Ideas Autumn 2009

Introducing a fresh perspective on Talent Management, driving up the bottom line in tight markets through excellence in Procurement and an office in Saudi Arabia. Plus, new ways of addressing Risk and enhancing Enterprise Risk Management (ERM), Carbon Footprint services and, lastly, Freeing up Cash?

Talent Management and the Pareto Principle

Generally, employee research tends to show that 20 percent are engaged, 20 percent are disengaged and that the remaining 60 percent are indifferent, in other words 80 percent are not engaged. Organisational efforts to attract, develop and retain talent are well documented but do they square with generally accepted levels of employee engagement which are published on a regular basis?

Employee engagement

The concept of employee engagement became widespread during the 1990’s. Published results from a variety of sources have tended to show that there is no great improvement in engagement levels over time and that there is not a very significant difference between national cultures.

Organisations are keen for their employees to be engaged as those that are tend to give greater levels of discretionary effort in order to achieve the organisation’s objectives.

So if only some 20 percent are engaged what does this mean for overall performance of the people in the organisation? Does this 20 percent of employees account for 80 percent of the value created - in the same way that, as a rule of thumb, 80 percent of sales are accounted for by 20 percent of customers, or 80 percent of wealth is owned by 20 percent of the people – the Pareto Principle.

Managing Talent

alent is defined by the Chartered Institute of Personnel Development as “those individuals who can make a difference to organisational development either through their immediate contribution or in the longer-term by demonstrating the highest levels of potential”.

Managing talent well is known to improve performance. That said it would not be unreasonable to assume that 80 per cent of organisations would have well developed talent management processes.

In a recent research programme, however, on talent management, McKinsey surveyed almost 13,000 senior managers in more than 120 companies and asked them about how talent was managed. They discovered that managing and improving the talent pool was only seen as a top priority by 26 percent of the respondents.

This seems to bear an uncanny resemblance to the findings about employee engagement. 20 per cent of staff members are engaged and only 26 percent of senior managers believe that talent management is a key requirement.

A solution

If the 80:20 rule was applied to talent management, organisations would simply seek to identify the top 20 percent.

Because organisations go on the assumption that “you know talent when you see it”, they “see” what they want to see, they chase the alleged 20 percent, and they miss the vast array of talented people – the other 80 percent.

Rather than focus all the effort on this small pool of people, why not aim to get all the people who are capable of performing like the top 20 percent engaged in a performance improvement programme.

As Robin Stuart-Kotze puts it in his book entitled “Who are Your Best People”, “one of the outstanding characteristics of human beings is their ability to adjust to changing circumstances. But some people are less flexible than others. We must accept that. However, by and large people have a much wider range of capability than we, and they, believe. By just looking at what people can do currently and projecting that onto what they can supposedly do in the future, organisations fail to capitalise on the huge reservoir of potential that exists in everyone”.

Instead, organisations would do better if they focussed on the 20 percent of individuals’ behaviours that drive 80 percent of their performance.

Then they would discover the secret of true performance improvement as well as higher levels of employee engagement.

George Knight
Managing Partner
Penumbra

Savvy procurement is a powerful source of profit

No matter where your business is positioned today, there is so much untapped profit just in the way you buy. To put this in context, in most businesses, bought-in goods and services account for at least 50 percent of cost of goods sold. Just a 1 percent reduction in that figure will produce the same margin lift as a 15 percent rise in sales.

Procurement is no longer seen as a luxury or an after-thought but as a critical way of weathering the downturn by cutting cost (buyers market) rather than jobs (your talent), whipping suppliers into shape in readiness for the upturn and bolstering profits now.

Many companies have been so busy growing the top-line that the supply side has ‘just happened’. Taking stock of where you are at today and where you could be tomorrow is crucial to seeing how to expand procurements’ value and, of course, bottom-line impact.

To illustrate this here are some illustrative examples of what can go wrong:

• Marketing spend spread over too many agencies
• Fragmented buying behaviours - silo driven
• Only 20% of procurement professionally qualified
• Less than 2% savings annually
• Top 20 greater than 30% of total spend
• Procurement seen internally as an ‘ivory tower’
• Few Procurement performance KPI’s
• Suppliers’ view client as ‘difficult’
• Supplier Relationship Management (SRM) is weak and not driving improvements
• Little evidence of end-to-end category management

What is needed is a way of boosting profits by signposting the way to quick, sustainable savings and, of course, mobilising your people to action.

To achieve greater value from the procurement function requires:

• Establishing the gaps between the current position and a desired future position by benchmarking against recognised best practice.
• Prioritising actions and timescales to address the gaps.
• Building a do-able but stretching plan and target.
• Tracking and driving performance using a Balanced Business Scorecard and,
• Depending on the existing maturity of procurement, map out a long-term transformation plan to deliver wave after wave of sustainable savings.

A solution

Creating genuine buy-in with your people is vital for a successful transformation initiative.

From the leadership, the core team, the wider business and beyond into the supply network; everyone needs to feel part of the change by seeing the benefits for themselves.

A good way to approach these situations is to:

• Share the business case with your people to enable them to get it and embrace it.
• Garner Executive sponsorship to address escalation/resolution issues.
• Co-develop and drive a detailed plan to deliver the results.
• Create a Project charter for the overall delivery, including Executive milestone reviews.
• Create a Project chart for each work-stream, showing action by action ownership.
• Support or do any key actions to create learning in action.
• Build a dashboard with meaningful KPI’s to enable effective tracking.
• Communicate with all stakeholders in a way that makes sense to them.
• Build a “virtual” team with a ‘want to do’ and ‘can do’ spirit through reward and recognition.
• Coach and mentor team members to transfer the know-how to do this time after time.
• Provide the tools to the team to do the job.
• Maintain momentum by driving actions, removing barriers and promoting successes.
• On delivery of the first wave(s), provide a full report showing the results and learning

If done successfully, transforming your procurement capability will realise wave after wave of savings.

Penumbra launches in Saudi Arabia

Recently, the government has started to transform the Kingdom into a centre for new industries and services, using the reserves amassed during the oil price boom earlier in the decade, in order to lay the foundations for an economy that is more diversified.

This clearly provides opportunities for Penumbra and we are pleased to announce that we have appointed Khalid M Al-Ghamdi as a Partner and General Manager of our Middle East and North Africa operations. He trained in business finance in the US, and has been involved in many businesses throughout the world.

Contact Details:

Regional Office

Saudi Arabia

Penumbra Consulting
PO Box 53807
Jeddah 21553
KSA

Email: mena@penumbraconsulting.com
Tel: +966 (2) 6070175
Fax: +966 (2) 6070275
Mobile: +966 560560500