The level of investment in Human Capital is a decision that business leaders regularly confront. This expenditure can be in the form of the number of people; the way they are paid and rewarded; what training and development is provided; and how the organisation is structured. Additionally, there is a range of related measures that drives effectiveness and efficiency of people in your company.

Business leaders are often tempted to use these investments as a tap, to be turned on and off depending on the current business climate and performance. After all, with competing needs for limited resources, human capital related changes are often easiest to implement and have a fast and visible result. But what is the long term cost of this inconsistent approach? Do we know the real impact on revenue and profit? And is there a way to prioritise our human capital expenditure in areas that will have the biggest return?

I am grateful to my former colleague Gavin Pommernelle[i], A South African human resources expert, for bringing to my attention a recent study by The Boston Consulting Group and the World Federation of People Management Associations (WFPMA) which demonstrated the relationship between people management capabilities and financial performance.[ii]  They surveyed 4,288 HR and non-HR managers on their current HR capabilities and challenges, the strategies and approaches they use to address these challenges, and the difficulties they foresee in attracting, managing, and developing people. The study found that the share price of the Fortune’s “100 Best Companies to Work For” outperformed the S&P 500 group of companies by 99% over a ten-year period.

Companies rated high on a series of talent management practices achieved up to:

·         3.5 times revenue growth

·         2.1 times the average profit margin

Out of twenty-two talent management practice areas, the top six were found to be:

Within these top practice areas, specific actions were identified as being more common in high-performing companies. They included:

·         The existence of a leadership model and the use of it to make promotion decisions

·         Leaders’ reward and careers dependent on their people development efforts

·         Programmes for high potentials and for developing emerging talent

·         Retention driven through personal development opportunities

·         Global standards applied in performance management

However, Gavin believes, based on his experience, that the existence of these alone will not achieve the results seen in high performing companies. The way actions are designed and implemented, he goes on to say, is equally critical if we are to ensure that they become part of the DNA of a company and not simply another initiative from HR.  I don’t think the study is saying that these were the only talent management practices found in high performing companies, just that they were the top six out of twenty-two. But where Gavin makes a fair point is that it is essential to ensure that your talent approach is an integral part of your business strategy. His company, TalentDrivenValue conducted another piece of global research on Talent Management Needs.  A key finding was that as many as 75% of respondents reported that their talent plans were not aligned to the business needs.

Such companies are missing out on a huge business opportunity to deliver exceptional financial performance on a sustained basis, by linking their talent efforts to their overall strategy. How can business leaders make this connection?

Gavin comes up with three points in answer.

1.       Have a framework to assess talent priorities

By having a company-wide, consistent framework, you will be able to make better informed and objective decisions. This leads to an organisational capability in decision making that considers both the factual aspects as well as the emotional drivers of performance. Although there are common areas within most talent frameworks, each company will have variations that reflect their market and industry.

2.       Apply the talent framework as part of your strategy discussions

As you evaluate each option and opportunity in the strategy discussion, apply the talent framework to understand the talent needs and implications of each.

3.       Make investment decisions with these priorities in mind

Having made your strategy decisions, with a clear understanding of the needs to enable these, you now decide on the investments to support these enablers. Talent is only one part of the investment decision. You will not be able to implement or invest in all your talent needs. The framework that you have applied will help you prioritise which ones will be most effective in reaching your strategic goals and have the highest return.

A business strategy that only considers talent implications once it has been defined is not a strategy. It’s simply wishful thinking. The connection must be made as a part of the business strategy, thus creating the ability to execute it, resulting in leading revenue and profit benefits over a sustained period.

The emphasis in much of corporate America on the bottom line at the expense of much else can lead to poor management. Consider the following real life examples of life imitating the art of Dilbert, a marvellous series of cartoons by Scott Adams satirising the management world:

Now go act busy for a few weeks and I'll let you know when it's time to tell them."
                      (R&D supervisor, Minnesota Mining and Manufacturing/3M Corp.)

Quote from the Boss: "Teamwork is a lot of people doing what I say."

                                                                        (Marketing executive, Citrix Corporation)

My sister passed away and her funeral was scheduled for Monday.
When I told my Boss, he said she died on purpose so that I would have to miss work on the busiest day of the year.  He then asked if we could change her burial to Friday.  He said, "That would be better for me”.
                                                                                                    Shipping executive, FTD Florists

"We know that communication is a problem, but the company is not goingto discuss it with the employees."
                                (Switching supervisor, AT&T Long Lines Division)  

Note that this list includes some of America’s finest companies proving that bad management can be found anywhere.