The growing tendency to view an organisation's human resources as capital reflects a new understanding of the link between good people and business growth Lucy McGee explains.

Not only is money no longer enough to attract and keep the best people, neither is a strong brand, a beautifully appointed office or a job title the length of a small novel. DDI's recent research(1) indicates that intangible advantages that are altogether more difficult to sustain are what really differentiate employers in this tough new age of competition for top talent. One third of UK employees are bored at work most of the time, and boredom is the enemy, putting your organisation at risk of losing the wrong people. Two thirds of those finding their job easy plan to leave within a year, almost half being drawn by a job that offers better opportunities for promotion and over one quarter enticed by the prospect of more challenging work.

The issue becomes more complex when you consider that, counter-intuitively, the reasons people give for staying with an organisation and being proud of and committed to their employer are not the direct opposite of those they give for wanting to leave. Just under 25% of people (including managers) express little or no commitment to their employer, but this percentage increases where employees lack variety and development opportunities, do not get helpful feedback on their performance and do not receive adequate training to be effective in their jobs. And of course, the perennial truth is that people do not leave jobs and companies - they leave managers.

We have been tracking these indicators for many years and more than half of those leaving their jobs consistently cite a poor relationship with their boss as being a critical factor in the decision to move on. Weak or ineffective leaders, then, represent a liability.

So that is the individual perspective. What about the organisational view? There is little doubt that the growing tendency to view an organisation's human resources as capital reflects a new understanding of the link between good people and business growth. Many of the global organisations with whom we work tell us that the greatest threat they see to successful expansion - whether into new markets or with innovation in products and services - is a shortage of appropriately skilled and experienced people, particularly leaders.

In the last few years a number of surveys, most notably those by the Conference Board and CEO Magazine, have placed the issue of identification of leadership potential among the top five business success factors for 78% of CEOs. 91% see it as among the top enablers of business growth.

The consequences of failing to spot and nurture your best represent a substantial risk to the execution of the best laid business strategies.

Ensuring engagement

There is also an increasingly strong quantifiable link between employees who give their discretionary effort to their employer and have an emotional commitment to their job, and the performance of the business. The term 'engagement' has been coined to describe the hearts and minds connection with the organisation, which disposes people to give of their imagination and energy far beyond any direct relationship to salary or position.

Again, a number of consultancies as well as DDI have produced research which demonstrates that reduced staff turnover (the HR impact), enhanced sales performance (the customer impact) and as much as 3% higher revenue growth and 70% higher likelihood of business success (the impact on the bottom line) all result from increased engagement. Conversely, customer loyalty and quality are the casualties of low engagement. For risk managers it is scarcely an option to disregard its importance.

But the biggest danger of all is yet to come. By 2020, best estimates indicate that the Western world's businesses will be short of some 14 million skilled workers; the US government projects that around 20% of jobs will be left unfilled as early as 2010. As we move towards that date, competition for good people - the 'war for talent' as McKinsey memorably described it - will only intensify. Every business with aspirations for growth will have to develop strategies to manage this exposure.

Limit your vulnerability

Combined with the voice of the individual employee, these trends build a powerful argument for the primacy of people to profit, and the extent of the damage possible from the absence of a strategy to address this.

With this in mind, then, what are the drivers of attraction, loyalty and higher performance? What should companies be doing to limit their vulnerability to losing their best people to the competition, and, sometimes equally painful, retaining only the disenchanted souls who create a seep of mediocrity throughout the business?

It makes sense to start with the very first process by which people are touched when they connect with your organisation - that of selection and recruitment. Risk managers are ideally positioned to get involved in the building of a business case for investing in the systems and skills which help you to find and hire consistently better people. After all, DDI estimates that annual turnover costs are more than £2.4m for a firm employing 10,000 people, and that for every 1% increase in staff turnover, costs increase by more than £190,000(2). And these are just the obvious financial implications.

As with any HR initiative, CEO sponsorship and line manager involvement are crucial for embedding new systems or skills, and risk managers can help keep such projects on the critical radar screen of the senior team.

Changing selection systems

Simple changes to selection systems pay huge dividends. For example, taking the time to identify and articulate the key characteristics of the organisation - its culture - and then measuring applicants against them can help you recruit people who will quickly acclimatise and who will be likely to demonstrate the values which matter to your company.

It is equally valuable to do the same for the actual job in question - what does it provide plenty of opportunity to do? What is absent from the role, and what has the applicant liked and disliked about jobs they have performed in the past?

We use the term 'motivational fit' to describe the match between what people want from an employer or a job and what they actually offer. Checking for this is a powerful way of narrowing the selection funnel early in the process, thereby saving wasted interview time, and, more important, reducing unnecessary turnover.

Defining the factors that lead to job success - behaviours, knowledge, experience and motivational fit - is just the first step in building a hiring system that focuses consistently on acquiring the best people while reducing the risk of making bad hiring decisions. The predictive power of data on how an individual is likely to perform rises greatly when you use several different methods of data gathering at different stages of the selection funnel.

Probably your biggest payback will come from training managers to ask questions which focus on evidence of past behaviour, involving more than one person in the interview process, and suspending hiring decisions until the data from multiple sources is dispassionately reviewed as a whole.

Managers need to know that gut decisions, or hiring the best of a bad bunch just to fill a seat, will ultimately impact the bottom line every time. It is a fact that organisations with high quality hiring systems outperform the competition.

Research last year revealed that those who perceive their bosses' values to be consistent with their organisation's values are 15 times more likely to be motivated in their job than those who do not. There are clues to be had here on how to maintain a new joiner's initial enthusiasm. Leaders, particularly first and mid-level managers, represent a reality check for their staff on what behaviours are actually rewarded by an organisation; clear organisational values should be your insurance against maverick and destructive managers.

The challenge in training people to lead is that unless you catch them early, you are unlikely to be able to effect a lasting change in how they approach the role. As they come through the ranks, essential skills development for leaders includes coaching, so that they can develop their team and performance management, so that they can give the clear and open feedback on how people are doing, which is vital for building engagement.

Nowhere is the risk inherent in managing human capital more keenly felt than in promotion decisions, particularly those taken in the context of succession management. Robust gap analysis of specific, individual development needs is without doubt the best way of limiting potential exposure. Assessment offers the most reliable diagnosis, because it can yield rich, business-focused data.

The key is to look at the whole person, including personality traits and 'de-railers', and then consider development options with care. De-railers are things like being arrogant, volatile, self promoting or imperceptive, which become obvious under stress and which can have a huge impact on culture. They need to be checked at the diagnostic stage.

Finally, effective succession strategies link development solutions to business objectives. If your senior IT manager has a future as a strategic leader, rather than sending him to a management school for a month, give him the corporate e-sourcing strategy to develop and implement, so that he is exposed to every area of the business. If this new accountability pays off, you will have a way of measuring the success of your succession strategy that goes right to the heart of the business.

In tandem with this, it is essential to hold managers accountable for the development of their staff. If managers' contributions to the development of those for whom they are accountable is visible to their seniors, they will stay focused on it.

Succession management is about insuring your business against future resourcing challenges, and mitigating the risk to customer satisfaction and growth. But it all starts with selection, which is expensive and time consuming even when you do it badly. Getting it right means a bigger pool of potential talent from which to choose. Over-arching all this is the behaviour of leaders, which can make the difference between your company outperforming the competition - or forever teetering on the brink of falling into the skills gap.

1) Should I Stay or Should I Go, published by DDI in Spring 2004

2) Selection Forecast, published by DDI in Spring 2005

- Lucy McGee is marketing director, DDI UK, Tel: 01753 616031, E-mail: