Companies Can Improve Earnings Nearly 15% By Improving Talent Management Function

By excelling in talent management, the average Fortune 500 company can generate a nearly 15% improvement in Earnings Before Interest, Depreciation, and Amortization (EBITDA) according to new Book of Numbers™ research from The Hackett Group, a strategic advisory firm.

Hackett's research demonstrates the bottom line impact of more effectively managing human assets, and provides strong evidence to executives, investors, and HR leadership of the value of developing intangible assets such as a company's workforce.

The best companies treat employees the same way they treat their business lines, as something to be carefully analyzed and strategically developed in support of their business goals. They determine the skills, competencies, and experiences needed to run their company over the next few years, quantify the gap between their needs and their current resources, then acquire the expertise they need through a combination of staff development and hiring. As a result, they are more competitive in the marketplace, and this is reflected in improved earnings.

Hackett's analysis, which is being issued as part of its "Talent Management: Buzzword or Holy Grail?" research, was based on the results from more than 125 comprehensive Human Resources benchmarks performed by the firm over the past three years. Metrics were chosen to reflect a balance between talent management efficiency and effectiveness.

Hackett's research found a strong correlation between improved financial performance and top-quartile performance in four key talent management areas: strategic workforce planning, which involves identifying the skills critical to a company's operation and how those needs match up against those of the existing workforce; staffing services, including recruitment, staffing, and exit management; workforce development services such as training and career planning; and overall organizational effectiveness, including labor and employee relations, performance management, and organizational design and measurement.

Companies with top-quartile talent management outperformed typical companies across four standard financial metrics. They generated EBITDA of 16.2%, versus 14.1% for typical companies. On average, top talent management performers also generated a 22% improvement in net profit margin, a 49% improvement in return on assets, and a 27% improvement in return on equity.

Source: The Hackett Group