Organizations with the closest alignment between their geographical talent footprint and market opportunity tend to be most productive and profitable. According to Right people, wrong place?, a new EY report in collaboration with LinkedIn, the world’s largest professional network online, organizations can make major performance and productivity improvements by taking a more strategic approach to where they place their people.
The findings in the report also found that organizations that increase their talent to market alignment over time tend to grow faster. For example, organizations in the top quartile for improving talent-to-market alignment between 2013 and 2016 achieved profit growth that was, on average, 7.8 percentage points higher than those in the lowest quartile. The insurance sector was particularly strong in this aspect with those organizations showing the highest improvement in talent-to-market alignment achieving profit growth that was, on average, 29 percentage points higher than those with the lowest improvement over this three-year time period. The banking sector was also strong across this time period with the most improved talent-to-market alignment organizations in the sector achieving profit growth that averaged 11 percentage points higher than those with at the lowest end of the spectrum.
The findings of this research imply that companies have a huge potential of optimizing their performance by rethinking their talent mobility strategy. Placing talent where the sector market opportunity is instead of only the headquarter country or legacy markets can bring substantial gains for companies. This also translates into a big opportunity for the Indian economy in terms of increasing productivity and using these productivity gains to realize several billion dollars in economic output by improving the talent-to-market alignment," said Sonu Iyer, Tax Partner and People Advisory Services Leader, EY India.
The report analyzed 659 organizations of varied size and scale across 11 sectors and revealed that those that poorly match their workforce to the global sub-sector growth markets are potentially leaving hundreds of millions of dollars of opportunity on the table. In the sample of companies covering 14 countries across Asia region, on an average, Indian headquartered companies rank 9 out of 14 for average talent to market alignment. Further, bringing together a combined analysis of current and projected industry market performance from EY with LinkedIn’s insights from more than 530 million members, the report validates and quantifies the value of maximizing the alignment between workforce location and market opportunity.
Across the 659 companies in the sample, firms headquartered in North America tend to achieve a considerably higher talent-to-market alignment than firms headquartered in the Asia Pacific region and Europe. Notably, Japanese firms were close to the global average, while firms in Europe achieved a talent-to-market alignment around half the level of those in North America. Firms headquartered in emerging market locations like Central and South America, India and Africa had the largest scope to improve their talent-to-market alignment.
There is indeed a great opportunity for Indian firms to increase their talent to market alignment – improving alignment to the average level across all Asian headquartered firms in the sample would increase Indian firms’ talent-to-market alignment by almost 4 times and potentially increase productivity by 27%. A productivity increase such as this would be worth $672bn to the Indian economy, assuming all productivity gains were directly translated into the additional economic output.
Dennis Layton, EY Global Deputy Leader, People Advisory Services (PAS), says: “The ability to quantify the opportunity that individual organizations have in optimizing their talent footprint is a unique and important insight. It helps cement the notion that organizations that better connect their global workforce strategy to their global market opportunity, in terms of an end-to-end talent management and mobility approach, can drive huge benefits in terms of both productivity and profitability. This talent-to-market alignment helps organizations that are currently running behind the pack see a clear opportunity to capture growth by focussing their efforts on more strategic workforce and talent planning.”
Within the Indian companies, firms in the Consumer Products and Retail (notably including the non-alcoholic beverages sub-sector) and Banking sectors tended to have the higher talent to market alignment. Also, talent to market alignment had most opportunity to improve in the Apparel, Footwear and Insurance sectors.
According to the findings in the report, in the pharmaceutical sector, for example, a typical organization increasing their talent-to-market alignment by 10% could increase their yearly profit by US$77m based on a sample of 71 pharmaceutical sector firms. For these pharmaceutical sector organizations, moving from a median talent-to-market alignment to best-in-class has the potential to be worth over US$690m in increased annual profits.
In the automotive sector, organizations with the highest talent-to-market alignment typically achieved revenue growth 14 percentage points higher than firms with the lowest alignment, while in the apparel and footwear sector, growth among the highest aligned organizations was as much as 9 percentage points higher than the lowest aligned firms.
National economies with headquartered organizations that had a higher talent-to-market alignment also showed trends toward being more productive, according to the report. North American headquartered firms achieved the closest match between the proportional allocation of talent to a country and that country’s significance in the global sub sector market, while organizations headquartered in Ireland, Japan, China and Canada were all above the global average benchmarked in the report. The findings show that there are significant implications for GDP growth: if the UK, for example, were to match the level of talent-to-market alignment found in the United States it could potentially be worth around US$900b to the UK economy.
When it came to seniority and business function alignment, many companies often misalign the location of their talent to legacy mature markets rather than to countries where greater revenue and faster growth opportunities lie. Notable trends were seen in how companies distribute their senior executives, sales, marketing and research talent around the globe with key functions often being underrepresented in crucial markets.