A global report has revealed the financial performance and growth prospects of many businesses are being stunted by their failure to make the most of their human capital.
The Chartered Global Management Accountant (CGMA) report, Talent pipeline draining growth: Connecting human capital to the growth agenda, a survey of more than 300 CEOs, CFOs and HR directors, highlighted that over two-fifths (43%) of respondents partially attributed the failure of their firms to achieve key financial targets to ineffective people management, while almost the same proportion (40%) said it has reduced their company's ability to innovate.
It also showed a significant disconnect at the senior management level with regards to talent development, as many business leaders do not agree on where the responsibility for measuring a firm's talent management strategy lies.
Roger Collins, chairman of the Octant Foundation Steering Committee, recently told HC that the success of the HR function has a lot to do with the quality of the relationship between the HR director and the CEO and the exec team, and whether the Board is informed about the importance of people in organisations and asks the right questions regarding this topic.
The changing nature of the Australian workforce, with a significant shift over the past three decades towards knowledge and service based workers, was a driving force of this new focus from CEOs and Boards, Collins said. “Once you move the workforce to knowledge and service workers your potential for competitive advantage and high performance is now much greater through people, rather than technology, and that demands a higher value add from the HR area. For that reason I think senior managers and boards have to be much more interested in the people dimension, if they are serious about performance and sustainability.”
Yet in the CGMA report, an overwhelming proportion of HR directors (83%) believed that there was a disconnection at high level, but less than 30% of CEOs and CFOs agreed. This hindered effective decision-making in key areas such as workforce skills, training and qualifications. For example, 77% of CEOs advocated cutting investment in these areas in the next 18months, but only 18% of HR directors agreed.
"This worrying boardroom divide threatens to destabilise sustainable growth by allowing the best talent to slip away," said Charles Tilley chief executive of CIMA.
"It's vital that organisations embed a robust human capital strategy within the wider business plan and develop appropriate metrics and key performance indicators that are subject to the same level of scrutiny as financial data."
Arleen Thomas, CGMA senior vice president, management accounting, said the research revealed 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".
Collins added that “while good HR directors are necessary, they’ll never be sufficient” to shoulder the massive burden of expectation of what the people element in business needs to deliver. He advocated a review of who’s responsible for the ‘people stuff’ in organisations – "the CEO, the other executives and the Board all need to be taking an interest", he said.