Companies that invest in their people and that are highly capable in 22 key HR topics consistently realise a better financial performance than the less capable. In several topics, this correlation was up to 3.5 times the revenue growth and as much as 2.1 times the average profit margin.

In July the Boston Consulting Group (BCG) released a report, based on interviews with 4,288 leading business and HR executives in 102 countries. BCG found a positive correlation between capability and performance in 21 of the 22 HR areas measured.

It is clear: CEO’s, Directors and Management in companies are facing difficult times.

We see many developments in the market: internationalisation, accession into the EU, increasing competition, shorter life-time cycles of products & services, marketing as a new profession, lower consumer spending’s and higher quality expectations at the same time, employer-employee relationship under pressure, etc.

Yes, cutting costs is necessary for many companies, but, more than ever, Croatian companies must regard their human capital as an asset worth of continuous investment.

This research shows a compelling reason to stay committed to invest in people: companies that invest and excel in their HR-policy show a much better financial performance.

The main results

This table shows the economic performance of HR-driven companies over a period of 10 years compared to less HR-oriented companies. 

The results underline the fact that Human Resource (or People) Management is a holistic process. Because the impacts of the 22 HR topics are interrelated, it is important to excel in all, not just in a single one of them.

High performing companies consistently did more and better in all major activities within these topics than the low performers, but in certain activities their efforts truly stood out.

For six topics in particular, the correlation between capability and economic performance was striking: Recruiting, On-boarding new hires and retention, Talent Management, Employer Branding, Performance Management and Leadership Development.

This research confirmed what “people companies˝ have long sensed: a good performing HR-Policy brings a competitive and economic performance advantage, especially in economic difficult times.

And this could be an excellent starting point for improving your company’s competitive advantage.

What do high performing companies do?

Taking this survey as a benchmark, here are a few ideas you could apply in the 3 most important areas of your HR-policy: Leadership Development, Talent Management and Performance Management.

Leadership: making People Development part of the job-description

High-performing companies recognize that leadership is more than just steering the business.

It is about nurturing, energizing and challenging the people who help make your company run and who keep it competitive.

• They have a leadership model that describes expected contributions and behaviour which is grounded in company values. They offer actionable guidelines that inspire leaders and employees daily.
• Managers are promoted on the basis of their individual performance as well as their people development activities that are both linked to the company strategy, culture and goals.
• Leadership planning is an integral part of their strategic workforce planning, dividing all positions into job families.
• They do not delegate people development to HR! They view their leaders as the frontline developers of talent.
• Every line manager is a human resources manager; HR has the strategic and tactical role to support the HR-policy and systems.

Talent Management: a proactive HR-strategy with a broad development repertoire

Excellence in one critical HR area won’t compensate for shortcomings in another.

High performing companies understand this well, they distinguish themselves by their talent development efforts. They know that the importance of building rather than “buying” talent is in the end cheaper and has a larger Return on Investment. They capitalize on a broad array of strategies, methodologies, and programs to ensure they have the talent they need, now and in the future. These efforts include:

• Providing development programs for “emerging” as for “high” potentials.
• Defining talent broadly, not just in identifying emerging potentials but also in seeking and nurturing complementary thinkers and people with deep functional expertise.
• Offering career advancement opportunities with clearly defined career tracks. Providing a broad menu of horizontal as well as vertical opportunities. This keeps employees satisfied and motivated while it also helps to retain the full range of talent necessary for the company success.
• Fostering employees’ individual development. Relocation and job rotation are among the development opportunities they provide. They recognize that beyond job stability and a good salary, today’s employees seek a fulfilling work experience as well as the opportunity for personal growth. In particular, employees from the so called generation Y have greater expectations and are more willing to leave employers that can’t satisfy them.

Performance Management and rewards: Clear norms, more precise incentives

High performing companies go further than just linking bonuses or other incentives with business KPI’s to align managers with company strategy and goals; they understand the importance of a well-constructed, balanced performance management system in motivating and developing employees. To foster and sustain excellent employee performance, you need to create the right incentives. Developing a culture of meritocracy is the key!

• Applying state-of-the-art performance-management standards and methods for the entire company.
• Having clear norms that drive performance so employees understand clearly what superior performance is and, just as clearly, what is unacceptable. A performance management system that is complicated or obscure damages employee engagement and risks the company’s reputation and brand.
• Practising the value of fair, transparent measurement and rewards systems in promoting such a culture.
• In all their activities these companies reward behaviour, not just results. They avoid bureaucracy or review processes that allow problems to worsen. They stimulate feedback and open discussion, as well as more frequent informal reviews that have the added benefit to motivate employees.

Critical Mass Counts

It is no news that excellent people management means an investment in a company’s long term success. But at many companies today, that investment is at risk.

Before cutting back on HRM, leaders must keep in mind that people management has become an imperative. People are the core of most companies and an investment with a tangible, near term return. Being a ˝people company˝ means doing more across the entire spectrum of HR activities, from company branding to employee retention.

˝You can never change things by solving yesterday's problems.

Instead, focusing on strengths could create conditions for innovation which would be beneficial to the company as well as society.˝ (David Cooperrider)

A professional HRM policy as integral part of your company culture, supporting Leadership and People Development in all key HR-areas, brings your company a competitive advantage in the market, better economic performances and a proud and pro-active workforce.

John Lodder  M.A., MSc.
www.balance-consultancy.com
info@balance-consultancy.com

Source:

‘From Capability to Profitability: Realizing the Value of People Management’ (2012, July),
http://www.bcg.com/expertise_impact/publications/PublicationDetails.aspx?id=tcm:12-110611