Return on Talent Employed™
A Powerful New Metric for the C-Suite
When it comes to business performance, the primary metric for CEOs and CFOs is the Return on Capital Employed (ROCE). But, while ROCE is a measure of the effective utilization of an organization’s assets and resources, it does not include what is often called the ‘most important asset’ – that is people or talent.
In this research paper we show why leaders should think about the organization’s human capital the same way as any other asset or resource. That means measuring how efficiently talent is being utilized and how much of it is going to waste.
When it comes to sustained and profitable growth Return on Talent Employed™ (ROTE) is ;the other side of the ROCE coin’. It is a powerful new metric for the C-Suite – one that every leader should know.
Background & Methodology
This whitepaper is based on our ongoing program of applied research and joint discovery with executives from business units and teams within over 900 organizations (incl. IBM, 3M and GE).
Research is based on data gathered via our performance analytics platform – Pitstop Analytics™ and the research frameworks published in our books Pitstop to Perform™ and Growth Pitstop™.
Originally, planned as an ebook due for Qtr 2, the core concepts have been published in this whitepaper so as to engage the wider community in our research as it progresses.
A very special thank you to all those who have contributed to and guided our research.
The Primary METRIC for Performance
When it comes to business performance, the primary metric for CEOs and CFOs is ROCE (Return on Capital Employed). But, in an age when talent matters as much as capital, isn’t there something missing?
While ROTE is a measure of the effective utilization of the assets and resources of the business, it does not include what is often called the ‘most important asset’ – that is the people or talent of the organization.
Here is a quick summary of the main points:
Measuring Performance in Talent-Intensive Organizations
In an age where talent matters as much as capital, leaders should think about and value the organization’s human capital the same way as any other asset or resource. That requires measuring the return on talent – asking how effectively talent is been utilized and if there is any of it going to waste.
How efficiently talent is being utilized (and how much of it is going to waste) can and should be measured. The means of measurement is the Return on Talent Employed™ (ROTE).
ROTE – A Two-way Dividend
ROTE pays a two-way dividend – it rewards both the organization and its people. The dividend for the organization includes the potential for enhanced / sustained performance, an advantage in attracting and retaining staff, greater employment engagement and improved capacity for innovation.
For the organization’s people the dividend includes the greater intrinsic reward/motivation that comes from doing more meaningful work, utilizing one’s talents and skills and the opportunity to learn, develop and grow. After all, who wants to work in an organization where their talents, passions and skills are being stymied.
Measuring Return on Talent Employed™
An organization’s people may have lots of potential (as indeed most organizations do), but how much of it is being exploited? Is it 50%, 70%, 90% or more? We believe that leaders should know the answer, so too should their investors and shareholders.
Performance Potential – Measuring ROTE
Some organizations are better at utilizing their talent than others – they have a higher ROTE. However, the average across 12 industries and 47 markets is 61%. That is measured as the ratio of performance to potential.
Today, instead of getting a 100% return on talent, most organizations are presently getting a figure that is below two-thirds of what their people are capable of. That means up to 39% of the skill, passion and creativity of people is going to waste.
Any ROTE figure could be interpreted as either ‘negative’ or ‘positive’ or what we prefer to call the lens of ‘performance’ or ‘potential’. Which works best for you depends on mindset and other things.
However, the attention-grabbing headings are hard to resist:
Measuring Return on Talent Employed™
Just as some organizations are more profitable than others (i.e. have a higher ROCE), the ability to capitalize on the potential of people also varies greatly. Organizations with a higher ROTE (Return on Talent Employed™) are better at utilizing their talent.
A low figure can be seen as a waste of talent, or as great opportunity to unlock latent creativity, talent and skill. The good news is that an organization’s Return on Talent Employed™ is not fixed – Leaders can take deliberate efforts to increase their ROTE.
ROTC – Winning the War on Talent
ROTE really matters in the context of the ‘War on Talent’ where competitiveness depends on the ability to attract and retain the best people and certain key skills are in short supply.
ROTE gives organizations an advantage in the War on Talent, enabling them to win on three fronts. The first is in attracting new talent, the second retaining new and existing talent and the third; engaging talent fully in the pursuit of organizational goals while at the same time maximizing their own growth and development.
ROCE & ROTE – ‘Two Sides of the Same Coin’
In an increasingly VUCA world your people’s talents, ideas and skills are more important than ever. So, ensuring that they are being utilized effectively (i.e. a high ROTE) is a key role the leader. Sustained and profitable growth depends on it.
The ROTE proposition is both straight-forward and compelling: To maximize ROCE, focus on ROTE also. In so doing, the gains in engagement, creativity and innovation from the organization’s people, will help to drive and sustain profitability in the long term. ROTE begets ROCE are ‘two sides of the same coin’.
* Pitstop Analytics™ data set.