Organisations with an effective HR function generate revenues that are up to 3.5 times higher and profits that are about 2.1 times greater than rivals, according to research.
The report entitled ‘From Capability to Profitability: Realizing the Value of People Management’ revealed that the highest performing companies excelled in leadership development, talent and performance management activities:
Leadership development – Expectations in terms of contributions and behaviour were made clear to leaders. People development was also made a central tenant of their job specifications, using incentives such as compensation and career development opportunities.
Talent management – Development programmes were offered to a broader range of people than simply the usual successors to top management, with efforts also made to attract international talent. Proactive talent reviews and ample vertical and horizontal career progression opportunities were likewise provided in order to nurture employees’ individual growth and ensure that they were fulfilled professionally.
Performance management – Fair and transparent measurement and rewards systems were used to create a meritocracy, in which clear norms, expectations and global standards were aligned with business goals but also acted as motivators. A key concept, however, was to reward behaviour rather than simply results.
But to perform well in these three disciplines was still not sufficient in and of itself to come out on top. Instead, to be truly effective, it was necessary to integrate such practices and adopt a broad-based, more holistic approach.
Jean-Michel Caye, Boston Consulting Group’s senior partner and co-author of the report, said: “It’s not enough to carry out people management activities in a linear and separate fashion. There is an integrated logic in how a company builds, for example, its talent management, leadership development and performance management efforts.”
The “demonstrable economic benefits of people management” also had important implications for employers that were evaluating which initiatives and activities to cut due to a hard-to-quantify return on investment, he added.
Rainer Stack, another BCG senior partner and report co-writer, pointed out that so-called ‘people companies’ were likewise “far more proactive and more strategic about ensuring they have the talent they need – today and in the future”.
This was because they fully understood the “connection between talent and sustainable performance”, he added.