November 2018 Zachary Chertok Research Analyst, Human Capital Management

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HOW THE BEST-IN-CLASS ELIMINATE BARRIERS TO PROMOTING AND RETAINING TOP-QUALITY TALENT

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Organizations today still struggle with filling persistent skills gaps. As each organization adopts its own definition of “top talent,” employing certain technologies and practices for managing employee lifecycles is the key for successful leadership development over time.

Resolving the Employee Lifecycle

Aberdeen research has found that since 2016, 60% of organizations have been focusing on reconfiguring performance management to be more proactive and less reactive. These organizations are seeking to identify where exactly during the employee learning and development process that leadership development drops off.

Best-in-Class employers have been taking a long, hard look at their performance evaluation landscape to understand which end of their workforce is truly driving the lack of innovation and performance — as it turns out, the fish is rotting from the head.

There is a Performance Bottleneck at the Top

The modern employee lifecycle is not really a cycle; rather than the offboarding process leading straight into a new hiring process, or new talent placement from within a talent pipeline, the end of an employee’s tenure with an organization culminates in divergent tasks. The first task is to launch the new hiring process. Doing so loops back around in the employee lifecycle to start the management process for the incoming replacement employee(s). The second task, succession planning, is terminal: It begins while the outgoing employee is part of the organization, and starts anew for the new hire once the outgoing employee has left.

In a recent survey, Aberdeen found that 55% of Best-in-Class companies initiate their processes for recruitment marketing the moment they are more than 60% sure that an employee is a flight risk. These companies are equally as likely to constantly link performance management metrics into succession planning to ensure that the hiring process can kick off as close to the creation of the new vacancy as possible. In the same survey, Aberdeen found that succession planning, as the second task, is still retroactively carried out for 87% of companies. While Best-in-Class companies are 50% more likely than All Others (18% vs. 12%) to

The Aberdeen maturity class framework is comprised of three groups of survey respondents. This data is used to determine overall company performance. Classified by their self-reported performance across several key metrics, each respondent falls into one of three categories:

Best-in-Class: Top 20% ofrespondents based onperformance

Industry Average: Middle50% of respondentsbased on performance

Laggard: Bottom 30% ofrespondents based onperformance

Sometimes we refer to a fourth category, All Others, which is Industry Average and Laggards combined.

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implement an ongoing position profile for succession planning based on existing position-based performance metrics, these statistics represent just 13% of the overall survey response population.

These succession and workforce planning statistics are striking at a time when 76% of organizations complain that they cannot hire or develop the kinds of leaders that are necessary to securing the future of their organizations, given current market conditions that have companies averting risk and reducing spending wherever possible (Aguinis et. al., 2018).

Table 1: Best-in-Class Workforce Development Focal Points

2017 2018

Integrated performance metric management 59% 56% Internal resource offerings (training, rewards, & wellness / well-being) 43% 44% Development of internal talent skills 43% 28% Talent pipeline 22% 20% Predictive analytics 18% 22%

Source: Aberdeen (September, 2016) n = 274 Aberdeen (July, 2017) n = 204

Table 1 shows how Best-in-Class workforce development focal points changed from 2017 to 2018. From a functionality perspective, the table shows that momentum picked up in 2017 to integrate resource consumption and campaign completion metrics for real-time performance management. In tandem with the data integration effort, interest picked up for internal resource offerings in learning and development, rewards management, recognition, wellness, and well-being, as these resources provided real insights into employees’ daily working lives. Employers also took an increased interest in developing the skills of the internal workforce.

As an anomaly to what might be expected of this time window, investment in talent acquisition waned in comparison to internal resource management, but Aberdeen found that this happened more because

76% of organizations complain that they cannot hire or develop the kinds of leaders that are necessary to securing the future of their organizations.

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investment in talent acquisition already outpaced investment in talent and performance management by a ratio of up to two to one.

Relative to management goals from 2017 to 2018, about half of the Best-in-Class made the leap to at least set the foundation for real-time performance management. In 2018, interest in predictive analytics picked up in relation to this switch, fueled by a need by 45% of these companies to improve succession planning. While interest in establishing a talent pipeline dropped from 2017 to 2018 among the Best-in-Class, it was largely fueled by a need to first improve succession planning before a profitable talent pipeline could be realized.

Aberdeen has found that as organizations make these changes to gain visibility into their organizational dynamic, they are uncovering a lot of information about what makes their workforce tick. One key thing that they are finding out is that their corporate leadership has a lot to do with corporate dysfunction. In fact, Best-in-Class companies are 79% more likely than All Others (34% vs. 19%) to recognize that while individual divisions are researching and developing internal best practices, corporate leadership is often blind to the improvements that are happening, and that this is causing them to fail to produce wider organizational improvements. In this way, organizations are fast becoming diseconomies of scale.

The previously cited study from the George Washington University’s school of business reinforces this. The study provides a basis for analyzing why and how CEO pay is decoupled from CEO performance. As the literature review from this study confirms, more than half of companies are indeed troubled by a consistent lack of leadership driving new developments for the organization.

Fixing the Leadership Gap Starts in Performance Management

Best-in-Class companies are 3 times more likely than All Others (36% vs. 12%) to define top-performing employees in terms of how performance management links directly with revenue growth. The problem is that 44% of Best-in-Class companies lack visibility into real-time performance management data. Key to recognizing organizational growth potential is the ability to understand how the workforce is contributing to organizational dynamism.

A study published in the Journal of Business Ethics notes that corporate leadership must be subjected to the same laws of performance management as the rest of the organization to realize full performance

About half of Best-in-Class companies have made the leap to at least set the foundation for real-time performance management.

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improvements (Tang, et. al., 2018). The study correlates how personal monetary behavior and ideals lead to different styles of corporate governance and leadership among executives. As the authors expected, executives motivated by the accumulation of wealth remain self-interested in their positions of leadership. The result is that they are motivated to risk the health of the organization to achieve personal fiscal goals and those of the board before the fiscal goals of the workforce and the company, which would otherwise benefit all parties.

In line with the study’s findings, Aberdeen has found that despite a strong push led by 40% of Best-in-Class companies to move to a model for real-time performance management through integrated resource analytics, only 21% of organizations, overall, subject their senior executives to this system. In other words, as Aberdeen’s data shows that 74% of organizations complain about a lack of innovation inside their organizations, fewer than 25% of organizations can fully identify why innovation levels are dropping.

Figure 1: Top Talent Management Pressures

Source: Aberdeen (July 2017), n = 204

Figure 1 shows the top issues facing Best-in-Class companies in terms of leadership and talent quality development. Failure to recruit high-potential candidates ranks as the top issue, because it is the inevitable result of other pressures. For example, the inability to define high-quality talent metrics, or to establish a talent pipeline, feeds the inability to recruit high-potential candidates. Furthermore, having too few resources to measure productivity and innovation drives an inability to define high-quality talent metrics, and a lack of management-driven

88% 84% 80% 80% 76% 76% 72%

86%

70% 72% 68%74%

65%72%

Failure to recruit high potential

candidates

Inability to define high quality talent

metrics

Inability to establish a talent pipeline

Few resources to measure

productivity and innovation

Lack of management-driven

career tracks

Inability to achieve management goals

Low quality of emerging leadership

Best-in-Class All Others

74% of organizations complain about a lack of innovation inside their organizations, and less than 25% of organizations can fully identify why innovation levels are dropping.

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career tracks increases the likelihood that top talent will not be defined by the current top achievements of the workforce.

All these factors conspire to produce a workforce that is incapable of achieving management goals exactly as management aims for them to be accomplished. It should come as no surprise that at the end of the list is a low quality of emerging leadership, which has as much to do with a lack of high-quality talent as it does with inconsistencies in the messages that the workforce is receiving from senior leadership regarding management goals.

Summarizing Figure 1, when there are inconsistencies in the quality of senior leadership driven by goals that do not explicitly define innovation targets, or a lack of will to invest in new market opportunities, the workforce cannot possibly develop the kind of leadership that the organization may be seeking.

Functionally Closing the Gap

Step one in regaining strong leadership is to ensure that the entire organization is held to the same standard of performance, no matter where in the hierarchy an employee may be. The real-time performance management structure is working for the bulk of the workforce. Best-in-Class companies are 92% more likely than All Others (25% vs. 13%) to find that when employee performance improves, it does so in tandem with a higher achievement rate of management goals set for those same employees. Despite such a strong signal, Best-in-Class companies are still 80% likely to lament an inability to fuel improvements to innovation rates explained by the statistics shown in Figure 1.

Once all personnel are normalized to the same performance standards, step two is to implement a functional performance cycle that both incentivizes employee development and bolsters employee performance against externalities, such as personal stress factors.

Best-in-Class companies are 92% more likely than All Others to find that when employee performance improves, it does so in tandem with a higher achievement rate of management goals set for those same employees.

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Figure 2: Best-in-Class Performance Management Enablers

Source: Aberdeen (July 2018), n = 196

Figure 2 shows the top features integrated into Best-in-Class performance cycles. At the top of the list are features for engagement management that include engagement assessments, one-on-one meetings (between employee team members, employees and their managers, and employee peer groups), and social feedback options within the organization. Communications management follows engagement management, enabling two-way communications with the workforce that equate the value of front-line employee sentiment with the concerns of senior management. Aberdeen has found that two-way communications are vital to the success of any organization, and that it is a top reason that employees join and stay with the organization.

Beyond leveling the playing field between employee and management concerns, Best-in-Class companies are providing resources for employee development, wellness, well-being, and campaign participation that go beyond the traditional learning content repository. These resources adapt to employee preferences the more employees participate in them. They also provide managers with insight into what kinds of team environments employees are best suited; with whom employees best engage; where employee interests lie towards different objectives; and what skills an employee is likely to fill, based on all of the above.

At the same time, strategic wellness and well-being resources are reducing the burden of externalities — such as financial, physical, or emotional stress — from negatively impacting performance. All these

92%

80% 80%76% 76%

72%68% 68%

60% 60%56% 56%

65%

51% 53% 56%

47%

58%

46%54%

Engagement management

Communications management

Performance management

Mentor programs Learning management

Rewards management

Adaptive Learning External Wellness Career analytics Career consulting

Best-in-Class All Others

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resources are designed to keep employees focused on work, thereby increasing productivity. In the process, the back-end analytics of each of these technologies speaks volumes about where an employee is best suited to develop vital skill sets, in a timeline that is shorter than it would otherwise be because employees are motivated. In this way, managers can both discover and develop their next crop of innovative leaders based on internally identified employee potential and strategic reduction of performance detractors.

While the datasets provided by these resources can create real-time performance profiles tailored to each individual employee, Best-in-Class companies are three times more likely than All Others (64% vs. 21%) to link these new performance profiles to historical performance profiles for each position. This creates a central record of how the position has successfully been filled, and identifies factors such as position-based flight risks and the likelihood of promotion. In this way, the performance profile provides management with an understanding of position-based dynamics that lead to greater succession planning.

By the Numbers

Best-in-Class companies are pursuing the integrated performance cycle strategy for employee lifecycle management at a faster rate than All Other companies, as indicated earlier. They are integrating these new, real-time performance profiles into succession planning strategies while individualizing how management goals are communicated to the workforce. At the same time, the Best-in-Class are leading the way in the implementation of two-way communications channels that equate the value of the voice of the employee with that of senior management, as they move to bring senior management “under the law” of workforce performance metrics.

The end goal of these structural changes is to remove barriers to advancement into positions of leadership in the organization, and to better evaluate and promote the potential of individual employees to rise into these positions. As the structure falls more into place, Best-in-Class companies are finding it easier to continuously succession plan as they seek to slow down the revolving door on talent, until the upper echelons of leadership positions become more steadily available.

Best-in-Class companies are 22% more likely than All Others (88% vs. 72%) to find that they can readily identify top talent based on a cumulative profile of performance metrics aggregated over time. In this way, the

Best-in-Class companies are 22% more likely than All Others to find that they can readily identify top talent based on a cumulative profile of performance metrics aggregated over time.

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Best-in-Class find that they have better insight not just into static performance objectives, but also into how those objectives are met with respect to each role. Understanding employee performance progressions is enabling 72% of Best-in-Class companies to improve how they perceive leadership potential by attaching a time metric to how goals are achieved and exceeded.

Today, Best-in-Class companies are 2.2 times more likely to define top talent based on how employees take initiative above and beyond their original role description, rather than on consistent improvements in periodic performance reviews (88% vs. 40%). The Best-in-Class are also 1.9 times more likely to qualify top talent by how identified leadership capabilities develop into management opportunities, rather than by consistent improvements in periodic performance reviews (76% vs. 40%).

These changes are improving employee engagement, in that Best-in-Class companies are 76% more likely than All Others (44% vs. 25%) to find that more than 50% of their workforce is highly engaged. The Best-in-Class are also 3.9 times more likely than All Others (71% vs. 18%) to find that average employee tenure is exceeding the industry average by more than five years, while employee promotion potential has increased by 3% year-to-date. These improvements are making the Best-in-Class 4.1 times more likely than All Others (98% vs. 24%) to see revenue per FTE increase year-over-year, as they close the gap between the time it takes an employee to run in the black on the investment made to hire them and the timeline in which they are most likely to leave the organization.

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Related Research

A 21st Century Challenge: Mapping Employee Retention as the Company Scales; October 2018 Managing the Total Workforce; October 2018 Stop Hiding Behind the Data and Start Hiring; July 2016 To Build Employee Retention, Think Customer Experience; July 2015

About Aberdeen Group Since 1988, Aberdeen Group has published research that helps businesses worldwide to improve their performance. Our analysts derive fact-based, vendor-neutral insights from a proprietary analytical framework, which identifies Best-in-Class organizations from primary research conducted with industry practitioners. The resulting research content is used by hundreds of thousands of business professionals to drive smarter decision-making and improve business strategies. Aberdeen Group is headquartered in Waltham, Massachusetts, USA.

This document is the result of primary research performed by Aberdeen Group and represents the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group.

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