Skilled HR practices lead to superior economic performance

by HCA06 Aug 2012

Companies that are highly skilled in core HR practices earn up to 3.5 times the revenue growth and as much as 2.1 times the profit margins of less capable companies, according to new research.

In a joint report* by the Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA), the practices of high-performing companies were compared against those of lower-performing ones in 22 key people-management areas.

The correlation between economic performance and capability in these 22 HR areas was especially evident in the following key areas:
 

  1. Recruitment
  2. Onboarding of new hires and employee retention
  3. Talent management
  4. Employer branding
  5. Performance management and rewards
  6. Leadership development

The key point of difference separating the high-performers from the rest was in fact very basic. In three fundamental areas, namely leadership development, talent management, and performance management and rewards, the top performers were quite simply investing in more activities and providing more options to employees on a regular basis.

The finding may be a timely reminder for companies looking to trim the sorts of programs and activities that have a hard-to-quantify return on investment. “These findings should be a wake-up call for executives and HR people everywhere. As the talent crisis worsens, those who don't make a commitment to attracting, developing, and retaining talent put their future performance at risk,” Pieter Haen from the WFPMA said. “Overall, what these findings reveal is that 'people' companies are far more proactive and more strategic about ensuring they have the talent they need—today and in the future. They fully understand the connection between talent and sustainable performance,” Rainer Strack, from BCG added.

The key differences the study identified between highly capable and less capable companies included:
 

  • Leadership development: high-performing companies rely more on leadership models that clarify leaders' expected contributions and behaviour. They also make people development a central element of leaders' job requirements, using incentives such as compensation and career advancement.
     
  • Talent management: high-performing companies recognise that the talent pipeline must extend beyond the successors to top management. Consequently, they offer more development programs for a broader range of talent. They also try to attract more international talent. These companies are proactive with talent reviews and create ample career-advancement opportunities -- including horizontal as well as vertical ones. They also do more to nurture employees' individual growth and keep them fulfilled professionally.
     
  • Performance management: high-performing companies treat and track performance with transparency. They recognise the value of fair and transparent measurement and rewards systems in promoting a culture of meritocracy. They more often align and motivate their people with clear norms, expectations, and global standards. They reward behaviour, not just results, to a greater degree than low-performing companies.

*From Capability to Profitability: Realizing the Value of People Management surveyed 4,200 HR professionals and managerial staff in 100 countries.

 

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