Companies with strong leadership and talent management practices increase their revenues 2.2 times faster and their profits 1.5 times faster than companies with weak practices, according to a survey of more than 1,260 companies conducted by The Boston Consulting Group (BCG).
The survey quantifies the business payoff that companies can expect from improving their leadership and talent management capabilities. It was conducted in the course of developing the BCG Global Leadership and Talent Index (GLTI), one of the first tools of its kind, which allows companies to accurately assess their leadership and talent capabilities and lays out a specific roadmap to help them improve. The GLTI also quantifies the revenue and profit gains that companies can expect from moving up the index.
“Leaders have long known that people are their most important asset but have not known how to quantify their impact,” said Vikram Bhalla, a senior partner and managing director at BCG and a coauthor of the report. “The GLTI gives them the ability to assess their leadership and talent management capabilities and to make changes that will improve their business performance.”
In analyzing the survey results, BCG created six levels of leadership and talent management maturity. The top 5 percent of companies, the “talent magnets,” substantially outperformed the bottom 5 percent, or “talent laggards,” increasing profits 1.5 times faster and revenues 2.2 times faster.
This outperformance is not just evident at the extremes. Companies that move up just one maturity level on the GLTI will experience a distinct, measurable, and meaningful business performance return. Average performers on the GLTI, for example, increased their revenues 1.4 times faster and their profits by 1.2 times faster than talent laggards.
These performance gains are even stronger if leaders play an active and direct role in the development of future leaders and talent management. The three leadership and talent management capabilities that correlated most strongly with business performance were 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.
“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,” said Mukund Rajagopalan, a BCG associate director and another report coauthor. “They also have strong HR departments but recognize that HR departments alone cannot create strong leaders and strong people.”
Survey Methodology
The 1,263 executives surveyed work for a wide variety of companies throughout the world. We allowed only one respondent per company. Slightly more than one-half of the respondents, or 55 percent, work in professional services, industrial goods, consumer goods, and the public sector. Technology, media, and telecommunications companies and financial services companies accounted for 17 percent of the sample, followed by health care, energy, and “other.”
The respondents were based in 85 countries altogether. Forty percent were based in Europe and 30 percent in Asia, of which 19 percent were from emerging markets within Asia. The Americas, with 23 percent; Africa, with 3 percent; the Middle East, with 2 percent; and “other” made up the rest of the sample.
