HR to increase return on talent

• Employees represent both an organisation’s largest investment and its deepest source of value.
• In a world where businesses are navigating economic uncertainty, rapid technological change, and upheaval in the working model, it’s important that their talent systems emphasise both productivity and value creation.
• Having the right talent in the right roles—and giving employees the support and opportunities they need to succeed—is critical to achieving returns.
• McKinsey research indicates that companies that put talent at the centre of their business strategy realise higher total shareholder returns than their competitors.
• We focus on five actions that organisations can take to maximise their return on talent:
  • Build a skills-based strategic workforce planning capability,
  • Create a hiring engine that brings in the right talent to fill critical roles,
  • Invest in learning and development,
  • Establish a stellar performance-oriented culture,
  • Elevate HR’s operating model to become a true talent steward.
• It’s not enough to take one or two of these actions in isolation.
• But together, these five components intersect with and reinforce one another—skills-based hiring, for example, should be supported by tailored learning journeys and performance evaluations that provide clear and timely feedback on skills development.
• When combined, these five actions can help leaders establish a truly strategic and less siloed talent system that generates higher returns over the long term.

   Talent + Productivity = Value

• Measuring the return on talent has been a long-standing challenge for companies because it’s so difficult to calculate individual productivity in many roles, and it’s equally hard to track progress and improvement over time.
• How does an organisation that is beginning to overhaul its talent approach quantify such an intangible asset?
• McKinsey research indicates that when the revenue per full-time employee of high-performing companies is compared with that of similar companies within their industry that are average performers, there is a wide disparity in the revenue productivity of employees.
• In other words, the revenue generated per employee differs greatly.
• Yes, revenue per employee is a blunt instrument, and it is influenced by factors beyond productivity, including brand name and go-to-market approach, market share, type of products and services offered, and operating model.
• Still, even when comparing like-for-like companies on the productivity of corporate function employees—where work should be comparable—our research gleaned from years of benchmarking suggests that there are significant gaps in employee productivity across companies.
• New McKinsey analysis digs into these productivity differences to identify and measure lost productivity.
• We found that there are three clear (and measurable) reasons for a lack of productivity among individual employees:
  • They don’t have the skills needed to be successful in a role (the skill gap).
  • They aren’t engaged or energised by the work (the will gap).
  • They spend time in ways that don’t increase value, such as poor prioritisation and low-value meetings (the time gap).
• All three root causes of productivity loss can remain invisible to an organisation’s leaders.
• While attrition rates have fallen since the height of the COVID-19 pandemic, disengagement levels remain high—with significant consequences for workforce productivity and value creation.
• As employee satisfaction falls, so do levels of engagement, performance, and well-being.
• If left to fester, these root causes can reduce the output an organisation gets from its workforce and can lead to broader problems that manifest as two core talent “symptoms”:
  • Costly attrition
  • Vacancy rates.
• Combined, these five factors could cost a median-size S&P 500 company roughly $480 million a year in lost productivity, as shown below.