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How to convince the CEO that workforce development is a strategic investment!

Dr. Jim Ice -

So you have the opportunity to speak to the executive board about your workforce development ideas. You are convinced that these ideas, once implemented, could make a significant contribution to the capabilities of the workforce. However, you know that these leaders are very financially driven and place the employees and their development on the "cost" side of the balance sheet. How will you help them to see your new program as a strategic "investment" in future workforce and organizational performance? How will you help them understand that the business intangibles (i.e., workforce capability) are assets to be strategically applied and managed, just like capital and cash?

Turning Business Intangibles into Tangible Business Results

Is there something beyond the balance sheet, operational efficiency and a strong sales pipeline that can impact organizational and financial success? Yes. The traditional business

"intangibles" that can be directly managed as strategic advantage.

In their seminal book, "Why the Bottom Line Isn't!: How to Build Value Through People and Organization," Dave Ulrich and Norm Smallwood explain that the intangibles of a business are increasingly driving the value of a company in today's  marketplace. Although business schools tend to focus on managing the tangible assets, leaders today need to know where to start to identify and leverage the intangible assets as well.  Companies with similar earnings and cash projections may hold very different value to the market. Investors, customers and employees are beginning to recognize that it is often the intangible assets that determine a company's long-term viability. Eighty-one percent of investors and 73 percent of analysts do not believe that financial reports communicate the real value of a company. In fact, Ulrich's research suggests that it is often the intangibles of the business that provide sustainable competitive advantage. 

They describe three categories of intangibles that successful leaders manage, just like the rest of a company's assets:

  1. Innovation Intangibles: R&D pipeline; revenue generation from new products; patients; etc.
  2. Organization Intangibles: product brand; technology; sales/distribution channels; etc.
  3. Talent Intangibles: leadership, intellectual capital, retention of talent, company culture, etc.

Their research also reports that companies with a strategic approach to talent management see tangible results, as they:

  • Earn on average 63 percent higher revenues
  • Achieve two-times the revenue per employee
  • Realize 33 percent higher productivity
  • Receive 38 percent higher customer satisfaction scores
  • Are 62 percent more likely to grow in revenue
  • Have 40 percent lower attrition rates
  • Experience 50 percent lower lost work time
  • Demonstrate a 38 percent higher engagement rate (10 percent increase leads to 2 percent company performance improvement
  • Produce 9-24 percent higher Total Shareholder Return

These are all important facts to share with your doubtful leader. However, it is tying your workforce development initiative to the strategic plan that demonstrates alignment and the "value add" of managing the talent intangibles to seasoned executives.

Four-Step Process to Gain the Advantage of (In)Tangible Talent Results

Talent intangibles can only become tangible assets when they are recognized as potential sources of value and then managed overtly. For most companies, talent is the single largest expense for their business, with estimates that talent-related costs (salaries, recruiting, development, benefits, etc.) account for 60-80 percent of total operating expense. To prepare the argument to convince those skeptical finance-oriented leaders, consider the following four steps:

Step One: Translate Business Strategy into Talent Requirements   

Often leaders do not take the time to translate their company vision and growth goals into a clear strategy for talent. A well-crafted talent strategy will align to the unique company strategic vision and define the capability requirements required for success, including: 

  • Core Capabilities: the core "know-how" (fundamental knowledge/skills) of the business
  • Differentiating Competencies: unique abilities that differentiate you within the marketplace build competitive advantage and market loyalty;
  • Workforce Plans: plans for the acquisition, development, retention and deployment of resources; and,
  • Required Behaviors: the strategic messages to communicate and reinforce clear expectations to drive personal/group performance.

Once defined, metrics should be established for the talent strategy execution to measure the correlation (ideally, as leading indicators) to financial performance. 

Step Two: Execute a Talent Audit 

The outcome of step one is a practical articulation of the talent requirements to meet the business objectives. An assessment of the current talent capability against those talent requirements (collected through a talent audit) defines the "strategic talent gaps." Some of these gaps may be obvious, while others many require a bit more research or analysis to uncover. A talent audit process can be collected via a number of methods, some formal (focus groups; surveys) and others informal (observation; interviews.) It includes an assessment of the talent support systems, such as planning acquisition, development, rewards, engagement and deployment. 

A disciplined consideration of the talent processes will yield specific targets for workforce planning to close those performance gaps and competencies for performance development, tying your workforce initiative to business strategy. Be sure to include an analysis of general workforce trends (e.g. 40% of U.S. workforce has been with current company for less than two years) and compare to your current workforce demographics, diversity and capability (both strengths and weaknesses) which will help shape your overall talent strategy.

Step Three: Communicate Expectations

Clear messages must be shaped and delivered to various stakeholder communities (including employees) to explain specifically how the new talent expectations align with the organizational strategy. 

This communication plan should include expectations for performance and an explanation of available resources (investments) to support the raised performance bar. For the individual, these resources may take the form of available "learning events" designed to build and apply new skills and knowledge. For groups, this may impact performance feedback systems - providing real-time information from which to learn how to improve group performance. For leaders, this will often take the form of new expectations for their accountability for talent and workforce planning and development. Simple, focused marketing-oriented messages and the sharing of success stories, repetitiously and dynamically delivered, builds excitement and commitment to the desired ends and the required means. 

Step Four: Execute (and Measure) the Plan

The outcomes of steps One-Three are specific measurable objectives for talent acquisition, onboarding, talent assessment/development, employee engagement, performance management, succession/Hi-potential planning, diversity, leadership development and/or supplementing workforce capability with external resources (contractors, partners, suppliers.) Take the time to translate these talent outcomes into the language of business - money. Create a simple model to illustrate the cost vs. value of the target initiative. Consider carefully the metrics that help to illustrate both individual initiatives (e.g., reducing cost per hire) and overall talent related impact (e.g., revenue per employee.) Sometimes you must create models based on estimates and assumptions. That is OK, and is no different than what finance and R&D do in their value modeling.  Create and maintain a simple dashboard for a few critical talent metrics to tie your initiative to defined business outcomes (e.g. productivity, customer.) Two thirds of organizations in the U.S. still report they have no articulated plan to capture the value (tangible or intangible) of their workforce in their defined business strategies. However, when considered in light of critical company process metrics - such as productivity, product development cycles, global market expansion, operational execution, knowledge transfer, and the customer experience - even the most stubborn, financially minded executive can begin to see the dramatic need to aggressively manage the talent "intangibles".    

Learn more about innovative ideas for developing your workforce. Visit Carlow University's College of Professional Studies at www.carlow.edu/professionalstudies.


About the Author: Dr. Ice serves as the Dean of the College of Professional Studies at Carlow University. For more than 30 years, he’s served as an advisor to global business leaders on issues of talent strategy, workforce alignment, strategic planning, employee engagement, change leadership, building learning organizations and equipping leaders for success.
Contact: Dr. Jim Ice