Report: Investment in talent leads to faster revenue, profit growth

Rewarding, retaining, and developing talent not only helps companies grow institutional knowledge and develop consistency, but it also helps those companies avoid having to recruit and hire new talent, which is a costly endeavour.

A new report by The Boston Consulting Group goes one step further, quantifying revenue and profit gains for organisations that improve their leadership and talent management programmes.

Companies with strong leadership and talent management practices increase their revenue 2.2 times faster and their profits 1.5 times faster than companies with weak practices, according to a survey of global companies.

“Leaders have long known that people are their most important asset but have not known how to quantify their impact,” Vikram Bhalla, a senior partner and managing director at BCG, said in a news release that announced the firm’s Global Leadership and Talent Index (GLTI).

The top 5% of companies in the index, labelled “talent magnets,” substantially outperform the bottom 5%, the “talent laggards.” Average performers on the GLTI increased revenue 1.4 times faster and profit 1.2 times faster than talent laggards, showing that even a slight move up in talent-management maturity can yield meaningful returns.

Between talent laggards and magnets were four equal-size groups: low performers, average performers, high potentials, and high performers. At each successive performance level, revenue rose by an average of 15% to 20% and profits by 5% to 15%, BCG said.

The BCG report said that three leadership and talent-management capabilities correlated most strongly with business performance:

• The ability to translate leadership and leadership plans into clear and measurable initiatives.
• Significant time devoted to leadership and talent management by company leaders.
• Leadership accountability for talent development.

What is talent management?

The report divided leadership and talent-management capabilities into six categories:

1. Strategy: Planning leadership and talent needs over short and long terms and keeping those plans in line with the company’s strategy and aspirations.
2. Leadership and talent model: Defining clear leadership competencies and embedding those competencies in development, reward, and other processes.
3. Talent sourcing: Finding leaders and talent inside and outside the organisation; developing an employer brand; and managing and developing successors.
4. People development: Systematic nurturing with development opportunities, training, and tools.
5. Engagement: “Fostering meritocracy,” especially amongst leaders and top talent.
6. Culture: Requiring top leaders to take responsibility for leadership and talent management by adhering to corporate values.

The report used responses of 1,263 executives from 85 countries to create the index.

Related CGMA Magazine content:

“Companies Aware of, but Not Acting On, the Need to Alter Engagement Strategies”: Most companies are aware of the need to focus more on employee engagement, but few say they are doing enough to adapt to coming changes, according to a global report by Hay Group.

“Leadership Pipelines May Be Running Dry”: Almost half of human resources leaders say leadership development is their top priority, according to a global survey. Many HR leaders say their companies are increasing their spending on talent development, as few have confidence in their leadership pipeline to fill critical openings.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.