Talent management reaps its rewards

If any top executives still harboured doubts over the importance of managing their talent then the findings of a recent study by the Hackett Group should be enough to dispel them.

Hackett’s “Talent Management: Buzzword or Holy Grail?” used more than 125 benchmarks to examine the correlation between financial performance and top-quartile performance in four talent management areas: strategic workforce planning; staffing services; workforce development services, and overall organisational effectiveness.

Hackett found those firms with top-quartile talent management outperformed typical companies across the four standard financial metrics and generated EBITDA (earning before interest, depreciation and amortization) of 16.2 percent – 2.1 percent higher than the levels seen for typical companies. Based on these figures Hackett concluded the gap netted a typical Fortune 500 company (based on $19 billion revenue) an additional $399 million annually in improved EBITDA.

With procurement seemingly at the heart of businesses’ ongoing ‘battle for talent’, the results appear to be particularly pertinent to a sector that is undergoing a significant transformation.

The latest findings are in line with those found in a similar Hackett Group study from February 2006, that claimed world-class procurement executives required 50 percent less staff and paid 41 percent higher wages than their ‘typical’ peers.

According to Hackett, this wage hike enabled them to attract the skill levels required to elevate the company’s procurement function above that of merely being a cost centre. Last year’s study also discovered that when compared to typical companies, world class operators further developed their staff’s skills by dedicating 74 percent more hours a year to employee training.

In an increasing competitive marketplace, Chris Sawchuk, Procurement Practice Leader for the Hackett Group, believes that talent management needs to play a fundamental role in any organisation’s corporate strategy.

“The role of the CPO is constantly changing and evolving,” Sawchuk told ELP. “And procurement itself is now seen as a far more strategic function than it ever has been in the past.”

According to Sawchuk, there is no better illustration of this than its increasingly high profile role in the MBA curriculum. “When I studied for my MBA there was little or no mention of procurement,” he said. “There may have been the odd class on operations but procurement, sourcing and supply chain barely figured.

“However, I recently received a letter asking me whether I felt it was necessary to give supply chain management a greater role in the curriculum – my response was a resounding “yes”.”

Therein, however, lies one of the procurement’s major issues. Although procurement is now receiving the coverage it deserves, its previous position as a relatively obscure operational business function dictates it is now playing catch-up – and no matter how furious the pace there is still a significant lag.

“There is still a dearth of people coming out of school with the procurement skills needed in the current environment,” Sawchuk said, “it’s hard to predict how long this problem will last.”

There’s little doubt that increasing salaries, almost across the board in procurement, is going some way to addressing the current in-balance. At the launch of Hackett’s February ’06 report, Hackett Senior Business Advisor, Pierre Mitchell, spoke of the need for World Class procurement operations to establish themselves as a strategic function in their own right.

"To do this,” he said. “World-class procurement executives need more skilled and qualified employees. This is why they pay higher wage rates and invest aggressively in talent management strategies designed to retain and develop their staff."

According to Sawchuk, however, the recent rise in salary levels has been an illustration of “procurement catching up”, and although salaries appear set to rise still further it’s unlikely they can continue to increase at their current rate.

What Hackett’s research does reveal is that there has rarely been a more exciting time to be involved in procurement, and for companies with the right vision and employees with the right skill sets and motivation there are no limits to what can be achieved.

"This further demonstrates the payback of over-investing in talent management and development,” Sammy Rashed, Head of Sorucing, Novartis, told ELP. “In a service-intensive, value-oriented function such as Procurement, the returns of this strategy will be even more significant."

Executives shouldn’t need telling again.