Human Resource

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JWI 522 (1192) Page 1 of 5

JWI 522 Strategic Partnering with the C-Suite

Week 4 Lecture Notes

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JWI 522 (1192) Page 2 of 5

THE SCORECARD OF TALENT MANAGEMENT

What It Means Are your talent management practices making the company more profitable? How do you know? If you were asked to defend the return on investment for your HR departments, would you be able to do so in quantifiable terms that your CEO and CFO would find convincing? Far too many HR professionals can't. Not being able to "speak with data" is a sure way to keep HR out of the inner circle. Why It Matters

• It clarifies how effective people management practices increase competitive advantage.

• Having agreed-upon metrics helps everyone get on the same page in evaluating the focus and efficacy of talent management efforts.

• It transforms the image of HR to a financial contributor rather than a cost center.

“Make talent management as rigorous as financial management

Bill Conaty

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JWI 522 (1192) Page 3 of 5

DEMONSTRATING THE ROI OF TALENT DEVELOPMENT

It’s not enough that your HR department generates great results; the value of what you do must be understood. This may sound a little self-serving, but we assure you, it’s not. If the CEO and senior-level business leaders do not recognize the source of the contribution to the organization, they won’t know where to invest appropriately to get the results they need. As an HR professional, you must be able to explain accurately and concisely what you and your team are doing to impact the bottom line. Many business managers have no real idea what the return on their investment in their people is. Why not? The simplest answer is they don’t ask the right questions. They don’t ask questions about the real costs of a bad hire, or what the impact of an inefficient performance review process is, or how paying big bucks for a rock star performer could generate returns greater than those generated by workers earning average salaries and delivering average work. McCord cautions against such commoditization of people and roles.

"We have plentiful resources to tap for salary information from a range of industry surveys, which cover every domain and offer an elaborate breakdown of levels. They're amazingly sophisticated. But the issue is that jobs are not widgets, and neither are people. Any role you need filled is likely specialized in ways that the survey job descriptions cannot possibly truly account for. Meanwhile, any potential recruit may have skills that can't possibly be measured by surveys, like good judgment and collaborative prowess."

Powerful, P. 111 HR can help business leaders reassess the way they approach hiring, and how they evaluate the return on the investment in their people, by helping them track the real costs and benefits that are often hidden in operating budgets. They can also encourage hiring managers and finance people to think about the big picture impact or great hires.

“Consider not only what you can afford given your current business but also what you will be able to afford given the additional revenue a new hire might enable you to bring in.”

Powerful, P. 122

TALENT MANAGEMENT AND PROFITABILITY While the return generated by a top performer is worth several times the return on a mediocre employee, on the other end of the spectrum, the cost of a bad hire can be triple that person’s salary when you factor in expenses like the additional performance coaching needed, the impact on other members of the team and on the output of work, and, of course, the costs associated with terminating and replacing that employee.

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JWI 522 (1192) Page 4 of 5

Organizations can dramatically improve their performance by understanding the impact of sound talent management practices, and by leveraging the data that people analytics provides to build a competitive advantage through better hiring and talent management practices. As McCord puts it, “Building the muscle to hire great people is a huge competitive advantage.” (Powerful, P. 74) The best HR leaders will be those who approach human resources not as a bureaucratic undertaking, but as a strategic driver of competitive advantage.

“The most competitive companies are able to stay limber, always innovating and growing, largely because they are always proactively bringing in the new talent they need. The best employees are always looking for challenging new opportunities, and though they are usually intensely loyal, many of them will eventually seek those opportunities elsewhere. You can never know when they might decide to make a move, and often there is nothing you’ll be able to do to stop them.”

Powerful, P. 91

THE SCORECARD OF TALENT MANAGEMENT So, how should we keep score of our talent management practices? How should the CEO, CFO, and CHRO evaluate the effectiveness of the HR department in adding value to the organization? Imagine if you could track and explain how your team generated many multiples of what it costs the company in salaries and overhead. How would that change the picture of HR? In developing a scorecard for your organization, consider the practices presented in our course readings, but don’t limit yourself to these. As Jack advises, look everywhere for great ideas, including organizations that are outside of your industry. But, perhaps most importantly, don’t attempt to develop a scorecard in isolation. Armed with a few basic questions, you can begin the dialog with hiring managers and operators (a topic of our discussions over the next two weeks) to identify the Key Performance Indicators (KPIs) that matter most, such as…

• What would happen to your bottom line if your team outperformed by 20%? • How would productivity be improved if we could reduce the hiring time from 6 weeks to 2 weeks? • What HR practices consume most of your time? What would happen if we could get these off

your plate, or reduced by half? • If we could get 75% of your department performing as well as the top 10%, what would that do for

profitability? One final thought is that, while retention is a common metric, McCord is not a big fan:

“… retention is not a good metric by which to evaluate your team building success or whether you’ve created a great culture. The measure should be not simply how many people you are keeping but how many great people you have with the skills and experience you need. How many of them are you keeping? How many new people with skills and experience you need are you hiring? You also want to closely monitor how rigorously you are evaluating whom you need to replace and how efficiently you’re acting on that determination.”

Powerful, P. 93

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JWI 522 (1192) Page 5 of 5

GETTING THE MOST OUT OF THIS WEEK’S CLASS As you read the materials and participate in class activities, stay focused on the key learning outcomes for the week:

• Explore the relationship between talent management and profitability There are plenty of resources that address the financial impact of hiring, onboarding, and attrition. It is helpful to look at these and share them with the executive team, but don’t stop at generalized numbers. The most impactful action you can take is to gather and analyze that data from your own organization. Sit with your managers and go over the numbers to answer questions like:

o What is the ROI for each worker? o What does the hiring process really cost? o How much more are your top performers worth than your average performers? o What are your competitors paying? o Would you be better off paying more money for a few top performers, or less money for

more average performers? o If we got a top performer, how do we make sure we create a team that they want to stay

on for as long as we want to have them? Remember, we are building a team, not a family. o What is the right relationship between bonuses and performance?

• Identify ways to assess the ROI of the HR function Want to get the attention of the CEO? Turn your department into a money maker. HR has the potential to do exactly that if – and only if – it can document and demonstrate what it does. Dig into your own organization’s data. What is HR’s real impact on your company and on the bottom line? Talk to some finance people in your company. Ask them how they calculate IRR. Go back and read your notes and materials from your JWMI finance course. Work with managers and have them evaluate the return with you. You’re not in this alone.

• Strengthen the role of HR as a driver of the financial success of the organization You have to speak with data in a way that those “business types” understand. The evidence is clear that the best performing employees are able to deliver many times what they cost the company, and this is certainly also true of the best HR departments. But you can’t change the perception of HR from that of a cost center to a profit driver unless you make the connection between what you do and what the financial results. Be a part of strategy meetings and make sure that the ROI of talent management is included in the analysis of the business’s financials.