With the job market reviving, retention of talent is once again back on the priority list of companies, writes Shyamal Majumdar.
A McKinsey survey shows very few firms focus on building the capability that adds the most value to performance.
With the job market reviving, retention of talent is once again back on the priority list of companies.
The question -- how do you make sure that your critical talent that is walking out of the door today afternoon returns tomorrow morning -- is becoming a common agenda of board meetings once again.
The answer to that question was provided by McKinsey consultants who wrote the famous book The War for Talent.
The consultants explained the core elements that make up a winning employee value proposition.
An EVP, they said, is like the company's customer value proposition; it's the compelling answer to the question, "Why would a talented person choose to work here."
Each company's EVP will be different depending on the type of talent they are trying to attract, but these are the core elements that managers look for -- exciting work, a great company, attractive compensation and opportunities to develop.
The last one is the most important as a few more perks won't make the difference between a weak and a strong EVP. If you want to substantially strengthen the EVP, be prepared to change things as fundamental as the business strategy, the organisation structure, its culture and even the calibre of its leaders in the organisation.
Surveys done by Hewitt have shown compelling evidence that better talent management pays for an organisation.
For example, employee turnover in Indian firms doing a better job of attracting, developing and retaining highly talented people is 45 per cent less than that of others.
The monetary implication of this is huge as a frontline employee in a top company costs 40 per cent of salary to replace and a top management one costs 150 to 200 per cent of salary to replace.
So, are companies doing enough to build organisation capabilities such as leadership development or talent management?
Nearly 60 per cent of respondents in China and 20 per cent in India (versus 10 per cent overall) to a McKinsey global survey done in January said that building capabilities, such as leadership development and talent management, was a top priority for their companies.
That's the good news, but the bad news is that only a third of these companies actually focused their training programmes on building the capability that adds the most value to their companies' business performance.
Executives' responses also indicated they were not very good at executing:
Only about a quarter thought their companies' training programmes were 'extremely' or 'very effective' in preparing various employee groups to drive business performance or improve the overall performance of their companies
The survey results also indicate a potential explanation: Training programmes are misaligned with what is thought to be the capability most important to a company's business performance.
Only 33 per cent of respondents said their training and skill-development programmes focused on developing their companies' most important capability.
Leadership skill, for example, was considered by a majority of respondents to be the capability that contributes the most to performance.
Yet, only 35 per cent of respondents said that they focused on it. And only 36 per cent of executives considered their companies were better than competitors when it came to leadership development.
In addition, companies do not focus on day-to-day activities that could maintain or improve the capability that contributes the most to their business performance.
Companies also struggle to measure the impact of training on business performance: 50 per cent of respondents said their companies kept track of direct feedback, and at best 30 per cent used any other kind of metric.
In addition, a third of respondents didn't know the return on their companies' training investment. Because companies don't know the impact of training, they appear to set their agendas using different measures, including prioritising by employee role, which may not actually result in the most impact on the bottom line.
Executives at companies where training is reported to be least effective, for example, are more likely to invest in training for the leadership team and least likely to spend on the front line -- despite this group's more immediate impact on operations.
In addition, although resistance to change is often viewed as a barrier to building new capabilities, almost as many respondents to this survey identified a lack of resources and an unclear vision as barriers.
Indian companies, thus, would do well to listen to the following McKinsey suggestions:
- They need to be more deliberate in understanding which capabilities truly impact business performance and align their training programmes accordingly. Those that focus on leadership skill development are more likely to consider their training programmes to be effective in improving business performance.
- When senior leaders set the agenda for building capabilities, those agendas are more often aligned with the capability most important to performance.
- Most companies focus on the capability which, executives say, is most important to business performance because it's a part of the companies' culture, not for any competitive reason. While culture is a strong driver of effective capability- building, companies that focus on certain capabilities for competitive reasons rather than cultural ones gain a stronger competitive advantage.