Study identifies six key practices with strong correlation to economic performance
By Claudine Kapel
Can investments in people really translate into better financial performance?
This question has been explored over time through a variety of research studies. Because there are so many variables that impact financial results, it’s hard to establish a definitive and causal link between specific human practices and their impact on a company’s bottom line.
Nevertheless, such research can highlight broad relationships between investments in people and company results, with the aim of identifying key success factors.
Consider a recent study by Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA), which found that good people practices do indeed “confer a performance advantage.” The study examined the human resources practices of 4,288 organizations in 102 countries.
Participants were asked to rate their current capability level across a range of human resource activity areas and also report on their company’s revenue growth from 2010 to 2011, and average profit margin fro 2011.
The study found high-performing companies consistently did more in all the major areas than their lower-performing peers. But more significantly, there were six areas in particular where “the correlation between capability and economic performance was striking”:
- Onboarding new hires and retention.
- Talent management.
- Employer branding.
- Performance management and rewards.
- Leadership development.
The study found companies adept at recruiting enjoyed 3.5 times the revenue growth and two times the profit margin of their less capable peers. In talent management, the highly capable enjoyed more than twice the revenue growth and profit margin of their lower-performing peers. Further, companies that were serious about leadership development experienced 2.1 times the revenue growth and 1.8 times the profit margin.
BCG and the WFPMA concede “to claim a direct cause-and-effect link here would be overreaching.” But they suggest there is benefit in probing the relationship between HR practices and business performance, especially if it sheds light on activities that seem to be “particularly beneficial.”
According to the study results, high-performing companies are more likely to:
- Have a leadership model that describes expected contributions and behaviours and drives promotion decisions.
- Make leadership planning an integral part of people-planning efforts and ensure there is a leadership pipeline.
- Provide development programs for “emerging” as well as “high” potentials to improve development and retention.
- Offer career advancement opportunities with clearly defined career tracks to improve development and retention.
- Offer a change of work location to support employee development, rather than just to fill local knowledge gaps.
- Have clear norms for driving performance to ensure employees clearly understand what constitutes superior performance as well as what is unacceptable.
- Use global standards in performance management.
The study suggests optimizing the value of HR practices isn’t about excelling in a few selected areas. It’s about attending to all the key details in an integrated manner.
BCG and the WFPMA note that while six HR areas were especially critical, 21 out of the 22 areas covered in the survey showed a positive correlation between capability and organizational performance. “These results underscore the fact that people management is a holistic process.”
Ultimately, what distinguishes high-performing companies is often more about attention and discipline than it is about having programs or practices that don’t exist anywhere else. It’s not about re-inventing the wheel, but rather about ensuring the organization is firing on all cylinders.
Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.