Talent: The Ultimate Profit Center

Making the move from a cost center to a profit center is a daunting task that most talent management and recruiting teams don’t attempt. Yet when the economy shifts, and it will again, this might be the most important thing you can do today to ensure that your budgets don’t get cut, your staff doesn’t get slashed, and your department isn’t decimated.

The Human Capital Business Strategy

“Our people are our most important asset.”

This clich? has been used everywhere from Apple to Enron, often as lip service to employee-retention initiatives. I have yet to see a company really step up in their annual report and demonstrate that people really drive the business.

Most of them look something like GE’s annual report, which to its credit devotes a good deal of paper to human capital, but wraps it all up under this image of their business strategy:

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It’s significant that “Great People and Teams” are actually on the list, as many companies can’t even say this. But notice that it’s in the lower-right quadrant of the diagram, buried behind execution and financial discipline. Personally, I think the diagram at the beginning of every annual report should look more like this:

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GE makes approx. $42 billion per quarter in revenue, so obviously they’re doing something right. But what is the return on their human capital, their most important asset? They and many other companies and talent management departments are missing that consistently hiring and developing the best people drives revenue and profits for the company. This, like the return on any other asset, is quantifiable.

After all, it’s the Great People and Teams that drive all of the other elements. Who comes up with the processes that drive growth? Who identifies the businesses that are leaders rather than followers? Who’s responsible for execution and financial discipline? It’s the great people and teams, that’s who.

As such, talent management has one of the biggest potential impacts on corporate profits of any department.

Making Money with Human Capital Initiatives

Is sales really the only department that can talk like a profit center? Sales can only sell what the product teams create, and time and again it’s been shown that top sales people drive significantly more returns than their peers.

What about product development? Don’t the product teams create the product that the company sells in the first place? Without them, would profitable lines of business be possible? Of course not, but this only provides another example of how human capital drives profits, as great ideas come from great people, as I outlined in the Talent Story of the iPod.

In talent management, your impact on all of these things is usually indirect at best, which is actually pretty good when you add it all up. You don’t create the products that sell billions, you don’t actually do the selling, and you don’t set the company’s business strategy about which markets to go after. But within this framework, you can make a significant impact on top-line revenue and bottom-line profits by ensuring that the resources are in place to execute on the business strategy, identify new revenue streams, and ensure the company operates at maximum efficiency.

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If the company’s goal is expansion, who you identify and hire for key sales roles can have an enormous impact on how quickly and how broadly the company and its revenues can expand. If the goal is operating efficiency, getting seasoned operations talent in place (whether internal or external candidates) can change the fortunes of your company. If the goal is innovation, talent management can have a direct impact on whether you’re positioned to hire and breed innovators. See my recent article on Idea Recruiting and Fast Company’s fascinating article on Innovation Scouts.

If You Don’t Measure it, You Won’t Improve it

Your impact on corporate performance is indeed measurable.

A statistical technique called regression analysis is one excellent way to measure your impact. The guiding principle of an effective regression analysis is to isolate certain variables (i.e., more effective talent management practices) in order to better measure their impact.

An example of this is focusing on a specific group of employees who can be tied to revenue, and implement initiatives or programs targeted toward these individuals. T-Mobile did this some time ago in their sales recruiting efforts, as have scores of other companies like Sunglass Hut. Microsoft is even beginning to experiment with this technique in its workforce-planning efforts.

These are just a few of the ways you can demonstrate your impact on revenue and profits:

  • Improving the selection process for revenue-generating employees by implementing online assessments. This works particularly well for salespeople.
  • Increasing the return from your employee referral program; referred employees stay longer, produce faster, and perform better.
  • Ramping up proactive sourcing efforts to identify game-changing, high-impact employees who drive higher returns for the company.
  • Implementing an idea or innovation recruiting initiative that yields products or services that your company sells.
  • Targeting internal mobility/continuous recruiting initiatives to top performers and subsequently reducing the turnover rate of these individuals, who drive significantly more revenue and profits than their peers.
  • Implementing “source optimization programs” to ensure that the top-performing sources of hire as measured in revenue generated are optimized and used more often.

You can, of course, continue to operate as a service provider that handles a largely administrative process. You can also choose to focus on reducing costs vs. generating revenue, or reducing the time it takes to hire average talent vs. taking more time to hire top performing talent.

But with outsourcing, a potential economic downturn if gas prices go any higher, and an increasingly competitive global business environment, I wouldn’t suggest it.

Dave Lefkow is currently the CEO of talentspark (www.talentsparkconsulting.com), a consulting firm that helps companies use technology to gain a competitive advantage for talent, and a regular contributor to ERE on human capital, technology, and branding related subjects. He is also an international speaker on human capital trends and best practices, having spoken in countries as close as Canada and as far away as Malaysia and Australia. His consulting work has spanned a wide variety of industries and recruiting challenges with companies like Starbucks, Boeing, HP, Microsoft, Expedia, Washington Mutual, Nike and Swedish Medical Center.

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6 Comments on “Talent: The Ultimate Profit Center

  1. Six Sigma as applied to ROI has many dimensions of benefit and why not extend those benefits to HR.

    Makes sense.

    Regression Analysis – singing my song, maybe those courses in Quantitative Analysis were not just a mind bender after all 🙂

  2. This is an excellent must read article. Dave Lefkow gives readers six ways (examples) you can impact revenue and profits. This article is a reminder to develop corporate objectives as if you are a profit center, not a service provider.

  3. I was thinking about this yesterday. Is recruiting even viewed as a strategic asset? First, most sourcing and recruiting professionals seem to come into the profession with little barriers to entry – to some degree it seems like anyone can become a recruiter or sourcer. Of course, only people who perform stay. Second, there are very few certifications – except for AIRS which is a basic credential. From my experience, not many VP’s of recruiting even provide their teams with any type of training or professional development opportunity – which is another story. Third, the measurement of performance and weeding out of poor performers.

    HR also needs to ensure that its team members are educated about the business they are in, understand the job requirements, identify the right candidates holistically, and serve the hiring manager as if they are a client – top level service, follow up, and feedback.

    HR seems to be going through what Marketing went through a few years ago, the ‘strategic support’ issue. Now we have CMO’s, advanced credentials and certifications, professional memberships, advanced training opportunity, delineations on different levels of marketing professionals, and measurable contribution analytics. The recruiters should follow the same path.

    My two cents.

    Rachel

  4. The best companies are the ones that make mistakes. They aren’t afraid to step even if it’s off a cliff because they know a team member will be there for the rescue. Thinking about money doesn’t make it grow.

  5. Good article but also consider these facts:

    1)Business leaders are worried about talent management because of HR as much as they are about external competition and outside influences. Those words may not be spoken directly to HR, but think about it the next time you hear about struggles from top business leadership who has an HR team that hasn’t built its credibility on relentless talent pursuit, development, and retention.

    2)Business leaders also are even more puzzled by why HR isn’t leading the way or leading by example. Business leaders aren’t usually presented with a shortlist internal or external HR leaders who have ‘Acquire, Develop, and Manage Talent’ as her/his top HR mission and have built her/his credibility around results in this area. Most business leaders don’t see their own HR team’s record of acquiring, developing, and retaining HR talent being very good (why are their so many people in HR who don’t know how to tie back to talent but are experts in all forms of administrivia).

    3) As a profession, we have to realize business leaders have expected HR to step up on talent, but HR continues to miss out on opportunities to shine and have impact around talent. Don’t believe it, read again the presentations, survey results and books from most top business leaders about how they built business. You’ll find that it was done through the obsession with obtaining, developing, and keeping/putting talent in the right situations to shine. That said, I think it’s immensely perplexing to business leaders who are left wondering why isn’t the mission clear to HR and why can’t the success results even within many HR departments be clearly seen?

    I recently had a conversation with an HR executive about the fact that staffing was only about 10% of their department but generated more than 50% of their internal complaints and accounted for anywhere from 20-40% (excluding benefits and other programs). I replied, ‘Would the executive management team allow any other business or department to do that? Wouldn’t any other team be charged with fix it or we’ll have to replace that team or get out of that business?’ Then the lightbulb went bright – she said, ‘No wonder we’re struggling. We don’t have the right structure, team members, leadership, or departmental mission and focus to do anything more than make an incremental difference.’

    As the article pointed out, I believe metrics have a place in highlighting what’s going on. So are we measuring the true cost of our investment in talent, the cost of developing and maintainng talent as a part of the organization, and the actual cost of HR related to talent compared to all other non-talent functions? Focus in on these items as a start, and it’s clear that things probably need to be turned completely inside out before dramatice positive results should be expected.

  6. Dave, you are correct that HR (or more importantly, Talent Acquisition) needs to shift the prevailing mentality from that of a cost-center to that of a profit-center. A review of Tom Peter’s chapter on Talent Acquisition as a profit-center in his 2004 book, Re-Imagine, is an outstanding place to start.

    Data that is relevant (and can be converted to prove a visual point) is always effective. However, it takes refinement as it is truly an art. While I believe regression analysis will lose most hiring managers, being able to communicate information and key points (in a manner that resonates) is what is important. One thing that I learned in consulting is that a simple bar chart or line chart (comparing 2 situations) goes twice as far as any regression analysis chart. Consider Boston Consulting Group’s creation of the BCG-Matrix. This was an outstanding way to take a plethora of data and break it down into a central diagram (which is where the term ‘cash cow’ was termed and most definitely assisted with the marketing aspect/’resonance’ piece.)

    For example, when we are speaking of ‘Return on Talent’ or ‘Return on Human Capital’, one simple metric is ‘Revenue or Profit per Employee’. Of course, you can take this further, such as ‘EPS per Employee’, etc., but this is a great place to start. The point is to capture the data that allows you to start with a baseline (or benchmark), to thereby compare your results against.

    However, my take on Talent Acquisition is that it is ABSOLUTELY a predictor of success. My recommendation, however, is that Talent Acquisition become savvy in the way that the department positions itself to complementary parties (hiring managers) / business units/etc. Begin communicating like a profit center and you will slowly see the types of conversations begin to change. Don’t throw away cost control, as this is key to all departments, however begin communicating in new ways that speak to how your efforts have impacted the growth in revenues and profits, and more importantly, growth in market cap and shareholder value.

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