Talent Management in the Corporate Sector
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Published: Thu, 22 Feb 2018
A Talent Management
Talent management is the process that emerged in 1990 and continues to be adopted, as more companies came to realize that their employees’ talent, skills drive their business success. Companies that have put into practice talent management have done so to solve an employee retention problem. The issue with many companies today is that many organizations put tremendous effort into attracting employees to their company, but spend little time into retaining and developing talent. A talent management system must be worked into the business strategy and implemented in daily processes throughout the company as a whole. It cannot be left solely to the human resources department to attract and retain employees, but rather must be practiced at all levels of the organization. The business strategy must include responsibilities for line managers to develop the skills of their immediate subordinates. Divisions within the company should be openly sharing information with other departments in order for employees to gain knowledge of the overall organizational objectives.
Talent management refers to the process of developing and integrating new workers, developing and retaining current workers, and attracting highly skilled workers to work for your company. Talent management in this context does not refer to the management of entertainers. The term was coined by David Watkins of Softscape published in an article in 1998. The process of attracting and retaining profitable employees, as it is increasingly more competitive between firms and of strategic importance, has come to be known as “the war for talent.”
IMPORTANCE OF TALENT MANAGEMENT IN US CORPORATE SECTOR
US sector always want to grow and improve their system and processes must focus on people practices that allow or foster their growth and improvement. The best practices are known. The key variables (leadership competencies, experience and skill, interest rewards) that motivate people to succeed have been identified and successfully put into practice. Talent Management is no loger a cutting-edge field being solely tapped by pioneers. It is a viable path towards and improving organizational performance.
Integrated, strategically aligned human capital asset management systems have provided significant economic benefits to companies that have embraced them as ongoing processes instead of one-time events. Research done on the value of such systems to companies consistently finds benefits in these seven critical economic areas: revenue, customer satisfaction, quality, productivity, cost, cycle time, and market capitalization. This research clearly shows that adopting and investing in best-practice talent management systems results in bottom-line improvement in each of these key areas:-
1) Increase Revenue
It was initially thought that companies that make more money were associated with better talent management practices only because they could afford them (.19 correlation), but the 2001 Watson Wyatt Human Capital Index Study showed that talent management practices actually increase financial performance (.41 correlation).
According to Watson Wyatt’s research 15% of profit performance is driven by:
- Management participation
- Open management style
- Taking some risks, but not too many
- Top managers spending 20% of time with customers
- Around 20% of top management should be outsiders
- Management training is deemed important
- Top managers are effectively incentivized
- Succession planning is done
- A good appraisal system is in place
- Employees get feedback
In addition to supporting Becker and Huselid’s 1998 results, the 2001 Watson Wyatt Human Capital Index study showed precisely which HR practices have an impact on the bottom line. 49 specific HR practices across 6 dimensions played the greatest role in creating shareholder value. The research quantified exactly how much an improvement in each practice could be expected to increase a company’s market value. For example, a company that makes a significant improvement (one standard deviation) in all of the practices categorized under “Total Rewards and Accountability” should see its value improve by 16.5 percent, and a significant improvement in 43 key HR practices is associated with an increase of 47 percent in market value. Results included:
- 16.5% impact on company market value from total rewards and accountability
- 9% impact from a collegial, flexible workplace
- 7.9% impact from recruiting and retention excellence
- 7.1% impact from the integrity of communications
- 6.5% impact from the implementation of focused HR service technologies
- 33.9% loss from non-prudent use of resources
Careful inspection of all the data shows that for every available correlation calculated over time, the relationship between past HR practices and future financial performance is stronger than the relationship between past financial outcomes and future HR practices. This is the first study to show that HR practices actually increase financial performance (.41 correlation) instead of inferring that companies that make more money can afford better HR practices (.19 correlation).
Given companies of comparable size, those who’s CEOs exhibited more emotional intelligence competencies showed better financial results as measured by both profit and growth.
The divisions of leaders with a critical mass of strengths in emotional intelligence competencies outperformed revenue targets by a margin of 15-20 percent.
2) Customer Satisfaction
Knowing and using the critical competencies associated with success creates results.
The 1998 Watson Wyatt study, Competencies and the Competitive Edge, showed that when an organization identifies and communicates the core competencies that it needs to be successful in the present and the future, it has developed a powerful tool to help meet its goals. Competencies define and communicate an organization’s strategy and help employees to understand that strategy and achieve its goals. The many roles that competencies can play in an organization include:
- Articulating what the organization values
- Providing a common language for employees and managers to describe value creation
- Establishing a new paradigm for human capital management programs (organizational levers)
- Focusing on the development of the individual instead of an organizational structure
- Linking pay, promotions and growth directly to what the organization values to be successful
- Guiding employees and managers to what is expected and how value is defined even in times of dramatic change and restructuring
Competencies serve as a powerful communication vehicle to focus all members of the organization on the skills and activities that will create both value and wealth. Competency-based programs can make a difference to the bottom line. Analysis of the financial data clearly shows that companies with competency- based programs perform better in the marketplace. Such programs help focus the organization and all the individuals in it on what they can do to add value to the organization.
Contributions are role-related rather than position-related. Adopting this view of contribution to value will help organizations think differently about their human resource and development programs. Organizations can focus on competencies needed for the future and identify the roles that employees do and must play.
Programs that build employee commitment can bring great returns. Data from this and other Watson Wyatt studies clearly demonstrate that both individual and organizational performance increase when employees are committed to their companies. Ensuring that organizational levers that build employee commitment are in place and working will affect the bottom line. This was most notable when the competencies focused on attributes and behaviors that promoted customer satisfaction.
Training is important, but it is no substitute for good management. A large majority of the organizations participating in Watson Wyatt’s study identified training and development as the driver of future corporate success. The high-performing companies identified it slightly more often than the others.
Putting people first by adopting high performance management practices translates into improved morale, more innovation, better customer service, higher productivity, greater cost reduction, greater flexibility, and increased skills development.
3) Improve Quality
Motor vehicle manufacturing firms in US implementing flexible production processes and associated practices for managing people enjoyed 47 percent better quality and 43 percent better productivity than firms relying on traditional mass-production approaches, according to a worldwide study by Wharton School’s John Paul McDuffie.
Overall financial performance improved 3.8% per year for ten years when companies stayed with traditional talent management practices, 6.8% when they realized they needed to re-design their talent management practices, and 10.1% when they launched a completely new talent management system
Watson Wyatt’s 2002 European Human Capital Index study shows that 36 key human capital variables (practices and policies) are associated with an almost 90% increase in value.
4) Increase Productivity
Initial research on 740 companies’ HR practices found that those using high performance work systems (HPWS are defined as integrated talent management practices) had economically and statistically significantly higher levels of company performance. One standard deviation of improvement on their bell curve of integrated talent management systems was associated with changes in market value from $15,000 to $60,000 per employee.
Employee productivity was calculated as the logarithm of net sales per employee using gross rate of return on assets (GRATE), which is less sensitive to depreciation and other non-cash transactions, and Tobin’s q, a future-oriented and risk-adjusted capital-market measure of performance that reflects both current and anticipated profitability and often mirrors the price that the market will pay for intangible assets (goodwill).
Further research that included three US surveys and the experience of more than 2,400 companies continued to show significant impact of systems that select, maintain, develop, and reinforce employee performance on both market-based and accounting-based measures of company performance (while statistically controlling for R&D investment, industry market changes, capital improvements, sales growth trends, etc.). Moving from the 60th percentile of integrated HPWS to the 80th percentile improved market valuation by $20,000 per employee. This reflects both operational excellence and alignment with the company’s strategy. When the elements are present, but not aligned with the company strategy there is a 27% drop off in measured gains.
Gallup Management Journal reported the following in 2001:
•19% of all employees are actively disengaged from their jobs
•55% of all employees are not engaged in their jobs and
•26% of all employees are engaged in their jobs
at a cost of $292-355 Billion per year to the US economy.
Great people management equals great shareholder value: European companies with the best human capital management deliver around twice as much shareholder value as their average competitors.
5) Reduce Cost
ASTD and SHRM studies companies that is renowned for their ability to retain top talent (Linbeck, Kennedy& Rossi, Zachary, Dow Chemical, Edward Jones, Great Plains, Sears, and Southwest Airlines). One key finding was that all of these companies implemented competency-based position profiles so that employees understood the skills and abilities required to move into leadership positions.
They must also avoid wasting their money on bad human capital investments:
The 2001 Watson Wyatt Human Capital Index study showed precisely which HR practices have an impact on the bottom line. 49 specific HR practices across 6 dimensions played the greatest role in creating shareholder value. Additionally, one dimension, “Prudent Use of Resources” identifies six practices that diminish shareholder value (e.g. training that is not connected to the business objectives and not evaluated for ROI).
A new book shows how Microsoft, Intel, Nokia, Starbucks, Singapore Airlines and 20 other world-class organizations are luring and holding high-quality employees. One senior executive said, “Microsoft has a market capitalization of $450 billion, the largest in the world. If you add up every desk and chair, every computer, every building, every piece of land, everything we own, including the $17 billion or so we have in the bank, it comes to about $30 billion. If you then add in things like goodwill and other financial assets, maybe you’ll come up with another $70 billion, if you really struggle. But that means that there is $350 billion more that people have given us credit for that is not there. What is it? Well, it’s the stuff in smart people’s heads.” With that knowledge Microsoft has built and maintains a human capital management system very similar to Mundo Strategies’ system to prevent employees from wanting to leave the company even as the stock took a beating in the past few years.
Supervisors who received training in how to listen better and resolve employee problems found that lost-time accidents were cut by 50 percent, formal grievances were reduced from 15 to 3 per year, and productivity goals were exceeded.
Retention is one of the more obvious areas that effective talent management practices can affect. What attracts and retains high performers?
79% stay because of opportunities for advancement
69% stay because their job is redesigned
65% stay because they are learning new skills in their current job.
Why do high performers resign?
56% leave because they are dissatisfied with company management
56% leave due to inadequate opportunity for promotion
50% leave due to dissatisfaction with pay
6) Reduce Cycle Time
There is very little research into the impact of talent management practices on company cycle time. One classic work on cycle time showed that steel mini-mills using a high-commitment approach to management required 34 percent fewer labor hours to make a ton of steel and had a 64 percent better scrap rate than mini-mills using a command and control approach.
7) Increase Return to Shareholders & Market Capitalization
The five highest return to shareholders from 1972-1992 (Southwest Airlines Co. 21,775%, Wal-Mart Stores, Inc. 19,897%, Tyson Foods, Inc. 18,118%, Circuit City Stores, Inc. 16,410%, and Plenum Publishing 15,689%) differentiated themselves from their competitors and the market only through the way they managed their people during the infancy of talent management.
Whereas at the start of the 1990s studying its earnings and fixed assets and adding a token amount for goodwill invariably gauged a company’s stock market valuation, by the end of the decade a seismic shift had taken place. When accountants Ernst & Young came to look at the issue, they found that the largest slice of most companies’ market capitalization was held in intangibles – primarily, the talent, knowledge and teamwork of its staff. In high-tech companies like Nokia, the percentage was as high as 95 per cent; but even ‘old economy’ stalwarts like BP, despite its huge investments in oil platforms and exploration equipment, notched up a significant 74 per cent.
The upshot was that even companies operating in the same sector with similar earnings could experience widely differing stock valuations. Those ignoring the new emphasis on ‘intangibles’ invariably found themselves penalized by the markets.
Watson Wyatt also reported that a 26% increase in market value in 2000 was driven by common talent management best practices:
- Use of knowledge and contract workers
- Recruiting excellence
- Consistent pan-European HR practices
- Good union-management relations
- Lack of hierarchy, clear leadership
- Teamwork and 360° feedback
- Customer-focused environment
- Sharing information with employees
The difference between a non-strategic HR system and one that has removed the barriers to performance are dramatic. Improving the relative sophistication of the HR system by adopting best practices does not provide measurable value (20%-60% adoption of a strategic HR system). Integrating the strategic elements of HR into the broader fabric of the organization provides a significant improvement in shareholder value (60%-80%).
When HR systems have adopted best practices and aligned those systems with business priorities and initiatives they return the greatest shareholder value (80%-100%).
The five-year survival rates of initial public offering showed that firms whose talent management practices scored in the top one-sixth of IPO firms had a 33 percent higher probability of surviving than those in the lowest one-sixth. Firms in the upper one-sixth in providing financial rewards to all employees, not just managers, had almost twice as much chance of surviving for five years, according to research by Theresa Welbourne of Cornell and Alice Andrews of Vanderbilt.
COMPETITIVE ADVANTAGE OF TALENT MANAGEMENT IN US CORPORATE SECTOR
Taking a systemic approach to talent
Getting the right people in pivotal roles at the right time should be nothing new to HR professionals, but done effectively, talent management can create longterm organizational success. Here, Lynne Morton and Chris Ashton show how to align talent management strategies to business goals, integrate all related processes and systems and create a “talent mindset” in organization.
TALENT MANAGEMENT (TM) IS more than a new language for old HR work, or just the next “hot new thing” for HR practitioners and managers to get involved in. For many organizations, it has become a strategic imperative. McKinsey research1 reveals that 75 percent of corporate officers were concerned about talent shortages and Deloitte reports that retaining the best talent is a top priority for 87 percent of surveyed HR directors. This need for talent – and, therefore, its expert management – is also driven by macro trends including:
• New cycles of business growth, often requiring different kinds of talent.
• Changing workforce demographics with reducing labor pools and, therefore, a talent squeeze.
• More complex economic conditions which require
segregated talent and TM.
• The emergence of new enterprises which suck talent from larger organizations.
• A global focus on leadership which is now permeating many levels of organizations.
The strategic importance of talent management:-
On the basis of substantive research undertaken for our forthcoming report , they argue that good TM is of strategic importance and can differentiate an organization when it becomes a core competence – and when its talent significantly improves strategy execution and operational excellence. For example, imagine your company has the right talent in pivotal roles at the right time. What difference will these people make to revenues, innovation and organization effectiveness compared with having to operate without them? What is the cost of the lost opportunities – and the downtime and replacement costs of losing critical talent? What are the consequences of having to make do with the wrong kind of leaders and managers in the top two executive layers – or of not
having successors groomed and ready to replace them?
Yet generally, organizations still struggle with TM. According to research, three-quarters of business leaders have invested dedicated resources in TM – but most say they haven’t yet felt the impact of doing so.3 Why not? Through one of the research, they tried to provide reasons by asking these questions:
• Why are they doing TM? Is it for the individual, the organization or both?
• What do they mean by talent – and talent management?
• What are their propositions for attracting and retaining talent?
• How do they manage and use the talent in their organization needs?
• How are internal roles and resources deployed appropriately to support TM?
• How is TM integrated across HR processes and with business planning and strategy execution processes?
Talent management at FDC – its focus, leadership, acquisition, retention, evaluation and tools – has evolved over five years, and continues to be a work in progress. The evolving talent plan aligns with goals, business strategy and their organizational implications.
The talent office annually reviews analytics and recalibrates talent to align with growth and other organizational needs. The current growth objective is 15 percent. “Ours is a numbers business, which tends to reflect a short-term view,” says Annmarie Neal, senior VP, organization development. “Yet, we also have to build a leadership bench and talent pools, not around the execution capabilities we’re known for, but on a customer-solutions focus and strategic foresight. Investments in talent aren’t short-term – they need at least three-year horizons to see returns.”
The key issue for FDC is to accurately identify high potentials with different capabilities such as strategic thinking, partnership building, results orientation, innovation and talent leadership – and then build succession depth. In effect, they are building talent balanced with buying it, guided by the notion of critical positions – that is, those positions that positively impact on the strategic goals or their execution.
They are now applying their processes for identifying, assessing and growing future leaders to our more junior, untested populations who we expect to be our next VPs.” Technology, as Neal explains, has allowed them to do more – in depth and breadth – with the same headcount. TM initiatives at FDC include:
• Talent profiling of individuals.
• Conducting calibrations of business performance and key results behaviors.
• Assessing and forecasting succession depth.
• Implementing organizational assessment summaries to give status reports for leadership talent.
• Using just-in-time, action-learning programs and talent-sharing assignments.
• Developing “talent at risk” tools based on potential derailers and defection triggers.
• Introducing a talent scorecard with five perspectives, each of which has critical indicators – hiring.
As we see it, TM is a strategic and holistic approach to both HR and business planning or a new route to organizational effectiveness. This improves the performance and the potential of people – the talent – who can make a measurable difference to the organization now and in future. And it aspires to yield enhanced performance among all levels in the workforce, thus allowing everyone to reach his/her potential, no matter what that might be.
Though this interpretation of talent is inclusive, it strikes a strategic balance between performance and potential. Performance – historically, the primary focus of measurement and management – concerns both the past and the present, whereas potential represents the future. Our position assumes that potential exists, it can be identified and it can be developed. Here are specific ways that two case organizations inthe report define talent:
• Executive management team leaders, directors/VPs and A-player managers in all functions – plus Bplayers as potentials.
• Future business leaders with more strategic capabilities than just operational excellence skills -plus specialist talent able to execute business integration projects on time and to budget.
Clearly, there isn’t a single consistent or concise definition. Current or historic cultural attributes may play a part in defining talent, as will more egalitarian business models. Many organizations acknowledge that talent, if aligned with business strategy – or the operational parameters of strategy execution – will change in definition as strategic priorities change. For example, in start-up businesses, the talent emphasis will be different to the innovative or creative talent needed to bring new products to market. Any definition needs to be fluid – as business drivers change, so will the definitions of talent.
What TM involves
Talent management is the integration of different initiatives, or constructs, into a coherent framework of activity. There are certain crucial components and a useful model for defining TM is to think of it in these key words:
• Ethos – embedding values and behavior, known as a”talent mindset,” to support the view that everyone has potential worth developing.
• Focus – knowing which jobs make a difference and making sure that the right people hold those jobs at the right time.
• Positioning – starting at the top of the organization and cascading throughout the management levels to make this a management, not HR, initiative.
• Structure – creating tools, processes and techniques with defined accountability to ensure that the work gets done.
• System – facilitating a long-term and holistic approach to generate change.
Integrating TM through a system
It’s worth emphasizing that integration is critical. Our research shows that without integrating TM activities,
the effort invested will tend to be dissipated with patchy results. Integration is knowing how all the pieces of TM fit together within a TM system. This will not operate in isolation from strategy, business planning and the organization’s approach to people management.
In this sense, the work of talent management cuts across what has been traditional HR silos. If integrated, it functions in a more facilitative, OD-like nature. It will also reach higher up the organization than other HR initiatives, often attracting the attention of boards and senior teams. Similarly, TM reaches down the organization, to include new recruits along with tenured professionals. Lastly, talent planning must be done in parallel with business planning, creating a rich integration of people and strategy.
One way of achieving such system integration and alignment is the CRF Talent Management System (see Figure 1, above right). This systemic view of talent has five elements:
- Need – the business need derived from the business model and competitive issues.
- Data collection – the fundamental data and “intelligence” critical for good talent decisions.
- Planning – people/talent planning guided by data analysis.
- Activities – the conversion of plans into integrated sets of activities.
- Results – costs, measures and effectiveness criteria to judge the value and impacts of TM
Using this system can help TM become a strategic differentiator rather than a standard set of HR processes – if the right conditions, context, timescales and offerings exist in the first place. System integration and alignment ensures that TM efforts are rational and fit for purpose. Since the arrival of the current era of “talent” is widely acknowledged, it’s not surprising that renewed significance is being placed on the management of that talent. And as talent continues to be viewed as a strategic differentiator, its management will take more of a strategic role. How fascinating it will be to take the pulse of talent management in the business community in another five years. We believe that while the management of talent will most likely become embedded in the fiber of cultures by then, the HR executives who led those initiatives will have achieved much more prominence.
OBJECTIVES OF TALENT MANAGEMENT:
There are some basic objectives which need to be fulfilled by the US corporate sector while applying Talent Management in the organisation and the objectives are:-
1) TO DETECT TALENT:-
It is very important for the US corporate sector to determine or detect their best talent for the organisation and this Talent Management helps the selector to select the best talent among the pool of various alternatives present in the organisation. Because the best talent helps in generating more and more good ideas which help organisation to achieve or innovate something new. As Talent Management helps in detecting best talent of the organisation within the organisation, this helps organisation to achieve their goal more efficiently and effectively which are set by the organisation.
2) TO DEVELOP TALENT:-
After detecting the talent in the organisation the US corporate next step for applying Talent Management is to develop the talent. It is not necessary that every person has a some talent in him or her but talent can also be developed through regular practice such as training, educating, providing them with the basic guidelines of the respective talent so that the talent of any person can be used for the effective utilization of the talent for the sake of the organisation which will be helpful for the organisation to came up with a new idea with the help of talent which will provide them with the best competencies among the competitor so that they can stay in long run of the business giving tough competition to their competitors and by developing talent US corporate sector tried to change the scenario of the employees by developing their talent and making them more confident, reliable and motivating factor for themselves and for others too which improves the behaviour and efficiency to work. There is a huge change when a person come to some hidden talent in him and this makes them to be more responsible to the work and take the work as natural as play
3) TO MAKE TALENTS MORE RELIABLE:-
Talent Management helps in making talent more reliable and US corporate sector use the Talent Management as their one of the important tool for making their employees talent more reliable as talent management helps in detecting and developing talent by the different mode they used while developing their talent they make the employees to be more confident in their talent which makes them more reliable which means that they will be confident in using their talent and organisation can rely on their talent while doing or making effective decision. Until and unless employees believe themselves in their talent then the organisation too will not have any faith on the employee and US corporate sector never keep such employees in the organisation as US corporate sector is best known for their talent and technologies and the technology is the result of the talent only.
4) TO PROMOTE TALENTS TO STRATEGIC PROJECTS OR TO HIGHER POSITION:-
Talent Management helps in promoting talent to strategic projects or to the higher position because US corporate sector that every talent should be given their own position. If the talent deserves higher position then he should be given the higher position irrespective of any other things which might be taken in account such as education or qualification. They think that if the post deserves that talent then that talent should be given that post. When talent is promoted it acts as a motivating tool for the employees to make them more responsible and work towards the achievement of the goal set by the organisation which also enhance their style and attitude towards their work.
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