Talent management emerged from the recession relatively unscathed, and many CLOs see it as the way up and out of the economic downturn.
February 28, 2010
Talent management can make or break a company. This was seen as particularly true during the recent recession, when talent management emerged as the one job role or department that companies couldn’t scale back to cut costs, because doing so might have resulted in catastrophic failure of must-have strategic processes.
Talent management itself is defined as the process of managing the development and deployment of employees from recruitment to retirement. Talent management encompasses recruiting, competency management, learning and development, performance management, compensation, and career and succession planning.
Companies have historically used talent management solutions to address the tightening labor market but are more recently adopting strategies appropriate for challenging economic conditions.
Every other month, IDC surveys Chief Learning Officer magazine’s Business Intelligence Board (BIB) on a variety of topics to gauge the issues, opportunities and attitudes that are important to senior training executives. For the past several years, members of the BIB have been asked to provide annual insight into the impact of the talent function and management strategies. This is the latest installment of that research.
Self-Created Talent Crisis
According to the BIB, talent management strategies remain an important component of organizational success, though the motivations for managing talent must change. About 50 percent of organizations feel talent management is more important than it was for them last year. However, 10 percent of organizations feel talent management has become less important, compared with only 2 percent that felt talent management had declined in importance. CLOs are feeling economic pressure and are concerned with helping their organizations respond to layoffs or reduced opportunities for growth while simultaneously working to maximize employee engagement and productivity.
According to the U.S. Department of Labor’s Bureau of Labor Statistics, while the unemployment rate had been generally trending downward for the past 30 years, between 2007 and the end of 2009 it rose sharply. At the same time, U.S. and global economies are in a period of sustained struggle.
This dynamic of increased unemployment with a sluggish economy suggests that while skills may be available, new openings may not be. But that will not be good news for employers as the economy recovers.
Organizations may be faced with a self-created talent crisis.
“There has been some pretty shoddy treatment of employees out there, including a lack of communication about layoffs and no regard to engagement of the survivors, so I think there will be a backlash when the recovery takes hold,” said Lisa Rowan, program director for HR and talent management services at IDC.
That backlash will include disaffected but productive workers seeking opportunities in other businesses or industries in order to remove themselves from what they perceive as either a role without opportunities or an uncaring culture. HR professionals feel that as the economy improves, they may be hit by a wave of job hopping. This might be a difficult choice for the employee in a difficult economy, but is doubly difficult for the employer who must find, sign and transition a new employee in a difficult competitive environment. And this does not seem to be an unlikely scenario; half of all CLOs report that losing top employees to voluntary turnover is their biggest talent management challenge for 2010. And it may be an even bigger problem than CLOs believe.
A recent two-part report from Monster.com and the Human Capital Institute titled “The Great Recession from the Worker Perspective” and “The Great Recession from the Employer Perspective” found employers may overrate the morale of their employees. Seventy-eight percent of employers feel that employees are more likely to be “just happy to have a job” while only 58 percent of employees said they felt that way. And most significantly, the study suggests that, in workers’ views, management has been exploitative of the recession.
This suggests that while talent management remains an important component of success, it may not be simply a process to maximize employee performance, but a way to win back the commitment of dedicated employees. But according to the BIB, CLOs believe their organizations are moving in the right direction, with senior leaders coming to understand the importance of employee engagement to talent management. In some cases, it was the ability to manage information and make informed decisions in crisis that increased focus on talent management.
Outlook Worsens for Knowledge Gaps
In the short term, firms expect to continue to hire less in response to the global economic crisis. Meanwhile, companies believe that any retirement or voluntary separation will increase their knowledge gap, with middle managers and supervisors most impacted. The economy may offer a delay but not relief from the impending knowledge gap. CLOs are aware that delaying addressing a potential knowledge gap now may lead to a crisis when those who have delayed retirement leave the workforce.
Overall, about half of organizations believe that the current economic situation will have a mixed effect on the urgency of talent management activities. Organizations report that they are delicately trying to balance expenses with growth strategies, though some firms plan to continue to recruit talent, taking advantage of this economy. Meanwhile, almost 1 in 5 companies believe talent management will become less urgent and only slightly fewer feel that talent management will become more urgent. This finding reflects the distribution of corporate strategies in the face of crisis, with some companies hunkering down, some companies attempting to position for future growth and some attempting to expand during the crisis.
During the past year, organizations have adopted, and rejected, strategies to help address both a challenged workforce and skill gaps. Some strategies appear powerful at improving organizational performance. Technology improvements are seen as having a strong impact on performance, closely followed by two talent strategies: streamlining talent and development and more aggressive recruiting strategies. Formalized succession and mentoring programs and programs to engage older workers are considered moderately impactful. In the past, aggressive recruiting was seen as having only moderate impact on organizational performance, likely because of the limited impact most new hires have on organizational success. However, in more difficult economic times, it has become more important to fill critical roles quickly.
Even though talent management may be increasingly important to both maximize employee performance and help re-engage disaffected workers, organizations report that all five of the most important talent management functions — leadership development, employee development, performance management, aligning corporate, group and individual goals, and recruiting and attracting top talent — are becoming less important. Of talent functions, only workforce planning is becoming more important, but CLOs believe it is only moderately important.
CLOs selected leadership development as the most important talent function for their organizations. The combination of high impact in all economic climates and high visibility among corporate leaders make this a solid priority. Its decline in practice in 2009 reflects the trend to focus spending and time on revenue-generating activities — and any activity that can be delayed will be re-evaluated sometime in the future.
Employee development remains important in a challenging economic environment for several reasons. Enterprises must increase organizational performance overall, and employee development is a significant contributor to organizational improvement. As organizations realign their workforce, sometimes involving reassignment and often involving layoffs, they must attempt to develop the remaining employees to be better prepared to perform their expanded work responsibilities. Finally, development is important as a demonstrated commitment to individual employees.
Talent Management Processes
About 80 percent of companies have formal processes in place for the major talent management functions of performance, compensation, recruiting and learning management. This reaffirms organizational recognition of the role talent man-agement plays in organizational success. At the same time, those talent functions are becoming increasingly automated. A majority of companies with formal processes in each of those areas use either in-house or third-party developed systems.
The fullest benefit of these processes is realized when leveraging an automated process of some type. Automation helps ensure that consistent processes are used across all business units, and automated processes increase the visibility an organization has into its talent pool.
In this era of difficult economic times and constricted budgets, there has been little change in the automation of key talent management functions. However, a significant percentage of organizations have introduced formality in what were previously ad hoc processes. According to the BIB, 10 to 15 percent of organizations formally adopted processes for succession planning, learning management or competency management. While CLOs of those organizations probably wish for some form of automated process, formalizing the procedure is a big first step.
IDC research, confirmed by this Business Intelligence Board study, suggests companies will continue to leverage talent management solutions to address the challenges with the labor market and to help build out engagement models to keep high-performing employees.