Talent Management: From Competencies to Organizational Performance

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May 8, 2008 - Consortium Benchmarking Study by the American Productivity & Quality Center. Subject Matter Expertise by the Center for Creative Leadership.

Executive Summary Dickens opens his classic A Tale of Two Cities, "It was the best of times, it was the worst of times." Companies in today's market face a similar paradox with regard to talent. In uncertain economic times characterized by layoffs, salary freezes, bonus losses, and 401K implosions, while also at the height of a boom when talent can name their price, talent management is absolutely critical to help an organization perform at its peak. As stated by David Stum, president of AON Consulting Loyalty Group, "Whether we have a recession or the economy is booming, talent management is going to be at the top of every CEO's list of priorities. If you can't keep your talent, you're not going to weather the storm, or in good times you're not going to be able to take advantage of the advantage you've got” ¹.

Many organizations indicate that their attempts to integrate recruiting, hiring, staffing, development, and retention into a holistic, systematic process have failed to adequately prepare for the impending brain drain. “Although the size of the work force is projected to grow by 12 percent between 1998 and 2008, the number of 25 to 44 year-olds¾the demographic segment that will supply companies with their future leaders¾will decline by 6 percent during the same period” ². Creating a culture where senior leaders focus on finding, developing, and retaining the right talent to drive performance becomes even more critical in times of shortage.

Talent management (i.e., competency development, recruitment, staffing, development, retention, and evaluation of talent) has moved to the pinnacle of many organizations’ objectives, along with generating revenue and managing costs, because they need the best talent in order to produce more, with higher quality, at greater profitability. The best organizations link the critical owners of talent—senior leadership, HR, and line management¾together to drive that improved performance.

Failure to connect the various owners and activities of the talent management and development chain in either the best or worst of times can lead an organization to inconsistent and haphazard performance. This benchmarking study examined how best-practice organizations design competencies, tap into the talent pool, engage senior leadership to shepherd the talent, use technology, and tie the critical aspects of talent management together to show consistent business performance improvement. The study focused on four scope areas.

1.  Senior Leadership’s Role in Talent Management

• Structures and processes to take responsibility for and manage talent
• HR’s role and ability to engage senior leadership
• Coaching and mentoring

2.  Finding Talent

• Developing effective competencies
• Assessing capabilities
• Recruiting/Staffing the right talent/leadership
• Utilizing technology systems

3. Driving Talent to Performance

• Developing/Engaging talent
• Evaluating the success and performance of talent
• Retaining talent
• Linking talent management to business needs

4. Gauging the Results of Talent Management

• Measures to evaluate talent management’s effects on performance
• Development tools that lead to the best results

Overview of Findings and Insights

The American Productivity & Quality Center (APQC) study team discovered the following overarching patterns, insights, and findings from the analysis of the detailed questionnaire and site visits to the study’s best-practice organizations. The approaches taken by the partners provide many insights into how their organizations are attracting, developing, and retaining vital organizational talent.

Best-practice organizations:

1. Define “talent management” broadly. Comprehensive definitions may include competency model development, work force planning, talent gap analysis, talent reviews, succession planning, recruiting, staffing, education and development, retention programs, and evaluation of these processes.
2. Integrate the various elements of talent management into a comprehensive system. An overall talent management framework, a competency model consistently used across elements, opportunities for the various stakeholders to work together, the use of data from one process as input to other processes, and partnerships between HR and line managers are all mechanisms used to foster integration.
3. Focus talent management processes on their most highly valued talent. Typically, more talent management attention is given to managers and to professionals in core functions.
4. CEOs and senior executives are committed to and invest their time in talent management work. In addition to championing talent management as a strategic imperative for the organization, these leaders: provide policy direction and guidance for talent management initiatives; engage in succession management activities; review and assess talent across the organization; spot talent and evaluate performance in their own groups; teach, develop, and coach others; and make a special point of getting to know and develop high-potential employees across the organization.
5. Build competency models to create a shared understanding of the skills and behaviors that the organization needs and values in employees. These models are developed with involvement from senior leaders and are backed up with detailed descriptions of expected skills and behaviors, often customized to different organizational levels.
6. Monitor talent system-wide in order to identify current or potential future talent gaps. Work force planning and talent pipeline analysis are tools used to assess the dynamic aspects of talent flow through the organization. Data collected through talent reviews conducted at successively higher levels of the organization provide another gauge on talent gaps.
7. Excel at the following processes:
• Recruiting top talent¾These organizations have established a “talent brand” for attracting external talent, tailor recruiting methods to the pool of targeted recruits, and use HR-line partnerships to ensure that recruiting meets the needs of the business lines.
• Identifying talent¾Whether hiring externally or staffing internally, these organizations use multiple, rigorous assessment methods to identify talent. Processes are also in place to identify employees who have high potential to succeed at the next major level of management responsibility.
• Developing talent¾Although developing employees at all levels is emphasized, development strategies are tailored to particular organizational levels, and special initiatives target high-potential employees and managers transitioning to higher-level positions. Development methods that integrate work and learning (i.e., assignments, action learning, and real-world case studies) are seen as most impactful.
• Performance management¾Employee performance—both outcomes and results and behaving in ways reflecting valued competencies—is regularly assessed. The importance of honesty with all employees in providing them developmental feedback is recognized. Performance evaluations are directly linked to compensation decisions.
• Retention¾The loss of talent is regularly monitored through turnover analysis. Primary retention strategies include competitive pay, long-term incentives, opportunities for development and advancement, flexible working arrangements, and opportunities to take on significant responsibility early in a career.
• Regularly evaluate the results of talent management. The outcomes of the overall process and of individual components are evaluated using multiple methods and indices and are communicated to business units.

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¹ Hannele, Rubin. “How CEO’s Get Results.” Chief Executive, February 2001.
² The War For Talent, Ed Michaels, Helen Handfield-Jones, and Beth Axelrod, 2001.

Project Team
Rachele Williams, project manager
Wesley Vestal, special adviser
American Productivity & Quality Center

Subject Matter Expertise
Cindy McCauley, Ph.D.
Senior fellow, Center for Creative Leadership

Special Adviser
Jay Conger, Ph.D.
Senior research scientist, Center for Effective Organizations, University of Southern California

Editor
Paige Leavitt