Fifteen years ago, we began amassing a database of corporate performance metrics, examining year-by-year results of every company that had ever been in the Fortune 100 and similar-size companies outside the US.
Our analysis of the data unearthed some interesting findings, which we first published in the acclaimed book “Stall Points“.
We learned that 87% of the largest companies stumble on their growth, often irrecoverably.
As surprising as the prevalence of “corporate stalls” was–after all, these are some of the world’s largest and best resourced companies–the data pointed to an even bigger surprise.
Nearly 90% of these corporate stumbles were not due to so-called acts of God or remarkably innovative disruptions, but to prosaic management missteps; often as the result of placing the wrong employees in key roles or providing the right employees with insufficient support.
These talent mistakes came in many flavors: succession decisions, management misalignment, and deployment of people with the wrong skills and experience, ranging in any role from animators to salespeople. However, nearly every stalled company that we assessed had a critical talent gap in either the executive team or in a team or area of the organization that was critical to implementing corporate strategy.
Talent Decisions and Harry Potter
Every year we address a broader array of strategic challenges on behalf of 10,000 companies on six continents. Yet no matter the topic, decisions about “people” sit at the centre. In the corporate stories of our time, talent is central to every plot, like a Voldemort versus Harry Potter confrontation in one of JK Rowling’s bestsellers.
While needing the right people to achieve corporate goals isn’t new, we have seen CEOs and boards take a much greater interest in talent matters recently for three good reasons:
The nature of work has fundamentally changed; employees must have new skills and competencies for businesses to thrive. These include the ability to interpret vast new volumes of data (a flow that doubles every 30 months), and the ability to collaborate across units, functions and geographies.
Advances in behavioural science, workflow automation, outcome measurement and analytics offer the promise of tools that enable better talent decisions, making it easier for the executive team to find, develop, organize and retain critical talent.
With the majority of HR heads reporting real pressure from corporate boards on issues as varied as management succession, diversity and critical talent retention, there is increasing, if unsurprising, demand from directors to understand talent strategy.
The productivity gains from finding, hiring, developing and managing the best talent are huge. And, as we learned from historical data on corporate performance, the risks of failing are even bigger.
Data Improves Talent Management
Senior executive teams should evaluate their existing workforce and identify gaps in the talent pool, as well as assess likely future requirements. Managers must ask themselves two critical questions:
- Can we achieve our business goals with our current staff and capabilities?
- Is our existing talent base ready to become our next generation of leaders?
For those in HR and talent management, these are particularly timely questions made more challenging by an absence of reliable data. Despite significant investments in “big data” tools, HR leaders are still not able to generate insight and information for business partners that are deemed trustworthy or useful to their talent decision-making processes. Even where data exists, many organizations either fail to use tools effectively or don’t use them at all. CEB data shows approximately 75% of staff decisions are still based on “gut feeling”.
It is critical that HR managers and senior executives realize the benefits of using HR data effectively. Managers with a good understanding of the data and how to apply it in their business can expect to see a 6% improvement in gross profit margin, which translates into an $18.9-million saving for every $1 billion in revenue, according to CEB’s research.
Nevertheless, only 44% of HR professionals use objective data to make talent decisions, while just 24% feel they understand the potential of their workforce. Only 41% use assessments to identify high-potential employees – an area in obvious need of improvement given companies’ remit to generate maximum productivity from their workforce.
Encouragingly, though, there is a widespread recognition of the need to improve. Some 74% of organizations say they want to improve their talent management capabilities, while 95% of senior HR leaders intend to increase investments in data over the next two years. This is all well and good but there is a danger that managers will simply feel the need to increase the amount of analysis they do on their data or, worse, spend more on technology. Both these elements are important but not nearly as important as working on ways to use that data to understand a firm’s employees and how their collective skills and experience can be used to implement corporate strategy.
Whether drawing up the next strategic plan, working out how to implement it, or asking questions about shortfalls in current corporate performance, increasing numbers of senior managers are clear: it’s about people.
Content from this post originally appeared in a supplement of The Times newspaper on talent management, which includes more detail on the research of CEB and other firms into talent management.