Like prospectors in the California Gold Rush, HR pros are racing to find the best way to connect their strategy with financial value. Sure, retention, time to fill, and engagement scores benefit the business, but which HR metrics have the strongest impact on the bottom line is less clear.
McKinsey has joined its peers in sharing what it thinks may be the answer: Companies that develop and manage talent well perform the best financially, according to the consulting firm’s recent research.
“It’s the idea that you’re not overpaying for talent and you’re not hemorrhaging more than your share of talent,” Bill Schaninger, senior partner at McKinsey and an author of the report, told HR Brew. As a result, “you are more resilient, you are more flexible, you have more stickiness with your workforce and your customers.”
More specifically, the companies that most successfully leverage HR success have high rates of internal mobility, and offer employees more training than their peers, according to McKinsey. They also deploy flatter organizational structures where frontline and middle managers play a crucial role in executing the company’s overarching vision “on a day-to-day basis” and autonomy is a central theme, the report said.
“In many cases, organizations have emphasized a ‘one or the other’ primacy either about money or about people,” Schaninger said. “The interesting thing here is, it’s not a choice.”
The methodology. After studying performance in two aspects—financial strength and human capital metrics—across 1,800 companies, McKinsey identified four types of companies: those that scored high on human capital metrics, those that scored high on financial performance, those that scored high on both, and “typical performers” that did not stand out on either and represented a majority of the sample.
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McKinsey named those that were strong in both “People + Performance [P+P] winners.” They stood out by having “a higher share of internal role moves and more training for employees,” the report said.
Training and mobility. P+P winners prioritize dedicated training and on-the-job training, providing an average 74 hours of training per employee each year. By comparison, companies that only scored high on financial metrics provided an average 19 hours of training per employee each year.
At P+P winning companies, 42% of employee moves are internal, compared to 29% for typical performers. By creating opportunities for employees to keep learning and reinventing themselves, these employers are better able to develop their employees’ skills, productivity, and interest in staying.
“How do you build skills and people? You actually do that by encouraging them to take on new roles that stretch themselves, and some companies do that much more,” Anu Madgavkar, partner at McKinsey and lead author of the report, told HR Brew.
Conclusions. In addition to profitability, P+P winners also stand out from their peers on measures of consistency, retention, and organizational resilience, which, the report’s authors said, “tends to smooth out the ups and downs of business cycles and helps these companies withstand disruptive events.”
Madgavkar explained that these are the financial payoffs of excelling in training and internal mobility, and establishing policies and structures that empower employees.
“P+P winners [have] the ability to build very collaborative and bottom-up knowledge of organizations, and then think about what sort of culture promotes that,” she said. “[It’s] the ability of people to feel free enough and supported enough and able to really participate very actively in what’s going on in their company.”—AK