Leadership Metrics

The Power ofHR: Stats andResearch

The following stats make a strong case for excellence in leadership development and talent management. Knowing the stakes and potential ROI can help you focus your efforts:

  • what to shoot for, how hard to work on it, and what kind of results are possible
  • what can and should be measured
  • benchmarking your results (could you be achieving more?)
  • making the case, i.e., establishing the value that HR can add to your organization
  • what kinds of things you can proactively design your programs to achieve

I am hoping these stats—and I am just scratching the surface here—will be an inspiration for you and something you can use to inspire and educate other leaders in your organization.

Talent management is not merely a job for HR. All leaders are responsible for (i) the talent on their teams and (ii) helping HR do the hard work of developing future leaders.

It is very interesting for me to see how old these sources are, i.e., how long we have known this stuff. Time for our actions to catch up with our knowledge!

Research, Validation, ROI:

The McKinsey study The War for Talent found that firms with leadership depth were much more profitable than those without it. And yet, one recent Conference Board study found that only 54% of companies felt they had the leadership necessary to respond to change, and only 8% of executives rated overall leadership as excellent. (War for Talent, Harvard, 2001)

Companies with above-average leadership bench strength enjoy above-average 36-month revenue growth relative to industry peer group. (Corporate Leadership Council)

A landmark study in 1997 showed companies that scored high in their ability to manage highly talented employees earned a 22 percent higher return to shareholders than their industry peers. Companies that scored low in talent mgt. created earnings on par with their industry peers. (McKinsey & Company, 1997)

A study of the importance of “intangible” factors found that the quality of a firm’s human capital is one of the four most important determinants of a firm’s future financial performance. (Low & Kalafut. Cited in Bassi et al., “The Impact of U.S. Firms’ Investments in Human Capital on Stock Prices”)

In a broad industry study comparing the top 1 percent of producers in medium complexity jobs to those in the bottom 1 percent, it was revealed that producers in the top group outperformed those in the bottom by approximately 1,200 percent. In essence, one top performer generated the combined output of 12 bottom performers. (Hunter, Michigan State University, Schmidt & Judiesch, U. of Iowa: 1990)

Companies that manage people right will outperform companies that don’t by 30% to 40%. (Jeffrey Pfeffer)

A study by the Gallup organization found that the quality of management was a key factor in determining employee retention, customer satisfaction, and productivity.  (www.mcbassi.com)

73% of companies that outperform their peers have a formal process for communicating strategy to employees. Strategy execution is the #1 concern of CEOs worldwide. And yet only 12% of companies successfully execute their strategy. (2006 Balanced Scorecard Collaborative Survey; The Conference Board, 2007; CEO Challenge; Balanced Scorecard Collaborative & Cognos study, 2006)

In the McKinsey War for Talent surveys, 93% of leaders strongly agreed that managers should be accountable for the quality of their people and yet only 3% strongly agreed that managers in their organization were in fact held accountable for the quality of their people. (War for Talent, Harvard, 2001)

In 1997 … 71% of the respondents [to a McKinsey survey] said that candid feedback on their performance was essential or very important to their development, but only 32 percent said that their companies provided such feedback effectively.  Last year, an even greater proportion of the respondents—89 percent—said that candid feedback is important, but just 39 percent said they had received it. (The War for Talent, Part Two, McKinsey)

According to a study conducted by the Corporate Executive Board in 2006, rising leaders reporting to senior leaders who are very effective at developing other leaders outperform their peers by as much as 27%; put forth 18% more discretionary effort; are 25% more likely to stay; and are 25% more committed to their organizations. And yet nearly eight out of ten senior leaders say their organizations are only mildly effective at showing them how to prepare rising leaders for more senior roles. (Corporate Executive Board in 2006)

An American Society of Training & Development study on the value of training, found that companies with well-designed training program had on average 57% higher net sales per worker; 37% higher gross profits per worker; 20% higher ratio in market-to-book values. (ASTD)

Properly designed learning initiatives can generate ROI of between 150% and 2,000%. (Cases in Jack Phillips, ed., Measuring ROI, ASTD, 1994) –NOTE: Advanture can show you how to achieve those kinds of numbers.

Audit reports show that when we train the right people, transfer the knowledge and skills back to the [work] environment, and the managers change their own behavior by reinforcing the use of these skills, we got a $30-35 return for every training dollar spent. This is the best return on capital that we get in any of our investment schemes. (V.P. Finance, Motorola)

According to most studies, the cost of employee turnover typically ranges from 50%-150% of annual salary—and even more for strategic positions. Pierre Mornell’s research found the cost of management turnover often runs at 200-300% of annual salary. A slight improvement in employee or management retention can have a substantial positive economic impact. (See my blog on where all those costs come from.)

Some stats on the value of employee engagement:

Mean number of days missed by employees due to stress or fatigue within the previous six months:

  • High engagement companies: 1.03
  • Low engagement companies: 2.17

Percentage of employees who reported being affected by stress within the previous six months:

  • High engagement companies: 28%
  • Low engagement companies: 39%

Percentage of employees who reported they were in good health within the previous six months:

  • High engagement companies: 56%
  • Low engagement companies: 40%

Return on investment at high engagement companies versus the S&P 500 (2001-2006):

  • High engagement companies: 600%
  • Low engagement companies: 250%

(Source: Report on Small Business, The Globe and Mail (June 2009), p. 33; Double Digit Growth survey, Hewitt Associates / Michael Treacy; Gurnek Bains, Meaning Inc.)

In conclusion:

Research and experience show that the quality of leadership affects:

  • Employee engagement and productivity
  • Work quality / errors
  • Talent attraction, development, and retention
  • Customer service levels and customer retention
  • Development and execution of strategy
  • Profitability, margins, and growth
  • Stock price / PE multiple / market cap

What are you doing to achieve these kinds of results? Are your talent management and leadership development efforts proactively designed to achieve results in these areas?

Three especially important sources are—great places to start:

  1. Bassi , Harrison, Ludwig, and McMurrer, “The Impact of U.S. Firms’ Investments in Human Capital on Stock Prices” (June 2004), www.mcbassi.com.
  2. Heskett, Sasser & Schlesinger, The Service Profit Chain: (The Free Press 1997).
  3. Becker, Huselid, and Ulrich, The HR Scorecard (Harvard Business School Press, 2001).

Always start by identifying what you want. If you know what you want, you have a much better chance of getting it.

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