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Study Finds Link Between Talent Management and Financial Performance

by WorldatWork Staff
July 18, 2007

Is the term “talent management” a fuzzy new catchphrase for tired, old concepts? Or is it a term that defines a dynamic way of thinking about managing key personnel that drives better performance? According to a recent study based on responses from 524 business professionals, the answer depends on how companies use it.

Talent management is a poorly defined and executed concept in many companies, with only about a third of participants rating their organizations as good (30%) or excellent (5%) at managing talent, according to the Institute for Corporate Productivity (i4cp). Just a quarter of respondents said their organizations have an agreed-on definition of “talent management,” and 38% said the phrase is used to a high or an above-moderate degree.

But talent management is associated with performance benefits for companies that manage it well. Companies that define the phrase and use it more frequently are much more likely to see themselves as good at managing talent. More importantly, the study found that these same companies are significantly more likely to be high market performers. Whereas only about a third of all respondents rate their ability to manage talent as good or excellent, nearly half of the best market performers in the survey do.

“It’s no surprise to me that talent management pays performance dividends when it’s done right,” said Jay Jamrog, i4cp’s senior vice president of research. “As the war for talent heats up, more companies will be looking at integrated talent management as their secret weapon to succeed and ultimately outperform. But it has to be more than just a buzzword. It has to become part of the culture of the organization, and the responsibility has to be borne by groups outside of the HR department.”

i4cp’s talent management study shows that companies that identify themselves as good talent managers are also more likely to integrate talent management with other human- capital processes. And they are more likely to believe that all managers, not just HR professionals, are responsible for the execution of talent management.

Jamrog noted that integrating talent management into the culture requires communicating what it means and why it’s important. The i4cp survey shows that the most widely cited strategy for improving talent management is to more effectively communicate its importance.

Participants in the study also helped define what goes into an integrated talent management initiative. The study identified nine primary components:

Leadership development
Career planning
Development of high-potential employees
Performance management
Succession planning
Learning and training
Competency management
Retention
Professional development.

“Understanding what the most important components of talent management are can go a long way toward helping organizations integrate the concept into their cultures and other human capital processes,” stated Jamrog. “Clearly, it’s a lot easier to manage something well if you know what you’re trying to manage.”

The Talent Management Survey was conducted by i4cp, in conjunction with HR.com, in April 2007.

[www.i4cp.com]