When building a business case for adopting talent management best-practices, and integrating as well as automating processes, some HR teams still struggle to make their C-level executives understand the urgency and strategic value of this investment. Yet more and more research data is proving: organizations that effectively manage and leverage their workforce outperform their peers on a number of key financial performance indicators.
This series of articles looks at three critical trends that are impacting the way organizations manage their talent and their business:
- The rising importance of intangible assets
- Changing workforce demographics
- The strategic issues facing C-suite executives
It will explain how you can leverage any or all of these trends to build a business case for investing in automated, integrated talent management tools.
Part 1: The rising importance of intangible assets
In his webinar Linking Talent Management Strategy to Business Strategy, Kevin Rutherford, Managing Principal at TalentLeap, Inc. and Chief Talent Strategist at Talent Management Academy says one of the important trends shaping business today is the rising importance of intangible assets.
Wikipedia defines intangible assets as: the identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset.
As Wikipedia explains, there are two primary forms of intangible assets: legal intangibles and competitive intangibles. Legal intangibles are often called "intellectual property" and include things like: trade secrets, customer lists, copyrights, patents, trademarks etc. They can be legally protected and defended in the courts. Competitive intangibles are legally "non-ownable". They include things like: knowledge, company culture, know-how, collaboration activities, leverage activities, structural activities and more importantly people. Both forms of intangible assets impact your organization's effectiveness, productivity, wastage and opportunity costs, and therefore your costs, revenues, customer satisfaction, market value and share price. As such, intangible assets are a critical source of your competitive advantage.
In the past, the market valuation of an organization was determined by its price to tangible book value. This ratio was developed when most countries had an industrial economy. It reflected the fact that companies derived their competitive advantage from their machines and physical assets.
In today's knowledge economy, that ratio loses its meaning. Now, companies derive and maintain their competitive advantage from powerful innovation, technology and intellectual property. Where once, the innovation and technology embodied in intellectual property were concentrated in the healthcare and technology sectors, now all sectors — even the most industrial ones — benefit from the knowledge embodied in their intangible assets.
The following two graphs published in Intellectual Asset Magazine illustrate the shift:
Intellectual Asset Magazine, Apr/May 2006
Most sectors today attribute about a quarter of their value to intangibles and intangible book value as a percentage of market capitalization of the S&P 500. In the U.S. intangible values have nearly doubled every 10 years.
And the stock market is reflecting this reality: mature, capital intensive companies like GE are being valued at 7–10 times their book value. Investors are clearly seeing something of greater worth than the physical assets recorded in financial accounts. That “something” is a talented workforce and the knowledge they possess. In today's economy, talented people are the constraining, and therefore strategic resource.
What does that mean for your organization?
Now, more than ever, it's vital for organizations to identify, cultivate and protect their intangible assets. As an HR team, you should be asking yourselves:
- What is the source of your organization’s competitive advantage?
- Where does it reside in your workforce?
- Are there measures you need to take to strengthen that competitive advantage?
And most importantly: Does your current talent strategy support the cultivation of your competitive advantage?
To do this, you need to be able to:
- Identify who your high-performers and your high-potentials are so you can nurture, develop and retain them.
- Identify low performers and take effective steps to address their performance.
- Develop all your employees so they embody your culture and values, and possess the knowledge, skills and experience your organization needs.
- Ensure investments in employee development are effective.
- Align your workforce so they are effectively working together to achieve the organization's strategic goals.
- Ensure every employee clearly understands what is expected of them and how they contribute to the organization's success.
- Know what strategic knowledge, skills and experience your organization needs to acquire or develop in order to remain competitive.
- Develop deep talent pools in strategic areas.
- Recruit new employees who have the knowledge/skills/experience you need, and "fit" your organizational culture.
- Recognize and reward high-performance and key contributions.
- Keep all employees engaged and productive.
And you need management tools to help you effectively do all this. Automated, integrated talent management tools are designed to give you this insight and more.
By identifying your organization's true source of competitive advantage and explaining how automated, integrated talent management processes can help your organization not only maintain but further develop this advantage, you can build a strong business case for this strategic investment.
Read how others are developing their intangible assets
At Sun-Rype Products, they used their talent management best-practices to tap into the discretionary efforts of their employees to increase productivity and elevate the value and impact of their workforce.
As a CPA firm, Pannell Kerr Forster of Texas understands the critical importance and value of intangible assets. They leveraged talent management software to ensure employees were getting the feedback, direction and development they needed to succeed and to position themselves as an employer of choice.
Read Part 2: Managing the changing workforce
You may also be interested in: Developing and implementing an effective talent management strategy plan