New Year, New Measurement Challenges

According to an April 2010 survey, talent management measurement efforts look grim, but there are steps organizations can take to create meaningful, useful data in the new year and beyond.

The definition of talent management has become a bit like Justice Potter Stewart’s definition of pornography: “I know it when I see it.” While reasonable minds can disagree on subtleties, at the core, talent management is about the attraction, retention and development of employees. Measuring talent management effectiveness requires knowing the answer to questions such as “Is the organization attracting better quality applicants?” or “Is the organization retaining its most productive employees?”

With this general talent management definition in mind, the Institute for Corporate Productivity (i4cp) launched a study in April 2010 to understand how organizations were measuring the effectiveness of their talent management efforts. More than 400 business and HR professionals participated in the Talent Management Measurement survey, which yielded a dreary snapshot of the current state of the field.

A Sad State of Measurement Affairs
There is an obvious disconnect within organizations between awareness of the need for good talent management measurements and the willingness to invest what is needed to create actionable measurements. As an example, while 75 percent of respondents reported to a high extent that they should use quality of hire measures to manage talent better, only 16 percent actually do (Figure 1). Looking at high- and low-performing organizations does not change the picture substantively. Seventy-nine percent of high-performing organizations believe they should use quality of hire measures, but only 22 percent are in fact using these measures to a great extent.

Examining the retention measurement results reveals a similar picture. Only 27.5 percent of survey participants measure high-performing employee separation rates, while nearly 60 percent believe they should be measuring the rate at which high-performing employees are leaving the organization (Figure 2).

On the investment side of the equation, just 26 percent of survey respondents believe their organization has enough personnel dedicated to the measurement of talent outcomes. Roughly 21 percent of participants feel their organizations have adequate infrastructure, technology, budget and time devoted to measure talent management effectiveness (Figure 3).

These survey results might not feel like news; organizations have struggled to successfully measure their people resources for more than 40 years. With so few organizations actually measuring the effectiveness of talent management, a fair question might be “Why bother?”

While it is true that relatively few organizations are measuring the effectiveness of talent management, there are positive correlations between high-performing organizations, specific measures and measurement practices. While correlation does not mean causation, it does mean there is a significant relationship between these measures and high market performance (Figure 4, page 48).

In addition to specific measures, the study revealed two “next” practices. A next practice is defined by i4cp as something few organizations do, but something that has a high correlation or can predict market success.

First, only 20 percent of respondents reported that their organizations had a workforce management strategy, but it is correlated to high market performance. Second, 37 percent of organizations gauge the success of their talent management processes by monitoring leadership success, but regression analysis revealed this practice is predictive of high market performance (adjusted R2 = 0.07).

Surprisingly, some often heavily debated measurement practices such as frequency, the technology solution used and who calculates the measures were not statistically different, meaning there is no right answer to the question “Should our organization report monthly or quarterly?” or “Should HR or the business be responsible for calculating the results?”

The Talent Management Measurement Conundrum
HR leaders understand the need to share talent management success stories with their organizations. The most effective evidence when building the story is data. The conundrum is that to secure resources to measure talent management effectiveness, talent managers need evidence that talent management positively impacts the organization, but gaining this evidence requires dedicated resources.

Other factors compound the conundrum. First, it is intuitively challenging to directly make the link between talent management activities and bottom-line impact. There is an extended time delay between talent management activity and people investments and when an organization will reap the benefits. In some cases, it can take years to develop a leadership bench or to see the impact of a new strategy. Second, it is during this time delay that many intervening events take place that make proving causation almost impossible.

Organizations are not likely to run their employees through investigative trials to obtain scientific evidence that one talent management practice is better than another or doing nothing at all. Even the rare organization that might consider such an activity would struggle to apply the results because the business environment is so dynamic. Can a talent manager say a practice that worked three years before the financial crisis will have the same impact in today’s “new normal”?

Solving the Measurement Challenge
Organizations that believe they can gain a competitive advantage through their talent are not staying idle waiting for a solution to appear. Interviewing dozens of companies, i4cp identified three techniques organizations are using to answer the question “How is our talent management doing?”

Define the organization’s criteria for talent management success. At first blush, defining a quality hire seems obvious, but for different roles or the same role in a different organization there can be vastly different answers. This is a major reason benchmarks on talent management effectiveness are uncommon.

For example, an organization that invests heavily in assessment tools or other selection devices will expect the retention and productivity of hires to be much higher than an organization that hires for culture fit and expects employees to wash out in the first 90 days. These differences in approach make benchmarking nearly impossible.

Even within an organization, expectations for roles such as clerical staff, engineers and executives are quite different, from cost to recruit to time to full productivity.

Segment talent management effectiveness measures. The most successful organization provides a macro-statistic for comparative purposes as a guide to understand how segmented measures contrast to overall results, or it does not provide a macro-result at all. There are three advantages to the former approach.

First, it is easier to measure a segment of the workforce. In many cases, no expensive technology is required; all that is needed is a spreadsheet. Defining and isolating the segment can be a challenge, but once the population is understood, the calculations are relatively straightforward.

Second, as Einstein is often quoted, “Not everything that can be measured counts.” Many organizations conserve their limited resources by identifying the employee populations where a clear success criterion has been identified. Management prefers a prioritized view over a phone book of statistics.

Third, to get to the heart of measuring talent management outcomes, detailed and qualitative data is needed. Data that is not collected for all employees or that would be overwhelming to assemble broadly is not a requirement. By segmenting the employee population and limiting measurement to those groups with clear outcomes, manually adding additional data elements is no longer an overwhelming prospect.

Regularly and routinely review talent management effectiveness measures. The organizations that can answer the question “How is our talent management doing?” regularly produce a workforce report and share the data with the executive team and the entire HR function. The April 2010 i4cp study showed a positive correlation between market performance and organizations that distribute workforce data to the executive team. Only 26 percent of survey respondents share workforce data with all of HR, but sharing this data is a step toward achieving integrated talent management.

As organizations look forward to 2011 with a clean slate, this is the year to develop a workforce measurement strategy with an empowered owner. The owner can be a champion from the business, a talent manager or a steering committee. For example, at Liberty Mutual Group, the executive team acts as the owner and approves any changes to the data dictionary, which limits the number of changes.