Performance: All Changed in A Decade
Performance Potential: Working on the ‘Flexible 50%’
Everybody knows the primary metric of interest to CEOs and CFOs. It is the Return on Capital Employed (ROCE), also called ROI (Return on Investment). It is the ratio that reveals how efficiently an organisation utilizes its assets and other financial resources in order to generate profit. But what about a primary metric for HR and Talent?
Inspired by the ROCE metric so loved by investors and shareholders, we propose an equivalent metric for HR, called the Return on Talent Employed. Instead of measuring how well an organization it can turn capital in to profit, we want to measure how well it can turn talent into performance.
As a first step in calculating the Return on Talent Employed we need to a means of measuring success at converting talent into performance.
The Ratio of Performance to Potential
An organization’s people may have lots of potential, but how much of that is being exploited? In other words what is the ratio of performance to potential? This is something that is calculated by Pitstop Analytics™ and it is called the P2P Metric™(1).
Some organizations are better, than others, at exploiting the full potential of their people. Take two organisations for example:
- In organization A the percentage of full potential being exploited is 58%. In other words up to 42% of the talent, engagement, creativity and innovation of the organisation's people is going untapped.
- In organization B the percentage of full potential being exploited is 72%. Here too people have a lot more to give – on average up to 28%.
Organization A is better at unlocking the potential of its people. It’s Return on Talent Employed (P2P Metric) is 14% higher than that for Organization B. But, why does this matter?
‘People Are Our Most Important Asset'
Leaders will often proclaim that ‘people are our most important asset'. But the concept of Return on Talent Employed is a test of the extent to which such grandiose words are translated into deeds. For example:
- How sincerely does a leader believe that people are the organisation's greatest resource when 42% of its people's full potential remains untapped (as is the case in Organization A).
- It is hard to imagine that leaders would be happy if as much as 42% of any other important assets remained unexploited (e.g: production facilities or IT systems).
There is always potential! We all have the potential to learn develop and grow(2). That is pretty universal – it applies regardless of age or background. But while the existence of potential is rarely in doubt, the ability to capitalize on it is. In particular the ability of an organization and its leaders to capitalize on the potential of its people.
Return on Talent is a measure of what others call ‘human capitalization'. That is how successful an organization (or even a society or community) is at unlocking the potential of its people. While the concept is attributed to sociologist James Flynn(3), it is championed by Malcom Gladwell who points to impoverished inner-city neighborhoods with a ‘cap rate of zero':
“We have a scarcity of achievement in this country, not because we have a scarcity of talent… We have a scarcity of achievement because we’re squandering that talent. And that’s not bad news, that’s good news, because it says this scarcity is not something we have to live with. It’s something we can do something about'.
Who Should Care About Return on Talent?
Back to organizations and to an area that matters directly to us as leader-managers.
Return on Talent (or the P2P Metric™ ) should matter to the CEO (or any other leader) as much as the head of Talent. That is if they believe there is a link between the sustained performance of an organization (ROCE) and its ability to unlock the potential of its people (ROTE).
Pitstop Analytics™ pioneers the measurement of performance potential within organizations, business units and teams. It can calculate the Return on Talent Employed for your organization – also called the P2P Metric ™ (ratio of performance to potential). But that is not all – it demonstrates how it can be increased.
- The ratio of performance to potential, or P2P Metric is introduced by Ray Collis & John O Gorman in their book; ‘Pitstop to Perform™‘,
2. ‘We all have the potential to learn develop and grow'. That is a sweeping statement. Whether you accept it or now depends on whether you have what Carol Dweck calls a ‘Growth Mindset' :
It also depends on whether you understand/appreciate the concept of ‘neural plasticity' – that is the ability of the brain to change throughout an individual's life.
3. Find out more about James Flynn here: https://en.wikipedia.org/wiki/James_Flynn_(academic)
4. See Malcom Gladwell's talk on Human Capitalization here:
SOLUTIONS & SERVICES: Here are some of the ways that our research & insights are put to work by our clients: