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Poor Talent Management Stifling Innovation
(September 19, 2012) CGMA Report: Poor Talent Management Stifling Innovation, Capping Financial Growth
Global survey reveals disconnect in C-suite, need for more rigorous approach to human capital strategy
Four in 10 C-suite executives around the world say their companies are missing performance targets and growth opportunities because of ineffective talent management, according to a new report for Chartered Global Management Accountants by the American Institute of CPAs and Chartered Institute of Management Accountants. The report, based on a global survey conducted for the AICPA and CIMA by the Economist Intelligence Unit, shows a need for better information to ensure companies fully harness the skills of their people.
“It is vital that organizations embed a robust human capital strategy within the wider business plan and develop appropriate metrics and KPIs that are subject to the same level of scrutiny as financial data.”
According to the report—Talent Pipeline Draining Growth: Connecting Human Capital to the Growth Agenda — 43 percent of the CEOs, CFOs and human resource directors surveyed said their companies have missed financial goals in the past 18 months because of inadequacies in human capital management. Almost the same number, 40 percent, indicated that such shortcomings—they could include insufficient systems, processes or management information—have hindered their ability to innovate.
Even so, there’s sharp disagreement over who should take overall responsibility for measuring the effectiveness of an organization’s talent management strategy. An overwhelming proportion of HR directors, 83 percent, said it is their accountability. But only 30 percent of CEOs and CFOs agree. Indeed, the majority of CEOs, 65 percent, say the CFO and the finance team should take the lead.
“Ideas are the currency of the knowledge economy so human capital must be managed as rigorously as financial capital,” said Arleen Thomas CPA, CGMA, senior vice president for management accounting at the AICPA. “It is clear from our research that many companies are falling short of their potential because they lack thorough, relevant information about their people to support effective strategy, hiring and training decisions. CGMAs can bridge this gap, combining broad perspective and analytical rigor to ensure the right focus and metrics that align talent management with business strategy.”
The AICPA and CIMA commissioned the Economist Intelligence Unit survey to equip CGMAs with fresh insight on the critical issue of talent management. The EIU surveyed 313 CEOs, CFOs and HR directors in July from the manufacturing, retail, energy, financial services, telecommunications, healthcare, pharmaceuticals, media and consumer goods sectors. Nearly half of those surveyed, 45 percent, were from companies with $1 billion or more in global annual revenue. Additional findings from the survey include:
- More than half of executives, 51 percent, said their firms do not have a formal succession planning process for C-level roles such as CEO, CFO and COO.
- Nearly 38 percent believe it is likely they will need to go externally to recruit for C-level positions in the next 12 months, indicating a lack of confidence in their internal talent pool and bringing into question the effectiveness of the existing human capital development strategies.
- Despite weakness in human capital strategies, more than three-quarters, or 77 percent, of CEOs plan to cut spending on workforce skills, training and qualifications over the next 18 months.
- North American executives generally report more difficulties as a result of poor talent management than their European and Asia-Pacific counterparts, as do executives in the financial services and energy sectors.
“There is a worrying boardroom divide that threatens to destabilize sustainable growth by allowing the best talent to slip away,” said Charles Tilley, FCMA, CGMA and CEO of CIMA. “It is vital that organizations embed a robust human capital strategy within the wider business plan and develop appropriate metrics and KPIs that are subject to the same level of scrutiny as financial data.
“In order to do this, business leaders need to receive the right information which can be translated into actionable insight,” Tilley continued. “This is pivotal to effective decision-making and there must be clarity on responsibility, accountability and ownership for the talent within all our businesses. CGMAs have the ability to unite financial facts and non-financial information to provide this insight from a position of independence and objectivity. They can help organizations to create closer collaboration at the executive and operational levels — especially between finance and HR.”
The report recommends four steps for organizations to improve their human capital strategies:
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Get the right information. Human capital information needs to be credible and accurate. But data alone will not ensure it is useful or relevant when it comes to implementing the organization strategy. It also needs to be analyzed and translated into relevant and actionable information and insight to provide effective decision support.
Set better performance measures. Organizations need to develop human capital metrics aligned to support and implement the broader business strategy. The measurement and management of such metrics need to come under the same level of scrutiny, focus and controls for both accuracy and relevancy as financials and other key data.
Establish accountability. Organizations must ensure there is clarity on responsibility, accountability and ownership for human capital performance management. The research findings highlighted that, for the most part, the CFO has the mandate from the CEO to take responsibility for measuring human capital performance.
Encourage partnering. Restructure for closer collaboration at the executive and operational levels, particularly encouraging partnering between finance and HR. In this partnering role, CGMAs can support HR and the firm in making credible human capital investment proposals and decisions based on robust management information.
To receive a copy of the full report, members of the media can contact
Dennis Lockard, 919.402.2161 or dlockard@aicpa.org, or
Jonathan B. Cox, 919.402.4499 or jcox@aicpa.org, with AICPA Media Relations.
American Institute of CPAs (AICPA)
The American Institute of Certified Public Accountants (AICPA) is the world’s largest member association representing the accounting profession, with nearly 386,000 members in 128 countries and a 125-year heritage of serving the public interest. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting.
Chartered Institute of Management Accountants (CIMA)
The Chartered Institute of Management Accountants, founded in 1919, is the world’s leading and largest professional body of Management Accountants, with more than 195,000 members and students operating in 176 countries, working at the heart of business. CIMA members and students work in industry, commerce, the public sector and not-for-profit organizations.
Chartered Global Management Accountant (CGMA)
Two of the world’s most prestigious accounting bodies, AICPA and CIMA, have formed a joint-venture to establish the Chartered Global Management Accountant (CGMA) designation to elevate the profession of management accounting. The designation recognizes the most talented and committed management accountants with the discipline and skill to drive strong business performance.
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