Four out of 10 C-suite executives admit that their companies are missing performance targets and growth opportunities due to ineffective talent management, according to a new report by the American Institute of CPAs and the Chartered Institute of Management Accountants.
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The report, based on a global survey conducted for the AICPA and CIMA by the Economist Intelligence Unit, demonstrates the need for better information to ensure companies fully harness the skills of their people.
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. Nearly the same proportion (40 percent) indicated that shortcomings such as insufficient systems, processes or management information have hindered their ability to innovate.
Even so, there is 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 agreed. The majority of CEOs, 65 percent, said 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 AICPA senior vice president for management accounting Arleen Thomas in a statement. “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 Chartered Global Management Accountants 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, health care, 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.
More than half of the executives surveyed, 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, 77 percent of the 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 CIMA CEO Charles Tilley. “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. 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:
• 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.