Talent management: How to evaluate success

Section five of the Personnel Today Management Resources one stop guide on talent management, covering: measurement and benchmarking definitions; selecting the right metrics; and why measurement is important. Other sections.

Use this section to:

Learn the importance of measuring and benchmarking your talent management process

Identify appropriate measures to use in the process

Understand what key elements exist in effective talent management and what questions you should be asking about your own processes

Understand how to collect and use benchmark data effectively

Delivering the goods

Earlier sections of the guide covered how to design and implement a set of talent management processes. This is the point when many organisations stop and don't consider how effective these processes are.

Often, the extent to which talent management in an organisation delivers the desired supply of capable people, develops them to meet the challenges faced by the organisation and retains them as part of the 'talent bank' is taken for granted.

Many organisations tend to take seriously those aspects of their activity that can be both measured and, if possible, benchmarked externally.

Unfortunately, the measurement and benchmarking of human capital activity is too often filed in the 'too difficult drawer'.

So we begin this section by asking: Why is measurement and benchmarking talent management important? We then review how it can be done and discuss some of the measures that can be used.

Measurement is so important

The stock market increasingly recognises success in leveraging human capital and knowledge, for example, by awarding a market value for service and technology companies that exceeds their book value.

This, combined with the emergence in the UK of corporate social responsibility, is fuelling the need for organisations to be able to demonstrate what they are doing in relation to HR development activity.

It is clear the perception of current shareholders and prospective investors will, in future, be shaped by the quality of the staff employed in an organisation.

The need for hard data and metrics on all aspects of human capital is key if organisations are to compete effectively in both the marketplace and, in the longer term, have the opportunity to present themselves more effectively to existing and prospective shareholders.

It is becoming increasingly apparent that unless organisations measure people activity, in terms that key decision makers and stakeholders understand, then people will remain undervalued in terms of their comparitive position with other assets.

The processes that attract, develop and retain key talent within organisations may also be in danger of being undervalued. Since people costs in an organisation can exceed 40 per cent of total corporate expense, then measuring the return on investment of HR processes is essential.

The definitions

Measurement

Is the process of estimating the relative size of anything against anything else

Benchmarking

Is a continuous search for and application of better practices, which leads to superior competitive performance. (GH Watson, Strategic Benchmarking, John Wiley, 1993)

Is a systematic and continuous measurement process: a process of continuously measuring and comparing an organisation's business processes against process leaders, anywhere in the world, to gain information that will help the organisation take action to improve performance. (International Benchmarking Clearinghouse)

Is a continuous and systematic process for evaluating best practices in external organisations or in other functions, within one's own organisation that provides examples of better working practices, which can be adapted to improve performance. (MJ Spendolini, The Benchmarking Book, Amacom, 1992)

In his book Human Resource Benchmarking, Maurice Phelps, managing partner of EP-First, states: "To gain real benefit, measurement and benchmarking requires persistence and discipline. It is about gaining knowledge from data and information and then adapting (not adopting) information, to transform it into value adding impact."

The Six Sigma system of total quality performance also summarises the need to measure all aspects of organisational life:

We don't know what we don't know

We can't do what we don't know

We won't know until we measure

We don't measure what we don't value

We don't value what we don't measure

The ingredients to measure most HR processes, including talent management, exist in organisations. It is a question of identifying what you currently have and identifing the appropriate metrics to use.

Benchmarking and measurement stages

Having defined measurement and bench-marking, the key stages in the process are:

Identify what aspects of the process need to be measured

Identify the key measures to be applied

Collect the data

Identify appropriate external benchmark organisations

Analyse the results

Implement appropriate action plans to improve performance

In many situations, internal data can be collected and analysed. This is adequate for assessing where improvements need to be made on the process, but benchmarking can be difficult in terms of gaining access to similar data from comparitive organisations.

It may be necessary at this stage to contact an external HR benchmarking organisation that can provide both a sensible comparator group and reliable benchmark metrics. Make sure the selected organisation has the breadth of database necessary to provide meaningful information and sticks to strict definitions when collecting data and comparing results.

Selecting talent management metrics

When selecting and developing measures of human capital, particularly talent management, follow the guidelines:

Make sure the measurement has a practical purpose that relates to recognised organi-sational requirements and which everyone can relate to

Keep it simple

Define metrics clearly, using market tests or definitions where appropriate

For data collection and measurement purposes, test the definition for its application to existing IT systems

Regard the measurement as the first step towards an external benchmark. So, be less concerned with the perfect measurement, than a useful internal measurement to which external parties can respond

Test it out on internal users and external contacts.

In most situations, it is virtually impossible to develop the 'perfect' measure but, as the above guidance suggests, it is important to have something that at least contributes to helping the understanding of what lies behind the data results.

The fact a data point or measurement result generates discussion indicates people are questioning and seeking a greater under-standing of what lies behind the inferences drawn or the conclusions reached.

A number of initial questions might emerge from such conversations. For example, do we have clearly stated policies to attract talent? Do we know how much talent we take on? Do we know how much talent we lose? Do we know why we lose talent? Do we consciously decide to recruit talent to a given specification or do we just fill jobs? Perhaps two questions emerge from this: how much talent do we have compared with the competition? What do we need to do to improve our talent bank?

One major European HR benchmarking organisation has developed a set of measures to help organisations to assess the impact and effectiveness of their talent management processes.

The following sample measures have been reproduced by permission of EP-First, based in Henley-on-Thames, Oxfordshire.

As can be seen from the table, the metrics have been split into the three key areas of talent management discussed.

The data is designed to help organisations determine the effectiveness and quality of their recruitment and resourcing processes, the impact of their development processes and the extent to which they retain key talent. The value of the measures are further enhanced in that they can be benchmarked on a European and global basis, which provides not only internal measures of effectiveness but also provides comparator data against 'best in class'.

And in the end

More and more attention needs to be placed by HR professionals in bringing hard data and return of investment measures to the boardroom table. If we are to believe that people are our greatest asset, then the processes that support the attraction, development and retention of these resources need to be as robust as other financial measures of performance.

Sample metrics to use in talent management

Attracting talent	Developing talent	Retaining talent
External recruitment rate External replacement rate	Number of development hours per FTE	Resignation rate - length of service/category
Cost per hire	Internal promotion rate	Average remuneration
Acceptance rate	Competence ratio	Learning penetration ratio
Executive stability ratio	Training hours per full-time employee	Graduate retention rate
Appointment diversity		Intellectual capital ratio
Internal appointment rate		Talent retention rate
Time to accept
Number of graduate recruits
Number of talent recruits
Cost of social policies against profit

Source: EP-First

Do you employ any of the following metrics?

External recruit rate
Cost per hire
Number of talent recruits
Number of development hours per FTE
Learning penetration ratio
Competence ratio
Resignation rates
Graduate retention rate