This article accompanies The HR Transformation Continuum.
Do companies that achieve effective HR transformation really have a competitive advantage? According to The Hackett Group, an Atlanta-based advisory firm, they do if the effort results in better talent-management capabilities. And for a lot of companies still transforming HR, that's the direction they're headed for.
"What we find is that the best companies are doing two things: driving operational excellence within HR and increasing talent effectiveness. They are bundling that under an HR transformation program," says Harry Osle, Hackett's managing director of HR transformation.
In a recently published study of 60 global companies during a three-year period, Hackett found that companies with more mature talent-management capabilities generated $673 million more in earnings before interest, taxes, depreciation and amortization (EBITDA) than their peers, or an 18-percent advantage.
Additionally, the top performers boasted better net-profit margins and a greater return on equity and assets. The reason: They were more efficient and effective at engaging employees, could recruit more quickly and did a better job of linking talent management to business strategy.
However, not all companies that transform their HR functions boast mature talent-management capabilities. It's only when they consciously invested in this area that they were able to achieve this goal. What Hackett discovered is that many companies are using transformation to enable that investment.
"It's easy for HR execs to talk about talent, but that doesn't fund the initiative," says Stephen Joyce, Hackett's HR advisory practice leader. "There is a lot of interest to improve talent management, but you might have the lack of funding or investment. So what we've found is many HR execs who are not waiting until they get the investment dollars are looking at self-funding this through efficiencies."
To ensure their transformation efforts achieve the desired outcome, Osle advises HR leaders to first ask themselves these six questions: 1) Has HR defined the objectives? Is it to get better value, efficiency, costs or a combination of these? 2) Is there a business case needed or has that been established? 3) What is the scope of the project? Is there a process, geographic or business-unit scope? 4) Is there a deadline driving the project? 5) Do you have resources internally or do you need outsiders to complete the transformation? 6) Is the business ready for change?