A Human Capital Institute Position Paper - September, 2004
By David Creelman Return on Investment in Talent Management 1
Return on Investment in Talent Management: Measures You Can Put to Work Right Now Key Points: 1. Attempts to put a dollar value on “human capital”, the way we would do for items like inventory, have not been successful. 2. There are good, proven, practical measures like “engagement” which offer valuable insights to investors, the CEO and the Board on whether human capital is in good shape. 3. Measuring a precise ROI of talent management initiatives is difﬁcult in general, but speciﬁc quantitative studies can provide the information needed for decision making. 4. Semi-quantitative assessments (a mix of quantitative and qualitative information) is typically what managers want to give them conﬁdence that an initiative is worthwhile. 5. Managers decide with the heart and the head. If the heart is unconvinced no ROI calculations will change their decision. 6. The issue of calculating a precise ROI can be avoided by determining which investments in talent will have the biggest impact on strategy execution. The value of these investments is self-evident. which talent investments to make. This paper outlines the issues, theories and practices concerning assessing the return on investment (ROI) in talent. The subject is in a curious state. There is great interest in the ROI of talent management, which extends to an interest even in unproven and complicated approaches. At the same time, there are simple things that do help, which are often overlooked. There are two separate topics: assessing the value of a ﬁrm’s human capital, and assessing the ROI of a given talent management investment. The ﬁrst is of interest to investors since it is an indication of how much the ﬁrm is worth, and what is of interest to investors is of interest to the Board and CEO. The second is of interest to managers who want to know if the money they are spending on recruiting, training, succession planning and other talent management initiatives is worthwhile.
Organizations recognize that talent is important. However, most ﬁrms have little information on what return they get from investments in talent. Furthermore, most ﬁrms do not apply much rigor in deciding
Return on Investment in Talent Management 2
WHAT IS TALENT MANAGEMENT?
In a paper on the ROI of talent management it behooves us to explain what we mean by the phrase “talent management.” At its broadest, talent management sometimes seems to cover all the topics that have traditionally been classiﬁed as human-resource issues. This is not helpful. Talent management is best seen not as a set of topics, but as a perspective or a mindset. A talent management perspective presumes talented individuals play a central role in the success of the ﬁrm. All corporate issues are seen from the perspective of “How will this affect our critical talent?” and “What role does talent play in this issue?” Downsizing, from a ﬁnancial perspective, is an exercise in cost cutting. From a talent- management perspective it is about losing human capital. Beneﬁts, in traditional HR, are about “being good to our employees.” From a talent-management perspective, beneﬁts are about attracting and retaining talent—or in the more modern lingo, “reinforcing our employment brand.” Furthermore, HR is also deeply involved in the complexities of administering beneﬁts—an activity which would not be considered talent management. Just as the ﬁnance perspective is pervasive in organizations, and the customer perspective should be (but often is not) pervasive, so too talent management is one of the hats all managers must wear, or to pick a better metaphor, a pair of glasses with which to see the world. More prosaically, talent management is a set of tools and technologies that help organizations...