Many companies miss out on enormous opportunities for growth and profitability because they don’t appreciate the impact of excellent talent management. New research by Gallup clarifies the relationship between organisations’ use of four specific human capital practices and their revenue growth. Most importantly, it reveals the power of implementing all four practices together – employers who combine them see substantial additive effects.
The research focused on four human capital practices previously revealed to be valuable, and aimed to discover whether a firm choosing to implement more than one of them would experience additive effects. The answer was a resounding yes. In isolation, these practices are each associated with increasing revenue per employee, but none by more than 27 percent. Combined, however, they drive higher gains – as high as 59 percent when all four practices are in place.
Select managers with natural talent
The practice of selecting and deploying managers based on their true talent for managing people was shown to be the strategy linked to the greatest impact on revenues per employee.
Whom a company names manager has a ripple effect on everything else. Bad managers drive talented employees away, damaging customer relationships, while talented managers attract and engage the most capable talent. The key to hiring the right managers is to select candidates based on what the job requires. The business units found to be systematically filling their managerial ranks with people who have natural managerial strengths are winning big in the marketplace experience 27 percent higher revenue per employee than the average business unit.
Select the right individual contributors
An additional 6 percent revenue gain comes when the companies who hire the right managers extend that philosophy to employee hiring. While it might seem obvious that companies would select and develop employees based on their having the natural talents to succeed in particular roles, the reality is that candidates are more often chosen based on generic achievements such as education level, technical skills, and past work experience.
Ideally, with each hire, a company manages to reduce its performance variance to make performance more predictable. The key is to develop a systematic process using assessments that predict future performance. This streamlines the decision-making process, increases productivity, removes bias, improves diversity, and enhances customer and employee engagement.
Organisations which utilize good practices in engaging employees enjoy an additional 18 percent revenue advantage. Previous research has shown that when organizations put naturally talented managers in place, they already achieve higher engagement levels. However, focusing on engagement in itself can produce additional benefits.
Employee engagement initiatives typically begin with a survey to establish baseline metrics and focus attention on what needs to improve. For example, Gallup’s 12-item employee-engagement assessment, the Q12, measures employees’ involvement in and enthusiasm for their jobs and workplace, which links directly to their willingness to go the extra mile for the company and customers. Based on what is discovered, firms devise strategies, establish accountability and communicate progress. As employee engagement rises, companies see gains in productivity, profitability, retention, safety, quality, and customer engagement.
Add a focus on strengths
Employees thrive best when they are aware of their greatest strengths and focused on capitalizing on those (as opposed to spending their energy trying to turn their relative weaknesses into strengths). Gallup found that when managers focus on employees’ strengths, 61% of workers are engaged and only 1% are actively disengaged — a dramatically better result than what surveys find of employees generally.
When employees use their strengths, they’re more engaged, perform better, and are less likely to leave their company. And, of course, their company benefits from their relative excellence at the work they do. Teams who add a focus on strengths to the three human capital practices discussed above see an additional 8 percent higher revenue per employee, for a total advantage over the average business unit of 59 percent.
How many firms are seeing this ultimate additive effect? Unfortunately, very few: from Gallup’s analysis of U.S. organizations, it is estimated that less than 1% of teams are given the benefit of all four of these human capital strategies. This highlights an area of tremendous opportunity for any company to accelerate their growth. Businesses can implement the four strategies in whatever order best meets their needs. While the incremental gains might be calculated somewhat differently, the effects will reliably be additive.
The important point is that, in combination, these practices drive increases in everything companies want — more sales, increased productivity and profitability, lower turnover and absenteeism, fewer accidents and defects, and a culture of high customer engagement. Of course, 59% higher revenue won’t happen overnight. But each step pays off in higher human capital capacity, and moves a company along on the path to growth.