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Does good talent management help cash flow?

Lisa Yoon | Oct. 12, 2011
"A company's most valuable asset is its people." It may seem sometimes that the more a company makes that claim, the less it proves it in practice.

"A company's most valuable asset is its people." It may seem sometimes that the more a company makes that claim, the less it proves it in practice. And perhaps because managing people is considered a "soft skill," companies struggle to square the concept with the bottom-line language of corporate performance.

In May 2009, consultants in the human capital practice at Deloitte LLP, along with researchers at The Manufacturing Institute and at Oracle, set out to tackle this quandary -- in the manufacturing sector, anyway -- by correlating strong Ebitda performance to certain human-capital-management strategies. Deloitte's Richard Kleinert and TMI's Emily Stover DeRocco, along with their colleagues, share their findings in "Tailored to the Bottom Line" in the current edition of the semiannual Deloitte Review.

The team focused its analysis on the 142 largest manufacturers represented in a web-based national survey, probing participants about both their companies' talent-management practices and their financial performance. After sorting respondents by self-reported Ebitda -- identifying the top and bottom quartiles -- researchers found three distinct people-management characteristics among the manufacturers with the best cash flow:

They perform formal succession planning across the workforce (not just in the executive ranks.)

They link employee pay directly to company performance, or to results at a specific manufacturing plant.

They link an explicitly defined talent-development strategy to their business strategy.

To illustrate the third, and perhaps most complex point, the article mentions Sears Holdings in the early 1990s, which dealt with a lack of focus, and losses, by overhauling its strategy implementation process to reflect the vision of Sears becoming a compelling place to shop, and, as it hoped would follow, a compelling place to invest. By incorporating a full range of performance drivers around that vision --- and making Sears a compelling place to work, as well -- a senior management team helped the "three compellings" all work together. "These competencies then became the foundation on which the firm built its job design, recruitment, selection, performance management, compensation and promotion criteria," the article says. "The company also instituted the Sears University to develop these competencies."

Meanwhile, the research suggests, when companies develop people strategy and business strategy independently, the objectives often end up misaligned. Not so, however, at General Electric's Australia and New Zealand operations. Explains Sam Sheppard, GE's VP of HR for the region: "There is no point [in HR's] being an add-on function, a reactive partner for the business.... It's very easy sometimes to get sidetracked on what we would like to be doing, but if we can't translate that into a bottom-line impact for the business, then that lessens our value to the organization."

In addition to linking people-management and business strategies, the top-performing manufacturers also seemed to give a high priority of such activities as talent acquisition and development, and performance management.


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