Valuing your Talent: resourceful assets?
Recent research published by McKinsey makes sobering reading for those executives who like to point to the profits of their business as an indicator of their talent. Examining the economic performance of 3,000 global companies over a five-year period (2007–11), McKinsey’s analysis revealed that those companies in the top quintile at the beginning of the analysis had only a fifty-fifty chance of remaining there five years later.
This does not mean that how well companies perform is serendipitous. On the contrary, wider forces are at work. Of those companies who bucked the global economic downturn and moved up into the top quintile, 90% did so on the back of an upturn in their industrial sectors. Only four companies making the move into the top ranks did so against a sector average of economic profit that was either flat or declining. Company boats, then, rise and fall in line with wider economic tides.
But dig a little deeper and interesting questions begin to emerge. The higher the tide of the industrial sector, the greater the variance in performance between companies. All boats rise (or fall), but some rise higher (or fall lower) than others. McKinsey estimates 40% of a company’s performance can be explained by the sector in which it is located. The remaining 60%, they enticingly suggest, can be attributed to the company’s effect.
The sustainability of this effect is certainly precarious. But McKinsey’s findings suggest the deck of cards is delicately tilted in favour of those executives with a greater understanding of what creates and drives the value of their companies. This is the point, then, at which the real executive craft begins.
McKinsey’s research identified a number of tough, complex and risky choices facing leaders over which markets and geographies to play in. This, in turn, requires an integrated understanding of a company’s proprietary advantage, reflected in its privileged assets and capabilities. The margin for error is tight but the pay-off for companies can certainly be worthwhile.
The question then turns on how can executives better understand the specific assets and distinctive capabilities their companies possess, align them and ultimately leverage performance?
Visit our Valuing your Talent web area to discover how to measure the impact people have on the performance of their organisation.