Posts filed under ‘Uncategorized’

True vs. false cost savings

When an HR executive is making a business proposal and includes a ROI calculation,  it is important to highlight which cost savings are true (real) and which are – lets call them – false cost savings. A potential cost saving must be realised and the released resources put to better use before it can be considered a real cost saving. Otherwise it is a false saving. Put in another way, a false saving is an unrealized potential cost saving.

Let me give an example. Lets say that HR wants to outsource its payroll processing. An external provider has been identified and an internal audit shows that previously HR spent the equivalent of 1.5 FTE on payrolls.  A true saving would occur if this 1.5 FTE was used to add value (i.e. earn a return above the cost of capital) in another part of the company or if HR laid off 1.5 people . A false saving would instead occur if the resources just ‘disappeared’ into the existing services with no extra value being added.

The first step for HR is to start making business plans, ROI calculations and credible assumptions. However the next step will be to assure that the assumption cover real tangible numbers and not soft and unrealizable numbers. The cost of the payroll provider is real. It requires real cash to pay for this service. If the assumed savings are false and therefore not as high and not tangible it cannot be compared with the cost and the ROI will end up being negative.

10/05/2011 at 22:39 Leave a comment

Talent Management processes are still not good enough

I have just read a research bulletin from Bersin & Associates from 2009. They conclude in a survey that 40% of companies have talent management processes at ‘a novice stage’, 40% at ‘an intermediate stage’ and 5% at ‘an advanced stage’ with 15% not having any talent management processes at all.

Bersin & Associates prefers to focus on the fact that it is an improvement from 2008. I look at the numbers and think to myself how many organisations still don’t make talent management the strategic priority it deserves. Actually I don’t believe most organisations really understand this gap. My own experience is that most organisations are in a worst state – talent management wise – than they think. I have met several companies that describe their processes with some pride although they are evidently below par. I believe that many will be forced to reconsider their talent management program once ‘the war for talent’ intensifies in one or two years from now.

Interesting Bersin also conclude that European companies generally have higher levels of maturity than do U.S. and Asia-Pacific firms. In our research, we have found European companies to be very sophisticated in their talent processes. This is a surprise to me – I would have thought it was the other way around.

02/05/2011 at 16:22 3 comments

The War For Talent – McKinsey article 13 years on

I have just re-read the classic McKinsey article from 1998 called ‘The War For Talent’ (The McKinsey Quarterly, 1998, number 3). It is a great article and I will recommend you all to read or re-read it.  It is great for many reasons. Firstly, it was the article that coined the now famous phrase ‘war for talent’ and thereby started the focused effort many large and multinational companies since have had. Talent Management has become a large focus area for many HR executives and a core HR activity. This was not the case in the beginning of the 1990’s.

A second reason why it is a great article is that it is very well researched. They interviewed 5,679 executives from 77 companies of which 359 were CEO and their direct reports as well as 72 senior HR executives. Impressive.

So what did the article conclude? Well a few conclusions are; 1) The war for talent can be won if – and only if – companies elevate talent management  to a burning corporate priority. 2) You must create a strong employee value proposition [I like this]. 3) Many do focus on attraction, retention and development but their effort is way off the mark. 4) All talents care deeply about culture, values and autonomy. 5) Feedback and coaching works really well and 6) too few understand their retention problem. Many articles and White Papers have been written since concluding basically the same. These conclusions are worth remembering.

How have companies taken on this advice here 13 years after the article? Bersin & Associates surveyed in 2009 American companies’ talent management and concluded that 15% had no talent management strategy at all, 40% said it was at a ‘novice stage’, 40% was at a ‘intermediate stage’ with some mature processes and only 5% had a clear strategy with mature and integrated processes. Wow, that is not good enough.

It appears that the future winners of the War for Talent are almost identified…time to step up for the rest. Talent Management really isn’t a ‘nice to have’ anymore. It is a ‘must have’ in order to survive.

24/04/2011 at 19:46 3 comments

Shareholder value from a great talent management program

Every organization relies on a small cluster of talent in order to be able to execute its strategy and meet its goals. These employees – or talents – account for a disproportionate share of revenue and profits. They are the backbone of the organization and the company should do whatever they can to nurture and look after these talents.

This makes intuitive sense, but now this is increasingly also being proved through  more and more studies. Development Dimensions International, a consultancy company, write that “There is a demonstrated relationship between better talent and better business performance. Increasingly, organizations seek to quantify the return on their investment in talent. The result is a body of “proof” that paints a compelling picture of the impact talent has on business performance”

A few studies are being mentioned by DDI – to highlight just a few:

  • A 2007 study from the Hackett Group found companies that excel at managing talent post earnings that are 15 percent higher than peers. For an average Fortune 500 company, such an improvement in performance means hundreds of millions of dollars.
  • A study from IBM found public companies that are more effective at talent management had higher percentages of financial outperformers than groups of similar sized companies with less effective talent management.
  • Similarly, a 2006 research study from McBassi & Co.5 revealed that high scorers in five categories of human capital management (leadership practices, employee engagement, knowledge accountability, workforce organization, and learning capacity) posted higher stock market returns and better safety records—two common business goals that are top of mind for today’s senior leadership.

So, evidence support the long-held view that few talents (about 15%-20% of all employees) account for a disproportionate share of profits. A great strategic talent management program will identify, attract and retain those important people. Such a successful strategic talent management program must be a) driven by business strategy, b) integrated with other processes, c) managed as a core business practice and d) engrained as a talent mindset. Sounds easy but it isn’t but as evidence show – it is worth it.

22/02/2011 at 16:14 2 comments

Evidence-Based HR

Looking through books, research and blogs about evidence-based HR, it is clear that a few are very keen on the concept and lots of people are very skeptical about it. Let me say straight away that I think it is a great approach to HR.

Evidence-based HR is essentially an approach which rely on hard-core evidence for all HR initiatives. This approach suggest that statements such as “I believe”, “I think”, “It might” is scrapped in favor of what we know and what has been proven.

For example: a company might provide access to a gym, which its employees may use free of charge. HR may argue that this will result in healthier employees who in turn will have lower absenteeism and higher productivity. But how do we know that? It feels intuitively right that it will be the case, but how much lower will absenteeism be solely because of the gym and does it justify the cost of the memberships? Perhaps. The evidence-based HR approach will want to test this assumption.

The movement (if it can be called that) is often quite skeptical about the current practices of HR, which I think is a bit unnecessary.  Instead the drive should be a genuine interest in making HR as value added as possible though practices which are documented to create value. HR practices based upon evidence will eliminate fears from CFO’s about possible waste of money.

I truly believe that HR can add a lot of shareholder value. But not all HR practices can and will do. Some are simply a waste of time and money. Which ones add value and which ones does not? An evidence based approach may help us answer this question.

If you want to know more, check out Paul Kearns’ blog here…

04/02/2011 at 15:28 7 comments

Should contractors be part of the Talent Management program?

Human Capital Institute (HCI) has produced an interesting report/survey on the issue of contractors in talent management initiatives (see here for report). They conclude that procurement and selection of contract talent (CT) should be centralized in HR and the strategy around CT should be aligned with the general Talent Management Program.

The background for the study is the fact that most organizations has a huge gap between how they manage their contractors and their strategic needs for competencies.

One of the problems is that it is not always (sometimes rarely) that HR is even involved in hiring and administering contractors. A study showed that it was only the case in 50% of cases. Most of the times it is from the business units themselves. This ownership issue is a problem.

But should contractors be part of a talent management? Well, I think it depends on how you define it. It think contractors should be administred from HR and should form part of the overall Human Capital strategy. Contractors is an important part of the overall workforce planning tool and issues about who and what competencies should be hired are important strategic HR decisions. But from there to be included in a talent management strategy? I am not sure it make sense.

26/11/2010 at 16:10 Leave a comment

Leadership in bad times – lessons for HR

I was reading a study of group behavior of baboons (which we humans share 99% of our gen-material with). The study was looking into how often the males in the group was looking at the Alpha-Male (the leader) for clues as to how to act. The average was once every 30 seconds. The interesting thing was that in times of major changes in the environment or where there was unrest in the group, the males were looking at the Alpha-Male every 15-20 seconds i.e. much more often.

In times of changes we increasingly look towards our leaders for clues of how to act and understand what is going on. As a manager you cannot not communicate. For example, employees will read a lot more into the cancelation of a Monday-meeting today than for four years ago. When rumors are plentiful employees look towards their immediate manager to try to make sense of these rumors.

Managers must be aware of how to behave in such times and reflect on how their employees can interpret their behavior. Clear communication is so important, but studies show that the oral and written communication is only one part of it – eye contact, body language, word choice, being visible in the office etc. is just as important.

An article in Harvard Business Review in June 2009 titled “How to be a good boss in a bad economy” suggest that you can do four things to overcome this problem: 1) provide predictability. This is about understanding ‘what’ and ‘when’. Studies show that the negative impact of an event is much lower if people is able to predict it. 2) Increase understanding. This is about ‘why’ and ‘how’. People simply react more negatively to unexplained events. 3) Afford control. Employees may not have much control over what is happening, but they may get a say in how and when it happens. 4) Show compassion. Prof. Greenberg from Ohio State University provides evidence that compassion affects the bottom line in tough times. It helps employees retain dignity and make them behave better.

HR can do a lot to help their primary customers – the managers – during bad times. In fact this is when HR is needed the most and is often criticized for not  adding enough value. Certainly many HR people must focus their energy on legal and functional tasks – especially during downsizing – but it is also the time for HR leadership to step up. I am thinking that all four solutions mentioned above are areas which a proactive HR department can go in and add value to the organization. Who better has the overview, capacity and competencies to handles these challenges than HR? Not that employees will ever look towards HR for clues but because HR can help managers become better mangers in bad times.

08/11/2010 at 09:05 2 comments

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