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People Processes Can Provide an Investor Upgrade

Financially high-performing firms have executives in partnership with their talent development professionals.

February 1, 2012
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KEYWORDS financial
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What if a financial analyst or brokerage firm, when advising a client to buy or not buy stock, put forth information about the company’s talent strategy rather than more traditional information around financial performance? This fictional scenario about Talntco illustrates the impact people processes can have on investors and their organizations.

BROKERAGE ALERT: We are upgrading the Talntco target stock price following a recent meeting with the senior management team. While other brokerage firms have recently written positively about the company, we now have insight into a less visible aspect of the organization that will distinguish its long-term performance from industry competitors.

Simply put, its people are better.

Following presentations on financial strength, business growth strategies and previews of upcoming products that reinforced recent success, we also reviewed how Talntco leaders systematically built the talent capabilities central to their winning formula.

It was called the Strat-Tal program, a disciplined and well-ingrained management practice that produces superior-quality people throughout the organization. We were asked not to share program particulars, but the provided material did bolster our confidence in the firm’s ability to achieve its ambitious growth agenda and out-innovate and out-perform competitors.

The implications of a firm with a well-conceived and integrated talent program caused us to revise our economic valuation model to translate business metrics, and then model probability of future earnings growth for expected stock price appreciation. We now believe in the underlying value of an organization going beyond traditional business metrics, which should include:

Pipeline: We usually assess the future business prospects of a firm’s marketplace success to test the robustness of its product pipeline. We now add the robustness of the leadership pipeline in critical business areas. Talntco’s Strat-Tal program showed in solid companies there is a well-tended pool of up-and-coming talent to fill roles vital to strategic growth plans. We will begin challenging other firms to provide evidence of leader pipeline health, with a concern for those who may be over-reliant on externally sourcing leaders to fill gaps.

Retention: We’ve written extensively on the escalating cost of attracting new customers and the exceptional profitability of firms with strong brand value because they can capture customer loyalty. Our leaky customer bucket model has been extended to consider leaky talent bucket dynamics. This separates firms with constant talent churn from the value-creators in the industry who can attract a higher level of talent and keep them engaged and growing. We will begin probing firms for their retention ratio efficiencies in key populations.

Attractiveness: Firms that are well-positioned in growing and profitable markets and on-trend categories receive higher marks in our valuation model. Likewise, organizations with ethical, engaging and innovative cultures can more easily translate potential into performance. Talntco’s employee survey results, particularly benchmark-leading scores on engagement and commitment to perform, represent data we want to gather for potential clients.

Asset utilization: Our economic valuation model incorporates a number of metrics such as the efficient use of cash and capital discipline to judge management skill in maximizing hard assets. We can now see augmenting this area with the effective deployment of focused learning and development to expand the firm’s talent capabilities. Talntco produced an intriguing learning scorecard which reinforced its commitment to invest in growing employee capabilities for higher levels of responsibility.

Finally, we recognize that those of us on the street who provide clients with investment advice need to go beyond our spreadsheet models and provide final verdicts drawing from our experience and professional judgment. With Talntco, it was the integration of the four talent factors — pipeline, retention, attractiveness and asset utilization — that convinced us of its power to fuel company performance and future stock value. Moreover, high-performing firms have executives in partnership with their talent development professionals who care about these four dimensions; they track talent scorecard progress as intensely as we track stock prices.

Kevin D. Wilde is the vice president and chief learning officer at General Mills and author of Dancing with the Talent Stars. He can be reached at editor@talentmgt.com.

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