Tackle the talent gap by meeting five challenges

Employers’ difficulties in finding and keeping the right talent are widespread and well-known: Companies worldwide are dealing with a talent gap even in countries with high unemployment, and many are unable to achieve financial targets because of inadequacies in their talent management.

Suggestions abound on how to cope with this challenge. To overcome the dilemma, businesses need to fundamentally change how they think – especially companies in developed markets, according to Ernst & Young research.

“They realize the importance of a global mindset but are unable to implement effective mobility or diversity strategies, and although they recognize the need to obtain the best talent, very few are investing enough to do so,” E&Y says in the report, Paradigm Shift: Building a New Talent Management Model to Boost Growth.

E&Y looked at how high-performing and low-performing survey respondents dealt with the five main challenges of today’s talent management:

1. Talent management must keep pace with corporate workforces that are becoming more global. High-performing companies are getting away from the hub-and-spoke model of a strong headquarters and weak subsidiaries, the E&Y survey showed.

That means 49% of managers at high-performing companies give their direct reports more freedom to make decisions, compared with 35% of managers at low-performing companies. Forty-six per cent of high performers said the roles of manager and direct reports have become more flexible, compared with 34% of low performers.

A CGMA report suggests that traditional incentives such as performance-based bonuses and personal development programmes are less effective than training and education.

2. To achieve superior financial results, companies must invest strategically in talent. Even high performers could do better with this challenge, according to E&Y.

Forty-five per cent of the high performers say their investments in talent management are adequate to meet financial targets. Among low performers, it’s 36%. The reason so many companies are not meeting this challenge may be a disagreement at the top of companies over how to best develop talent.

A CGMA report showed that chief executives planned to cut spending on workforce training (77%) rather than increase spending on training (8%). Human resources directors were more inclined to say their companies would increase spending on workforce training (36%) rather than cut it (18%). CFOs were caught in the middle – 16% agreed spending would increase and 49% said it would decrease.

3. Companies need to measure what distinguishes effective talent management. High-performing and low-performing respondents considered employee satisfaction and retention rates important to assess how effective they were in managing talent, E&Y reported.

But that could be a misleading indicator, according to Tammy Erickson, an organisations consultant quoted in the study. “The fact that you were able to coax some mediocre person to stay with you for 20 years, even though [that person was] never really qualified for any of the jobs you asked [that person] to do during that period, is a pretty useless statistic,” she told E&Y. “What you really want to know is whether there is a gap between the person who filled the job and the ideal qualifications that the position requires.”

In the E&Y survey, 26% of high performers and 18% of low performers think the extent of skills gaps in their workforce is an important determinant of effective talent management.

Senior executives seem to be aware that their data on human capital is lacking, the CGMA report suggests. Only 12% of the survey respondents were confident about the quality and usefulness of the data they receive.

Who is responsible for measuring the effectiveness of talent management is often unclear. Sixty-five per cent of chief executives see the CFO as the natural lead, but 83% of human resources directors consider talent oversight as their job, according to the CGMA report.

4. To lead a business more effectively in an international environment, senior executives’ soft skills are more important than their industry, technical expertise and grasp of financials. The E&Y survey determined that high performers do a better job nurturing critical soft skills among their leadership. Among high performers, 44% said their senior executives can articulate and embody the values and culture of the organisation, compared with 37% of low performers.

In the CGMA survey, 46% considered people management skills important for chief executives. Thirty-seven per cent considered them important for CFOs and 54% for human resources directors. Twenty-two per cent considered strategic vision and the ability to implement strategy an important skill for chief executives. It was a more important skill to have for CFOs (36% agreed) and an even more important one for human resources directors (71% agreed).

5. Companies need robust succession plans to identify the next generation of leaders. Fifty-four per cent of high-performing companies said they have a strong pipeline of future leadership talent, compared with only 43% of low-performing companies, according to the E&Y report.

And companies are even less optimistic that they will find future leaders with sufficiently diverse experience and backgrounds – 45% of high performers compared with 36% of low performers.

The CGMA report suggested that a majority of companies do not pay adequate attention to succession planning. Fifty-one per cent of senior executives said their companies do not have a formal succession plan for C-level roles.

Related CGMA Magazine content:

“Poor Talent Management Hinders Companies’ Growth, Innovation”: Inadequate talent management is hindering the competitiveness and financial performance of businesses, a new CGMA report suggests.

“Finding the Right Talent Is an Issue for 59% of Employers Worldwide”: The likelihood of employees changing jobs in the next six months continues to rise, and the skills of employees frequently do not match job requirements in emerging countries.

“Shortage of Talent Top Concern Among Employers Worldwide”: Finding the right talent is a big problem for companies worldwide, despite easy access to a large pool of educated people and opportunities to outsource. The problem is most acute in knowledge industries and heavy industry. See how companies say they’re addressing the challenge.

“Talent Pipeline Draining Growth: Connecting Human Capital to the Growth Agenda”: Global executives are becoming increasingly aware of the importance of human capital and talent development, but a lack of effective management in this area hinders growth, competitiveness, financial performance and innovation.

“Study Finds Early Warning Signs for a Looming Global Talent Imbalance”: Companies are overhauling their business strategies to adjust to the rise of emerging markets. But demographic trends will add new challenges over the next five to ten years, specifically in talent management.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.