent practices. Those organisations seen as best-in-class for managing talent do it in a joined up way. They increase the quality of their people but they also think about how changes in one area affect the total system. The key to effective talent management does not reside within one function or process, for example, reward incentives or development programmes. It requires a holistic approach that: incorporates how the organisation is structured and organised; accounts for culture and how things get done around here; and connects with performance management and succession planning. More often than not, talent issues need to be considered from a whole system perspective, what Hay Group calls the seven levers elements that have to be aligned if change is to feed through to better results.
2009 Hay Group. All rights reserved
Your people are not your greatest asset. The right people in the right roles are.
The whole system perspective
Considering your business and talent strategy in relation to all seven levers is essential to deliver the talent dividend. Pure experience suggests that while some organisations tender for integrated talent management solutions, conversations are more likely to start around a specific issue. However more often than not, talent questions still need joined up solutions that consider the presenting issue from a number of different perspectives.
Some sample issues n Our strategy, ways of operating, values and behaviours no longer seem to deliver the results we need or our market and customers demand. n Our development programmes arent delivering the quantity and quality of leaders we need to succeed. n Were struggling to attract the millennium generation and our competitors are stealing a march on us. n Our high potentials arent meeting the expectations and demands we have of them as leaders. n Our reward policies dont seem to be driving the behaviours were paying for.
Systems-thinking transformation
Competence Values and culture
Talent strategy
Five-year Avg. Total Shareholder return 4.07%
Performance recognition Leadership
Results
Business context and strategy
0.54%
Work processes Organisation design
Management processes
20 best companies
S&P 500
20 Best Companies for Leaders 2006 as identified in the Chief Executive magazine study conducted by Hay Group
10 Tackling talent management
Benchmarking best practice
Our experience of working with many hundreds of organisations local, global, public, not for profit and private suggests there is a spectrum of developing practice in relation to talent management. It ranges from limited succession and talent management to cutting edge. We have charted the best practices. So refers to practices focused around strategic orientation or so what? Know refers to knowing what you need, what youve got and what its good for. Grow is about building capability. Flow refers to getting talent to where its needed and can make the most difference.
Use this table to judge where you are on your own journey and identify appropriate next steps.
Limited Talent strategy No plan/ initiating Developing Talent plan aligned to business strategy Pockets of best practice best Talent plan essential part of business strategy Employer of choice with clear value proposition Integrated Cutting edge
Talent strategy and business Business strategy is informed strategy are integrated and and influenced by our talent consistent insight and predictions Are the leading employer of choice for the talent that we need now Able to adjust our employer brand and employee value proposition to meet our evolving business and talent requirements No issues; talent availability helps us advance our goals
So
Employer brand
Beginning to develop one
Have a proactive employee value proposition
Attraction
Know
Frequent challenges in getting the right people Ad hoc, subjective
Sometimes find it difficult to attract the talent needed Some roles defined, solitary line manager views predominant Tactical development but return not measured In place, but little ROI analysis
Able to attract some of the talent needed, some of the time Talent discussed through dialogue in talent forums, (but little data) Significant investment and coordinated, some ROI Investments are known, return often intangible
Generally able to attract the talent needed most of the time Most talent discussed through dialogue in talent forums includes objective, benchmarked data Interconnected and linked to business strategy and organisational weaknesses We know how much we invest in talent and what return we get for each element We can retain most of our talent most of the time Talent is a regular item on senior teams agendas
Selection
Objective talent dialogues permeate whole organisation, measures are calibrated and comparable Talent and leadership programmes deliver tangible benefits to the organisation and its people We make informed business decisions about where we place our talent investments and are able to predict the returns We retain our talent all of the time and proactively manage turnover Senior managers devote substantial amounts of their time to talent; rewards linked to talent KPIs Our systems are flexible and have industrial scale capacity
Development
Ad hoc
Grow
Measurement
Few
Retention
We typically struggle to retain our talent HR monopoly
We can retain some of our talent some of the time HR leads, senior management supports Some systems have been independently developed but dont talk
We can retain selected talent
Flow
Leadership support
Senior manager sponsorship, HR managers Most systems have been created, rolled out, are effective and integrated
Systems
Limited, ad hoc
Full suite of efficient, effective and integrated service delivery capability
2009 Hay Group. All rights reserved
How Hay Group has helped clients with cutting-edge practice
Measuring and developing executive bench strength
As part of the know component, best practice companies regularly assess how their executives compare to peers in other industries or competitors, through an executive talent review. Working with clients such as Vodafone, Novartis and BAE Systems, Hay Group has developed innovative approaches to help them benchmark their talent against others who have faced, and overcome, similar strategic challenges.
How this works
n
Articulate your strategy and identify a sample of executives from our database who have effectively implemented similar strategies Compare the benchmark sample with your people to identify strengths and vulnerabilities in the population.
Identifying the right people for critical roles
Your people are not your greatest asset. The right people in the right roles are. World-class organisations identify best candidates for senior roles and get the right people on to succession plans using robust, objective assessment processes. We help: n identify the critical roles and their key requirements n carry out in-depth, interview-based assessment of candidates against role requirements n identify the strongest candidates and the risks associated with each n feed back results to candidates and support best deployment and succession decisions.
The benefits of this rigour are:
n n n
better selection and succession planning decisions, leading to higher performance in the role less time wasted on political wrangling around appointment decisions objective data that leads to clearer decision making.
12 Tackling talent management
The Hay Group difference seeing the big picture
Our breadth and depth of expertise enables us to align talent management initiatives with reward, organisational effectiveness and leadership activities. Most organisations specialise in formulating strategy or in specific elements of talent management. Hay Groups expertise lies across the whole spectrum of talent management activities. This means we can bring a whole systems perspective, effectively implementing change across organisations.
We ensure strategy tracks through to results. Hay Group views the talent management landscape in terms of six questions or activities.
1. Define What kind of talent do you need to realise your strategy?
2. Attract
How do you attract the best talent to meet your needs?
3. Select
How do you select the best talent to achieve your aspirations?
4. Develop
How do you best grow your talent to meet your future needs?
5. Engage 6. Deploy
How do you best reward, engage and retain your talent? How do you best deploy, redeploy and manage the exit of your talent?
2009 Hay Group. All rights reserved
While these activities are in essence sequential, they also operate in a virtuous feedback loop:
Organisation demand Balance what you need with what you have
ent em ag ct n tra At
Car eer m a Sel ec t
Five-year Avg. Total Shareholder return 4.07%
nt me ge na
Business context and strategy
Bra nd m a
Talent strategy
Talent Management
D
De ne
Develop
Performance management 0.54% 20 best companies S&P 500
ep loy m an ag em ent
Eng
ag
a m ard Rew
na ge me nt
In this virtuous circle, talent management is the mechanism through which an organisation ensures it has the right people, optimally deployed and properly engaged to deliver the strategy and business results. This mechanism works best when it is informed by the firms business context and strategy. It also serves to balance two potentially competing demands: the needs of the organisation and of the individuals within it. For the virtuous circle of talent management to work effectively, on one side, organisations need a clear plan that defines what they need from their people. They also have to close the gap between ideal organisational demands and the realities of actual people supply.
ion ess Succ
Balance what you have with what you need People supply
20 Best Companies for Leaders 2006 as identified in the Chief Executive magazine study conducted by Hay Group
To work well, this mechanism needs the aligned culture and appropriate processes we have already discussed. If these arent effective or pull in different directions, the system tends to break down and doesnt deliver the intended results. The key is joined-up implementation. Thats why talent management is part of brand, people, career and succession management. The best organisations also join it up with performance management. Without this, the talent management cogs simply spin rather than mesh and connect up with business results. The challenge for many organisations is to get traction from talent management. Thats why the focus must be as much on deploy as it is on develop. Its also why performance management is what the best companies are strong at.
14 Tackling talent management
Do you treat your talent management process as seriously as your annual budgeting processes?
The table on the facing page indicates what Hay Group recommends for each of the six key talent management questions. Our advice is based on our research with CEO magazine, the Fortune Most Admired Companies and our own consulting assignments. Also included
are some sample challenge questions that organisations should consider when thinking about each of the talent management elements.
Talent management isnt just a nice-to-have; its the ongoing life force of our organisation, the mechanism that helps us determine the future demands on our leaders, specify the gap between what we have and what we need. Its what helps us win today and renew ourselves for the challenges of tomorrow.
CEO and Hay Group client
2009 Hay Group. All rights reserved
Challenging existing practice
Question Sample challenges What are the implications of your strategic objectives for people? Do you have a talent strategy, do you need one, what value would one bring? What skills will you need in the next five years that you dont have now? Recommendation
Define
What kind of talent do you need to realise your strategy?
Derive your talent management activities from your organisational strategy this is your aiming point Review your employee value proposition and challenge yourself to be different
Attract
How do you attract the best talent to meet your needs?
How radical should your employee proposition be, what benefit is there in breaking the mould? Should you look for talent in different places and using different methods? Should you pursue a one size fits all or take a segmented approach? Do you really differentiate between performance and potential? Are you sure your competency model and selection criteria are in tune with your business strategy? Are you clear on what would be perfectionist versus good enough in relation to assessment ROI?
Select
How do you select the best talent to achieve your aspirations?
Be clear on your aiming point or benchmarks, your target culture, values and behaviours and what talent management is trying to deliver
Develop
How do you best grow your talent to meet your future needs?
Do you review the ROI on your development initiatives so they deliver what the business needs? Is your zone of comfort traditional training and development rather than broader talent management? Do you move your high potential employees out of their technical comfort zones early so they build their leadership skills? Is talent management the mechanism through which other HR practices, like reward, integrate? Is reward expertise involved early in the define and attract stages of talent management? Do you measure and track retention as a matter of course?
Invest in enhancing the impact of leaders on their teams and develop people though challenging role moves and assignments
Engage
How do you best reward, engage and retain your talent?
Rigorously align talent management with your engagement results and reward incentives so you get what you pay for Institute an upward reporting, line-led, objective process for reviewing and deploying talent optimally
Deploy
How do you best deploy, redeploy and manage the exit of your talent?
Do you give prime accountability for managing talent to the line, supported by HR? Do you simply review talent or follow through on actions to improve the stock of talent? Do you insist on and support line managers in moving underperformers out?
16 Tackling talent management
Conclusion
There is no single talent management strategy to fit every organisation. But it is abundantly clear that implemented properly, talent management delivers tangible, measurable results of the sort that are enjoyed by many of the best-performing organisations worldwide. There may not be a magic formula for managing talent, but there are some universal components that underpin it.
10 actions to deliver the talent dividend
1 Insist on a decode of the business strategy into what it means for future roles and people 2 Define your aiming point the future-focused behaviours that predict leadership success 3 Embed those predictive behaviours in all your performance and talent management activities 4 Reclaim talent as a corporate asset and refuse to accept tick the box succession planning 5 Conduct an objective talent review, against the right futurefocused behaviours that drive results 6 Challenge underperformance and take supported risks with hidden diamonds 7 Work hard on engaging and retaining all your talents 8 Ensure talent, reward and organisational design pull in the same direction 9 Ensure line managers own talent management, supported but not led by HR 10 Embed talent management metrics within peoples performance plan.
2009 Hay Group. All rights reserved
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