While the world is experiencing a war for talent, each region has its own, unique talent related challenges. Indeed there are local talent management phenomena, as Jason Averbook from Knowledge Infusion and I discussed in his recent blog.

In some European countries a lot of businesses carry a huge cost for people on sick leave. This cost in most European countries is a shared responsibility between each company and some kind of government funded insurance system (most employers must pay this insurance anyway – in many places it is mandatory).

How much of a burden is this for organizations? There are many consequences when employees overuse sick leave:

• Need to carry extra staff to cover for the absence levels
• Cover the absences with temporary staff that is both costly and not always fully productive in wider-scoped roles
• Lose business – which might be the worst of all alternatives since it will hit both the top and bottom line

Let’s look at this example from a financial service company in Holland:

The employer is legally responsible for paying 70% of the normal salary, after 2 sick days for a full 2 years. In a majority of industry sectors, this is legally raised to 100% through deals with unions. Our research indicates that the sick leave in Holland is about 6% (Sweden, Norway and the UK between 4-6%, France 3%, Italy, Ireland & Germany about 1.5%)

For a global financial service company with about 2 Billion Euros of labor cost and 35K employees there is an average cost per employee of 57K Euros. With 6% absent for sick leave that would mean that 2100 employees are absent at a cost of 120M Euro per year. If that sick leave could be reduced to 5% this company would have 350 more people working while directly saving 20M Euro. This example though showing significant cost savings is only looking at the direct cost of this absence, and not at the more strategic impact of lost business opportunities, or the individual human costs. Though there are arguments for fixing systematic problems caused by over generous sick pay, there is really nothing organizations can do about it in the short term… or is there?

To find the answer I turned to one of SuccessFactors Research Thought Leaders Ken Scarlett who has been researching this, and the conversation left us with some very real solutions.

Aggregately speaking, the higher the Engagement level (as measured by an engagement index) the lower the sick leave rates, and there is no better way to predict the likelihood of abusing sick leave than by the responses to the questions “Do you look forward to coming to work?” and/or “Do you feel you work is important to others?” Ken’s research shows that the group who answered negatively to those questions has the highest propensity to max out/abuse sick leave. With the specific questions above, you can actually create a highly accurate forecast within 10% margin of error.

In any country and any industry your job as a leader is to increase the likelihood that your people answer the question “Do you look forward to coming to work?” positively.

Few industries are so intensely engaged in the war for skilled people as is the high tech industry. Talent is everything.

Microsoft and other powerhouses have been lobbying for more immigrant visas for skilled workers from abroad, which is illustrative of one way companies are dealing with the issue at hand – finding net new talent.

When it comes to attracting talent and venture capital, Silicon Valley is by far the leader compared to other US regions (though Wall Street is challenging Sand Hill road), but the race is on from other areas around the world. This study from the Bay Area Council Economic Institute and McKinsey reveals that some other areas are emerging as real threats to the current king of the war for talent, Silicon Valley.

As we see from the graph below the cost of doing business is highest in London, followed by the Bay Area, Stockholm, and Shanghai, respectively.

In addition to high cost of doing business, the cost of living in several of these high tech areas is becoming a steep hurdle for new people when they consider relocating. For instance, in the San Francisco Bay Area the portion of income spent on housing is more than double that of the US average.

Taking all of this into account – the need to take on this war for talent on a global scale is very real right now. High tech is struggling with it more than others today, but many industries will follow.

“Think globally but act locally” is a common saying, but I’d suggest that “think globally and act globally” could be a better recipe for winning the war for talent. Get the best people to work with you (that’s right not for but with) fully aligned with your strategy irrespective of where they are located. Build your business based on talent, collaboration, and focus on real customer value creation. Collaboration and value creation have nothing to do with real estate, immigration laws, peak hour commutes, and localized flexible work arrangements. It is all about integrating the right people to produce results. The smartest companies that embrace and execute on this philosophy will win the war for talent and hence the customers’ money, based on real value creation. The best people can work with you wherever they are. Embracing this will keep you competitive. Failure to do so will be costly and troublesome. The world is spinning let’s spin along with it…

Though engagement levels are correlated with retention it is important that we don’t mix them up. We know that when the economy slows down people will have fewer opportunities to find great jobs elsewhere and out of necessity will decide to stay with their current employer. We see this in various pockets right now. This is not the same as having an increased engagement level, but rather the contrary. When the economy slows, turnover rates improve, but not really for the better – more people with less motivation end up staying on board. This is very costly for organizations. No one can afford to carry dead weight. True visibility into people performance can of course mitigate this by ensuring that action is taken to increase the right retention, while in parallel also increasing the right turnover – turnover of low performers.

If there is a need to scale down on the number of employees, real visibility into who is to be let go and who to keep becomes even more important. Failure to deal with this the right way will cause a negative impact on engagement levels and ultimately performance and results. What is the cost of decreased turnover of your low performers? More than you think. Not only are they not working to their full potential, and therefore costing the company money, but they also bring down the morale of high performers. Have you ever worked on a team with free rider? Motivation levels fall quickly for the entire team.

Gen-Probe is an admirable organization and a great example of someone that really deals with retention in a textbook way of focusing on the “right” retention and not just retention in general. They hold HR executives accountable for driving the right behavior in their organization – increasing retention for high performers while addressing issues of low performance through active performance management and increased attrition. They even tie part of their executives’ bonuses to these retention and turnover rates reinforcing the importance of this. As we all know, it is very costly to lose great employees but, also consider how costly it is to keep disengaged, low-performers with direct losses of contribution, and potential toxic effects on colleagues across the organization.

So be cautious in this rocky, economic period. If you see that your voluntary turnover rates go down don’t automatically assume that it means improved engagement – in some cases it could actually mean the opposite…

Why is that? Per definition that would imply that the person on the bench has more potential and capacity than what is currently being used right now. Well how many star players are happy sitting on the bench waiting for their turn to play? Building it only works if done right and that is to look deeply and widely at your workforce potential and employee preferences, and then act on that information. Act means putting people to use and managing to their potential. The worst thing you can do is to ignore untapped potential, thus de-motivating and potentially losing your strongest people. Such a loss will be seen on the profit and loss statement, in addition to being a human loss for individuals. Studying the financials of our customers we see that those customers that are using our Succession Management module operate with 7.9%pt (absolute) higher net profit margin than those that don’t…

In his upcoming book, Talent on Demand, our research partner Peter Cappelli discusses the need for looking at talent as an input parameter for production, and uniquely applies the same model that is used for the supply chain. You don’t want to build costly excess inventory anywhere in the physical supply chain but, is it acceptable on the most costly asset – people?

Peter will join us at our upcoming customer conference in June to discuss this approach of managing talent along with other SF Research thought leader partners as well as our customers.

Sometime during the movement from an agricultural economy to an industrial economy I think we have collectively mixed this concept up, and so it merits the question today. Work used to be about what you could produce. When we moved into offices and cubicles, and started shuffling information back and forth that concept was lost. We started to refer to work as somewhere you go, and this changed how work was measured; workers were paid and rewarded for time and not always results.

Work is what you do – not just a place where you go. In a recent article published in the Harvard Business review, Tamara J. Erickson discusses this very issue in terms of what Gen Y’ers expect from work. In essence the task and not time is what matters to them.

I hope that this concept is not only for Gen Y but for everyone in the workforce, irrespective of age. According to recent research from our thought leader partners Jim Ware and Charlie Grantham at the Future of Work, people today divide their working time almost equally between the office, home or somewhere in between. I am, for instance, writing this blog on a plane to Europe to speak at a strategic talent management conference in Stockholm – well I guess that is work though I’m not technically in the office.

This is of course pretty straightforward as a concept but nonetheless difficult to change in some organizations. The solution, may I suggest, comes from a managerial change in attitude and behavior. If we get away from the face time and office hour concept and instead focus on the expected results and goals that need to be achieved, productivity will improve. People naturally want to do great work and be rewarded for the results. It also allows people to focus on managing their energy, in addition to managing their time. Maybe you are more productive, alert and energized at 8pm after a long run on the treadmill at the gym than you are at 10am in the morning. Why not get some work done then? If your employer measures your contribution, not your time on the clock, go for it! It maximizes your productivity, benefiting you and your employer.

Maybe we could learn from the US Marine Corps and their usage of mission based orders. An order is given with the goal that needs to be accomplished, along with an explanation as to why that goal is important. It is then up to the officer in charge and closest to the action to deal with how to get it done and to do it. That is goal orientation instead of time orientation. So focus on output and results instead of time. Semper Fi!

I was just checking my Yahoo! mail where I saw an email highlighting a really cool piece of research recently done in the UK, studying how the Google generation (people born after 1993) go about getting information. The study, information behaviour of the researcher of the future, was commissioned by the British Library. Guess what – people are not going to spend time pouring through libraries and books to get the information they need, but rather simply search from the web or better just have it intelligently pushed to them – is this really a surprise? No but it does raise the question: why have we put up with enterprise software that is so dumb in how it delivers information? Generally, enterprise software is great for handling transactions but no real guidance on how to make better decisions faster.

SuccessFactors has just released the 83d release of our product, called ULTRA, which has received enormously positive feedback from customers, prospects and analysts. But what is so special with this new release? Yes, it is completely integrated and easy to use with very intuitive navigation and delightful appearance. So what does that have to do with finding the information you need when you need it? Information alone is not terribly useful. This is why ULTRA strives to deliver contextualized content. That simply means delivering answers to questions that you might have, or ought to have to effectively execute the task at hand. Today, no one has any time for anything including time to find the information they need, which would be lost time for productive work. If you need relevant information, but fail to go out and get it you will be forced to make a less informed decision. This could have a huge impact on your overall productivity. In ULTRA this concept was widely considered during its design, which is why in ULTRA information is delivered with the relevant context and tools so that you can make informed decisions. Even if you actually don’t know that you need it.

For example, there is a Coaching advisor that gives the individual practical advice on how to address specific needs or shortcomings, as defined in a competency assessment? If you have a need for better communication skills (and who does not btw…) real, practical advice on how to improve those skills is just there. Need to get a quick look at how people in your department are performing vs. their potential, check out the nine-box summary and drill down to the individual level to troubleshoot performance problems – content in context. These tools have not only helped me, but have also benefited the members of my team for whom I complete performance reviews. That is what truly smart software provides for its users. The writing assistant is another powerful tool that I just used to assist in writing a performance review for an analyst on my team. I think that alone saved me the evening, freeing up some valuable time and getting me home in time to have dinner with my wife and kids. Thanks to the ULTRA team for making it easy for the Google generation and for the rest of us…

_____________________________________________________________________________________________

70% of total cost of doing business is people cost

80% of the value of a company is not found on the balance sheet

Why are people only an expense post on the income statement?

Today: Profitable companies see their people as a necessary cost of doing business.

Tomorrow: The economy goes in cycles and the cost of doing business quickly becomes a big problem when companies face problems continue to grow or even maintaining the top line. So people go from being a cost to becoming a problem. I thought this is an important reminder right now with some indications of the US and world economy moving into slower growth and potentially a recession. Are your people becoming a problem that you will deal with?

Talkers: Some organizations talk about their people as their greatest asset but what they typically mean is that they actually understand that people also belong on the balance sheet and refer to people as means of production. That is a great industrial factory floor viewpoint of people. They are a means of production as is raw materials and capital. However they don’t need to write of this asset. It is also a pretty stale view assuming a constant value of this asset.

Walkers: Modern organizations should see their people not only as a cost but also as a capital investment. There is however a fundamental difference between a dead asset and a person. An asset will depreciate over time. Of course to various degrees depending on what it is and how it is being used and maintained. A person’s value will increase over time in terms of the ability to deliver value to customers. This additional value contribution potential springs from experience, network, knowledge, skills and courage. The more this type of asset is being used the more it appreciates (of course within human capacity). Ongoing growth and learning should make an individual more capable of dealing with broader and more complex issues at a faster pace. Nothing new here and I think that this viewpoint is greatly illustrated by Larry Bossidy while explaining the turnaround of AlliedSignal (The Job No CEO Should Delegate, Bossidy, HBR, 2001). However if companies only pay lip service to this they are selling them self short in terms of limiting growth, harvesting productivity gains and ultimately creating shareholder return. Growing the greatest asset will grow the company and set it part from competitors.

Dr Kirk Hallowell from PDI and I are working on a more in depth paper looking into the right metrics to measure and and manage people as assets. We will present our findings in a webinar end of January. Our goal is to show how greater people practices pays of financially and introduce some specific metrics that we suggest organizations start using to achieve real results.

Erik’s note: We’re happy to present another guest post by Chris Lozaga a Research Analyst in SuccessFactors Global Research team

---

The holiday season has different implications for everyone – the sales team is busy trying to close those year-end deals, managers are juggling their priorities around the vacation many workers take this time of year, and the good old folks in HR are preparing for performance review season. The happiest time of the year – or not, depending upon whether or not like Santa Claus, you have kept a careful list of who has been naughty and who has been nice all year long. For those companies who have invested in performance management, review season isn’t so bad.But what about when it is time to hand out gifts? Pay for performance has been proven over and over again to be on average one of the most effective drivers of real results for companies that have implemented it. Many companies have very loose pay for performance systems, a bit like Christmas, where all the kids get something. While that makes for a nice holiday, it can be very bad company policy. SuccessFactors Research decided to look into the matter, using our own customers as a point of reference. How do companies that only use Performance Management compare to those who use Performance Management and Compensation Management?
The results speak for themselves. SuccessFactors Customers who use Performance Management grew profits on average 36 % last year, beating their industry peers by an average of 20 percentage points. However, SuccessFactors Customers who use Performance and Compensation management grew profits on average 46%, beating their peers by an average of 30 percentage points! In this case, it’s Christmas for the investors as well. The bottom line – if you are implementing a great performance management system, you are not realizing the total potential gain unless compensation is closely integrated into the process.In this study we included all publicly traded companies with at least 500 employees that have been using SuccessFactors for at least 3 full quarters and use either the PM or PM and Compensation module.
n=138

Erik’s note: We’re happy to present this guest post by Chris Lozaga a Research Analyst in SuccessFactors Global Research team

---

Typically, we reserve the phrase “too much information” for our coworkers and friends who share just a few too many details with us by the water cooler, but in the world of HR, “too much information” is taking on a whole new meaning. As companies move from paper-based systems to electronic systems, they are inundated with information. Through software, businesses have the ability to measure everything, rather than just a few things tracked on paper and aggregated by hand for analysis. HR professionals can literally be overwhelmed by “too much information.”

I recently led a discussion on our Analytics and Reporting module at a regional User Connect meeting, and gained a lot of insight from our users. In order to extract maximum value from the mountain of available data, the “right” measures have to be carefully selected. Also, it was apparent that at times less can be more – a few really important measures can overshadow all of the others depending upon your business needs at the time. For example, if you are just starting to roll out the software, usage metrics are supremely important, but for a hospital system, measuring competency gaps might be the most critical. With so much data available, how do you choose what to measure and report?

Simple Framework for Choosing the Right Metrics

Because so many measurements are available after switching to a software-based talent management suite, it is critical to have a framework for choosing the right metrics at the right time.

Know your audience. Figure out who else will be looking at the metrics and what matters to them. A CEO and a recruiting manager will probably want to see different sets of metrics.

Have a goal. Before you measure, you should have an idea of why you are measuring. If your goal is to show a link between turnover and on-boarding cost, find the metrics that relate to help tell your story.

Find the greatest lever. It is likely that you will be able to find dozens of measurements that support your goal, but you should focus on the measurements that will have the most impact, give you the most pull. Always highlight the best “levers” to get results. Using dashboards and other heuristics that may be built into your system are a great way to do this.

It takes a bit of brainwork, but is worth the effort. Rich, meaningful data truly highlights the growing importance of HR and HCM within organizations. If you get stuck, ask questions. Managers and executives will likely be enthusiastic if you can start measuring things that matter to them.

This abundance of data is a completely new problem, but a great problem to have. Dr. Jac Fitz-enz, a SuccessFactors Research Thought Leader and the father of HCM metrics, started making the case for measuring human capital three decades ago , when practically no one had the capability or will to do it. Capability is no longer the problem; today, people can barely keep up with the information. Now, the focus is moving to an even higher level, linking these available human capital metrics to business goals, financial performance, and using predictive metrics to plan for the future. Will you be ready?

Cost, talent, or innovation – which of these three challenges will drive Human Capital Management decisions in the future? The answer is easy: all of them. The question of how to address these drivers is a far more strategic and important question. Charles Grantham, co-author of Corporate Agility, recently joined us to speak with our customers about coming challenges that businesses face due to dramatic shifts in how, where and by whom work is done – a major focus of his recent book and the research he and Jim Ware from the Future of Work are doing. In his presentation, he described 9 strategies for addressing the challenges.

After reading this and engaging in discussions with Charlie, it became apparent that we actually help our customers execute on several of these strategies. We do this in a unique way, enabled by our delivery model and the focus of the product suite in terms of what it actually does for people.

For example, many people think of investing in on-demand solutions as an outsourcing strategy – moving administration away from the core business. But a better way to look at our model is to think of it as an INSOURCING strategy, the customer is INSOURCING a best-in-class and ever improving process. Of course, it is very powerful to let someone else do non-strategic activities faster and cheaper for you. But when you truly INSOURCE, you get the best of two worlds: it is someone else’s core business to figure out the best way to do things, and constantly improve it for you, while also being very cost efficient. That cost efficiency is of course a mutual win for INSOURCE providers and customers.

Effective human capital management processes are critical to INSOURCE. Why? Facilitating teamwork and collaboration is critical for innovation. Finding high potentials, developing their skills, and adapting to the new workplace is critical to closing the talent gap. People are the largest variable cost for most businesses (70%), optimizing their performance is critical to reducing costs. The revolution of on-demand software delivery with the SaaS model enables this phenomenon of being able to INSOURCE strategic processes that support your business’s strategy execution.