Many firms around the world cannot fulfil their potential because they are failing to harness the skills and experience of their workforce, according to new research from the Economist Intelligence Unit.
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Key findings from the survey include the following:
Inadequacies in talent management are hurting the competiveness and financial performance of firms. Nearly one in two (43%) respondents in the survey partially attribute the failure of their firms to achieve key financial targets to ineffective talent management, and two in five say it has also reduced their company's ability to innovate. Clearly, short-sighted HR policies are hitting companies where it hurts. The opportunity cost of not investing enough resources to talent development is also huge.
A recent study by the Boston Consulting Group, a management consultancy, found that companies that are “highly skilled” in core HR practices achieve up to 3.5 times the revenue growth and as much as twice the profit margins of less capable companies. The co-relation between talent management and performance is particularly strong in financial services and energy: nearly three-fifths of financial services executives (58 per cent) say their firm has been unable to start a major project or achieve key financial targets because of poor talent management, while over half of executives from the energy sector (53 per cent) say they have missed forecasted growth. North American firms generally report more difficulties as a result of poor talent management than their European and Asia-Pacific counterparts.
A majority of companies do not seem to be paying adequate attention to succession planning. Even though poor talent management has damaged their performance and prospects in the past, not many firms seem to be doing much about it. More than one in three respondents (36 per cent) agree that the ability to effectively attract, retain and deploy the right talent is the main competitive advantage and a similar proportion of respondents think talent management is truly embedded in their company's business strategy. A good example of best practice in this regard is the German car maker BMW, which has boosted its productivity by adapting its talent strategy to the challenges posed by an ageing workforce in Europe.
But for those firms that fail to adapt and update, the impact of poor talent management goes right up the organisational ladder: although nearly two-thirds of companies (64 per cent) are confident that their firms have the right talent within their firms to recruit into C-level positions in the next 12 months, only 48 per cent of executives agree that their employers have a formal succession planning process for C-level roles such as CEO, CFO and COO. The survey for this study indicates that while HR directors are quite confident about the strength of the talent pipeline at their firms, senior executives from other functions are somewhat more concerned: three in four HR directors seem to think their firms have a formal succession planning process in place, compared to only 57 per cent of CEOs and 12 per cent of CFOs. North American firms appear particularly at risk: although 82 per cent of executives are confident about their internal talent pool to recruit into C-level positions, only one in five agree that they have a formal succession planning process in place.
Many of the talent management tools employed by organisations are either ineffective or unpopular with employees. Among the methods that companies commonly employ to boost the skills of their employees, only training and education offered by external providers is rated as effective by half the respondents in the survey and is on offer at a majority of firms. Among the incentives and tool that seem to work less well are performance-based bonuses and personal development programmes, only deemed effective by a third of respondents.
Sector wise, over three-fifths of companies from retail, telecommunications and media prefer external training and education, while a majority of firms from the manufacturing sector favour in-house talent development methods. The survey also shows that effective management strategies have a strong impact on a firm’s ability to recruit for C-level positions from its own talent pool.
There is a fair amount of disagreement at the C-level on benchmarks and priorities in talent development. While CEOs believe the top requirement for potential business leaders is experience of emerging markets (66 per cent of respondents), CFOs point to experience in different business sectors (56 per cent), and HR directors believe that strategic vision and ability to implement strategy is key (71 per cent). It must be noted that the views of C-level executives are a reflection of their own role and experience but also the size and scope of their organisations.
Remarkably, leadership experience is higher up on the agenda for smaller firms than it is for larger organisations. Over half of respondents from firms with global annual revenue less than US$1 billion identify leadership experience as a key skill to possess, compared to only two-fifths of respondents from larger firms. Instead, the latter pick experience of international and emerging markets as a key criterion. From a regional perspective, European respondents think experience of change management (52 per cent) is more important while North American respondents prioritise experience of international markets (61 per cent) and Asia Pacific respondents, leadership experience (51 per cent).
C-level executives are often divided on key investment decisions related to talent management. Over three-quarters of CEOs (77 per cent) believe that cutting spending on workforce skills, training and qualifications is part of their company’s policy over the next 18 months, although only 49 per cent of CFOs and 18 per cent of HR directors agree.
There is some confusion around the top table over recruiting plans, too: 44 per cent of CFOs and 36 per cent of HR directors say their firm plans to increase spending to hire more workers, compared to only 7 per cent of CEOs. This gap in perception between CEOs and the rest of the C-suite suggests that on key issues related to talent management, C-level management are quite often singing from different hymn sheets. Who holds responsibility for measuring the effectiveness of a firm's talent management strategy is also unclear. Over three-fifths of CEOs and CFOs say it is the Head of Finance, but less than a fifth of HR directors seem to agree. Instead, an overwhelming proportion of HR directors (83 per cent) say oversight on talent is, in fact, their own responsibility, a view that is supported by less than 30 per cent of CEOs and CFOs in the survey. The divergence of views makes it quite clear that in most organisations there is room to improve the division of responsibility and accountability on talent management.
Business leaders are concerned about the quality of data and analytics they receive on the talent pipeline at their firms. Only 12 per cent of CEOs are confident about the quality of metrics senior management receives on spending on human capital. They are also highly skeptical of data on retention of talent and workforce analytics, while CFOs and HR directors overall are confident. This leaves a big gap for companies to fill, particularly in ensuring that C-level executives be presented with high-quality data to support a unifying talent management strategy. From a sectoral point of view, over two-fifths of respondents (42 per cent) from the telecommunications sector say their firm struggles to get accurate data and metrics on human capital, compared to only 15 per cent of respondents from the retail sector.
Conclusion
The results of the survey for this study confirm that firms around the world are finding it hard to manage their talent base in the most effective manner. Some of the shortcomings seem to be systemic or a fallout of organization structures: for instance, the lack of a coherent strategy as a result of the divergence of views at the C-level. Other challenges can be quite easily addressed, such as measuring the effectiveness of a firm's talent management strategy.
Given the adverse impact these drawbacks in talent management is having on the performance and competitiveness of organisations, the message from this survey for business leaders is clear: to stay competitive in today's challenging and volatile business environment, they must pay more attention to talent management and strive for greater clarity and unity on strategy among themselves.
