Companies Can Improve Earnings Nearly 15% By Improving Talent
Management Function
By excelling in talent management, the average Fortune 500
company can generate a nearly 15% improvement in Earnings
Before Interest, Depreciation, and Amortization (EBITDA),
netting almost $400 million annually, according to new Book
of Numbers™ research from The Hackett Group, a strategic
advisory firm and an Answerthink company.
Hackett's research demonstrates the bottom line impact of
more effectively managing human assets, and provides strong
evidence to executives, investors, and HR leadership of the
value of developing intangible assets such as a company's
workforce. The research also provides HR organizations with
a new way to demonstrate the effect of their efforts on productivity,
customer satisfaction, and employee commitment, and by extension,
on sales, profits, and shareholder value.
"Certainly it makes intuitive sense that attracting,
developing, and retaining a talented workforce can enhance
a company's performance. But like many areas of HR, it's been
exceptionally difficult to measure the real impact of improvements,"
said Hackett Chief Research Officer Michel Janssen. "Achieving
excellence in talent management is not something that happens
overnight, since changing how a company strategically addresses
talent takes time and often requires a real cultural shift.
But Hackett's research for the first time quantifies the potential
returns, and demonstrates why talent management is a worthwhile
investment."
According to Hackett HR Practice Leader Stephen Joyce, "The
best companies treat employees the same way they treat their
business lines, as something to be carefully analyzed and
strategically developed in support of their business goals.
They determine the skills, competencies, and experiences needed
to run their company over the next few years, quantify the
gap between their needs and their current resources, then
acquire the expertise they need through a combination of staff
development and hiring. As a result, they are more competitive
in the marketplace, and this is reflected in improved earnings."
Hackett's analysis, which is being issued as part of its new
Book of Numbers research volume "Talent Management: Buzzword
or Holy Grail?", was based on the results from more than
125 comprehensive Human Resources benchmarks performed by
the firm over the past three years. Using Hackett's proprietary
methodology for determining top performers, metrics were chosen
to reflect a balance between talent management efficiency
and effectiveness.
Hackett's research found a strong correlation between improved
financial performance and top-quartile performance in four
key talent management areas: strategic workforce planning,
which involves identifying the skills critical to a company's
operation and how those needs match up against those of the
existing workforce; staffing services, including recruitment,
staffing, and exit management; workforce development services
such as training and career planning; and overall organizational
effectiveness, including labor and employee relations, performance
management, and organizational design and measurement.
Companies with top-quartile talent management outperformed
typical companies across four standard financial metrics.
They generated EBITDA of 16.2%, versus 14.1% for typical companies.
This gap netted a typical Fortune 500 company (based on $19
billion revenue) an additional $399 million annually in improved
EBITDA. On average, top talent management performers also
generated $247 million annually via a 22% improvement in net
profit margin, $992 million annually through a 49% improvement
in return on assets, and $340 million annually via 27% improvement
in return on equity.
Hackett's research also found that top performers in talent
management operate very differently than their peers. They
spend 6% less on HR overall than typical companies, driven
by dramatically lower costs in key areas such as total rewards
administration, payroll, and data management and also lower
employee lifecycle costs. These savings enable them to invest
more in talent management processes. Top performers in talent
management are also 57% more likely than their peers to have
a formal HR strategic plan in place, more than twice as likely
to facilitate strategic workforce planning discussions with
senior management, and 50% more likely to link their learning
and development strategy to their company's strategic plan.
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