Why Talent Management is important

Talent Management has broadly existed in various forms for many years with organisations using such processes as succession planning and competency frameworks to identify and develop their high potential performers.

The term itself was coined in the late 1990s, gaining particular momentum as firms tuned into the fact that having a consistent and focused approach to managing intellectual capital within the organisation would have a positive impact on the business.

Since then White Papers, surveys, reports and articles on the subject abound, each with perhaps a slightly different definition of talent management and each taking their own angle, but all with the same consistent message: there are clear bottom-line benefits to having an effective, integrated talent management strategy which is underpinned by the broader business imperatives and this enables current and future success.

Various studies have focused on these business benefits and the role of talent management practices and, with the EU backing a legislative initiative to improve the gender balance in the boards of companies listed on stock exchanges, there is a further argument for having a more inclusive and targeted approach to talent management.

• Huselid and Becker (1995) researched the HR practices of 740 companies and found that those using High Performance Work Systems (HPWS) or integrated talent management practices had significantly higher levels of organisational performance, measured by an increase in market value per employee.
• Watson Wyatt’s European Human Capital Index study in 2002 suggested that there were 36 HR practices and policies which were associated with an almost 90% increase in shareholder value.
• The Institute of Work at Sheffield University conducted a study on manufacturing companies in 2001.  Its research demonstrated that people management practices were a better predictor of company performance (productivity and profitability) than strategy, technology or research and development, accounting for 20% of the variation in the financial performance indicators.
• Ernst & Young in its report titled Managing Today's Global Workforce: Elevating Talent Management to Improve Business found that those companies which effectively manage talent consistently, deliver higher shareholder value. They analysed results from a survey of 340 senior executives conducted in 2009 to assess global talent management practices and evaluate their impact on business.  It was found that companies which align talent management with business strategy deliver, on average, 20% higher return on equity than those without alignment; those that integrated their talent management programmes delivered 38% greater returns.

Another strong argument for investing in a coherent talent management strategy is engagement.

There is a growing wealth of data which suggests that an engaged workforce leads to a range of organisational performance benefits.  For instance, the 2009 MacLeod report to Government cited a number of correlates of high engagement levels, many which have been reported by the poll experts Gallup in its studies of engagement. Among its findings:

• In organisations with strong talent and engagement practices, more employees were likely to recommend the company to others, with 67% of employees in organisations who had strong Talent Management practices advocating their company versus only 33% of employees in the organisations which did not.
• When comparing business units, those with engagement scores in the bottom quartile averaged 31 – 51% more employee turnover, 51% more inventory shrinkage and 62% more accidents than those in the top quartile.  Looking at the same business units, those with engagement scores in the top quartile averaged 18% higher productivity and 12% higher profitability.
• In a study on the earnings per share (EPS) growth of 89 organisations, they found that the EPS growth rate of organisations with engagement scores in the top quartile was 2.6 times that of organisations with below-average engagement scores.

Engagement is now understood to be a major driver of individual and organisational performance, and has therefore become a management imperative and an important aspect of talent management.

An effective talent management strategy will ensure that critical roles are understood and that key people and your stars of tomorrow are identified, managed appropriately through the organisation, engaged, motivated, empowered and retained.

For more about developing a Talent Management Strategy, why not read our series of White Papers, Developing your Talent Management strategy.