Recent Trends in Human Resource Management

Tuesday, June 23, 2009

Improving Returns on Talent

How should companies approach and formulate a talent strategy focused on better returns.

Organisations have worked over the years towards efficiently managing and monitoring returns on capital and assets. This has been an important role for the CEO and top management in years of boom and downturns.

However, there remains a great deal of ambiguity over the idea of managing talent as an asset. While organisations commit huge investments in talent and incur heavy costs on it, rarely do CEOs have visibility on the returns on talent employed (ROTE).

Investments in talent

An organisation makes multiple investments in acquiring and utilising its talent effectively. These are:

Time and effort: The man-hours spent by HR managers and others in an organisation in recruiting and managing talent adds up to quite a lot. And this has a cost attached to it.

Operating costs: The largest human resource costs in a company are in the areas of recruitment, training, staff welfare, travel for HR-related processes and so on.

Overall employee costs: This is an aggregation of cost to the company (compensation and benefits) of all employees. These costs are a part of the profit and loss statement of companies and normally tend to increase over time.

These spends directly hit the bottom line of the company. In times of downturns, organisations look at cutting down these spends to reduce costs. Although obvious and intuitive, this approach to improve ROTE has limited benefits and could prove counterproductive in the long run. Considering that any recessionary or slow growth phase is likely to be followed by a phase of rapid growth and expansion, a reduction in talent investment has to strike a balance between short-term pressures and long-term imperatives.

An alternative approach

Companies’ top management have always, knowingly or unknowingly, strived towards improving returns from talent. Their concern and need is to find more comprehensive ways of doing so. But what comes in the way is the absence of a common understanding of what constitutes talent, what kind of returns to expect and what levers must be used to improve ROTE.

Talent constitutes not merely employee numbers but also their capabilities. Hence, ROTE may be defined as the value gained in terms of contribution to business results through effective utilisation of talent and its capabilities while optimally managing talent costs.

The concept of "talent value chain" provides a comprehensive model to view the processes through which talent is employed and utilised

An organisation’s strategic goals along with a well-defined organisational structure are the starting point of the talent value chain. Each link in the talent value chain is a talent lever. Specific actions and initiatives under these talent levers are identified and planned leading to development of a "talent strategy".

Like business strategy, talent strategy addresses the key challenges a company is facing and hence, necessitates a careful examination of business challenges and objectives. It also needs to be adapted and changed to suit changing business environments and goals. Such a talent strategy ensures optimal and appropriate utilisation of talent and hence leads to an improved ROTE.

However, an appropriate and well-articulated talent strategy is rarely found to exist in organisations and hence improved returns on talent seem to constantly elude them. Let us examine three different business scenarios to illustrate the approach that an organisation can use to develop its talent strategy.

Downturn/low growth: An organisation struggling with a downturn or slow growth in its industry is faced with the challenge of optimally managing its assets and costs. Such an organisation should, therefore, employ its talent levers in a manner such that they address this strategic challenge.

In workforce planning, the organisation’s focus should be on optimal utilisation of talent through re-deployment or reducing existing manpower. Similarly, recruitment should either be frozen or highly selective. High performing, valuable employees should be identified from the less productive ones based on performance differentiation. This would help identify both talent which the company must strive to retain and manpower which can be released without a significant impact on company productivity.

Rewards too can be selective. Only those who contribute significantly should be rewarded. Policies should be reviewed to enhance centralisation, wherever possible. Potential development and retention should be geared towards the best-performing talent. Thus, this approach helps improve ROTE through managing costs, optimal utilisation of talent and high involvement of top management.

Rapid growth: Any organisation operating in an environment of rapid growth will look to capture a large share of business. This obviously translates into a key strategic challenge — talent acquisition and development.

In such a scenario, talent strategy is not so much focused on differentiation, as in a downturn/low growth situation, but on the speed of ramp-up for building employee numbers, their skill development and retention across levels.

Rewards and benefits are liberal and aimed at retaining a large mass of the employee base to maintain high productivity levels and build capacity. High degree of delegation for decision-making is dispersed across the management hierarchy to provide control and authority at key positions in the organisation to facilitate quick turnarounds.

ROTE is enhanced through improved skill base availability, development of skills in line with business requirements, and building and maintaining talent capacity. Hence, the talent strategy and initiatives are geared towards enabling the firm to successfully meet growth targets.

Global expansion: As organisations grow and evolve, they are likely to look at global expansion for higher growth. In such a scenario, strategic objectives change dramatically. This necessitates the redesign of the organisation structure and roles and also needs a drastic shift in talent strategy.

The talent strategy in such a scenario is focused on shifting from known practices to redefining talent practices to make them relevant to a global, geographically dispersed entity. Hence, it will focus on redefining recruitment practices to successfully recruit in new geographies, establishing a new employment brand and company identity, adoption of global practices, global standardisation of policies and practices and compliance. These become the key areas to improve ROTE in an international, multicultural context.

Formulating a talent strategy

A structured and sound methodology to formulate and deploy a talent strategy is described in figure 2. The initial phase is primarily to understand the strategic objectives and ensure that there is an appropriate organisation structure, with clearly-defined roles, to support the achievement of company goals.

This is followed by an assessment of the processes in each link of the talent value chain. During this phase, a company may discover a complete absence of a process or gaps in the processes. These constitute the areas of improvement or new initiatives which are necessary to achieve company objectives.

These improvement areas/new initiatives are then prioritised depending on the strategic challenges and goals of the company and the presence of supporting systems/processes. This leads to a talent strategy defining specific steps or initiatives along each link of the talent value chain (talent levers). Based on this, a detailed implementation schedule can be developed with specific initiatives and timelines.

This approach, while simple and easily implementable, can provide disproportionate returns on talent employed. It provides a framework that can be used to ensure that an organisation’s talent is aligned towards achieving its strategic objectives. With such alignment, companies can maximise their ROTE in any industry or economic scenario and gain an advantage over their competitors.

Reference: Business Standard ( Article by: Sona Rajesh & Amit Bajpayee)


Jennifer said...

As organizations make multiple investments in acquiring and utilizing its talent effectively, it is very important to take into account the deployment of talent .

Professional Consultant said...

Thanks a ton dear Jennifer.

I want to make this blog a success ans would require help to do so.

The idea of running this online forum is to make it a ready reference for its followers for the long time.

Please suggest some topics for discussion.


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