Talent pipeline draining growth: Connecting human capital to the growth agenda

This report explores how effective management and measurement of human capital influences an organisation’s ability to implement its strategy and increase growth.

A CGMA REPORT

 

Traditionally, many executives believed that the key drivers for competitive advantage were the cost and quality of the organisation’s products and services and the technologies it used. The contribution of human capital was also valued. However, it was not always seen as decisive.
 
As the world of business becomes ever more international, competitive and volatile, building a successful company that is ready for tomorrow is becoming more and more challenging. In this increasingly complex environment, reliance on product or technology attributes may only provide short-term and first-mover advantages, as they can be easily replicated. To thrive in the long-term, organisations must constantly innovate, evolve and transform. Two of the most critical factors that determine an organisation’s fate in this environment are the quality of its human capital and the way it manages its talent pipeline.
 
The global financial crisis has rewritten the rules of business. In the distressed economic backdrop in which companies operate today, the skills, experience, development and job satisfaction levels of their employees are emerging as major sources of competitive advantage or disadvantage. A recent study by the Boston Consulting Group1, a management consultancy, found that companies that are ‘highly skilled’ in core HR practices achieve up to 3.5 times the revenue growth and as much as twice the profit margins of less capable companies. A PwC2 study of today’s most successful companies also makes it quite clear that for organisations intent on pursuing a sustainable growth agenda, the management of human capital needs to be embedded at the centre of its business strategy.
 
However, a new survey of more than 300 senior executives (CEOs, CFOs and HR directors) conducted by the Economist Intelligence Unit, with the aim of equipping Chartered Global Management Accountants (CGMAs) with information and insight on this key topic, shows that businesses are missing out on performance targets and growth opportunities because of inadequate human capital management. A significant number of respondents cite missing financial targets and failing to innovate due to ineffective human capital management, which suggests that many firms worldwide are not fulfilling their growth potential because they are failing to effectively manage and harness the skills and experience of their workforce. This is mainly due to the lack of information to support decision making, strategy development and investment evaluation.
 
Our survey shows that while most companies understand the importance of human capital, they do not appear to have the right systems, processes and information in place to manage talent effectively. Only 41% of firms are confident that their human capital strategy is truly embedded in their organisation’s strategy. A particularly worrying finding from the study reveals that the most senior business leaders – C-level executives – do not just disagree with each other on critical aspects of talent management, but they also are unclear who should bear responsibility for these issues in their organisations.
 
Key findings from the survey, outlined in detail later, include:
 

1. Inadequacies in talent management are hurting the competitiveness and financial performance of firms.

 

2. There is disagreement and a disconnect at the C-level on strategies for talent development, particularly in relation to succession planning and training and development investments.

 

3. The majority of companies do not seem to be paying adequate attention to succession planning.

 

4. Many of the talent management tools employed by organisations are ineffective.

 

5. There is a lack of clarity on who has the responsibility for measuring the effectiveness of talent management.

 

6. Business leaders are concerned about the quality of data and analytics they receive on human capital.

 
In response to these findings, CIMA and AICPA propose that business leaders take these four key steps to reconnect human capital to the growth agenda:
 

1. Embed human capital strategy within the wider overall business strategy.

 

2. Focus on getting the right information and translating it into actionable insight.

 

3. Leverage the relevant skill set to bring credibility to the data, insights and subsequent actions.

 

4. Structure the organisation to encourage collaboration and partnering.

 

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