Better Talent Management Can Unlock Value

If you’re steeped in traditional values — and by that I mean, you use metrics like net income and free cash flow to consider the market value of a business — Twitter’s recent IPO most likely sent your head spinning.

According to press reports, initial trading of the company’s stock gave it a market capitalization of more than $34 billion. That’s the equivalent of companies like Yahoo, Time Warner Cable and Kraft Foods even though the company has yet to show a profit.

But while most of us may tend toward the “what’s wrong with this picture” perspective, some would argue we’re overlooking what may be right with it.

“In our current economy, it is clear that talent rules. Shareholders pay much more than book value for companies with intangible intellectual capital. Companies like Facebook, Linkedin and Google have much greater intangible assets than General Motors, Best Buy and Caterpillar,” observe HR experts Linda Brenner and Tom McGuire.

Brenner is founder and managing director of the HR consultancy Designs on Talent and technology company Skillsify, and McGuire is an independent finance and human resources consultant. In an article entitled “The Brave New World of Talent Management” appearing in the November/December issue of MFM’s The Financial Manager magazine, these HR experts point out that today’s companies derive more and more value from the intellectual capabilities of their teams. “‘Knowledge workers’ are to 2020 what manufacturing was to 1970. Except the first group is in much shorter supply and much more portable than the second one,” they note.

Brenner and McGuire go on to identify another disconnect between HR practices at traditional media businesses and organizations where the value is placed upon talent management. As they see it, “There’s a glaring void in the business practices of most media human resources departments: they fail to measure ROI.”

That’s not to say that the focus on talent is missing. Our experts find companies are spending more money than ever before on human capital technology and consulting. But where we apparently fall short is in how we use the data available to help us recognize the amount of return we are getting on this investment as it relates to hiring, talent development and employee retention.

“It’s simple logic to understand that better hires will drive greater sales, service and, ultimately, economic profit. But if you ask for performance results tied to such metrics, the response usually includes a wide-eyed stare and murmurings that ‘the systems don’t talk,’ the ‘data is bad’ and ‘we don’t track that’.”

To make the case for investing in the analytical tools that can link individual performance to a company’s market value, Brenner and McGuire cite research from the Corporate Leadership Council concerning great hires, which found a “superstar” produces 12 times more than an average performer. And a “star” performer is three times more productive.

Adding to the importance of making the right hire, there is this finding from a Deloitte 2012 study: the cost of recruiting, hiring and training a new professional employee can vary from two to four times the position’s annual compensation.

To put those data points in a market capitalization perspective, the authors emphasize that “Every Googler is, in effect, expected to grow their fair share of the company’s market value, averaging about $5.5 million per employee. On the other hand, on the industrial side, the market cap per employee at General Motors is about $250,000.”

This doesn’t mean each employee is expected to deliver the same ROI. Brenner and McGuire say: “You don’t need to hire the very best for every role, but it’s critical to do so for key leaders and revenue-generating positions.”

What they find curious is the failure to invest more in measuring the ROI on talent investments in light of how well we evaluate and optimize most other expenses. As noted in the article, “Where else, within the confines of the corporate world, are huge investments made on a daily basis without the ability to quantify value, worth or results?”

They go on to answer that question by citing data from a global HR study conducted last year by PwC — PricewaterhouseCoopers, that identifies three reasons why measurable progress related to talent management efforts, outcomes and predictability have been limited. As the authors explain, “Behind each of them is a story about how we’ve gotten to this place — and clues for what can be done to turn the ship around.”

• Lack of Capability — Many corporations have few, if any, strategic positions dedicated to HR. These positions take responsibility for a wide range of administrative burdens related to the processing of employee transactions throughout the company. Identified as “low authority,” it becomes a struggle both to establish authority and to drive “results-based change.”
• A Support-Function Mindset — Perhaps as a result of how the HR position has been structured by organizations, when surveyed many HR professionals report a preference for administrative, non-strategic work. In fact, they often have a low tolerance for risk and a limited sense of what they care to “own” or have authority over.

• The Missing HR Link — This third finding “is where it all comes full-circle,” according to the talent management experts. The nonstrategic work preference of most HR professionals combines with the organization’s failure to establish systems for accurately measuring HR activities and the result is a lack of data-based decision making and forecasting “that impedes the measurement of talent-related investments.”

When it come to turning that ship around, that is to begin establishing ROI policies for talent and HR staff members, Brenner and McGuire say the process needs to begin by making these course corrections:

• Gain C-suite understanding, sponsorship and participation.
• Get the process right before solving the technology need.
• Start with your most “mission-critical” positions.
• Strive for measurable progress, not perfection.
• Don’t neglect the details that will derail the desired outcomes.

For companies that may be farther along in their pursuit and measurement of talent management practices, the authors cite these higher level results suggested by the PwC study:

• Align your business plan and your talent strategy on a regular basis.
• Face the future by looking at where your business is headed.
• Pay attention to pivotal roles.
• Focus on the financials and make measurement and predictive analytics a part of your plan.

You can find additional recommendations from Linda Brenner and Tom McGuire in their article, which is currently available on MFM’s Web site. As their insights remind us, the most valuable assets in today’s media organization are the knowledge workers who will be responsible for steering our ships toward continued prosperity as we navigate the uncharted waters of the digital age.

The essential role of talent management in helping our businesses to realize their value is also one of the reasons that MFM devotes many of its educational resources to the HR function. In addition to publishing HR-related articles in TFM, talent management and other aspects of the HR function are addressed at our annual educational forums, including our upcoming CFO Summit, which will be held in February.

If there is one thing we should take away from the market values assigned to digital media enterprises like Twitter and Facebook, it is the recognition that our people remain fundamentally important to our success. As Brenner and McGuire note, a failure to focus on talent management “will slowly chip away at the value and success of your business.”

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.