Assessing true potential
Assessment and development is moving away from
being a pure HR function to a broader business tool, enabling organisations to
realise the true potential of their workforce, while making development more
focused and results based. Caroline Horn examines how different companies are
using these useful programmes.
A tough trading climate has a significant impact on a company's training budget. Like marketing programmes, assessment and development plans are generally among the first casualties of a downturn. But a number of leading-edge companies have learned the lessons of the last recession and realise that a clear strategy and sound management development during the difficult years will put them at the forefront of any upturn.
Nicola Mindell, commercial director for Interactive Skills, says: "Research following the recession in the early 1990s showed that companies which maintained marketing and training budgets were much better placed to take advantage of the upturn."
The company has recently started a programme with the UK arm of a major international consulting firm to help assess individual learning needs at a senior level. Mindell says: "It is a significant investment for this organisation at a time when they have cut back on people, but they say - 'this is the company's future, and these are the people we will need in the next few years'."
Few companies will take a five or 10-year view on corporate and management development. But as a senior manager at Sun Microsystems - one of the handful doing so - says: "If a company is paying its senior management between $250,000 and $500,000, then its seems silly to not spend a few thousand dollars more on management development costs."
DDI, a consultancy specialising in selection and leadership, has seen a significant increase in demand for assessment, and building exceptional skills and executive bench strengths. "Companies realise they have to get the top strata right," says Lucy McGee, marketing director for DDI. There is also an increasing trend towards senior level HR appointments, such as talent management directors. "People need to understand what skills level the company has, how to deploy it and how to leverage training investment - to get people where they need to be as quickly as possible," she says.
"What HR has to do, from the top down, is to show what the HR strategy is and to show that it links to business strategy - that it is not an isolated activity," says Charles Woodruffe, managing director of Human Assets.
BP, for example, is working to incorporate future skills need with its business strategy through a global leadership programme designed by occupational psychologists Pearn Kandola. Dr Binna Kandola, partner, says: "They have taken a fundamental look at their global management and have put in place a meticulously planned programme, examining people's careers in detail and reviewing all the competencies they use."
Often the starting point for companies will be: 'What do we want to deliver to shareholders, and what are the consequences of putting those strategic goals in place - do we have the people who can deliver it?', says Chris Watkin, practice leader executive, assessment and organisational talent review at Hay Group. "Talent reviews and executive development programmes can be an energiser for change across an organisation," he says.
Sinclair Stevenson, a senior consultant at Penna Consulting, says the increased demand for assessment centres is "partly because more people realise the importance of linking assessment to goals, and partly because they realise they can't afford to get it wrong." When times are tough, companies realise how important it is to get the right person in.
DDI conducted an assessment for global biopharma organisation Quest Diagnostics which included selecting two key roles following the acquisition of SmithKline Beecham in 1999. McGee says: "Following the acquisition, the company wanted to know who to put into the top jobs - one an operational role, the other more entrepreneurial. The CEO initially wanted person A in role A, and person B in role B. But it was clear after the assessments that it should be the other way around." That decision has impacted on ROI - since then, the company has been one of the top performing stocks.
Stevenson adds: "It is also interesting the extent to which assessment is being done at board level - so few directors are evaluated because they tend to say: 'I have proved myself through experience', but who knows if their existing skills are compatible with what they are doing now? As the recession bites, you can expect shareholders to become more vociferous and bring more pressure to bear on board members."
More positively, a talent review by Hay Group at BT Wireless - prior to it becoming a stand-alone company (now mmO2) - showed the City that BT Wireless' leadership was capable of taking the organisation forward on its own at mmO2. Assessment, once used on a purely individual level, is increasingly used at a group level and increasingly at a time of corporate change.
Companies in IT, finance and automotive industries are having to undergo dramatic changes in order to survive - and key changes in strategy are affecting key personnel. It is becoming more frequent for assessment to be used as a tool to find out who an organisation want to keep, and who it can afford to lose. Stevenson warns: "While assessment has been used as a tool to deselect people, you have to be incredibly careful how you use it. Companies use it as a selection tool - getting people to reapply for the available jobs. But as long as it's used carefully and as part of all best practice, then it is a fairer way of deselecting people."
Prior to the Royal Bank of Scotland taking over National Westminster, Hay Group built a leadership competency model to enable RBS to measure the people quality it was acquiring and to assess executives for senior roles. Hay Group also transferred the assessment technology to the RBS HR personnel, to allow it to complete assessments for candidates further down in the organisation. Results of the assessment speak for themselves. Less than a year after the takeover, it was reported that RBS, which had predicted annualised revenue gains of £120m in the first 10 months after the takeover, delivered £147m. Annual cost savings had also risen from £550m to £653m.
Assessment can also be central to cultural changes within an organisation. The Royal London Group, for example, used assessment as one tool in helping it to develop a more entrepreneurial culture to ensure its future growth, following the acquisition of United Assurance Group and Scottish Life. Robert McHenry, chairman of OPP, says: "The parent company did not want to replicate its culture or take on the culture of its acquisitions - it needed a 'third way' that was more entrepreneurial and which would ensure it reacted more quickly to the market."
A strategic alignment was followed by assessment and development of all senior managers, and OPP is about to start working with middle managers. The programme, which included one-to-one coaching and team awareness workshops, is currently in its second year, and has helped establish a performance-driven culture by focusing on the strategic aspects of leadership.
More companies are trying to link assessment and development activities to their bottom line, but McGee warns: "The results of better productivity, lower recruitment costs and better retention take a while to show. You can demonstrate ROI, but not in six months."
A development programme at luxury car manufacturer Lexus has focused at the front end, on customer services. HR specialist CDA group created a development framework for Lexus, based on the broad objectives of Lexus' dealer network to help drive forward new skills and behaviours, says CDA principle Caroline Dunk. When it evaluates the success of the programme, CDA will consider the overall competence of the workforce as well as customer satisfaction levels.
This kind of programme will take longer to impact on Lexus' bottom line but companies are increasingly keen to see a return on their development investment, says Mindell. "Before, companies just asked if people were happy with the training; now they want to know what difference it has made to them, to their team and to the business."
It is argued that management development programmes can increase individual performance from 150 per cent to as much as 400 per cent. Standards such as Investors in People can make a significant impact, says Peter Jones, director of quality at IiP, who points to research showing that 70 per cent of companies say the standard improves their competitive edge and productivity (Building Capability for the 21st century, CREATE 1999), while 74 per cent of firms involved believe it does deliver bottom line results (UK Tracking Study - Employer Research, MarketShape, Feb 2002).
Watkin agrees there is usually a business case for development. One professional services firm the Hay Group worked with found that the top end of its 'talent pool' delivered about £160,000 of business, compared with the average of £116,000. Watkin says: "There's usually a 40 per cent differential between average and superior people. So it is worth trying to get more people at the upper end of that scale."
When a multi-national client of Pearn Kandola evaluated the impact of management development centres (MDCs) attended by managers from its various subsidiaries over a four year period, it found a link with improved staff retention (some 30 per cent lower among attendees than in the general management population), as well as an indication the MDCs lead to better performance. This was done by analysing sales per employee, both before and after the development centre programme started - it was estimated that by sending one participant rather than none, an average operating company would have increased sales by between 2 and 3 per cent.
It is easier to evaluate a programme that is directly related to a company's front-line performance. TMI, for instance, completed a programme with DIY store Wickes, which involved a rebranding exercise in 20 of its stores, combined with a customer services training initiative. "There is clear data demonstrating the links," says Susanna Mitterer, director of sales and head of consulting. "All the stores had the rebranding, but only six had extensive training. The sales revenues of those stores went up by 17 per cent, while the others increased by about only 4 per cent."
But while some assessment and development costs are simple to quantify, the hidden costs of not getting it right can be much higher. For example, the cost of assessment can be judged against the costs of a company's key roles and how long they were vacant for, the business costs to the company, and what was spent on head hunters. What is harder to quantify, though, is the value that the former member of staff has added to competitive strength in a world that is becoming increasingly dominated by just a handful of competing companies.
Case study: Bayer Diagnostics
Pharmaceutical and chemical giant finds 'a third way'
