There are three critical components of human capital which, when managed correctly, can lead to organisational productivity gains of more 40 per cent and operating profit margins that are up to 50 per cent higher than industry peers.
The three human capital components – time, talent and energy – are actively focused on by some of the world’s fastest growing companies, according to Bain & Company, which recently conducted research into the area.
It found that most companies realise only 70 per cent of the benefits of workforce productivity that they could from the management of time, talent and energy.
Furthermore, they lose nearly 24 per cent of their productive capacity – more than a business day a week – to organisational drag, said Eric Garton, a partner in Bain & Company and leader of the firm’s global organisation practice.
“They make up very little of this deficit in the way they develop and deploy scarce talent,” he said.
“And they engage and inspire very few of their employees.
“Great people show up for work every day, but the organisation gets in their way – preventing them from producing as much as they could or should.
“Our research suggests that most companies are missing the opportunity to outpace competitors and peers by managing human capital more effectively.”
“Great people show up for work every day, but the organisation gets in their way – preventing them from producing as much as they could or should”
Based on the research, Garton explained the best companies harness time, talent and energy in a number of ways.
1. Time: The average company loses more than 25 per cent of its productive power to “organisational drag”, said Garton, which are ways of working that waste time and prevent people from getting things done.
“To start reducing it, go through your team’s calendar, ask yourself how many meetings really need to occur and how many attendees are truly essential – and then give back the time,” he said.
2. Talent: Contrary to popular belief, Garton said top-performing companies don’t have better talent than their competitors; they’re better at deploying, teaming, and leading the talent they have.
“They take an ‘intentionally non-egalitarian’ approach to distributing their all-stars, ensuring that 95 per cent of the talent in mission-critical roles is A-level quality.”
3. Energy: An engaged employee is 44 per cent more productive than a satisfied worker, and Garton also said employees who feel inspired at work are nearly 125 per cent more productive than satisfied ones.
“The companies that inspire more employees perform better than the rest,” he said.
For the research, Bain partnered with the Economist Intelligence Unit and surveyed over 300 executives from large companies across 12 industry sectors worldwide.
“The best companies in our research are nine times more likely than the rest to assemble all-star teams”
They found that the best managers of time, talent, and energy – the top quartile of their research sample – are 40 per cent more productive than the rest and consequently have profit margins that are 30 to 50 per cent higher than industry averages.
And this difference compounds every year; over a decade, they can produce 30 times more than the rest, with the same number of employees.
The best companies get as much done by 10:30 am on Thursday as most do all week – “and they continue to work, they continue to serve customers, they continue to innovate”, said Garton, also who co-authored Time, Talent, Energy: Overcome Organisational Drag and Unleash Your Team’s Productive Power with fellow Bain partner Michael Mankins.
“In short, managing time, talent and energy is an overwhelming source of competitive advantage,” he said.
“People with ingenuity and creativity are scarce,” said Garton, who explained that 15 per cent of most organisations’ workforce is comprised of “star talent” – individuals with a demonstrated track record of high performance and high potential.
How this “difference making talent” is deployed is critical to productivity and performance. Stated differently, for most companies, managing talent is less about “screening and selecting” star performers – “this is not where most companies come up short,” he said.
“Instead, managing talent is about the effective deployment, teaming and leadership of ‘difference makers’.”
“NetFlix merely advises its employees to ‘act in NetFlix’s best interests’”
The best companies put “difference-making talent” in roles where they can make the biggest difference.
“They identify the few business-critical roles in their business – those roles that absolutely have to be done well in order to deliver great results from the company’s strategy,” said Garton.
“Then they make sure that 80 per cent-100 per cent of the individuals in these roles are stars.
“They concentrate their best talent on the most critical roles,” he said.
The best companies also team star talent more consistently, and Garton observed that they are not afraid to create “all-star teams”, or teams comprised entirely of difference-making talent – and target them at mission-critical initiatives.
“When something important needs to be done, they don’t merely assemble teams based on who is available,” he said.
“Rather, the best companies in our research are nine times more likely than the rest to assemble all-star teams.”
Finally, Garton said the best companies recognise that great leaders can act as a force multiplier on the productivity of great teams.
“So in addition to teaming star talent more effectively, these companies assign all-star bosses to lead all-star teams,” he said.
“The careful management of financial capital is no longer a source of sustainable competitive advantage”
Garton also explained that as companies grow, most become more complex and add new structures, new processes and new procedures.
Without constant vigilance, he said these factors get in the way of people getting work done. “They become a ‘drag’ on productivity and performance,” he said.
“Accordingly, we call the collection of bureaucracy and procedures ‘organisational drag’ and encourage leaders to fight it at every turn,” he said.
Companies like NetFlix avoid putting in too many processes in the first place.
“Instead of elaborate vacation and expense policies, for example, NetFlix merely advises its employees to ‘act in NetFlix’s best interests,’” said Garton.
“This reliance on judgment, rather than process, reduces drag.
“NetFlix doesn’t have armies of accountants auditing expense reports and timesheets, and it doesn’t hold long meetings to debate expense and vacation policy.
“Instead, NetFlix encourages its employees to focus externally – on delivering for customers.”
Garton also explained that over the past 50 years, most companies have put in place elaborate processes for managing financial capital.
“Money was scarce and those companies that could access it and invest it more skilfully than their competitors came out on top,” he said.
“As a result, the chief financial officer became central to strategy and performance management at many companies.”
“The CHRO must lead the charge to overcome organisational drag and unleash the productive power of your team”
In the years ahead, however, Garton said the CHRO must play a central role.
“Financial capital is no longer scarce – in fact, it is superabundant and cheap,” he said.
“As a result, the careful management of financial capital is no longer a source of sustainable competitive advantage.
“What is in short supply at most companies is good ideas – and the people who devise them and bring them to life.
“Great ideas come from people with the time to work together productivity, the talent to create and innovate, and the energy to devote to their work.”
Every CHRO must understand where their company stands in terms of its productive power, according to Garton, who said they should focus specifically on:
- How much of your company’s productive capacity is lost to organisational drag?
- How much of the deficit do you make up for through more effective talent management?
- What is the make-up of your workforce – how many are stars?
- How effectively are you deploying, teaming and leading your difference-making talent?
- How engaged and inspired is your workforce? What elements of your culture reinforce a performance orientation and inspiration every day?
“The answers to these questions will become as important as measures of NPV and IRR in years past,” he said.
“The CHRO must lead the charge to overcome organisational drag and unleash the productive power of your team.”
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