The level of spending in Human Capital is a decision that business leaders regularly confront. This expenditure can be in the form of the number of people; the way they are paid and rewarded; what training and development is provided; and how the organization is structured. Additionally, there is a range of related measures that drives effectiveness and efficiency of people in your company.
Business leaders are often tempted to use these investments as a tap, to be turned on and off depending on the current business climate and performance. After all, with competing needs for limited resources, human capital related changes are often easiest to implement and have a fast and visible result. But what is the long-term cost of this inconsistent approach? Do we know the real impact on revenue and profit?
Is there a way to prioritize our human capital expenditure in areas that will have the biggest return?
Exploring the link to business performance
A study by The Boston Consulting Group and the World Federation of People Management Associations (WFPMA) demonstrated the relationship between people management capabilities and financial performance (Realizing the Value of People Management).
The study found that the share price of the Fortune’s “100 Best Companies to Work For” outperformed the S&P 500 group of companies by 99% over a ten-year period.
Companies rated high on a series of talent management practices achieved up to:
- 3.5 times the revenue growth
- 2.1 times the average profit margin
BCG also studied the impact of twenty-two talent management practice areas and those more common in high-performing companies included:
- The existence of a leadership model and the use of it to make promotion decisions
- Leaders’ reward and careers dependent on their people development efforts
- Programs for high potentials and for developing emerging talent
- Retention driven through personal development opportunities
- Global standards applied in performance management
By aligning talent efforts to overall strategy one is presented with a huge opportunity to deliver exceptional financial performance on a sustained basis.