Talent management's role in a time of recession

Economic downturns and recessions threaten the HR budgets that underpin effective talent management. Three recent research studies shed light on how talent management is surviving and evolving during the recession, and how it could help employers take best advantage of an upturn.

The recession has changed the "war for talent" into a fight that HR has to win on two fronts. It faces a rearguard action, with the pressure to cut costs - and, increasingly, jobs - that threatens to reduce its ability to recruit and retain the best staff, and the pressure to ensure that staff are trained to achieve optimum performance.

At the same time, HR staff must help their organisation respond to the frontal assault from competitors and the marketplace. Although there are the immediate challenges of the recession to contend with, as soon as the economic recovery begins there will come a time when opportunities need to be seized.

Talent management can play a pivotal role in helping HR to ensure that employees have the motivation, skills and knowledge to enable their organisation to rise to these challenges. To identify employers' current talent management practices, IRS has reviewed the findings of three recent reports, and spoke to Andrew Leigh, director of people development company Maynard Leigh (external website).

Talent management research

Andrew Leigh is co-author of the report Talent management at the crossroads. This is a study of the ways in which 20 of the UK's top employers approach the management of talent on a routine basis, and how they are adjusting these practices during the current recession.

The second report, the Talent management survey 2009, polled 189 senior HR practitioners. It asked for their views about the key talent management challenges and strategies in the light of the economic downturn, and how they will evolve over the next 12 months. The survey was conducted by Talent Q, a psychometric test publisher and consultancy set up by Roger Holdsworth, one of the founders of Saville and Holdsworth.

Finally, we review the findings relevant to talent management in the CIPD's Learning and development: annual survey report 2009 (PDF format, 571K) (on the CIPD website). Ipsos MORI polled 859 of the CIPD's members for this research.

Talent management activity

The CIPD's report suggests that there has been a decline in talent management activities. Compared with the findings of its 2006 learning and development survey, the proportion of employers using talent management has dropped from 51% in 2006 to 36% in 2009. This decline may have been a reaction to the economic climate, or may indicate a more widespread move away from talent management.

However, the research also found that employers that practise talent management are now more likely to have a formal strategy. The proportion of employers doing so has risen from 40% in 2006 to 61% in 2009, according to the CIPD.

Findings from the Talent Q research show "a mixed picture of talent management best practice in the UK". The results suggest that only a minority of employers are adopting a proactive, strategic approach. Instead, most organisations prefer to take a more reactive and process-focused stance towards talent management.

Maynard Leigh's study, in contrast, concentrated on employers where talent management is already an integral part of their corporate strategy. Andrew Leigh explains that his company wanted to get "the inside gut feeling for what companies serious about talent management are actually doing".

Talent management during the recession

"Virtually all of the companies that we spoke to were not responding in the way you might expect them to in a downturn. They were clearly continuing to invest in talent - even if that meant fewer programmes, but more focus," Leigh says. He considers that this enduring commitment represents a fundamental change in the outlook of employers. They want to avoid repeating the mistakes of making drastic cuts in headcount and talent management activities, only to find themselves ill-equipped to deal with an upturn in business.

In fact, at the time of the interviews for Maynard Leigh's study, very few employers had made significant reductions in their talent management programmes. Leigh cites accountancy firm PricewaterhouseCoopers (PwC) and its "bullish approach to talent in the downturn" as a good example of this new outlook.

The experience of PricewaterhouseCoopers

The board at PwC has put together a strategy to deliver talent management that is aligned to its business strategy over the next three to four years. It has created an emerging leader programme to identify talent that is fast-tracked through structured, practical leadership development.

The downturn has meant a shift in PwC's priorities - with the organisation requiring more skills in the areas that deal with corporate restructuring, insolvency and business recovery. PwC has responded to this by moving talent from traditional tax and audit roles to meet the new demands on the business.

Its approach to talent management has allowed the organisation to transfer people across the business with more ease, and with greater confidence that the requisite skills are in place to meet the needs of the business.

Leigh considers that its continuing support for talent management is a reaction to having made too many job cuts during previous downturns in business. "PwC believe that they made a mistake during the last recession with the number of people they were investing in, in terms of talent, only to find when the upturn came, they were not able to meet the needs of the business," he says.

Cutting the costs of talent management

Talent Q found that, while over half (58%) of the respondents to its survey were looking to make savings in their talent management expenditure, a significant proportion (39%) expect their talent management strategy to remain unchanged over the next 12 months. Looking forward to next year, two in five (40%) respondents anticipate spending more in 2010 on their talent management activities than they will in 2009.

However, more than four in 10 (44%) employers that took part in the study also indicated that they will have to make headcount reductions in the coming year. A similar proportion (45%) will refocus what they look for in employees, given the "specific challenges of the economy".

The report warns that many employers that do not appear to be adapting their approach to the management of talent may be unprepared for the challenges ahead. It suggests that there is "a risk of over-optimism among many respondents - a belief that it will be possible to ride out the recession without significant changes".

Talent Q advises employers to adopt a proactive approach to talent management, instead of what it considers to be an unwise "wait and see" approach.

Redirecting talent management resources

"Talent management can mean different things in different organisations, and the differences come about from organisations' approaches to customer focus. I wouldn't say it was a general trend, but there are certain organisations - such as Bourne Leisure - who are switching their resources from specific talent management to more general talent management," Leigh says.

By this, he means that some employers are resisting the pressures to focus talent management on a few of the most promising individuals within their organisations, and instead they are expanding their horizons.

For instance, at Bourne Leisure (external website), a major provider of UK holidays, a decision was taken to rethink talent management. Instead of building its activities around the small number of individuals who had been identified as having high potential, the company looked at the parts of its business where talent management was delivering the most value. Its review showed that talent management had its greatest strategic value in the area of front-line services. As a result, it was able to move towards a focused investment in developing front-line managers and leaders.

Return on investment

Given the pressures on organisations' HR budgets because of the recession, the ability to produce figures that show a return on investment in talent management could prove valuable to its supporters. However, all three of the surveys confirm that return on investment calculations continue to be practised by only a minority of employers.

Talent Q found that fewer than one in five organisations have reliable figures on the return on investment of their current talent management processes, where the costs of assessment, recruitment and development are factored in.

In the CIPD survey, fewer than three in 10 (28%) employers measure their talent management programmes against "clear success criteria identified at the outset". Less than half that proportion (just 13%) measure the time and cost involved in filling key roles as a means of evaluating the success of their programmes.

Maynard Leigh's research also found few examples of concrete return on investment metrics. In fact, Leigh says that he was "surprised that there was only one example of a company that was absolutely clear what its return on investment was. They were able to say that, for every £1 they put into the development of graduates, the company got £11 back in return." Other organisations, he says, "take it on trust that it produces a return".

Leigh attributes this lack of activity in measuring talent management's effectiveness to the expense and time required to identify convincing, robust metrics, and to use them to demonstrate the return on investment. Perhaps, though, the case for talent management is self-evident. He adds: "I think the really bright companies don't need to have it proven that making an investment in your people makes sense. After all, the alternative - of not making any investment in your employees - makes no sense."

Effective talent management during a recession

Talent Q has produced a four-point plan for those responsible for talent management to help them improve the effectiveness of talent management practices, particularly during the recession. The steps are as follows:

• Understand the full implications of the recession. This includes undertaking an objective review of existing resources and budgets, the levels of employee engagement and the availability of an increased external talent pool. Alternative scenarios could be explored. For example, if funds were no longer to be made available for the full talent management programme in its current form, then one scenario would be the creation of a more focused programme intended to support the parts of the business that would benefit most from the investment.
• Identify best-practice approaches to strategic human resource management, and try to implement a rounded, organisation-wide talent strategy. The talent management process should be clearly seen within the organisation as being driven by corporate objectives.
• Implement talent management in an integrated and consistent manner, for example using information gathered at the time of recruitment to inform any individual training and development plans.
• Take steps to measure HR's contribution and present this contribution using business language that the board is more likely to take seriously.

The concluding message from the Maynard Leigh research is "stark and simple". Choosing to withdraw the resources and time set aside for the development of staff could mean that employers could suffer the consequences for a generation.

Leigh says: "In terms of surviving or thriving following a recession, it is really important to keep your finger on the pulse of talent management and have a clear plan in place that demonstrates how the company is going to deal with an upturn in business. Then, once the recession lifts - and it will - your company will be in a better position to move on and quickly gain momentum."