Posts tagged ‘Value of talent management’
What is a talent? Is it only Einstein and Mozart who are talents or are we all talents in our own special way?
The way you define talent is important. Or worse, perhaps you haven’t explicitly thought about how you define it? Do not underestimate the influence of how you define things – it greatly impact the effect of your HR activities, in this case your talent management program. If you have a too narrow definition of talent then only a select few will be seen as talents and developed accordingly and if it is too broad it will have little or no practical effect.
McKinsey defined in their original “War for Talent” article in 1998 talents as “bright young people”. That is not very relevant for a talent management program in my view. Why is it only young people? What does bright mean – IQ or is EQ also relevant? We must do better than that.
Another thing to consider in your definition is whether a talent is born as a talent or talent is a skill that you acquire and develop. This theoretical discussion is important in relation to the extent to which you choose to recruit or develop talents and in relation to how much money you choose to spend on it.
A final thing to consider is if high performance is due to the talent or the systems, context and position. There are – broadly speaking – two opposite views on this; one which claim that the talent is responsible for the results and the other which believe it is more the position/company/context. It is probably somewhere in between in my view.
Regardless of your opinion of the above you must find a definition which makes practical sense for your company. If you do not have a strong clear definition you cannot link it to your HR strategy, develop good talent management KPI’s or evaluate it.
I will venture this as the best definition of a talent when you are creating a talent management program:
“A talent is a person who possesses special skills, which are difficult to copy or imitate, who is a top performer with competencies of strategic importance which cannot be readily developed and the lack of these skills and competencies would affect the competitive advantage of the company.”
What do you think?
I was reading an excellent White Paper by among others Jeff Higgins from Human Capital Management Institute which is called “Top Five Metrics for Workforce Analytics“. The White Paper lists five metrics of which one of them is an index they call ‘Talent Management Index’ – something which alerts me when I read it.
While the report does not go into too much detail, it does outline their suggestions for top 5 metrics for Talent Management.
That got me thinking about my suggestion for top five metrics for Talent Management. I would argue that you really shouldn’t have more than five at the most. KPI’s can overwhelm you and they must be used with care (see here for the pitfalls of using HR KPI’s). My suggestions are;
- Talent Retention (this is more positive than its negative cousin ‘Talent Turnover’). This is measured by taking the number of identified talents leaving the company during the year divided by the number of identified talents at the beginning of the year. For me, retention rates are not always very interesting. Many times you do want to get rid of low performers and you should be able to that without messing up your Talent Management KPI’s. But it must be imperative to keep talents – otherwise they shouldn’t be identified as such.
- Talent Performance. This is measured by taking the performance score for your identified talents from your Performance Management System. An effective talent program should be able to develop talents in such a way that their performance score improves.
- Time to Hire for Critical Roles. This one a bit tricky, because this KPI actually can work against you. The best candidate for a critical role may not be the one which is just available (there may be a 3 month notice period). However, a successful Talent Management program should be able to fill critical roles quicker from within. This should be measured.
- Skills gab filling process. This is measured by taking your talents and measure their talent gab at the beginning and at the end of the year. The talent gap will be individual from company to company but be based upon your individual assessment made at the beginning of the year. It may also come from your Succession Planning tool. In any event you must have some way of measuring how well the skills gab is changing.
- Talent Engagement Levels. This is measured by taking the engagement survey and identifying the level for your talents.
I have written many times, that I think Talent Management is the most important strategic process for HR to get right. This is simply because the potential pay-off is phenomenal compared to many other HR processes. Therefore it is too important not to measure and evaluate properly. Let’s get that right.
I will be very interested in hearing about alternatives to these Talent Management KPI’s. Which ones do you used and how do they work for you?
Talent Management is difficult to get right. Let’s be sure about that. In fact, most talent programs have a negative ROI if properly measured. However, there is one mistake you should avoid at all costs as it will lead to high turnover of talents (and a negative return on investment). That mistake is not having a plan for what happens with the talents after the program ends. And that plan should be made and communicated up front.
The unique thing about Talent Management – and Human Capital in general – is that if an employee decides to leave the company, he (or she) will then take the entire investment with him. In other words the cost of a talent leaving is not only loss of productivity, cost of rehire etc. but also the money spent on developing that person.
A key objective of a talent program must therefore be to ensure that talents stay after the talent program as this is the only way to get a return on the program. When the talent programs is ongoing talent turnover decline. But what many fail to understand is, that talent turnover often goes up when the program finishes. And sometimes quite a lot.
Why is that?
Evidence suggests that frustration with advancement opportunities is among the most important factors . Generally, the single biggest reason for why talents leave organisations is lack of advancement and development according to a 2006 Global Workforce Study by Tower Watson.
During the program, talents will – rightly or wrongly – expect that something will happen afterwards; a promotion, a big assignment, an outpost or something new. If they are ‘leadership talents’ they will expect to move up the organisation. If they are ‘specialist talents’ they will expect being offered better and more prestigious projects to work on after the program.
Studies suggest that the talent turnover can be halved post the program if proper post-program plans are in place. Don’t make the biggest mistake of not addressing this up front.
Since McKinsey in 1998 published their article on “The War For Talents” it has been widely accepted that Talent Management should be a key priority for any HR department. Actually, make that for any top management team in the world. Indeed when surveyed “Talent Management” or “Attracting the right talent” always come up as one of the top three priorities for US and European CEO’s.
So, is that how it should be? Well, I think it is. But let’s look at the convincing case there actually is for why talent management is not that important. It goes something like this:
Between 1980-2000 the use of big Talent Management programs declined rapidly. This was mostly evident in companies well-known for their extensive programs such as AT&T, IBM, Citi Group etc. Why? There are many reasons for that. A few are:
Loyalty fell and therefore the turnover of key employees rose. When they leave they take the investment with them.
- Companies went through so many restructurings that talents were not so much in demand.
- Global competition made talent forecast very uncertain and long development programs either yielded too few or too many talents.
- The high unemployment rate in the 80’s meant that it was easy to buy cheap young talent – there were so many available talents around and it was therefore cheaper to buy than to make.
The first three points are still relevant now – perhaps more than ever. So consider the fourth. Look at the chart below. Unemployment rate in US is now at 9%-10% but the youth unemployment rates are sky high- almost at 20%! And many of these are well-educated. The same is true in Europe – in Spain the rate is above 40%!
Perhaps companies do not need to invest in expensive Talent Management programs. There is plenty of well-educated young people around who can be hired for less.
Lets face it – most companies don’t measure ROI on their Talent Management programs. Perhaps this is because they don’t know how to, that they know the result will be scary (very negative) or just because they don’t believe in measuring HR. For whatever reason, they are starting from way behind the starting line.
ROI is a simple tool – and also a tool to be used carefully as it has many pitfalls. However, at is core it has two components; benefits and costs. To improve ROI you need to focus on both. These five suggestions will improve your ROI by looking at how to improve the benefits (4 & 5) and how to lower the costs (1, 2 & 3).
- Improve your development program. You can create value by finding ways to lower the cost of your development program associated with the talent program without affecting the benefit of the program. This can successfully be done using e-learning, coaching and action learning which all have significant lower costs than big classroom-based learning programs. While no program should be based solely on any of the above mentioned, the cost of most programs can be lowered without compromising the benefits using these types of components.
- Shorten your program. Going back in the 60’s it was not unusual to find talent programs which had a duration of three years or even more. This has proved to be wasteful for two reasons; firstly, the uncertainty of forecast of talent needs are too high over such a period. You end up with more talent or competencies you don’t need – and that is a serious waste of money. The second reason is that the added benefits of the final year has proved to be lower than its costs. It is simply not worth it. Best to keep programs at a length of 1½ years instead.
- Create more effective assessment centers (AC’s). AC’s are used to select and develop talent. AC has been under a lot of pressure for two reasons; the validity is often very low and they cost a lot. While both issues are real it is possible to make AC’s valid and cost effective. The difference in ROI between a standard AC and a best practice AC is significant. Make the effort to make a good one.
- Add external candidates to your program. Fact is that you will not have enough talent in-house to meet your need for growth and innovation. Instead of spending good money on people who will not be able to develop at the required speed or achieving the right level of competencies you should acquire them from outside. This is cheaper and earns a better return.
- Have a plan for what happens after the program. The single biggest reason for why talents leave after having been through a talent program is that they are frustrated of not getting moved up in the organization or being offered better projects to work on after the program. This must be addressed up front. Studies suggest that the talent turnover can be halved post the program if proper post-program plans are in place.
The first step is however to measure your return on your Talent Management program. This is not difficult, but requires a solid process based upon best practice. Once this has been done then you can find ways to improve your return. The above five categories will get you a long way.
At its very core, the problem is that most succession plans are never used. And if not used, it is hardly a controversial to say, that they don’t add value. Many large international companies spend much time and resources on developing a complete success planning program, which intends to identify a person who will take over if the executive is hit by a bus or suddenly leaves the company. I have never actually heard of the famous bus incident so I guess it is for when executives get fired or leave.
There is today very little evidence to support the view that it adds value to have succession plans for top management level, however some case studies and data suggest that this is more valuable for some middle-managers and many specialists. Maybe that’s where the focus should be.
So what to do for the succession plans to add value?
- Succession planning works best in organisations where there is little change and a high degree of predictability. No wonder then that the term originates from the military. This is true for some organisations but for most the reality is that they experience so much change, re-organization and lay-offs that succession makes no sense.
- The quality of the successors must be very good, which means that a constant gab-analysis and gab-closing exercise must take place. This development project is valid when a successor is needed but wasteful when it is not.
- Management must be committed to use the identified successor (which frankly is not the case today, as highlighted in a recent McKinsey study of talent management).
One possible solution to lower cost and improve returns would be to make a Just In Time Succession Plan. When a job is open, find out who is the most suitable and let that person take the role. If any development is needed post hire then spend the money there.
Finally there is the option of asking a executive search company to always have a list of five candidates ready for all of the top management positions and review the list with the search company on a regular basis.
P.S. I would encourage you to read chapter 5 in “Talent on Demand” by Peter Cappelli for more on this subject.
To produce a value-added Talent Management program you need to understand – and avoid the pitfalls of – five popular myths about talents:
1) Talents are easy to identify. Talent are rarely in the position they ought to be in or in a position which reflects their potential. Identifying an organization’s talents require a rigorous assessment processes. Although this requires a great del of effort studies show that it is better to invest in assessment than development of talents.
2) You cannot measure the value of talent management. Wrong. It is possible to measure the ROI on talent programs and the impact on Shareholder Value. By measuring how much value a program adds (or destroys) it is possible to optimize and continuously deliver effective talent solutions.
3) Talent Management is an issue for the HR department. Talent Management must be owned by the top management. They must see it as their most important job to attract talent to the organization. HR is a natural project team for the talent program and will be instrumental in implementing a successful program. But if the ownership is not firmly with the top management it has no chance of making an impact.
4) If we treat our talents well they will be loyal to our organization. Loyalty towards organizations is scarce these days. Talents must all the time feel that your organization is furthering their career and is developing them in a personal and professional way – otherwise they will leave.
5) We always attract talents. Many companies do not believe that Talent Management is an urgent matter because it has not been a major issues in the past. This is wrong. Attracting talents is a burning platform for all organizations today and all studies show that organizations in the Western World will struggle to find the talents they require.
These myths often stand in the way of a successful talent management program. Studies show that only 7% of American companies believe today that they have a Strategic Talent Management program today despite identifying it as being one of the three most important things for the company right now. Lets’ bust those myths.