Skip navigation

Category Archives: Measurement of HR value

30 April 2009 8:19am

Australian HR departments are struggling to meet the challenges created by recession-driven cost-cutting with fewer resources and less control over decision-making, a new study confirms.

Two in five HR directors feel they have less autonomy than a year ago – almost 10 times the number reporting an increase in control, the survey by Kelly Services has found.

“More control, more information requests, and more centralised decision-making” summarises the responses of many HR directors to the survey, which asked 56 members of the International HR Directors Forum about cost-containment measures and the GFC’s impact on the HR function itself.

One HR director notes that these demands make HR “much more reactive: you can’t be proactive when you are constrained by centralised control”.

The greater scrutiny has also led to a “speeding up of operating rhythms” – from quarterly to monthly reporting, and monthly to weekly – which inevitably leads to a greater workload.

Parent companies’ expectations of their Australian operations are “overly influenced” by what is happening in their home market, the report says, with the parent – in most cases – having a more severe view than local management about the cost-reduction measures needed.

Cost-cutting measures
Virtually all respondents to the survey have already implemented cost-cutting measures, with the most common being reduced use of contractors (74%), hiring freezes (70%) and headcount reductions (66%).

Australian subsidiaries have been required to take steps even where the GFC hasn’t yet had a noticeable impact on local operations. This is despite the report noting that, “given the state of the key US and European markets, Australian revenues (typically around 2-5% of global revenues) are hardly likely to be a decisive consideration in global cost reduction decisions”.

Reducing accrued annual leave entitlements is another strategy being employed by many of the respondents, with one director pointing out that pressure to reduce this liability on the balance sheet is “inevitable” and another saying, “it’s not just a financial issue, it’s a wellbeing issue. It’s not healthy for people not to be taking adequate leave breaks, so we are pushing this angle in our discussions with affected employees.”

Almost half (43%) of the respondents have reduced their training expenditures, but some companies have made a firm decision to keep investing in this area.

One director acknowledges the need to continue to upskill and invest in employees in order to meet business objectives, adding that in circumstances where bonuses and pay rises are out of the question, “we can at least educate and develop our people”.

Only “an exceptional company indeed” would have considered salary reductions 18 months ago, the report says, but now almost one in five employers (17%) is considering this move in the next six-to-twelve months.

This is arguably one of the most unpopular cost reduction measures and, given the need for employees to agree, the most difficult to achieve, the report says.

Added pressures
Among the added pressures HR directors report being subject to are:
more scrutiny of new hires – there are “more hoops” to go through to get new staff on board. In other cases, HR’s involvement in recruitment has been eliminated in favour of line managers contacting agencies directly, leading to a higher risk of hiring employees with poor cultural fit;

falling morale and engagement – nearly 60 per cent of HR respondents have noticed their company’s responses to the GFC having a moderate or significant effect in this area. HR is now faced with a “changed organisational psyche”, when employees realise for the first time that their company faces the same hard realities as everyone else; and workers who no longer feel in control of their careers, creating a “prison mentality” where employees who aren’t happy don’t feel confident to leave;

diminishing returns on the communications investment – communication (almost to the extent of over-communication) has become a more important task to resource, and HR has identified a need to “communicate the same message in many media: some like email, others prefer face-to-face, and others like to have opportunities for discussion”. The drain on HR’s already limited resources is proving problematic, the report says;

employees in need of support – the HR role is now more about providing reassurance and support for employees, with respondents noticing more cases of personal trauma such as financial problems, stress and relationship breakdowns; and

reduced resources – some 60 per cent of companies are attempting to meet these challenges with less HR resources than they had a year ago. Only one company reported an increase in HR funding.

Managing for Recession or Recovery? What role for HR?

16 March 2009 8:11am

Employers that gather and accurately interpret workforce data before resorting to massive job cuts can avert unnecessary workplace upheaval and save big bucks in future recruitment costs, according to Qantas workforce analytics manager, Nathan Carbone.

“For instance, an analysis of average employee resignation rates can tell employers how many people are likely to resign within the course of a year,” Carbone says.

“If this matches the number of people the organisation intends to exit, it puts forward a solid case for employers to consider letting natural attrition rates take their course without the upheaval of mass redundancies.”

Employers that act rashly and let too many workers go, he says, could find themselves recruiting within the “pay-back period” (before the cost-benefits of layoffs are realised) and battling for the very talent they’ve retrenched.

Conversely, companies that resort to “cost-cutting” alternatives to lay-offs, without first conducting a detailed analysis, could be inadvertently adding to their outlay.

For example, full-time employees offered a part-time role – as an alternative to redundancy – often end up working full-time hours anyway and, due to penalty rates, cost the company more in remuneration spend than before, he says.

Analytics versus “gut feel”
At Qantas, data is gathered and compiled into four key workforce areas, says Carbone, who will be discussing the topic at the upcoming Australasian Talent Conference.

These are:
attraction – including the number of applicants per advertised role; the number that meet the Qantas criteria; that are interviewed; that are offered positions; and that accept positions;

development and motivation – average training and development hours and spend per worker; and individual performance gains post-training;

productivity – profit relative to remuneration; expenses and profitability per individual employee and labour group; and cost of all internal elements, including in-flight meals and fuel; and

retention – exit survey results; and demographics including age, gender, labour group, work pattern and tenure.
An employee’s “entire lifecycle” – from entry to exit – is covered, assisting Qantas to make prudent decisions and accurate projections regarding its workforce, Carbone says.

“Being able to accurately interpret workforce data is crucial in the current environment,” he says.

“Workforce analytics is… helping businesses to make decisions with the backing of data rather than intuition and gut feel.”

Qantas senior managers have “seen the effect of analytics”, he says, and have learnt to “rely on the stories the data is telling them”.

The company can predict future shortages of certain skill-sets and can plan to recruit or train in-house accordingly. It can also strike a more practical balance between a part- and full-time team, and accurately determine the best times to either enforce lay-offs or hold on to staff.

Analytics drive re-focus
The power of HR analytics over “gut feel”, Carbone says, can be illustrated by an experience he had with a previous employer.

HR had hypothesised, he says, that new managers would counter their lack of experience in resource management by allowing a high rate of overtime among the staff in their departments until they established the right mix of employees per shift.

Therefore, fast-tracking the staff-resourcing learning curve of new managers would dramatically reduce the company’s overtime spend, it was argued.

“What the data analytics showed us, however, was that more experienced managers were allocating overtime as a reward for employees and scheduling overtime based on employee needs, rather than the organisation’s requirement,” Carbone says.

“Their overtime spend was actually higher than new managers’.”

This led to a change in focus, he says, away from strategies to fast-track training for new managers and instead to direct experienced managers to be more responsible in their use of overtime.

by Dr. Wendell Williams
Jan 27, 2009, 5:04 am ET

Any manager who takes an honest look at individual performance knows all employees are not created equally. About 20% of employees rise to the top of the heap; 20% drop to the bottom; and the rest hang around in the middle doing only enough to attract attention.

Employee-productivity differences have attracted their share of researchers. Most agree that folks in the top half of workers out-produce the bottom half by about 2:1 (i.e., it makes no difference if people are shuffling papers or making widgets). And, when managers and knowledge workers are examined separately, the productivity ratio rises to 3:1, 4:1, or higher (i.e., responsible jobs have bigger ratios).

Productivity is more than a mental exercise. It shows up as absenteeism, errors, reduced throughput, turnover, low morale, rework, an excess number of employees, and so forth. Productivity losses are also sneaky because they are not easily seen; yet, they translate into hard cash: between 20% of base annual payroll leaked for unskilled workers to 50% for skilled and managerial employees — enough to separate a successful organization from a flop.

Converting payroll leakage into gross sales can be an even bigger eye-opener. Twenty percent leakage, for an organization that pays out 1/5 of its gross sales in salaries and benefits, would require a 500% sales increase to balance the books. Want to do more scary math? Calculate the incremental sales necessary to offset a 50% leak in managers and professional salaries!

Enter Financial Chaos and Uncertainty
We are in serious financial times. Opinions vary, but experts estimate our financial stress will last throughout 2009 and perhaps into 2010. The prosperity party is over. Like the dot-com bust, the world changed virtually overnight.

We cannot do much about external economic factors except dig in and wait. But, we can do something about employee productivity, especially when it comes to intelligent downsizing.

Ah’ll be Baack!
There are two ways to downsize. Most managers are accustomed to the Rambo model: plunge into the organization armed with rocket launchers, machine guns, and grenades terminating anyone in the line of fire. At the end of the rampage, the gross payroll body count is reduced; but, since both high- and low-producers are terminated without regard to skills, the organization continues to live with its 20% to 50% cash hemorrhage. Rambo-sizing is the norm.

What about examining employee performance before making termination decisions? Everyone knows performance recommendations are part fact and part fiction. Promotions and performance ratings are almost always based on personality and popularity — not specific skills. Just examine organizations that Rambo-sized their workforce in the past. What effect did it have other than forcing fewer people to spend more time at work? Termination decisions done without future planning are like bloodletting to rid the body of bad humours … they are more likely to kill than cure.

Planning Ahead
If management takes the time and HR is able to competently manage the solution, downsizing can actually help the organization get healthy and stay that way. It’s more like Mr. Spock than Rambo. It is rationally based. It begins by clearly defining the skills the company wants to leave in the past and acquire in the future. Here is an example.

We’reAllThatMatters is a legend unto itself. Employees generally want to work there because they can brag about the big-name. Unfortunately, people (read customers) outside the organization have a different opinion. Employees often treat customers rudely and without respect. For example, even if We’reAllThatMatters’ buggy bookkeeping system overcharges a customer 400%, employees treat anyone who complains as if it was his or her fault.

Now the organization must cut back its workforce due to economic conditions. Should it Rambo-size its employees? Should it ask managers for their subjective opinions about who stays and who goes? Should it amputate whole divisions? Since We’reAllThatMatters’ has been around some time, a majority of terminated employees may be over 40, raising the possibility of a nasty class-action suit. What to do?

Rambo-sizing would be a serious long-term mistake. The payroll would shrink, but both skilled and unskilled employees would suffer the same fate. Customer-sensitive as well as customer-insensitive employees would be terminated equally. We’reAllThatMatters’ payroll would shrink, but payroll hemorrhage would continue unabated. Logical-sizing would be different.

We’reAllThatMatters would a take hard look at itself and honestly calculate the financial impact of poor customer service on future business. It would then develop some key job profiles containing both technical competencies to do the job as well as customer service competencies it wants to build and retain. When this is complete, it would move on to the next step.

Employee-Level Evaluation
Individual employees would have his or her performance objectively evaluated using the list of necessary competencies as a target. For example, customer-centric skills might be evaluated by gathering past examples of service (e.g., similar to behavioral event interviewing), reviewing performance appraisals (to the extent they might include relevant information), giving tests, administering surveys, and so forth.

The secret to success would be to evaluate the skill set of every employee using an objective standard based on the organization’s tactical plan. Results for each employee would be anonymized and independently reviewed by a few highly competent managers. Employees who matched the profile would be retained, and those who did not would be reassigned or laid off.

Smart-sizing could be done with competencies such as analytical skills to develop better problem-solvers, initiative to encourage operational improvements, teamwork to develop better internal working relationships, creativity to foster new ideas and designs … the list goes on.

Final Question
However, there is a price to pay. HR has to develop the skills to help managers analyze and clarify the skills needed. It has to become proficient in accurately measuring competencies (real ones, not garden variety stuff), and it has to professionally manage the process. Managers have a price to pay too. They must have the patience to work through the details of smart-sizing, dedicate the energy and commitment to making sure the process is followed, and be able to clearly define the future at the employee level.

The outcome of this initiative is a smart-sized operation; in other words, the skills of the employees are intelligently aligned with the objectives of the organization. Overall, this should result in fewer employees doing more work (because each employee will be more skilled), less turnover (because employees will be more satisfied), fewer mistakes, better quality, and so forth.

The final question faced by everyone in the operation is whether saving 20% to 50% of base payroll is worth abandoning Rambo-sizing for smart-sizing.

Workforce Planning Is Hot; Are You Lagging Behind?

by Dr. John SullivanFeb 23, 2009, 4:15 am ET

What’s hot in talent management changes quite often. Right now, there’s no hotter topic within the talent management community than workforce planning.

The reasons are simple: with the current economy driving revenues down dramatically, many senior executives are examining how to plan ahead in order to increase their firms’ capabilities, reduce costs, and survive the economic chaos likely to continue for some time.

Organizations need an effective talent management plan that will allow them to “explode out of the box” at the first sight of economic recovery, yet one that doesn’t threaten economic sustainability in the short term.

While most in talent management are continuing to react with stale cost containment approaches developed decades ago, strategic talent managers are stepping forward with robust workforce planning solutions and new work models that account for the significant changes in both how people work and live that have occurred in the last 20 years.

If you are interested in doing more than talking about being strategic, here are some recommended action steps to help improve your organization’s workforce planning.

What the Heck is Workforce Planning?
It might seem like a simple question, but there is little to no agreement among HR and talent management professionals as to what constitutes workforce planning. To some, it’s mostly an administrative activity that reports on historical changes to headcount and forecasts likely changes based on historical trends (i.e., headcount planning).

To others, it is a more strategic effort designed to forecast talent needs, talent supply, and the ability of existing HR programs and activities to align the two.

The more strategic variant looks at both internal and external trends and predicts what will be needed to recruit, develop and redeploy “just the right amount” of talent to meet specified business needs. The definition of workforce planning I prefer is:

“Workforce planning is an integrated and forward looking process that is designed to predict (what, when, how much) will likely happen in talent management and then to provide action plans that will cause managers to act in the prescribed way. As a result of the planning process, managers will be able to avoid or mitigate people problems, take advantage of talent opportunities and to improve the “talent pipeline,” so that your organization will have the needed “people capabilities” required to meet your business goals and to build a competitive advantage over other firms.”

Goals of Workforce Planning
Once again, not everyone agrees on what workforce planning is, but generally speaking, there are eight major goals for workforce planning that everyone should agree make sense. These goals relate to an organizational capability to:

Reduce labor costs rapidly without negatively impacting productivity.
Identify and prepare leaders and managers for future openings.
Fill “sudden vacancies” in key roles immediately with capable talent.
Maintain a flexible contingent workforce.
Proactively move talent internally to maximize the return on talent.
Target retention activities on key talent.
Identify mechanisms to rapidly hire needed talent.
Increase the overall productivity of the workforce.
Key Programs within Workforce Planning
There is no standard array of programs that define every organizations’ workforce planning effort. No matter what you end up doing, your programs will largely fall into one of two areas.

The first area focuses on increasing organizational capability through talent, and common programs in each area include:

Forecasting the future needs, talent availability, and potential talent problems.
Succession planning and leadership development.
Forecasted recruiting plans.
Workforce innovation management.
Retention planning.
Immediate “backfill” planning (To fill sudden openings in key positions).
Internal re-deployment and “right job” placement planning.
Merger and acquisition integration plans.
The second area focuses on decreasing labor costs, and common programs in each area include:

Contingency/contract labor workforce planning.
Workforce outsource planning.
Reduction in force planning.
Benchmark Firms
In my experience, these are the firms to study:

KLA Tencor
U.S. Marines
Eli Lilly
Booz Allen
Workforce Actions That ‘Fit’ the Current Environment
The most effective workforce plans are not developed over a long period and then implemented all at once. Instead, while some plans are being developed, talent management leaders simultaneously take action to resolve immediate needs.

If your company is struggling in the current economic environment, five of the key action steps that you should consider immediately are listed below.

Action Step I – Labor cost containment/headcount reduction
I am not alone in forecasting the fact that the decrease in revenues that businesses are facing will continue for at least another year. Whether that actually happens or not, it’s always a good idea to prepare for the “worst-case scenario” and hope that your plan is not needed.

Start with position prioritization, a process that identifies which key positions, key individuals, and key skill sets will have the most business impact during the next two years. Once you prioritize, you can then focus on retention, redeployment, and development efforts on the most impactful positions.

A related step is to develop a process to effectively identify and “control” all forms of labor costs throughout the organization (that includes full-time employees, part-timers, contractors, consultants, strategic partner labor, and outsourced labor).

The next step involves developing the capability of reducing “labor costs” and headcount in the lower priority positions. That might include “mock layoffs” and designating lower priority positions as “contingent labor” positions. Other options to consider include labor wage arbitrage (moving labor to lower-cost areas) or outsourcing with contracts that allow you to rapidly reduce outsourcing costs as your needs decrease.

Action Step II – Increase the internal movement of key employees
As business needs change, it’s important to develop processes that don’t leave the internal movement of talent into the “right job” to chance (as most internal job posting system’s do). I recommend that you develop a proactive redeployment process and plan to move your top performers and highly skilled individuals out of less essential business units and into units and jobs where they can have a greater impact.

The goal is to make sure that you don’t have a “Michael Jordan” playing “baseball” within your organization, when his impact would be significantly greater if he was proactively moved into “basketball.”

The right job can be defined as having your top performers and highly skilled individuals:

Doing what they do best;
With the right skill set for the job and business unit;
With the right tools, resources, and motivators;
With the right manager; and
With the right teammates.
Action Step III – Increase the retention of key employees
Most organizations literally “forget” about retention during tough economic times because they assume that their employees will put security over external opportunity.

Unfortunately, that would be a mistake because the seeds for foundation of top performer turnover begin long before they decide to leave the firm. “How you treat your current employees now,” will directly impact their willingness to stay later on when the economy turns around. If your firm has been using hiring freezes, pay cuts, furloughs and layoffs recently, your key employees are likely to be frustrated and overworked. It’s also true that some firms have learned to continue hiring while simultaneously releasing employees.

This “churn” means that recruiters in some industries, firms and regions are still targeting your very best.

The best retention plans first identify the things that excite and frustrate your key workers and then provide a plan for increasing their level of excitement, challenge, learning, and opportunity within the firm.

The last but most important action step is to develop a “bad manager identification program” because bad managers are the number one cause of employee turnover. [For more information on setting up a Bad Manager Identification Program, click here.]

Action Step IV – Reinvigorate your succession plan
If your firm has undergone layoffs, hiring freezes, and reductions in college hiring, you are likely setting up your organization for a future “talent pool gap.” What this means is that by failing to hire and develop talent over a period of even a few years, there simply won’t be enough available talent to fill future management leadership positions when growth begins. This will slow promotions because there just isn’t anyone internally to replace them. This will make the predicted “leadership gap” even worse.

The best course of action is adopt your own “churn” approach to maintain some minimal level of hiring and development to minimize the possibility of any future internal talent pool gap. A related option is to implement a talent SWAP approach, where you continually “troll” for top talent and then replace bottom and average performers only when you find an exceptional replacement.

Action Step V – Prepare to “explode out of the box”
The final action step is to develop a plan that enables your firm to have sufficient talent to enable it to “explode out of the box” the minute that your firm’s revenues begin to turn around. That means retaining your very best recruiters on staff and having them focus on developing Web 2.0 recruiting tools. It’s equally important to maintain the two most-impactful recruiting programs, employee referrals, and employment branding.

Develop a “boomerang” program that tracks and maintains a relationship with the very best employees you must release. The goal is to be able to almost immediately rehire some of the proven talent that you lost.

Final Thoughts
The basic premise of workforce planning is that it’s better to be prepared than surprised. It might seem counter-intuitive to try to plan during times where uncertainty is so high, but that would be a mistake.

During times of turmoil, almost any forecasting and planning will produce higher business impacts than reacting to unforeseen events without a plan. Fortunately, if you’re personally interested in workforce planning, you’re likely to find that no one actually has the formal authority to “own it” at the present time, so you can seize the opportunity and become known as the person who can see around corners. During turbulent times, you will find that no one will be considered more valuable than someone who is not “surprised” by the future!

If unemployment forecasts hold true, Australia will have an oversupply of skilled workers by mid-2010, according to the Clarius Group.

The quarterly Clarius Skills Index indicates that skills shortages across most industry sectors peaked in the December quarter and are likely to fall over the next 18 months.

The Index fell to 103.1 from 103.5 in the September quarter, meaning that in real terms, the gap between positions available and candidates available to fill them shrunk by 10,000. (An Index of 100 indicates equal supply and demand.)

If unemployment projections remain on track – taking the rate to 6.1 per cent by mid-2010 – the Index will fall to the low end of the “balanced” range, somewhere between 99 and 100, translating to an oversupply of between 35,000 and 50,000 people in professional, associate professional and trades categories.

The biggest skills shortages in the past quarter, in descending order, were for:

  • chefs;
  • wood- and metal-related tradespersons;
  • automotive-related tradespersons;
  • health professionals;
  • building and engineering professionals;
  • hairdressers;
  • computing professionals;
  • construction tradespersons; and
  • building and engineering associate professionals.

02 March 2009 8:19am


HR must make the shift from transactional to transformational – driving change within a business instead of just aligning with it – if it wants “a seat at the table”, says the head of global HR consulting at Kelly Services.

Presenting a webinar last week on the challenges facing HR during the current downturn, Lance J Richards urged HR practitioners to embrace some “absolute imperatives” that will help them position their companies for success – now and when the market turns back up.

Even in a time of large-scale job cuts and “disappearing companies”, he says, “the issue of human resources and the issue of talent management is still with us, very much… So for the first time since HR came into existence in the 1940s, we are top of mind”.

All part of a cycle

Richards says the first imperative for HR is to remember that the current market is “just part of a cycle”.

“Economies run in cycles – that has not changed. We have to remember there is a longer-term view. Yes, we have some issues here today, but on a long-term view we still have the issues coming ahead of us.”

The war for talent, he says “has already ended. Talent has won. We are all on the back foot and we will continue to be.”

HR can’t affect the “flatlining” birth rates that are the underlying cause of the global talent shortage, but it has an obligation to understand that the “oops point” – when “the economy is back, business is growing, but the availability of talent is going to drop” – is coming. “We have to understand longer term exactly what this is going to do to us.”

Migrate from transactional to transformational

“We’ve got to look at what we do within our businesses. We have to continue making the migration from HR being transactional to being transformational.”

HR has been focused on trying to be aligned with the business, he says, but “alignment is no longer sufficient. We have an obligation to be not just aligned but interwoven – truly a part of the business”.

“This requires us to look at HR as a completely new platform.”

HR often complains that it doesn’t have “a seat at the table”, he says, but “asking for a seat at the table isn’t going to work. We have got to be involved in designing the table, building the table, and only when we’ve done that will we be welcome at this brand new table and accepted there”.

HR practitioners must understand business and business strategy – what drives the business – as well as they know HR, he says. But for most practitioners, “all we know is HR”.

Ride the dragon

“Change is like a dragon. You can ignore it, which is futile; you can fight it, but you will lose; or you can ride it.”

HR has an obligation “to understand what that means and come in and ‘ride the dragon'”.

For example, he says, HR must understand the changes that Millennials – or Generation Y – are bringing into the workforce.

“They are bringing into the workplace a significant shift. They’re not focused on being with your company for ever and ever, and not necessarily interested in climbing the corporate ladder. These folks are very focused on what they consider to be an engaging workplace. Their demands are not about wanting to be CEO… they are focused on their life. And the challenge we’ve got here… is to provide them with work/life balance. They enter our workforce expecting it.”

Too many companies are still focused on maintaining a nine-to-five culture, “and that becomes a problem with Millennials as they’re coming in. They are not going to tolerate those kind of requirements”.

As well, he says, HR must embrace the “amazing things going on [with technology]”. It has an obligation to “have and build enablers that allow employees to get work done more efficiently”. iPods, for example, can be used for training, and Skype for video calls.

“If we allow workplaces to fall behind, then the talent we need are going to find somewhere else to go.”

Remember Darwin

Darwin’s theory of survival of the fittest – “those that fail to adapt, fail” – applies to HR, Richards says.

“Being good at HR is absolutely necessary, but no longer sufficient.”

Research shows that CEOs believe HR lacks business acumen, and line managers think HR lacks the capacity to develop talent strategies aligned with business objectives, he says. Management also believes that HR isn’t held accountable for the failure of talent initiatives. “That’s a problem. That is a frightening indictment when line managers are telling us these things.”

HR must move away from traditional measures of success – such as cost per hire, mean time to fill etc – and focus on “world class quality”.

“I rarely get clients tell me that their number one concern is ‘how cheap can I do something’ or ‘how fast can I do something’. What our clients are telling us today is they’re essentially focused on quality. They will put up with higher costs, they will understand longer time periods to deliver results, but they will not sacrifice for quality because that is what makes the difference now. And that’s the piece that a lot of HR professionals have not gotten their arms around.”

Take care of employees, including the ones who are leaving

Although employers might currently be releasing employees, says Richards, they must remember that “we’re coming rapidly to the ‘oops point’. The economy will turn up, we know that’s going to happen, and we need to keep that forefront of our minds. We will need our employees – we will need them badly.”

He urges HR to remember “who your former employee may be”, because they might be a vendor to the company; a customer; a competitor; a blogger; an ambassador; or a critic.

The person you’re trying to hire tomorrow, he says, might ask them what they thought about working for you. “What is the answer going to be when your former employee gets that phone call?”


I derived the concept of Talentonomics from the approach heralded in the best-selling book Freakonomics. In this effective and entertaining book, the authors (Levitt & Dubner) demonstrate how a “rogue” approach to economics can be used to explore “the hidden side of everything.”

The premise of the book is simple: use economic concepts and approaches to help explain and understand concepts and relationships that are not normally explored.

I admit that the term “economics” is often an immediate turnoff to those in HR and the field of talent management. In this case, however, there are important lessons.

One primary lesson is that by using a nontraditional approach, any talent management leader can effectively demonstrate the huge business impact of the talent management function.

In fact, it’s my contention that a superior talent management function can have a higher impact on company success than any other single business function, bar none.

Despite the potential for large impact, the talent management function still suffers from relatively low corporate status because too many in the profession lack understanding of the most effective ways to “prove” revenue impact to senior executives.

Definition of Talentonomics: using economic, scientific and statistical approaches to clearly demonstrate the revenue impact of excellent talent management programs.

Impacting Business Results Makes You a Hero

During tough times, there is increased pressure on every business function to demonstrate a direct (positive) impact on business performance. The functions that successfully demonstrate business measures like revenue, time-to-market, market share, and profit receive the majority of the attention and available resources.

Functions that cannot demonstrate such impacts suffer through endless budget cuts, outsourcing evaluations, and budget freezes. In most organizations, there is a relatively clear dividing line between “the haves” and the “have-nots,” and unfortunately, HR is generally on the side of the “have-nots.”



Revenue Versus Costs

The “have-not” business units and functions are generally those that can only demonstrate their impact on the business through efficiency and cost-cutting initiatives (i.e., cost centers as opposed to profit centers).

Take accounting, for example, which focuses on cost-cutting and analyzing “what happened last year,” and as a result suffer from much lower status than the finance function, despite both dealing with numbers and dollars.

Finance is considered more strategic and impactful because it focuses on the revenue side of the profit equation and the future as opposed to the past. The lesson to be learned by talent management and HR professionals is that they need to focus their metrics and “business case” efforts on demonstrating to senior management how “superior” (versus average) hiring, development, and retention actually increases a firm’s revenue and profit.

Incidentally, the costs of talent management are so low (as a percentage of corporate spending) that even major cost-reductions will have almost no noticeable impact on overall corporate costs.

Generally speaking, talent management leaders have failed miserably in demonstrating the revenue impact of talent, but in two industries, the connection has clearly been made.

In professional sports, for example, executives have clearly demonstrated the direct revenue impact of hiring great players and managers. No one would doubt the revenue impact of replacing Homer Simpson on a golf team with Tiger Woods. The best-selling book Money Ball clearly demonstrated the direct impact that having the “right talent” has on winning in sports.

In the entertainment industry, they have also made this revenue connection and are now able to predict the box-office impact of adding an actor like Angelina Jolie, Will Smith, or George Clooney.

In both industries, leaders have done the math in order to demonstrate that the added revenue will surpass any added costs related to hiring top talent.

Those of us who work in talent management and HR intuitively know that great talent management makes a huge difference. In fact, many CEOs have publicly stated that talent is the most important asset.

Unfortunately, their words rarely match their budget priorities! The time has come for talent management executives to abandon their cost-centric approach and their focus on cost metrics, and instead focus on demonstrating how great hiring, succession planning, and other talent management functions directly impact revenue. Surprisingly, proving that relationship is easier than you think.

The Four Steps of Talentonomics

Step 1 — Identify the business impacts that executives care about

Understand which business impact factors executives care the most about. There are two broad categories of business impacts that executives focus on: direct revenue and revenue impact.

Direct revenue/value – these business factors are the most critical to impact.

  • Increase in sales
  • Increase in other revenues
  • Profit margins
  • Profit
  • Share price

Revenue impact – because these business factors eventually lead to increases in revenue, profit and value, it’s also important to demonstrate that you impact them.

  • Product development and innovation rates
  • Customer satisfaction and responsiveness rates
  • Customer attraction and loyalty rates
  • Product brand strength
  • Market share
  • Product quality
  • First entry and time-to-market
  • Productivity and capacity

Of course, every firm defines different measures of success, but if you can prove that your function directly increases the value of any of these factors, your relative importance will increase within the corporate hierarchy.

Step 2 – Show them the money

Another problem that needs to be addressed is the way HR professionals report metrics. For example, almost every organization reports their turnover rate as a percentage (i.e., the turnover rate was 22% this year).

Unfortunately, because the language of business is expressed in dollars, percentages are generally not powerful enough to drive action. Instead, convert all of your major metrics into dollar impacts. So in the turnover example, instead of merely reporting the 22% rate, you would also convert the percentage into the dollar impact of that turnover on revenue (i.e., turnover cost us $28 million in lost revenue).

As a result of the increased attention that they get, converting metrics to dollars is a key feature of Talentonomics.

Step 3– Understand the different ways to prove business impact

There are seven ways to provide some degree of “proof” that a particular talent management program works:

  • Percentage improvement year-to-year. A side-by-side comparison is made between the performance number last year and the performance number this year.
  • Direct comparisons between employees. A direct comparison is made between the performance of “the last” employee and the current one. For example, comparing the performance of a “departed employee” and their replacement in order to demonstrate the value of terminating bad employees.
  • Performance differential. You contrast the performance of an “average” employee to the performance of an employee that performs in the top percentile, in order to show the added value of having top performers.
  • Demonstrate a correlation. Show a direct correlation (statistical relationship) between the increased usage of a tool or program by employees and an increase in productivity, revenue or profit. In reverse, demonstrate that when the usage goes down, so does their output. For example, when the average dollar amount spent on sales training goes up by 5%, sales go up by10%.
  • Before-and-after contrast. Prior to implementing a program, measure employee performance and then after implementation, measure it again to show the contrast in performance. For example, the performance of an executive’s team can be assessed before they were assigned an executive coach. After six months of coaching, the team’s performance could be measured again to show the percentage improvement.
  • Vacancy costs. Track the “lost” dollars in revenue that cannot be generated as a result of a position being open.
  • Split sample contrast. Instead of applying a new talent management program to the entire team or division, instead apply it only to one half and not to the other half (Which is known as the control group). This allows you to demonstrate the relative impact of the program compared to the control group, were nothing has changed. For example, half of the sales team was trained and the other half was not. The “trained” salespeople increased sales by 34%, while the control group had no change in sales.

Step 4 — Focus on the talent management programs that are likely to directly impact revenue

The final step is to identify the talent management programs or elements that are most likely to produce large impacts. In other words, which talent management programs are the easiest to prove (based on past experience) that they actually have a direct and significant impact on revenue?

In this section, I’ll provide examples (by talent management functional area) of some of the possible relationships between improved talent management and increased revenue:


  • Productivity differential from great hiring. Calculating the difference in the on-the-job performance between average performing hires and top performing hires to demonstrate the economic value of hiring and retaining top talent (Example: there is $100,000 monthly sales difference between an average new-hire salesperson and a top 10% new-hire sales performer).
  • Innovation differential from great hiring. Calculate the difference in the value of innovations generated by hires with average qualifications versus hires that exceed qualifications by 20%.
  • Revenue loss due to vacancy. Dollars of revenue lost for every day a position is vacant due to slow hiring processes (in revenue generating and revenue impact jobs).


  • Time to productivity. The dollar value of the increased employee output as a result of the decreased “time to productivity” because of effective onboarding.


  • Departmental output and retention rates. The improvement in the dollar value of the department’s output as voluntary turnover rates decrease.
  • Productivity loss due to turnover. The average difference in the value of the employee output between those that “left” and the replacement employee.
  • Innovation loss due to turnover. Average difference in the value and rate of innovation between those that “left” and the replacement employee.
  • Revenue loss due to turnover. Dollars of employee output lost for every day a position is vacant as a result of voluntary turnover.

Training and Leadership Development

  • Productivity improvement. Average percentage improvement in the “on-the-job performance” after training is completed.
  • Productivity improvement of leaders. Average percentage improvement in the individual and team “on-the-job performance” after leadership development is completed.
  • Departmental output and training rates. The improvement in the dollar value of the team’s output as the percentage of “trained” employees on the team increases.
  • Departmental output and training expenditures. The improvement in the dollar value of the team’s output as the dollars spent on training increase.

Employee Relations

  • Productivity improvement. The average dollar value of the employee’s increased output after an employee relations effort is completed.
  • Performance improvement as a result of releasing employees. Average difference in the value of the employee output between those employees that were “released” and the replacement employee.

Educational Reimbursement

  • Improvement rates. The average dollar value of the increased “on-the-job” performance, faster promotion rates or increased retention rates after the degree is completed.

Overall HR Impact

  • Average revenue per employee. Percentage improvement between this year and last year of the average revenue per employee calculation (i.e. number of employees divided by total revenue).
  • Employee productivity. Percentage improvement between this year and last year of the average number of dollars spent on employee cost per dollar of profit generated (i.e. total employee costs divided by total profit).

Final Thoughts

Talent management and HR professionals are constantly saying they want to be business partners, but they are unlikely to meet that goal unless they become more “businesslike.” That means they must learn to utilize the tools that sales, marketing, supply chain, quality control, customer service, and finance have successfully used to build their credibility.

Talent management must build a strong alliance with the CFO’s office in order to learn their view of the “acceptable ways” of measuring program performance and revenue impacts, as well as to build up the CFO’s staff’s confidence in what you are doing. In tough economic times, all business functions increase their emphasis on metrics, economics, and statistics.

The question is, are you ready to make the change over to Talentonomics?