3 More Metrics With Insight Into Talent’s Financial Impact

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Jun 12, 2014

Second of two parts

Yesterday, I started you off with three (3) simple measures that by themselves are enough to give you a snapshot — but accurate view  — of talent’s impact on your business organization.

Today, here are three more metrics for your consideration. When added together, these six (6) will help you truly gauge the impact your talent has on making your business successful.

4.  High impact items are prominently mentioned in the annual report

The fourth but the simplest measure covering whether you are considered to have a significant business impact is how prominently your results are displayed in the annual report.

It’s a simple concept but legally companies are required to list their major accomplishments and problems in their annual reports. So if you do not receive prominent coverage (number of lines or pages compared to other functions), either your function has only a minor business impact or you have somehow failed to demonstrate and quantify that impact to senior executives.

Focus further assessment on the highest impact functions

After calculating the top four (4) strategic indications of talent management’s impacts on the business (and the Top 3 can be found here) , there is a natural tendency to want to go further and to measure the efficiency of every individual talent function like engagement, leadership, T&D, and compensation.

But you should avoid falling into this trap, because you can safely assume that great leadership, training, compensation, performance management, etc. will directly lead to the improvement of your workforce productivity and innovation. However, if you want to go a step further, it is OK if you restrict your metrics to the highest impact talent areas.

A recent study by the prestigious Boston Consulting Group, out of 22 different talent functions, identified the ones that had the highest impact on revenue and profit. So if you want to directly assess the two highest impact functions, they were recruiting (and the closely related employer branding at No. 4) and retention.

4. Great recruiting/branding drives applications/referrals

There are many indirect ways to measure recruiting and employer branding effectiveness, but the first revealing bottom line measure is the number of applications that your firm receives each year.

This is because no matter what you or others have said, the only way to tell if your message has been effective is by the number of job applications you receive each year. The benchmark number to target is that you should receive the same number of applications each week as you have employees.

Or if you’re curious about how your total number of applications compares to other firms, Zappos gets 31,000 each year, Yahoo gets over 600,000, and Google gets over 2 million.

A related indicator of your employee brand strength is your employee referral rate. The referral percentage (out of all hires) is important because if you don’t like something, you certainly won’t recommend it to your top-performing colleagues. If your morale, satisfaction, and engagement are low, you certainly won’t take the time to refer your most-admired colleagues.

And so it makes sense to use the percentage of all hires that come from referrals as an indication that your employees like where they work. The benchmark standard is having at least 45 percent of all hires coming from employee referrals.

5. Top performer turnover shows a high business impact

losing key assets directly to competitors is never a good thing, so one of the key success measures of great talent management is how effective your firm is at keeping its highest-performing employees (i.e. those rated in the top 10 percent of performers in a job family).

But listing that turnover percentage is not enough. You must go the next step and quantify the dollar impact of this loss if you want to ensure that you get the attention of your executives.

To get the dollar value of turnover, multiply the number of lost top performers by the percentage of increased performance that you get from your top performers (it is usually assumed to be at least 10 percent above your average revenue per employee). Once again the target turnover percentage varies by industry and the current unemployment rate, but the best firms overall routinely hit below 5 percent and the top performer turnover rate should be half of the standard rate.

A low turnover rate viewed independently cannot not be an automatic indication that your firm is a great place to work because there is an important caveat regarding low turnover.

If your firm has a relatively low turnover rate but it doesn’t have a relatively high employee productivity rate or a high job application rate, this low turnover rate could be an indication that your employees either simply have little initiative or that they are not desirable in the marketplace.

Don’t be tempted to look at other metrics

There is a tendency in talent management to use way too many metrics, so be careful about adding any more to this short business impact list.

While it is OK to measure common tactical metrics including time to fill, training hours, employee engagement scores, and other factors, be aware that these are tactical metrics not strategic impact metrics.

Use these tactical metrics for internal continuous improvement purposes, but the bottom line is if you train, develop, move employees, and hire effectively, these successes will all improve the above business-impact measures.

Final thoughts

No matter what metrics you pick, executives won’t find them credible unless they have been fully vetted by the CFO (the undisputed King of Metrics).

As a result, before you go very far in creating your snapshot assessment, work with the CFO’s office to ensure that they support the metrics you selected, their formulas, the methods for gathering the relevant data, and the benchmark comparison number that will be used to judge yearly success against.

You should then run these metrics by a sample of managers and executives, so that you can identify all of their questions and concerns and be able to answer each one whenever you present your snapshot metrics.

After calculating issue your metrics, if you find that your firm is simply not competitive, you then must ask yourself what the top firms are doing in talent management that you are not.

Miss Part 1? See Financial Snapshot: 3 Metrics With Insights Into Talent’s Impact