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March, 2008

Best-in-Class Use of Metrics in Talent Management

Analyst Insight

Aberdeen’s Insights provide the analyst perspective of the research as drawn from an aggregated view of the research surveys, interviews, and data analysis

Identifying, recruiting, developing, and retaining top talent are at the top of the list of organizational priorities. But human resources executives often struggle in determining the metrics that should be used to assess the performance of these initiatives. These metrics are vital for two reasons: they are necessary for the program champion to gain senior management buy-in and support, and they are used to monitor the success of the program and allow visibility into whether it is working as intended.

Foundation for these Findings The information presented herein is the result of data collected by Aberdeen Group's Human Capital Management research practice from May 2007 through January 2008. During this time, Aberdeen surveyed thousands of organizations worldwide regarding their talent management efforts - specifically talent acquisition, employee performance management, competency management, learning and development, succession planning, and onboarding.

The purpose of this Research Brief is to present the metrics or Key Performance Indicators (KPI) most commonly used by the organizations that achieved Aberdeen's Best-in-Class designation. Best-in-Class performers in each respective study consisted of the top 20% of all organizations surveyed that achieved year-over-year performance improvement across a myriad of KPIs that are specific to that element of talent management.

Table 1: Best-in-Class Priorities by Program

Talent Acquisition "Quality" has become the gold standard

Onboarding Retention now trumps time-to-productivity

Employee Performance Clearly defined goals and development plans are key

Succession Planning The priority is to look within and to extend development beyond the executive level

Talent Acquisition KPI In today's global recruitment war, implementing a talent acquisition plan has never been more critical. As the baby-boomer generation exits the workforce and the supply for skilled labor falls short to compensate for this exodus, companies are fiercely vying for new talent. From outsourcing the

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recruitment process to investing in applicant tracking systems, it is evident that companies are aiming to gain an advantage in the talent marketplace. Data from The Global War for Talent: Getting What You Want Won't Be Easy showed that Best-in-Class companies are willing to sacrifice gains in recruiting efficiencies for gains in the quality of those they hire:

• Quality of hire. This is the top metric assigned by Best-in-Class pertaining to talent acquisition. In fact, 64% of Best-in-Class companies are reporting on this metric. This metric is not quantified equally across organizations. Organizations can use one or many factors to measure quality of hire. When asked about what elements are used to determine this metric:

o 70% use output and performance of the employee

o 58% use time-to-productivity

o 48% use retention rate of the recruits

• Time to hire: This metric is defined as the amount of time it takes to fill a vacancy - for a new or existing requisition. Twenty-nine percent (29%) of the Best-in-Class focus on reducing this metric year over year.

• Cost per hire. This metric is derived from dividing the total annual cost of recruitment by the total number of new hires made over that same period. It is measured as currency (such as US dollar) per person. The study showed that 25% of Best-in-Class companies focus on reducing this metric year over year.

"As a services company, our people are our most important asset and our competitive advantage. Ensuring we have the right people with the right competencies and skills at the right time is paramount to our success."

~ Director, Global Human Resources, Mid-size

Consultancy

• Job vacancies outstanding. Twenty-five percent (25%) of Best-in-Class focus on improving this metric. This number is the total number of job vacancies a company has at any given time. The goal of the recruiting strategy is to minimize this amount.

Notably, among the bottom 30% of organizations that Aberdeen surveyed (Laggards) regarding talent acquisition only 38% measure quality of hire. In contrast, Laggards are more likely than Best-in-Class to measure time to hire, cost per hire, and outstanding job vacancies. By doing so, Laggards dilute their efforts to improve on the "quality" front.

Onboarding KPI Eighty-six percent (86%) of nearly 800 organizations surveyed in our January 2008 study All Aboard: Effective Onboarding Techniques and Strategies agree that new employees decided whether they planned to stay with the organization long term within the first six months of hire. This highlights the significance of investing in an onboarding program that enhances the experience of the new hires and invokes a positive first impression for them. Best-in-Class companies gauge the effectiveness of their onboarding initiative by its impact on the following metrics:

• Retention rate of new hires. Eighty-seven percent (87%) of Best-in-Class companies measure new hire retention. This metric is

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tracked by measuring the retention rate of employees after three six, nine, and / or twelve months of employment. As Figure 1 shows, 59% of Best-in-Class companies that correlate retention of new hires to onboarding, measure retention even beyond 12 months after a new hire's start date.

Figure 1: Best-in-Class Measuring New Hire Retention "Onboarding is the whole new-starter process from interviews and selection through to induction processes. It's actually the emotional bond we create to our work lives / places - it never stops. Onboarding is a continuous ever-changing cycle of needs being met."

~ Learning Consultant, Large, Asia/Pacific-based

Telecommunications Company

27%

48%

45%

13%

59%

12%

0% 10% 20% 30% 40% 50% 60% 70%

1 month after start date

3 months after start date

6 months after start date

9 months after start date

12 months after start date

18 months after start date

% of Best-in-Class

Source: Aberdeen Group, March 2008

• Completion rate for onboarding tasks / activities. Fifty-six percent (56%) of Best-in-Class companies track this metric. The objective is to facilitate and ensure accuracy of the administrative aspects of the onboarding program such as completing forms (HR, benefit enrollment, etc.) assigning workspace, providing access badges and parking permits. This, in turn, helps promote employee satisfaction and allows the new employee to focus on their new job.

• Time to productivity. Forty-five percent (45%) of Best-in-Class companies focus on improving this metric. This is defined as time from start date until the person achieves desired level of productivity and measured in days, weeks, or months depending upon the position.

Employee Performance KPI “We need to know how we are all working towards the same goals, and we need to know where there are trouble spots, and where there are successes. If not, we are working blind.”

~ HR Specialist, $8 Billion Media Firm

In two of our studies, Learning and Development: Aligning Workforce with Business Objectives and Competency Management: The Link Between Talent Management and Optimum Business Results, Aberdeen surveyed approximately 1,100 HCM / HR executives and business unit professionals about how their organizations quantified employee performance. Our Best-in-Class (the top 20%) use the following metrics to quantify employee performance:

• Percentage of goals attained. Sixty-three percent (63%) of Best-in-Class companies use this metric as an indicator for employee performance. These are goals set by managers and communicated

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to employees during one-on-one meetings. A manager must define the expectations and goals, and then work with the employee on development plans to achieve them. These development plans must clearly set reasonable milestones and time frames. An employee is then rated according to the proportion of these goals attained.

• Ratings in job-specific performance reviews. Sixty-two percent (62%) of Best-in-Class companies report on this metric. Performance reviews are used by most organizations to evaluate employees on a regular basis. Some do it annually but others more frequently. Most are conducted by managers evaluating those who report to them. Some include self assessments or multi-rater feedback mechanisms - also called 360-degree assessments, where an individual is given scores and evaluated by a supervisor and several other people including co-workers, subordinates and clients.

• Output of the employee. One-half of Best-in-Class companies consider this metric when evaluating employee performance. This metric compares employee output to an assigned quota or against his / her peers. For example, a product manager working on a specific product or service is rated according to how quickly they get the product to market. On the other hand, customer service personnel may be evaluated on time-to-resolution.

Employee performance management is vital to increasing productivity from the existing workforce. Furthermore, improving employee performance at the manager and lower levels of the company is a cornerstone to building an effective succession planning program.

Succession Planning KPI “The key reason for us to pursue succession planning is to support a hire from within philosophy; to ensure the best candidates are identified and hired for key positions, reduce turnover, lessen the negative impact of turnover, and provide appropriate training before a person is promoted.”

~ VP, Human Resources, US Healthcare Provider

Pressures to address the loss of high potential talent and to enrich the quality of the next generation of leaders are driving organizations to view succession planning more as a critical retention and development enabler. The 2007 November study, The Looming Leadership Void: Identifying, Developing, and Retaining Your Top Talent revealed that Best-in-Class companies promote leadership development as a motivational tool to boost employee morale at all levels of the organization. When we asked Best-in-Class companies about the top metrics that their succession planning strategy was able to impact, their responses demonstrated the focus on increasing retention and growing leaders internally:

• Percentage of key vacancies filled by internal candidates. Two-thirds of Best-in-Class companies report on this metric to evaluate their succession planning programs. This metric is determined by dividing the total number of key vacancies (usually upper-management and above) by the number filled by internal candidates.

• Bench strength. Fifty-six percent (56%) of Best-in-Class companies evaluate their succession planning strategy against this metric. The metric is defined as the percentage of key positions

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throughout the organization with at least one internal candidate that the organization has identified and is willing and qualified to succeed.

• Employee satisfaction / morale. One-half of Best-in-Class organizations focus in this metric. One of the most common ways to quantify this metric is through employee satisfaction surveys. With today's technology, crafting and sending these surveys out to personnel is a relatively easy task. Promoting leadership development to lower level employees has a positive impact on morale and thus plays a tremendous role in retaining employees.

Competency Management

Aberdeen views competency management as a critical factor for talent management. Whether an organization seeks to hire better quality employees, develop and retain high potential workers, or plan for potential vacancies, the common denominator is comprised of competency management. For once an organization understands the composition (based on skills, knowledge, attributes and behaviors) of the people who succeed most in a role or within its organizational culture, it can target more exact pre- and post-hire efforts.

With this knowledge, organizations can determine who in their companies is able (or can be prepared) to take on new roles. Assessments can then be utilized to determine where gaps exist in terms of required knowledge and the current state of readiness among the existing workforce. Development plans can then be generated that place employees on appropriate career paths, and enable the company and the employee to set career goals and milestones.

In pre-hire efforts, it is imperative to clearly define the competencies required for each position to better target candidates in the selection process. In return, employers can select those who best fulfill them, thus decreasing (or even eliminating) the competency gap. In post-hire efforts, and specifically in leadership development, organizations must be able to pinpoint what competencies are needed for the key positions (whether vacant or anticipated to be vacant) and then choose a candidate for succession who aligns most with them. Developing this person then becomes less difficult and enables the company to enrich its leadership pipeline internally and shorten the time needed to fill these key vacancies. In addition, if the company determines there are limited or no succession candidates, they can then proactively work to fill these needs via the recruiting process.

Conclusion Embarking on any HCM initiative is costly. It requires buy-in from the senior ranks and a clear understanding of the business issues that can be addressed, as well as anticipated measurable return on investment.

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Clearly defined measurable talent management metrics enable companies to continuously improve their practices in recruiting, retaining, and developing talent. The metrics we have outlined and described herein are recommended based on Best-in-Class practices in our recent research studies. They are not specific to company size, industry / sector or geographical location. Hence, they are an appropriate indicator to gauge the success of these initiatives and to help make results more tangible.

Things for HR to Keep in Mind… When seeking to identify the Key Performance Indicators (KPI) that will be assigned to your organization's talent management initiatives:

• Identify the business problems that can be addressed via an element of talent management

• Understand how those problems correlate to company goals

• Involve respective business unit management in determining current state as the means to measure progress

• Regularly assess the performance of your talent management initiative

• Communicate progress widely and regularly

For more information on this or other research topics, please visit www.aberdeen.com.

Related Research All Aboard:: Effective Onboarding Techniques and Strategies; January 2008 The Global War for Talent: Getting what You Want Won't Be Easy; June 2007 The Looming Leadership Void: Identifying, Developing, and Retaining Your Top Talent; November 2007

Learning and Development: Aligning Workforce with Business Objectives; September 2007 Competency Management: The Link Between Talent Management and Optimum Business Results; August 2007

Authors: Kevin Martin, Research Director, Human Capital Management. kevin.martin@aberdeen.comJayson Saba, Research Associate, Human Capital Management. jayson.saba@aberdeen.com

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