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Talent Management:State of the Industry

A new study by Bersin & Associates shows leadership development and succession planning are top concerns among HR professionals, given today's economic and demographic changes, yet most companies have yet to address them adequately. This supplement is sponsored by Development Dimensions International (DDI).

By Josh Bersin

A new study by Bersin & Associates shows leadership development and succession planning are top concerns among HR professionals, given today's economic and demographic changes, yet most companies have yet to address them adequately.

Talent management > has become one of the most pressing topics within HR organizations today. And it's no wonder, given the current economic environment. Under the cloud of a potential recession, the majority of HR professionals are under increasing pressure to cut costs. With this emphasis on belt-tightening, companies are trying to squeeze every last ounce of productivity out of each employee.

At the same time, the aging workforce has opened up significant gaps in their organizations' leadership pipelines, putting corporate performance at risk. And it's not only a shortage of top executives that businesses face; more than half of companies also cite shortages in directors and line managers.

These pressures have brought < talent management > to the forefront of corporate HR agendas. But to date, few organizations have progressed very far in their efforts. Within most organizations, the structure and processes are just beginning to develop. In fact, only 5 percent of organizations say they have a clear < talent-management > strategy and operational programs in place today.

Oakland, Calif.-based Bersin & Associates, a leading research and advisory firm focused on corporate learning and < talent management >, in partnership with Human Resource Executive, recently conducted a study, 2008 < Talent Management > Factbook: Trends and Analysis in Enterprise < Talent Management >, to examine how organizations are governing their < talent-management > initiatives and how their processes are evolving to make these initiatives more effective.

The study was conducted in February, when a sample of contacts from HRE's database were e-mailed invitations to participate in an online survey. The final analysis included corporations, nonprofits, government agencies and higher educational institutions with 100 or more employees from around the world. The final count of qualified respondents was 976.

This research is important because < talent management > is not just a "new buzzword" applied to old HR processes. Rather, it represents a significant transformation in the HR function -- a new way of integrating processes and systems that, until now, have been stove-piped, and a new way of looking at employees in a more strategic way.

This special report gives HRE readers an exclusive first look at the key study findings. Included is information about how to organize for success, where to focus efforts to improve < talent-management > initiatives, and other important considerations about strategic processes such as performance management, workforce planning and competencies.

Who's Leading the Charge?

Once organizations realize they need an integrated approach to < talent management >, how do they organize for success? It is clear from our research that the involvement of a top business executive in driving or actively participating in the < talent-management > strategy is critical to its success.

However, only half of the companies interviewed have a top business executive actively engaged. These latter organizations have much more mature and effective < talent-management > processes. The other half of companies will likely struggle in their < talent-management > initiatives until they gain active support from an executive.

To create focus and ownership for integrated solutions, some companies are creating a dedicated role to oversee < talent-management > activities . Currently, about one in four companies has consolidated < talent-management > activities under a single executive. This person is typically responsible for leadership development, succession management, career development, performance management, recruitment, learning and development, and workforce planning. Not surprisingly, companies that do have a dedicated < talent-management > role are far more likely to have more advanced and successful < talent-management > programs in place.

In addition to deciding how to structure and manage the < talent-management > function, organizations must choose where to focus their efforts in order to improve < talent-management > initiatives. Since most processes are still in their fledgling stages, there is a lot of work to be done.

Developing the Next in Line

In our study, companies chose "leadership development" and "succession management" as the top two priorities for improvement . Given the current and impending shortages of executives and directors, most companies feel a sense of urgency around these issues.

Leadership development is still immature within most companies. Our survey found that a disturbingly large number (approximately half) of the companies interviewed have no formal process for leadership development.

These companies may offer only e-learning libraries or sporadic courses for managers or leaders. We find that this approach is of fairly low value to the company, since offerings are generic, often underutilized and inconsistently applied. Companies with this approach to leadership development are generally less effective overall in meeting their business objectives.

Fewer than one in five companies has a comprehensive leadership-development approach that we would consider either "focused" or "strategic." In a focused leadership-development approach, programs are customized and progressive, building on one another throughout a leader's career. The process is supported by top executives and aligned with the business strategy.

A strategic approach goes a step further by integrating leadership development with the company's overall < talent-management > process. Executives are fully engaged and hold managers accountable for developing employees. And, as a final step, programs are monitored and assessed by senior leaders. The overall curricula are continually improved to ensure successful development of future leaders.

Similarly, succession planning is still evolving within most companies. Our research found that only one in five organizations has a consistent, enterprisewide process for succession planning. And many of these companies focus only on top executives. Half of all companies have no process for succession planning at all. This is of great concern, given the number of impending retirements within most companies.

Performance Management is Key

Performance management ranked third as a priority for improvement. Without a sound and consistent way to manage performance, organizations cannot fairly promote the right people, tie pay to performance, or motivate people to perform in a predictable way.

This is vitally important, because performance management is a key driver of the overall effectiveness of the organization.

Performance management encompasses a number of different processes, and our survey asked organizations to rate the maturity of some of these processes. The one area in which organizations are performing particularly well is in performance appraisals. While we all understand that such a process is vital, many organizations tell us that the appraisal process itself is not well understood or integrated into other parts of performance management.

For example, only 57 percent have a standard process for establishing employee goals, and only about 40 percent of companies consistently use cascading goals, wherein employee goals are aligned with manager- or corporate-level goals.

Finally, only one-third of companies say their employee-development plans are consistent across the organization. This is important because managers should all be using a standard approach to employee development. Fewer still, just one-quarter of companies, say they offer formal coaching programs for employees. (Interesting, in our High Impact < Talent Management > research, coaching was found to be the "highest impact" performance-management process of all.) The net takeaway here is that, although some aspects of performance management are widely adopted, it tends to be a "work in progress" in most companies.

Recruiting Becomes Strategic

In today's labor market, most organizations consider recruiting to be one of the most important elements of their < talent-management > strategy. And this is well-founded, since effective recruiting practices are a key driver of overall organizational effectiveness.

Over the last decade, the Internet has become a primary source for external recruiting efforts, and most companies (67 percent) now have well-established processes for Internet recruiting. Companies regularly use online job boards as well as their own Web sites for external recruiting.

Organizations have also strengthened their internal recruiting processes, with 71 percent telling us they have well-established internal recruiting programs. In a tight labor market, it is clearly better to "build leaders" than to constantly try to recruit externally.

To attract better candidates, some companies are also looking at building (or rebuilding) their employer brands. This means using collateral, the corporate Web site and other vehicles to position the company favorably to qualified candidates.

Today, less than half (43 percent) of companies have a well-established approach to employer branding. Remember that best candidates are not looking for good jobs -- they are looking for good companies. Your brand creates a magnet for these people.

The most difficult area in recruiting is in the area of measurement. Just 33 percent of companies have a well-established process for gathering and reporting recruiting metrics. With today's new < talent-management > systems, organizations can use tracking information to score recruiters, recruiting sources and other processes such as time to hire, cost to hire and quality of hire.

Such analysis enables the recruiting function to go after the best possible candidates in the most efficient ways. Recruiting is often like finding a needle in a haystack -- the more focused and targeted you can become, the faster and more effectively you will hire.

Competencies Misunderstood

When an organization tries to build an integrated < talent-management > strategy, its leaders quickly realize that many of their design decisions are dependent on a clear definition of job descriptions, roles and required competencies.

Competencies are used in many ways : They codify the job requirements that a recruiter needs to find the right candidate; they establish the criteria for performance appraisal and identification of high-potentials; they help assess the leadership skills needed to build leadership-development programs; and, most importantly, they document and reinforce an organization's core values.

We have found that competency management is still not well understood today. For example, our research shows that less than half of all organizations develop and implement job functional competency models in a standardized way.

Job functional competencies are typically developed through detailed assessments of high performers in certain jobs. These competencies can be extremely useful in recruiting efforts to assess candidates, as well as in the performance-management process to assess and develop employees based on a standard set of values.

Unfortunately, less than half of the companies surveyed have a standard process for using competencies in either recruiting or performance-management activities.

Job functional competencies require regular review and updating as jobs and the business itself change. Herein lies part of the challenge with competencies -- the ongoing maintenance process, which requires time and resources. Only 40 percent of companies have a standard process for maintaining and updating their competencies.

Leadership competencies are another form of a competency model used for executives, managers and high-potential leaders. These are used by fewer companies than job-functional competencies in a standardized way, and yet "gaps in our leadership pipeline" is the single most important problem companies have in the area of < talent management > today.

Talent-Based Workforce Planning

In the context of < talent management >, workforce planning is one of the most strategic processes an organization can undertake. This process goes far beyond tracking open head-count requirements. It includes identifying critical job roles or skills, and then determining current and future talent needs for these roles.

Forward-thinking HR professionals will take this a step further by identifying business and demographic trends that may affect these job roles, and, finally, working to implement solutions to fill short- and long-term talent gaps.

Today, however, workforce planning is a fairly immature process in most organizations. Most companies are limited to using information on current open head count for planning purposes. A minority of companies (37 percent) develop plans for future head-count needs.

And even fewer organizations use information on current or projected skills gaps in their workforce planning. As a result, organizations are doing a mediocre job of identifying talent gaps. A miniscule number (1 percent) of organizations say they have an "excellent" view of talent gaps, and only 22 percent say they have a "good" view of talent gaps.

What this tells us is that today, workforce planning is not really a < talent-management > process; rather, it is still a process of consolidating head count for budgeting and reporting. Given that few companies are focusing on this area, workforce planning will likely be slow to evolve.

Adopting the Right Systems

As the < talent-management > market is becoming more clearly defined, nearly every software provider for HR systems has re-branded itself as a "< talent management > solution." How well are these systems being adopted and what impact are they having?

Our study gathered data on current and intended usage of several key systems, as described below. The data shows a "tower of Babel" in most large organizations. On average, companies are using three to four different, nonintegrated HR systems today. And they plan to continue buying more: Approximately half plan to purchase one or more new systems in the next 12 months, with an average budget of $610,000.

Integrated HRMS (HR and payroll system). The HRMS system is still the lynchpin of any < talent-management > infrastructure because it stores the core data model for employee information and organizational hierarchy. It is hard to find a sizeable company today that doesn't have some type of automated HRMS.

This was the first piece of the HR process to become automated, since employee information and payroll are so critical to the company. Overall, 80 percent of organizations are using an integrated HRMS, and 18 percent are planning to purchase a system in the next 12 months, either as a new system or replacement for an existing system.

While the HRMS is a "must have" system of record, it has not kept up with < talent-management > needs. Oracle, PeopleSoft, SAP and many others are just now making major progress in deploying integrated < talent-management > systems.

Recruiting/applicant tracking system. These systems have become more sophisticated and now include interfaces for job applicants, recruiters, business and HR managers. They include workflow management, integration with Internet-based job banks and analytical capabilities to measure time-to-hire and quality of source.

Our study shows that more than 60 percent of organizations are using a recruiting/applicant tracking system today, the highest penetration after HRMS systems. And 23 percent are planning to purchase one in the next 12 months -- the highest purchase intent of any of the systems we studied. This shows that this market is not even close to being penetrated; there is an opportunity for significant growth in this area.

Compensation systems. Tracking and managing compensation has largely been addressed with in-house systems and highly complex Excel spreadsheets. Now, however, it is becoming a software market in itself. One of the drivers for a new breed of compensation systems is an increasingly heavy focus on pay-for-performance plans, which enable managers to establish complex pay rules based on individual performance, workgroup performance and business performance.

A large number (61 percent) of companies are running compensation systems today; however, we believe most of these are homegrown systems, often using Excel or proprietary systems. Currently the market for third-party compensation systems is small, and it appears it may be starting to accelerate, as 12 percent of companies plan to purchase a compensation system in the next 12 months.

Performance-management systems. While once considered an automated solution to paper-based performance appraisals, this market has redefined itself in the last two years. Many vendors are transforming their forms-driven performance- management practices to include tight integrations to other key strategic process areas, including goal-setting, assessments, development planning, competency management and succession planning.

Today, 53 percent of companies use performance-management systems, and 19 percent are planning to acquire one in the next 12 months. The market for these solutions has been hot. However such stand-alone systems are under threat of replacement by integrated < talent-management > suites, now available from a wide variety of vendors.

Learning-management systems. Every major LMS vendor has jumped on the < talent-management > bandwagon by developing a host of related functionality. Basic features include integrating learning programs with employee-performance plans. More advanced applications, which are being developed by most LMS providers, include succession planning, leadership development, and rating and ranking of employees for compensation decisions.

Today, learning-management systems are used by approximately 40 percent of companies, and 14 percent are planning to purchase a system in the next 12 months. Organizations shopping for an LMS can now buy an integrated < talent-management > suite from many of these vendors. But in most cases, the LMS is either purchased separately or already exists, leaving the integration of learning and performance management a project for the coming years.

Succession planning. Given the immaturity of succession management in general, it is not surprising that only 24 percent have a software-based system today. We believe that most of these systems are proprietary, in-house built applications that are only used by the succession-planning team.

However, as we saw earlier, succession planning is the No. 2 area slated for improvement in the coming year. Today's performance- and < talent-management > systems are rapidly gaining succession-management functionality, so we expect succession management to become more automated in the coming years.

Integrated < talent-management > suites. Finally, we see a tremendous amount of investment focused on integrated < talent-management > suites. The vision of a < talent-management > suite is a set of software offering all of the functionality stated above, plus advanced features such as career planning, workforce planning and complex analytics. By our definition, no one provider currently offers a complete solution for all elements of < talent management >, but each vendor is building upon its traditional strengths to extend into the other talent areas.

Adoption of these suites is still very small, but we expect the numbers to continue to grow as the market matures. With 11 percent of companies planning to purchase an integrated suite, the growth rate could exceed 60 percent over the next year.

We believe the market will trend toward these integrated suites. Just as we saw the market transition from sales-force automation tools to CRM systems, we expect to see the HR systems market transition from individual-process solutions to more fully integrated suites.

Looking Ahead

The results of this study clearly demonstrate that < talent management > is still in its early stages. Most companies are just beginning to develop and implement their processes; it will take years for these processes to fully mature.

Companies that have a dedicated < talent-management > executive have more mature processes than companies with no dedicated role. Therefore, companies that are serious about their < talent-management > strategies should think about reorganizing and naming a < talent-management > executive.

In terms of where to focus your efforts, the research found that the < talent-management > initiatives having the biggest impact on overall organizational effectiveness are: 1) performance management, 2) leadership development, 3) workforce planning/identifying talent gaps and 4) recruiting. More than anything else, organizations should make sure these processes are consistent and optimized in order to ensure their ability to meet their business objectives.

While < talent management > emerges from its infancy into adolescence, we look forward to tracking its progress. We expect to see the processes mature, some quickly and some slowly, and for organizations to become more effective in their < talent-management > initiatives.

Josh Bersin is principal and founder of Bersin & Associates, a < talent-management > consulting firm based in Oakland, Calif. More information about the study results is available in the major industry report from Bersin & Associates, 2008 < Talent Management > Factbook: Trends and Analysis in Enterprise < Talent Management. For details, go to http://store.bersinassociates.com/tmfactbook.html.


June 2, 2008

Copyright 2008© LRP Publications