According to a study reported in the June 2005 issue of the Harvard Business Review, ‘people-driven’ businesses are now predominant. But many companies, even in people businesses, don’t yet have the talent management processes they need to excel. While organizations have perfected sophisticated techniques for managing capital investments, suppliers and the production and flow of goods and services, their capabilities in managing people seriously lag.
In their article, “The Surprising Economics of a ‘People Business'” consultants Felix Barber and Rainer Streck argue that people are now the most significant cost in many industries when compared to spending on capital, R&D and suppliers. In industries like advertising, IT services, financial and brokerage, engineering, telecommunications and health care, personnel represents the largest component of total spending (40 percent to 70 percent). These are what the authors refer to as people businesses. They have high overall employee costs, a high ratio of employee costs to capital costs and limited spending on activities like R&D.
Another category they identify is ‘people-oriented’ businesses. These are companies where spending on personnel, while not the largest component of total spending, is nonetheless significant because it exceeds capital costs. Companies in this category include software firms, airlines, restaurants, pharmaceutical and chemical companies, consumer goods and automotive. Only industries like utilities and oil spend more on capital costs than on people.
The authors assert that in people and people-intensive businesses, the performance of talent drives the overall performance of the company. And the distinct economics of people-driven businesses call not only for different business performance measures but also different management practices. In these businesses, where even “the slightest changes in employee productivity have a significant impact on shareholder returns, ‘human resource management’ is no longer a support function, but a core process for line managers.”
I agree with these assertions but would go one step further to say that in people-driven businesses talent management must be a core competence for the entire business. Not only should line managers be adept at managing people but the corporation needs to have a robust people management capability that is clear, coherent, and applied company wide.
Many companies are only beginning to appreciate the importance of enterprise wide talent management. For example, I recently spoke with an HR executive in a large services organization who indicated that her firm was finally waking up to the importance of managing their talent in an integrated fashion across the enterprise. The company realized it was losing tens of millions of dollars a year in unnecessary recruitment and termination costs and lost productivity. Its approach to recruitment was fragmented and not connected to other key talent management activities. It did not have an enterprise view of vacancies and surplus people across the organisation. Development and deployment of people were separate and non-integrated activities. Lastly, there was no organizational focal point to oversee the process.
The result was that for several years hundreds of people were laid off in one part of the business while hundreds of others, often with similar skills to those departing the organization, were hired in other parts of the company.
Regrettably, this situation is not unusual in many organizations today. Indeed, many companies are missing substantial opportunities to save costs and improve performance by upgrading their talent management capabilities. There are four steps that companies can take to quickly assess their talent management process and begin improving their talent management competency:
Step 1 – Identify Key Roles. Analyze the key steps in each part of the talent life cycle (identification and attraction, hiring and inculcation, motivation and development, appraisal and reward, building and sustaining relationships) and map the key players and their roles and responsibilities to each stage. Are there gaps in responsibilities – key activities that no one is directly accountable for? Are there overlapping responsibilities – multiple people responsible for the same activity? Are the right people in the right roles? Are line managers provided with consistent and effective processes, guidelines and tools for managing talent?
Step 2 – Take an Inventory of Your Talent Management Skills. Identify the critical skills needed to play the key roles in the talent life cycle effectively. To what extent does your company employ people who possess them? What might you do to improve or develop them? What are you doing in-house that might be better outsourced? What have you outsourced that you should be doing in-house?
Step 3 – Measure the Right Things. Assess the measures you use to evaluate the performance of your talent management process at each life cycle stage such as offer-to-hire ratios, average tenures of new hires, performance ranking, skill fit to job requirements, etc. What data are you capturing and reporting? Does it feed directly into a enterprise talent scorecard? How do these measures align with your overall talent management strategy?
Step 4 – Set Up a Process-Wide Feedback Loop. Everyone managing talent needs to understand the big picture and to connect their role and responsibilities to the overall objectives of the process. How is data captured in each stage of the life cycle reported and communicated? How are knowledge and experiences shared across the process? Where are the information gaps and missed communications? How much feedback is formally captured and communicated versus informally discussed among staff? What key actions might you take to improve your feedback mechanisms?
With so much of the costs and performance of a business now dependent on people, isn’t it time managing them became a core competency of your organization?
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.