Organizational goals and strategy >
Organizational structure and rules >
Workforce Planning >
Policy culture >
Performance Management >
Potential development >
The concept of “talent value chain” provides a comprehensive model to view the processes through which talent is employed and utilised (see above).
Organisations have worked over the years towards efficiently managing and monitoring return on capital and assets. This has been an important role for the CEO and top management in years of boom and downturns.
However, there remains a great deal of ambiguity over the idea of managing talent as an asset. While organisations commit huge investments in talent and incur heavy costs on it, rarely do CEOs have visibility on the returns on talent employed (ROTE).
An organisation makes multiple investments in acquiring and utilising its talent effectively. These are:
Time and effort: The man-hours spent by HR managers and others in an organisation in recruiting and managing talent adds up to quite a lot. And this has a cost attached to it.
Operating costs: The largest human resource costs in a company are in the areas of recruitment, training, staff welfare, travel for HR-related processes and so on.
Overall employee costs: This is an aggregation of cost to the company (compensation and benefits) of all employees. These costs are a part of the profit and loss statement of companies and normally tend to increase over time.
These spends directly hit the bottom line of the company. In times of downturns, organisations look at cutting down these spends to reduce costs. Although obvious and intuitive, this approach to improve ROTE has limited benefits and could prove counterproductive in the long run. Considering that any recessionary or slow growth phase is likely to be followed by a phase of rapid growth and expansion, a reduction in talent investment has to strike a balance between short-term pressures and long-term imperatives.
Companies’ top management have always, knowingly or unknowingly, strived towards improving returns from talent. Their concern and need is to find more comprehensive ways of doing so. But what comes in the way is the absence of a common understanding of what constitutes talent, what kind of returns to expect and what levers must be used to improve ROTE.
Talent constitutes not merely employee numbers but also their capabilities. Hence, ROTE may be defined as the value gained in terms of contribution to business results through effective utilisation of talent and its capabilities while optimally managing talent costs.
An organisation’s strategic goals along with a well-defined organisational structure are the starting point of the talent value chain. Each link in the talent value chain is a talent lever. Specific actions and initiatives under these talent levers are identified and planned leading to development of a “talent strategy”.
Like business strategy, talent strategy addresses the key challenges a company is facing and hence, necessitates a careful examination of business challenges and objectives. It also needs to be adapted and changed to suit changing business environments and goals. Such a talent strategy ensures optimal and appropriate utilisation of talent and hence leads to an improved ROTE.
However, an appropriate and well-articulated talent strategy is rarely found to exist in organisations and hence improved returns on talent seem to constantly elude them. Let us examine three different business scenarios to illustrate the approach that an organisation can use to develop its talent strategy.
Downturn/low growth: An organisation struggling with a downturn or slow growth in its industry is faced with the challenge of optimally managing its assets and costs. Such an organisation should, therefore, employ its talent levers in a manner such that they address this strategic challenge.