The allocation of financial capital has long been recognised as a critical driver of an organisation’s performance. The value of managing and allocating human capital, however, is less widely known. But the results from a new McKinsey Global Survey confirm the positive effects of talent management on business outcomes.
According to respondents, organisations with effective talent-management programs have a better chance than other companies of outperforming competitors and, among publicly owned companies, are likelier to outpace their peers’ returns to shareholders.
The survey also sought to uncover the specific practices that are most predictive of successful talent-management strategy. While there is no one-size-fits-all approach to the effective management of human capital, the survey results reveal three common practices that have an outsize impact on the overall effectiveness of talent management as well as organisational performance.
In the survey, respondents who say all three practices are in place—just 17 percent—are significantly more likely than their peers to rate their organisations’ overall performance, as well as TRS, as better than competitors. They are also 2.5 times more likely than others to rate their organisations’ overall talent-management efforts as effective.
Three drivers of successful talent-management strategy
1. Rapid allocation of talent
At public companies that quickly allocate talent, respondents are 1.5 times more likely than the slower allocators to report better TRS than competitors. The link between rapid allocation and effective talent management is also strong: nearly two-thirds of the fast allocators say their talent-management efforts have improved overall performance, compared with just 29 percent of their slower-moving peers.
2. HR’s involvement in employee experience
A second driver of effective talent management relates to employee experience—specifically, the HR function’s role in ensuring a positive experience across the employee life cycle. Only 37 percent of respondents say that their organisations’ HR functions facilitate a positive employee experience. But those who do are 1.3 times more likely than other respondents to report organisational outperformance and 2.7 times more likely to report effective talent management, though our experience suggests that the HR function’s role is just one of the critical factors that support great employee experience.
3. Strategic HR teams
The third practice of effective talent management is an HR team with a comprehensive understanding of the organisation’s strategy and business priorities. When respondents say their organisations have a strategy-minded HR team, they are 1.4 times more likely to report outperforming competitors and 2.5 times more likely to report the effective management of talent.
The factor that most supports this practice, according to the results, is cross-functional experience. When HR leaders have experience in other functions—including experience as line managers—they are 1.8 times more likely to have a comprehensive understanding of strategy and business priorities. Also important is close collaboration among the organization’s chief HR officer, CEO, and CFO.
Fewer than half of all respondents say those executives work together very closely at their organisations, but those who do are 1.7 times likelier to report a strategy-minded HR function.
The findings also point to the importance of transparency with all employees about strategy and business objectives. Respondents who say their organisations’ employees understand the overall strategy are twice as likely to say their HR team has a comprehensive understanding of the strategy.
Effective talent management—and the practices that best support it—contributes to a company’s financial performance. No one approach works for every company, but
the survey results confirm that rapid allocation of talent, the HR function’s involvement in fostering positive employee experience, and a strategic HR function have the greatest impact on a talent-management program’s effectiveness.
This is adapted from a McKinsey article and the full text can be accessed here.