Companies with high performing HR departments, enjoy 3.5 times the revenue growth
David Woods, August 06, 2012
Companies that are ‘highly skilled’ in core HR practices experience up to 3.5 times the revenue growth and as much as 2.1 times the profit margins of less capable companies, according to new research by The Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA).
Their joint report, From Capability to Profitability: Realizing the Value of People Management, dased on a survey of more than 4,200 HR and non-HR managers in more than 100 countries worldwide across a broad range of industries, compares the practices of high-performing companies against those of lower-performing ones in 22 key people-management areas.
The correlation between economic performance and capability in these 22 HR areas was especially striking in six contexts: recruiting, onboarding of new hires and employee retention, talent management, employer branding, performance management and rewards, and leadership development. In three pivotal areas-leadership development, talent management, and performance management and rewards-the high-performing companies differentiated themselves dramatically. In each one, these companies engaged in more activities and provided more options, did so more often, and were generally more effective.
The study found in leadership development, high-performing companies rely more on leadership models that clarify leaders' expected contributions and behaviour. They also make people development a central element of leaders' job requirements, using incentives such as compensation and career advancement.
In talent management, high-performing companies know that the talent pipeline must extend beyond the successors to top management. Consequently, they offer more development programs for a broader range of talent. They also try to attract more international talent. These companies are proactive with talent reviews and create ample career-advancement opportunities-including horizontal as well as vertical ones. They also do more to nurture employees' individual growth and keep them fulfilled professionally.
And in performance management, high-performing companies treat and track performance with transparency. They recognize the value of fair and transparent measurement and rewards systems in promoting a culture of meritocracy. They more often align and motivate their people with clear norms, expectations, and global standards. They reward behavior, not just results, to a greater degree than low-performing companies.
Rainer Strack, a senior partner at BCG and a co-author of the report, said: "Overall, what these findings reveal is that 'people' companies are far more proactive and more strategic about ensuring they have the talent they need-today and in the future. They fully understand the connection between talent and sustainable performance."
Horacio Quiros, president of the WFPMA and another co-author, added: "We've always believed that companies that have good people-management practices perform better. But we now have uncontestable evidence of this correlation."
Excelling in leadership development, talent management, and performance management, however, is not enough. Being a people company means doing more across the entire spectrum of people management activities, from employer branding to employee retention.
The demonstrable economic benefits of people management have important implications for companies that may be weighing cutting back on the sorts of programs and activities that have a hard-to-quantify return on investment.