Yet another piece of research espousing the value of talent management to the bottom line. By excelling in talent management, the average Fortune 500 company can generate a nearly 15 percent improvement in Earnings Before Interest, Depreciation, and Amortization (EBITDA), netting almost $400 million annually, according to research from The Hackett Group, a strategic advisory firm in the US.
Hackett’s research demonstrates the bottom line impact of more effectively managing human assets, and provides strong evidence to executives, investors, and HR leadership of the value of developing intangible assets such as a company’s workforce.
“Certainly it makes intuitive sense that attracting, developing, and retaining a talented workforce can enhance a company’s performance. But like many areas of HR, it’s been exceptionally difficult to measure the real impact of improvements,” said Hackett Chief Research Officer Michel Janssen.
“Achieving excellence in talent management is not something that happens overnight, since changing how a company strategically addresses talent takes time and often requires a real cultural shift. But this research for the first time quantifies the potential returns, and demonstrates why talent management is a worthwhile investment.”
According to Hackett Practice Leader Stephen Joyce, “The best companies treat employees the same way they treat their product lines, as something to be carefully analysed and strategically developed in support of their business goals. They determine the skills, competencies, and experiences needed to run their company over the next few years, quantify the gap between their needs and their current resources, then acquire the expertise they need through a combination of staff development and hiring. As a result, they are more competitive in the marketplace, and this is reflected in improved earnings.”
Hackett’s research found a strong correlation between improved financial performance and top-quartile performance in four key talent management areas:
- Strategic workforce planning, which involves identifying the skills critical to a company’s operation and how those needs match up against those of the existing workforce
- Staffing services, including recruitment, staffing, and exit management
- Workforce development services such as training and career planning
- Overall organisational effectiveness, including labour and employee relations, performance management, and organisational design and measurement
Hackett’s research also found that top performers in talent management operate very differently than their peers. They spend six percent less on HR overall than typical companies, driven by dramatically lower costs in key areas such as total rewards administration, payroll, and data management and also lower employee life cycle costs.
These savings enable them to invest more in talent management processes. Top performers in talent management are also 57 percent more likely than their peers to have a formal HR strategic plan in place, more than twice as likely to facilitate strategic workforce planning discussions with senior management, and fifty percent more likely to link their learning and development strategy to their company’s strategic plan.