Talent management includes all the ways that organizations bring employees on board, keep them happy and productive, and help them continue to develop their skills over time.
In good times, it can be easy to take your company’s talent for granted. But do so at your peril—investing in talent management, or the way that your organization attracts, retains, and develops its employees (sometimes referred to as “talent” or “human capital”) can give your company an edge. Look no further than the much-discussed “Great Resignation,” also called the “Great Attrition” or “Big Quit,” of 2021 and its impact. Putting people first is vital to building a healthy workforce.
Fabian Billing is a senior partner in McKinsey’s Düsseldorf office, and Aaron De Smet is a senior partner in the New Jersey office.
It’s important to manage talent and deploy it well, and leaders need to know how to rise to the occasion. To help shape workforces that have the skills to achieve, leaders can establish a talent-first culture. Too many organizations don’t consider the talent required to implement different ideas. By putting talent first, companies can improve organizational performance and potentially gain a competitive advantage.
Analysis shows there is a significant relationship between effective talent management and an organization’s overall performance. In fact, in a 2018 McKinsey survey, 99 percent of respondents who reported their company’s talent management was very effective said they outperform their competitors, compared with 56 percent of all other respondents. And the effects may be cumulative, given that abilities to attract and retain talent seem to support outperformance as well.
Survey findings indicate three practices that are most closely linked with effective talent management:
According to the research, organizations with all three practices in place (only 17 percent of the sample) are vastly more likely than their peers to say that overall performance, plus total shareholder returns, has an edge on their competition.
Five areas of talent management are particularly important to the chief human resource officer’s (CHRO) playbook:
A more in-depth look at these topics can offer insights.
High-performing employees are up to eight times more productive than others. To quote the late Steve Jobs, the iconic leader of Apple, talent matters: “Go after the cream of the cream. A small team of A-plus players can run circles around a giant team of B and C players.”
That may be easier said than done. But there are still several principles to consider if you want to hire the best people and keep them at your organization:
In the era of the Great Resignation, many organizations are grappling with the prospect (or reality) of talented employees quitting their jobs. Companies should take a step back and make sure they understand why their employees are leaving in the first place—since it could help inform what might bring them back. What drove the historic wave of voluntary departures in the early 2020s? Several big reasons stand out: the cost of switching jobs went down significantly; employees were turned off by uncaring leaders, unrealistic performance expectations, and a limited ability to advance their careers; and many workers were exhausted and dealing with burnout, stress, caregiving demands, and more.
Companies preparing for the future of work can take a variety of steps to help employees build skills and continue learning and growing—this is vital, especially considering that hiring new workers can be twice as expensive as upskilling or reskilling existing employees.
Building workforce skills, via training and reskilling or upskilling, will be essential to support new ways of working and new business priorities. And focusing on skills—particularly social and emotional skills (sometimes called soft skills), including empathy, leadership, and adaptability—can help close existing skill gaps.
You might be wondering about the difference in hard skills versus soft skills. Hard skills are learned abilities that are easy to measure. Soft skills, on the other hand, are nontechnical skills and abilities, such as personality traits and behaviors, that often relate to how a person interacts with others. For example, consider what might help an administrative assistant succeed: hard skills that might be useful include calendar management, proofreading, and competency with spreadsheet software, whereas soft skills might include phone etiquette, conflict-resolution abilities, and discretion.
When it comes to a broad skill transformation, nine key practices in three overarching areas can be applied.
Organizations that have implemented all nine practices report a nearly 100 percent chance of having a successful skill transformation. It’s also important to note that a mix of learning formats, beyond digital learning, can improve the odds of success.
Transforming the learning and development function may also be necessary. While good learning programs are a must, their utility will be limited if they don’t begin with an intimate understanding of what the organization needs — today and in the future.
Within the learning space, intentional learning can yield a career advantage. And if you want to get intentional when it comes to your own learning, the 3x3x3 approach can help. Here’s what it entails:
Embracing continuous learning can help drive your business forward, and employees that develop a lifelong learning mindset may find that it keeps them relevant and in demand in the eyes of employers. Developing a growth mindset and setting goals that are a stretch can be part of that journey.
Some companies are also exploring apprenticeship programs to unlock continuous skill development. Modern apprenticeship is a model for learning that is driven by relationships and based on real day-to-day work, thus allowing novices to gain hands-on experience from experts to acquire skills and act more independently.
At a high level, strong performance management relies on the guiding principle that what gets measured gets done. Ideally, an organization would create a cascade of metrics and targets, starting with top strategic objectives and continuing down to frontline employees’ daily activities. Managers keep tabs on these metrics and meet regularly with teams to discuss progress. In the end, good performance is rewarded, and poor performance leads to actions that address the problem.
A few key principles are essential in managing employee performance more successfully:
The way organizations manage and reward performance shifted somewhat in the wake of the COVID-19 pandemic. This was because the crisis had a big impact on goals and performance plans, and remote workers also grew more reliant on performance management as a source of feedback.
CHROs who want to help their organizations improve performance management in the postpandemic era can consider linking employee goals to business priorities. At the same time, they will want to keep some flexibility, invest in managers’ coaching skills, and celebrate the broad range of good performance while maintaining ratings for the very highest, and lowest, performers.
Companies have long considered customer experience, or CX, but there is rising interest in paying just as much attention to your workers’ experience. Tailoring the employee experience is more important than ever, especially in the wake of the COVID-19 pandemic, which blurred the line between work and life amid remote and hybrid setups. These days, instilling trust, building social cohesion, and leading with purpose are critical. And it can make a big impact: according to a 2020 McKinsey survey, people who report having a positive employee experience have 16 times the engagement level of those with a negative experience. They are also eight times more likely to want to stay at a company.
Nine elements, grouped into three overarching areas, can help make sure you’re asking the right questions to get employee experience right:
If your employee experience isn’t what it should be, your organization can take a systematic approach, grounded in design thinking, to improve it. Three steps can help you on your way: first, establish a baseline for employee experience and build on it; second, identify and transform employee journeys; third, equip the full organization for transforming employee experience.
The idea of finding purpose at work has also risen in importance in the past few years. As the COVID-19 pandemic spread, employees found themselves questioning business as usual. “We had this unbelievable smashing together of two worlds: the home world and the work world,” says McKinsey senior partner Bill Schaninger in an episode of The McKinsey Podcast on the search for purpose at work. “I think it’s really brought to the fore ‘What exactly does work mean to me? What do I have to get out of it? Is it merely a check that facilitates the rest of my life, or is it something more purposeful?’”
Research indicates that about 70 percent of people say they define their purpose through work—which raises the stakes for ensuring that individuals can easily connect what they do in the day to day with meaning. Only 15 percent of frontline managers and frontline employees say they’re currently living their purpose when on the job.
Individuals themselves can take action. And if you’re short on inspiration, you can explore an interactive that unpacks nine universal values (such as enjoyment, stability, and caring) that relate to purpose. Organizations, too, have a role to play in helping people connect their work to their life’s purpose. Here are two places to begin:
Workforce planning and strategy generally include three important components:
One way to gauge whether your company is long or short on talent is to embrace a view of talent supply that is expansive as well as dynamic. Companies that start by looking at skills, including which ones they need and already have, and how those could change over time, could find good ways to address mismatches.
Analysis of your workforce could show either a shortage or a surplus of skills. The five methods here, with samples of concrete actions to take, could be considered to address challenges:
If your organization is short on talent, your organization may need to build, acquire, or rent. And if it’s long on talent, redeploying or releasing employees may be the right path.
Longer term, employing a flow-to-work operating model for dynamic talent allocation may help match scarce skills to high-priority work, improve the way organizations develop their people, and increase business responsiveness. Companies that rapidly allocate talent to opportunities are up to twice as likely as those that don’t to perform strongly; they also deliver better results for every dollar spent.
For more in-depth exploration of these topics, see McKinsey’s Insights on People & Organizational Performance. Learn more about McKinsey’s Talent service line—and check out talent-related job opportunities if you’re interested in working at McKinsey.
