Category Archives: Boston Consulting Group

Improve Corporate Performance: Invest in Leadership/Talent Development

data point tuesday_500The relationship between talent and financial performance has been an “intuitive” given to enlightened leaders for a long time.

“Top executives intuitively understand that they cannot win without the right people and the right skills.”

Thanks to recent work by Boston Consulting Group (BCG) it’s no longer intuitive. The data are in and they are convincing. BCG fielded its Global Leadership and Talent Index survey of 1,263 CEOs and HR directors of global companies in 85 countries. The results are compelling to say the least.

The high level findings include:

  • Leadership and talent management capabilities have a surprisingly strong correlation with financial performance. “Talent Magnets” – those companies that rated themselves strongest on 20 leadership and talent management capabilities – increased their revenues 2.2 times as fast and their profits 1.5 times afast than “talent laggards,” or those companies that rated themselves the weakest.
  • The performance spread on leadership and talent management capabilities was wide. The talent magnets had an average capability score of 2.5 (on a scale of -3 to 3), while the talent laggards had an average score of -2.2.
  • Companies – even talent laggards – that move up just one level will experience a distinct, measurable, and meaningful business performance return.

With organizations spending an estimated $40 Billion (yes, Billion!) worldwide on leadership and talent development, these findings may enable leaders all over the world to re-orient their priorities, investmemts and behavior on talent/leadership development and gain the critical involvement and support with all the members of the C-suite.

Through their research BCG divided leadership/talent management capabilities into six categories:

  • Strategy
  • Leadership and talent model
  • Talent sourcing
  • People development
  • Engagement
  • Culture

And it’s interesting to note their definitions require a great deal of accountability from leaders. This is a differentiated approach and one that should spur some thoughtful analysis by HR leaders. The chart below lays out the performance differences between the lowest organization performers – Talent Laggards and the highest organization performers – Talent Magnets and the average performers in between.

BCG May 5 2015 3Interesting, yes? What’s even more interesting, then, are the data connecting these leadership/talent management performance levels with business outcomes. Take a look:

BCG May 5 2015 2In addition to proving the real correlation between leadership/talent management performance and financial performance, a valuable take away from this data is BCG’s conclusion that

“The companies that excel at leadership and talent management have figured out how to involve their leaders, not just the HR team, meaningfully and regularly in people development. “

The one-two punch of investment in leadership/talent development and significant accountability of senior leaders should help HR leaders around the world create successful business cases for moving leadership/talent development investments forward. Let’s get ready to rumble…

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Filed under Boston Consulting Group, China Gorman, Data Point Tuesday, HR Analytics, HR Data, Leadership Development, Talent development

Which Comes First, Economic Performance or Best in Class HR?

Data Point Tuesday

The Boston Consulting Group recently released the eighth report in their Creating People Advantage series. This year’s survey report, “Creating People Advantage 2014-2015: How To Set Up Great HR Functions: Connect, Prioritize, Impact” included responses from 3,507 people in 101 countries across industries such as industrial goods, consumer goods, and the public sector. 64 HR and non-HR executives from leading companies across the world were also surveyed. The result was a report that explores key trends in people management by considering 10 broad HR topics and 27 subtopics. Key findings from the report included the following:

  • HR capabilities correlate with economic performance
  • Analytics and key performance indicators (KPI’s) give HR a seat at the table
  • KPI’s should link to strategic action
  • Globally, leadership and talent management topics are reported as in most need of urgent action
  • HR departments must be more consistent with investment decisions
  • HR needs to listen more to internal clients

HR topics ranked by urgencyAn important central finding of BCG’s survey was the correlation between HR capabilities and financial performance. BCG isolated the top 100 and bottom 100 companies based on financial performance and found that organizations stronger in people management have respectively higher financial performance than those organizations without strong people management. Among these high performers no HR subtopic was reported as in need of urgent action, which directly contrasts with the organizations with the worst financial performance, which reported need for urgent action across nearly all 27 HR subtopics. BCG points out that this has been a consistent finding among their past reports as well as in publically available research, referencing the share prices over the last decade of publicly listed companies that have made the FORTUNE 100 Best Companies to Work For List, produced by Great Place to Work. The most successful people companies regularly outperform the market by nearly 100%. One offered explanation for the superior HR achievement of high performers is their strategic allocation of investment. BCG’s report found that high performers strategically allocate their efforts, making sure to accurately distinguish between high and low priorities and distributing resources accordingly. Low performing organizations had a more unreasoned approach to allocating importance and often-misaligned investments, with the level of importance not necessarily correlating to their biggest areas of investment. Organizations should make sure they have a process in place to clearly identify HR subtopics/people management practices that are most important to their organization.investment methods

HR leaders looking to have “a seat at the table” for strategic discussions within their organizations must demonstrate the business impact of HR, providing executive management with quantitative evidence of how HR supports business strategic decisions. BCG’s research finds that organizations using people-related Key Performance Indicators, or tools such as simulations and forecasts, have greater strategic roles in their organization than companies that don’t utilize such tools. Such tools allow HR functions to measure and analyze areas such as employee productivity and people costs. High Performing Companies Data Driven

Simply put, HR functions that do not use metrics and analytics cannot play a strategic role in their organization, and furthermore, perpetuate the stereotype that HR functions should, or are better suited to work with, softer aspects of human capital management.

BCG looked at responding organizations’ perceived importance of 27 HR subtopics by region and industry, using an urgency metric to better understand those with the most need for action. In the majority of countries leadership was ranked (by a wide margin) as the most urgent subtopic, followed by talent management. Beyond these two subtopics, importance varied considerably by region. In the U.S, behavior and culture, along with employee engagement, ranked as more urgent than in most other countries. When breaking subtopics down by industry importance, the results were similar, with leadership, talent management, and behavior and culture ranking as most urgent across the majority of industries.

Differnces in Urgency by Country Ultimately, BCG’s report highlights three hallmarks of a great HR function that prove as critical differentiators between high and low performing organizations:

  • Connect – clearly linking HR and people strategies with business strategy
  • Prioritize – identify most urgent priorities and invest resources accordingly
  • Impact – generate and report people-based KPI’s, providing data to formulate strategic actions

Organizations that can collectively institute all three ideas create HR functions that we can describe as “best in class.” The real question to be answered, though, is “which comes first, best in class HR or strong economic performance?” If you’re in HR, I know what I hope your answer is!

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Filed under Boston Consulting Group, China Gorman, Creating People Advantage, Data Point Tuesday, HR, People Management, Talent Management

Is Talentism the New Capitalism?

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“Is talentism the new capitalism?”

Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, thinks so and said as much as he opened this year’s event in Davos.

Mercer chose this quote to open the executive summary of its new report, Talent Rising:  High-impact Accelerators to Global Growth. It includes some great survey data from more than 1,250 HR and talent management executives in 65 countries around the world. It includes important and useful data about how organizations are or are not expanding their definition of capital to include talent.

Forever, it seems, organizations’ primary sources of value and competitive advantage have been financial in nature:  money, lands, buildings and machines – all the values carried on the balance sheet. Mercer’s observation that with human capital being the main determinant of success today, it is troubling that so many organizations leave the development of their talent “largely to external systems and forces, with resulting gaps in their talent portfolios.”

(One could also position that if, indeed, human capital is the main determinant of organization success today, then there should be an entry on the balance sheet to capture its importance. But that’s for another day.)

This report is a huge call to action – not just for HR, but for the entire C-suite. And it is a great roadmap for HR to initiate the discussion of talent as capital.

Central to this discussion is the definition of strategic workforce planning. We hear about this all the time in HR. And BCG, funded by the World Federation of Personnel Management Associations together with SHRM, has observed that there is low current capability worldwide in strategic workforce planning. Perhaps that’s because we know it when we see it, but we can’t really define it.

Mercer’s done a great job of defining strategic workforce planning and published a great infographic along with the Talent Rising executive summary.

Mercer Strategic Workforce Planning Infographic

This 7 step virtuous circle seems simple enough, but I think we all know that sometimes the most simple things are the hardest to achieve. And that certainly would be true for strategic workforce planning. Identifying accelerators on which to focus might help organizations begin to break the process down into manageable chunks.  Just knowing where to begin will undoubtedly help some make progress.

“Talentism is the new capitalism.” Well, maybe in 5-10 years. When HR is seen as a business function and not an overhead function.  And human capital is valued on the balance sheet.

We can dream, can’t we?

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Filed under Boston Consulting Group, C-suite, CEOs, China Gorman, Connecting Dots, HR Credibility, Human Capital, Mercer, SHRM, Strategic Workforce Planning, Talentism, World Economic Forum

ROI of People Focused Organizations

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The holy grail in HR is providing hard, compelling data-based evidence for the ROI of investing in people.  With this data, HR is in the strategic driver’s seat of the budgeting process.  Without this data, HR is resigned to the furniture conversation.

Want some new people investment ROI data from a source that even your CEO would pay attention to?  How about The Boston Consulting Group (BCG)?  They’re a big time global business strategy consulting firm that your CEO respects.

For the third time since 2008, BCG has partnered with the World Federation of People Management Associations (WFPMA) to publish its Creating People Advantage report.  The most current, published in October, is Creating People Advantage 2012: Mastering HR Challenges in a Two-Speed World.

The findings are the result of BCG’s analysis of responses to an online survey that polled 4,288 executives from companies throughout  a number of industries, 102 countries, and six major global regions.  Additionally, 63 HR and other executives from high profile companies all around the world were interviewed.  The survey and interviews covered 22 HR topics and the report includes interesting case studies from companies like L’Oreal, Samsung, and Daimler Trucks.

It’s a fascinating – and very readable – report and the findings won’t surprise you.  In fact, the top three critical topics for HR leaders around the world remained the same as in BCG’s 2010 global survey:

  • Managing talent
  • Improving leadership development
  • Strategic workforce planning

The data are compelling and the comparisons between countries and regions of the world really are interesting.

The big bonus, though, is the report that is appended at the conclusion, From Capability to Profitability: Realizing the Value of People Management. It’s loaded with economic data that compares the HR practices of high-performing companies against those of lower-performing ones in critical areas, including talent management, leadership development, and performance management and rewards.

The bottom line is that companies that demonstrated proficiency in the 22 key HR areas experienced revenue growth that was up to 3.5 times higher and profit margins that were 2.1 times higher than those of less capable companies.  And guess what those increases did to their share prices?

BCG 2012 People Companies Outperform the Market Average

Think your CEO and CFO are interested in higher revenue and profit growth rates?  Think the board might be interested in higher share price growth rates?  Think they might be willing to invest in practices that would accomplish those outcomes?  Yep, me too.

The budget season has long passed, and you’re locked in to the 2013 operating plan.  But take a look at the 22 key HR practices in your organization that this report covers and start a file that will hold the data to build the people investment plan for 2014. It takes some time to gather the foundational data to build your investment business cases.

Start now.  Start tracking the data.  Start setting the benchmarks. Start thinking in business cases.

And quit talking about furniture.

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Filed under Boston Consulting Group, Business Case, CEOs, China Gorman, Connecting Dots, HR, HR Data, Human Capital ROI, ROI, WFPMA