How to Drive Business Performance through Talent Optimization: The New Imperative for HR Leadership

The role of HR leadership in modern organizations is undergoing a transformation. Beyond recruiting, benefit management, and other traditional roles, executives expect HR leaders to help their company meet and exceed business goals and KPIs.

The shortage of skilled workers has become the new norm across industries and disciplines. So, talent optimization and investment in human capital– from hiring to development and promotion – must be guided by the company’s business objectives. Human resources organizations and their leaders should be measured by the impact of their actions on what matters most. This may mean revenues, profits, Net Promoter Scores, or other performance metrics.

CEOs expect more from HR leadership

According to the Global Leadership Forecast report, a majority of HR organizations already feel increased pressure to demonstrate their financial impact. Data from the KPMG CEO outlook report confirms growing expectations from the C-suite. Modernizing the workforce is the top strategy CEOs are relying on to ensure their organizations are future-ready.

“If HR wants to be seen as a strategic business partner in the C-suite, they need to go beyond just carrying out the business needs of today,” says Evan Sinar, chief scientist at DDI, which surveyed more than 25,000 business leaders and 2,500 HR professionals for their report. “They need to prove that they are basing their strategy and decisions on solid data, and they need to demonstrate how those decisions are linked to better business results and financial performance.”

Is HR leadership ready for talent optimization?

To get a seat at the table, HR leaders need to take bold steps. In short, they must transform people and talent management into a workforce performance optimization engine. But are HR organizations ready for this new challenge of talent optimization?

The Global Leadership Forecast report defines three types of HR organizations:

Reactors: Set and ensure compliance with policies; respond to business needs; installs basic initiatives to manage talent.

Partners: Work towards mutual goals with line management; share information with the business about talent issues and gaps; provide HR solutions.

Anticipators: Use analytics to forecast talent needs; provide insights and solutions to ensure high-quality supply of talent; link talent planning to business planning.

Unfortunately, only 11% of CEOs and 17% of human resources professionals rate their HR function as an anticipator.

Only 11% of CEOs and 17% of human resources professionals rate their HR function as an anticipator.

According to a recent Gallup survey, 70% of HR executives recognize the need for workforce transformation. However, only 39% are confident in their ability to enact this transformation.

Findings from McKinsey research show that a typical HR department still spends close to 60 percent of its time and resources on transactional and operational activities. New technologies and tools provide opportunities to drive real business value. But most HR organizations fail to embed data analytics into day-to-day processes. Also, they don’t use those analytics’ predictive power to drive better decision-making or talent optimization. HR leadership is also 40% less likely to use data effectively to guide business decisions compared to other business leaders. 

Digital transformation in HR is key to talent optimization

The Gallup survey shows that HR leaders who believe HR leadership has a strategic role in their business are more likely to be pursuing digital transformation in HR (67%) compared to those who view the HR role as unchanged (48%).

Those leading the pack on digital transformation in HR recognize how AI and machine learning can drive significant value for HR. Over the next year or two, a majority of these executives are planning investments in areas such as predictive analytics and AI.

The benefits of people analytics extend beyond the obvious. According to DDI’s Sinar, the use of analytics promotes objective decision-making, systematic processes, and more bias-free talent management practices. As a result, companies with robust analytics capabilities exhibit more gender diversity, a stronger culture of promotion from within, and higher leader success rates.

What does a talent optimization engine look like?

HR functions that elevate their practices to positively impact the business outcomes of their organizations put in place some or all of the following strategies:

• Hiring people based on their potential for success
  Analyzing employee performance data, AI models can accurately pinpoint the personality traits that predict success in specific roles at any given company. Tailored to specific organization and job success factors, these predictive models are up to four times more reliable than traditional employment screening methods.

• Maximizing the potential of the existing talent pool
  The same AI models can identify gaps in employees’ competencies. This can help the company design highly personalized skill development programs that propel employees to elevate their performance over time. Similarly, HR leaders can use these models to identify opportunities for promotions and lateral movements that optimize the potential for leadership within the existing talent pool.

• Eliminating bias from hiring and promotion decisions
  Despite organizations’ best efforts, hiring and promotion decisions are still largely burdened with bias. AI models are not a guarantee for bias-free decisions. As a matter of fact, they can introduce their own set of biases into the process. Done right, however, these models can be rigorously controlled through proven scientific methods. This will then ensure that every single item, scale, and model has no adverse impact on any demographic group.

What outcomes can you expect?

The rewards for companies that adopt these talent optimization strategies are significant. They range from increases in revenues and profits to higher Net Promoter Scores and lower employee turnover.

As a result, a whopping 88% of HR organizations that have invested in AI to-date call the investment worthwhile.

Robert Bolton, Head of People and Change Center of Excellence for KPMG, has a dire warning for those that fail to step up to the challenge. “Those that ‘get it’ are acting decisively, viewing HR as a new value driver and turning to data, predictive insights and AI. The rest are either limiting themselves to changes that show some progress… or simply clinging to a static approach that’s perilous.”