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By excelling in talent management, the average Fortune 500 company can
generate a nearly 15% improvement in Earnings Before Interest,
Depreciation, and Amortization (EBITDA), netting almost $400 million
annually, according to new Book of NumbersTM
research from The Hackett Group, a strategic advisory firm and an
Answerthink company (NASDAQ:ANSR).
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 research also provides HR organizations with a new way to
demonstrate the effect of their efforts on productivity, customer
satisfaction, and employee commitment, and, by extension, on sales,
profits, and shareholder value.
“Certainly it makes intuitive sense that
attracting, developing, and retaining a talented workforce can enhance a
company’s performance. But like many areas of
HR, it’s been exceptionally difficult to
measure the real impact of improvements,” said
Hackett Chief Research Officer Michel Janssen. “Achieving
excellence in talent management is not something that happens overnight,
since changing how a company strategically addresses talent takes time
and often requires a real cultural shift. But Hackett’s
research for the first time quantifies the potential returns, and
demonstrates why talent management is a worthwhile investment.”
According to Hackett HR Practice Leader Stephen Joyce, “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 new Book of Numbers research volume “Talent
Management: Buzzword or Holy Grail?”, was
based on the results from more than 125 comprehensive Human Resources
benchmarks performed by the firm over the past three years. Using Hackett’s
proprietary methodology for determining top performers, 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. This gap netted a typical
Fortune 500 company (based on $19 billion revenue) an additional $399
million annually in improved EBITDA. On average, top talent management
performers also generated $247 million annually via a 22% improvement in
net profit margin, $992 million annually through a 49% improvement in
return on assets, and $340 million annually via 27% improvement in
return on equity.
Hackett’s research also found that top
performers in talent management operate very differently than their
peers. They spend 6% less on HR overall than typical companies, driven
by dramatically lower costs in key areas such as total rewards
administration, payroll, and data management and also lower employee
lifecycle costs. These savings enable them to invest more in talent
management processes. Top performers in talent management are also 57%
more likely than their peers to have a formal HR strategic plan in
place, more than twice as likely to facilitate strategic workforce
planning discussions with senior management, and 50% more likely to link
their learning and development strategy to their company’s
strategic plan.
About The Hackett Group
The Hackett Group, a strategic advisory firm, is a global leader in best
practice research, benchmarking, and business transformation services
that enable world-class performance across selling, general &
administrative (SG&A) and supply chain activities. Hackett provides
strategic insight, best practice advice and implementation services
grounded in performance metrics obtained through 15 years and 3,500
benchmark studies at 2,100 of the world’s
leading companies. Through its sister company REL, a world leader in
implementing cash flow improvement, Hackett also offers
tailored solutions that generate cash flow from operations in addition
to process cost savings.
Executives use Hackett’s unique,
empirically-based approach to prioritize initiatives, execute faster,
reduce risk and deliver sustainable results. Our clients comprise 97
percent of the Dow Jones Industrials, 77 percent of the Fortune 100 and
50 percent of the FTSE 100.
More information on The Hackett Group is available: by phone at
770-225-7300, by e-mail at info@thehackettgroup.com,
or on the Web at www.thehackettgroup.com.
Book of Numbers is a trademark of The Hackett Group.