BCG: Good leadership and talent management pays off

20 April 2015

Companies with strong leadership and talent management, ‘talent magnets’, outperform those with poor management ‘talent laggards’, and are expected to increase their revenue and profits much faster, research by BCG shows.  According to the consulting firm, companies that do well have actively involved leaders as they know that HR alone cannot create strong leaders.

The Boston Consulting Group (BCG) recently released its ‘Global Leadership and Talent Index’ (GLTI)*, which quantifies the business payoff that companies can expect from improving their leadership and talent management capabilities. To come to the index, the firm surveyed 1,263 CEOs and HR directors from 85 countries.

How Companies Score on Leadership and Talent

For the GLTI, BCG divided the talent management capabilities into six categories: strategy, leadership and talent model, talent sourcing, people development, engagement, and culture, after which it divided the companies surveyed into different groups, ranging from ‘talent magnets’ to ‘talent laggards’. The Index shows that the performance spread on leadership and talent management capabilities is wide, with talent magnets on average scoring of 2.5 (on a scale of -3 to 3) and talent laggards -2.2.

According to BCG, leadership and talent management capabilities have a strong correlation with financial performance, demonstrated by the fact that companies with strong capabilities in leadership and talent management outperform those with weaker capabilities. Talent magnets, on average, increase their revenues 2.2 times faster than talent laggards and their profits 1.5 times. The outperformance grows with companies moving across the ‘maturity level’ on the GLTI, from laggard to magnet.

GLTI scores correlate with financial performance

As a result of the GLTI, the consulting firm identified the 10 capabilities that correlate strongly with business performance, with the three capabilities with the greatest payoff all requiring the active participation of leaders. These top three are: the ability to translate leadership and leadership plans into clear and measurable initiatives, significant time devoted to leadership and talent management by leaders, and leadership accountability for talent development.

The ten capabilities that matter most

BCG concludes by saying that the strong performing companies have been able to involve their leaders, not just the HR team, in their people development. “Leaders at the strongest companies are actively involved in leadership and talent management development activities. They spend as many as 25 days a year on these activities,” explains Mukund Rajagopalan, Associate Director at BCG. “They also have strong HR departments but recognise that HR departments alone cannot create strong leaders and strong people.”

* The BCG Global Leadership and Talent Index (GLTI) is a tool that allows companies to assess their leadership and talent capabilities, lays out a specific roadmap to help them improve, and quantifies the revenue and profit gains that companies can expect from moving up the index.