Talent: consider cost AND benefit

I read two articles this morning that confirmed a few thoughts in my mind:

1. In a downturn, talent management is MORE important, not less important.
2. The difference between companies that will succeed and those that will fail in these tough times will very often be nothing more than the quality – and engagement – of their people.
3. Companies tend to do very silly things when it comes to their best staff.
4. Companies often only see staff as a cost, without looking at the related opportunity costs or benefits associated with having engaged, talented, experienced, and trained staff available.

Read on and see if you agree with my analysis.

Dateline: 20 February
A majority of companies are increasing or maintaining their 2009 spending on talent management activities despite the current recessionary challenges, according to the 2nd Annual State of Talent Management study released today. The study was produced by the New Talent Management Network whose 800+ members are senior talent management professionals worldwide, in partnership with Development Dimensions International (DDI). It found that 77 percent of companies will increase or maintain their 2009 spending levels in such areas as succession planning, high potential development and executive coaching. Nearly 40 percent of those surveyed plan to increase their spending on talent management activities.

However, the study’s three primary conclusions cast doubt that many companies can build the talent needed to compete. The study found that:

• Talent Management (TM) professionals don’t believe current talent practices are effective. Only 28 percent of TM professionals believe they have enough high potential leaders to meet future needs and less than 30 percent say that their company’s executives would rate any of their company’s talent building practice as always effective.
• A significant shortage of senior talent management professionals exists: Sixty -five percent of respondents said that recruiting high quality TM professionals at the VP level was either very difficult or impossible. Forty-two percent found Director level TM professionals highly challenging to recruit.
• Talent management groups accelerate the growth of senior leaders and executives: TM groups increasingly focus on developing the capabilities of senior leaders and building bench-strength for executive roles. Ninety-three percent of TM groups lead succession planning processes and 91 percent of high potential identification and development processes for senior leaders and executives in their organizations.

Then, read this excellent article from “Colloquy”. I especially enjoyed the case study on Circuit City.

The Talent Wars

With bailouts, layoffs and salary freezes dominating the headlines, marketing to your employees may seem counterintuitive. But downturns are when talented employees matter most. They’re the most innovative, the pivotal performers, the ones who deliver on your brand promise—and when good times return, you won’t want them bolting for greener pastures. Join COLLOQUY as we recognize and reward your best employees.

by Rick Ferguson and Bill Brohaugh

In the annals of boneheaded corporate moves, surely the March, 2007 firings by Circuit City of 3,400 of its “highest-paid” store employees must rank among the all-time greats. At the time, the company said it needed to replace expensive employees with cheaper workers to shore up the bottom line. But 60 percent of the fired employees were front-line salespeople—and when Circuit City later posted a first-quarter loss, analysts were quick to blame the job cuts for the retailer’s troubles.

“This is clearly why April sales were worse. They were replaced with less knowledgeable associates,” Jefferies & Co. analyst Tim Allen told the Washington Post. Turns out that those expensive salespeople were instrumental in selling computers and flat-screen televisions to cautious consumers.

It’s easy, of course, to speak ill of the dead. While there were other economic forces at work that drove the retailer to file for bankruptcy at the end of 2008, we wonder if anyone on Circuit City’s executive team read a June 2008 study released by the University of Pennsylvania’s Wharton School. The study showed that, between 1998 and 2005, stock in companies on Fortune’s “100 Best Companies to Work for in America” list enjoyed on average a 14 percent annual return, while the general market returned just 6 percent.

It’s safe to say that most of those companies on Fortune’s list wouldn’t have pulled a Circuit City. More companies are realizing that, in a downturn, talent retention actually becomes more important. A recent PricewaterhouseCoopers report, Managing people in a changing world: Key trends in human capital identifies a new trend in talent management in which successful companies shift their employee retention resources toward pivotal employees. These associates, who can range from receptionists to frontline staff to sales directors and numerous other positions, have a “disproportionate impact on determining both the success of an organization and its sustainability.”

So just as the 80-20 Pareto principle applies in the consumer world, so too is a small segment of your employees responsible for the lion’s share of your success, and thus deserves the lion’s share of your attention. Some companies resist this concept on grounds of egalitarianism—”all of our employees are special.” But to paraphrase Dash from The Incredibles, saying that everyone is special is just another way of saying that no one is.

The talent wars
As the unemployment rate approaches double digits, having a job at all might seem a sufficient employee motivator. Don’t count on it. Good people retain career mobility even in tough times—if the writing is on the wall, your best performers may leave before layoffs even happen. So even as the latest layoff reports are filled with such blue-chip names as Home Depot, Macy’s, Microsoft, Sprint Nextel and others, are there still good reasons to focus on employee retention? Let’s count them. As Jeffrey Fina, Vice President for employee recognition firm Michael C. Fina, says, “There’s a war for talent out there.”

Preserving institutional memory. Retaining your top performers pays out both in the short term, by helping to avoid Circuit City-style meltdowns, and in the long term, by retaining their expertise, skills, contacts and relationships. When experienced employees leave, your business can soon develop a corporate version of Alzheimer’s disease as best practices erode and old mistakes reoccur.

Controlling acquisition costs . Employee acquisition, that is. Replacing departed employees costs real dollars, even if experts don’t always agree on what those costs are. The Bureau of Labor Statistics calculates that, on average, replacing a salaried employee costs $13,996. Incentive magazine puts the figure for replacing top performers at around $50,000. A safe rule of thumb pegs the cost at 50 percent of the departed employee’s annual compensation for hourly employees, and increasing salary multiples for higher-tiered positions.

Reducing customer attrition. Of course, the costs don’t end with employee replacement. “When staff defects, customers are soon to follow,” writes Customer Retention Associates’ Michael Lowenstein in Customer Relationship Management . “Recent customer defection studies have shown that roughly 70 percent of the reasons customers leave can be traced back to staff turnover.”

Maintaining brand loyalty. In the U.S., the brand is king. But companies often forget that fulfilling their brand promise depends as much on their front-line employees as it does their television commercials. A 2008 CEO survey conducted by Vantage Research concluded that “Customers are only slightly more loyal to a company’s product and services than they are to its employees.”

Enhancing the customer experience. A 2008 Accenture study reported that 73 percent of consumers had switched at least one provider in the last year because of poor service. Half have switched providers in multiple industries—and each time they took approximately $4,000 of business with them. The trend is on the upswing: A 2008 RightNow/Harris Interactive report notes that 87 percent of consumers abandoned a business after a bad customer experience, up from 68 percent in 2006.

Enter Business-to-Employee (B2E) marketing. Employee incentive programs have been around as long as there have been employees to incent, but new approaches to employee retention are revolutionizing the concept. Recognition and reward strategies developed in consumer marketing—data collection and analysis, dialogue marketing, and targeting individual bonus offers based on employee segmentation—are now being deployed by companies who understand that the first step in building enduring customer loyalty is to build enduring employee loyalty.

“New thinking that is surfacing today suggests there is abundant justification for organizations to look in a completely new light at how they motivate their employees,” writes Dr. Mitzi Desselles, Director of Employee and Consumer Research at the international management development organization Apter International, in her white paper, Seeing Employees as Customers: The Secret of Maximizing Business Success. “The basis of this new thinking about employee motivation is founded on the idea that organizations can gain great benefits from adopting many of the sophisticated techniques that marketing has developed for winning and retaining customers. These techniques can then be adapted into a concerted approach to winning and retaining the hearts, minds and energies of employees.”

Source: http://www.colloquy.com/article_view.asp?xd=5693

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