Since 2020, year-over-year demand on HR budget expenditures has become greater than ever. US compensation costs have grown steadily, inflation has increased, but HR budgets have decreased significantly. As a result, organizations need to use their (or their clients’) talent development budgets efficiently and effectively. So how can you ensure your company’s talent development strategy creates value?
To find out, we consulted two experts from the Hogan Coaching Network. Rebecca Feder, MBA, is the principal at Princeton HR Insight LLC, and Jayson Blair is the managing partner at Goose Creek Coaching and Consulting. They shared their views about and experience with the talent development landscape, as well as some best practices for maximizing talent development budgets.
A key element in successful talent development budget strategy is having the right mindset about what you want to accomplish. “HR processes need to be business processes,” said Feder. “We think of [HR] as an extracurricular too often. You’ve got to spend the time and energy the same way you do with other business processes. You just can’t do it half-baked.” Optimizing the time, effort, and finances invested in your talent development program starts with acknowledging the role of talent in your overall business strategy.
Keep reading to find out how this strategic approach to talent development can equip you to retain your current talent, promote from within, and confidently set long-term talent strategy.
What Is Talent Development, Exactly?
What is “talent development,” exactly? How does it differ from leadership development? And who is it for?
At its broadest, talent development is a set of tools and strategies designed to foster employee learning, growth, and development, with intended outcomes that include engagement, productivity, results, and organizational performance. Occasionally, talent development is used to prepare someone for a specific role. For instance, if Kris sets a career goal to become director of customer engagement, their organization might offer them development opportunities such as stretch assignments, formal learning, or peer coaching.
Leadership development, more specifically, is the process of improving the leadership capabilities of individuals and organizations. In Hogan’s perspective, leadership development necessitates the assessment of individual strengths and challenges to create the strategic self-awareness required to know what capabilities need the most attention. Then, leaders practice new skills to modify their behavior with the ultimate objective of improving both team and organizational outcomes.
People expect and desire development. Of the 59% of global workers who are not engaged—that is, those who some might call quiet quitters—41% said they would change their workplace’s engagement strategies or culture, including more opportunities to learn.
Critically, this desire for development extends beyond individual contributors. Early-intervention leadership development is an outstanding retention strategy for middle managers, as well as for their teams. For the 93% of organizations prioritizing retention, one way to show managers they are valuable and worth the investment is to encourage their development as leaders. Managers who have opportunities to develop also improve retention and performance among their team members.
Both Blair and Feder advised organizations to start any development strategy by collecting data. Well-validated personality assessments provide the most equitable and actionable data.
How Does Personality Assessment Maximize Talent Development Budgets?
Personality assessment data can lay the foundation for a variety of talent and leadership development initiatives, such as tailoring development plans for key talent, identifying high potentials, creating or developing teams, succession planning, executive coaching, and more. Given the pressure for HR leaders to do more with less spending, implementing assessment-based development opportunities throughout the organization can be an effective strategy, helping to advance other objectives. Ultimately, the best way to use personality assessments to maximize a talent development budget will vary based on the organization’s unique goals.
Let’s look at a couple of possible approaches.
Uncover Hidden Potential
First, personality assessment can help to identify hidden potential that might otherwise go unnoticed. Feder provided an example of how using personality assessments throughout the organization can help to fill a leadership role with hidden potential from an unexpected place. One of her clients used personality data to place the company’s lawyer into a general manager role. That person had the intellectual curiosity, among other ideal characteristics, to apply their knowledge of chemistry and law to fill a unique need. Feder called them “unstoppable” when supported by people who understood the company’s financial strategy. Personality data allowed the company to maximize the investment it had already made in developing the lawyer, as well as to supplement that person’s leadership with team members whose commercial skills were stronger.
Jumpstart Leadership Development
Middle managers are often overlooked in leadership development initiatives, despite their impact on business performance and increasingly strategic roles. Development plans informed by personality assessments can help these midlevel leaders strengthen the skills they need to move toward higher leadership positions. Blair emphasized that developing middle managers can be more cost-effective than hiring a leader externally. Data suggest that the average cost per hire is about $4,700, but employers often find that the hiring process can triple or even quadruple the salary for the position. In contrast, development is markedly less expensive, with average costs falling at $1,267 per employee in 2021.
Moreover, this approach can help prevent leadership failure, which occurs at a rate between 50 and 75 percent. Personality assessment can help managers understand the strengths they need to leverage, their shortcomings and derailment risks, and their motivations and biases. With early development opportunities based on their assessment results, they can begin cultivating strategic self-awareness to avoid future derailment. Blair noted that organizations may find it much more expensive to develop executives who have shifted off course than to be proactive about helping rising leaders jumpstart development. “You can spend the $10,000 now or the $1,000,000 later,” he said. In other words, prioritizing development opportunities is often more economical than waiting for development needs to arise.
When HR processes are viewed as business processes, talent development budgets will be built wisely with due time, energy, and money. Making your spend reach farther than it has before is essential, especially considering the latest trends.
What Are Talent Development Trends?
Talent development should be regarded as a long-term solution for retention, engagement, leadership, and culture. Because talent development affects business performance, strategic organizations craft their talent development budgets carefully.
Talent Development Budget Trends
Maximizing your talent development budget partly relies on responding well to HR budget trends. HR leaders should expect a smaller budget overall with less to spend on talent development. A common allocation of budget for talent development is one to five percent of salary or one to two percent of revenue, although this wide range varies significantly by industry and role. Outside of HR, competition for budget is likely to come from sales or other departments with more visible or immediate impact, Blair said. Within HR, competition for talent development spend is likely to come from talent acquisition or executive coaching, Feder said.
At first, organizations should expect to invest roughly equally in development and acquisition. In the short term, they will see talent acquisition costs decline as they learn to maximize their talent development budget. Eventually, they will likely spend more on development than on acquisition, optimizing their current talent instead of constantly seeking new hires.
Talent Development Strategy Trends
Feder and Blair each shared conceptual trends that they have noticed in talent strategies since 2020. Blair described an hourglass-shaped talent development strategy, and Feder described leadership development cohorts for middle managers. These success stories demonstrate some of the returns on investing in talent development—as well as why a common piece of feedback from people who have had Hogan assessment and coaching is “I wish I had known this earlier in my career.”
Development Cohorts – One of Feder’s clients invested in a middle management development program by creating three cohorts out of approximately 90 directors and vice presidents. Each cohort learned about intentional leadership and received customized learning exercises based on their results from the Hogan personality assessments. Senior leadership supported them by helping them protect their time for coaching and reaching their development commitments. These leaders quickly began to communicate better with each other using a shared language from Hogan data, which permeated the company. “That shifts culture,” Feder declared.
The Hourglass – Development shouldn’t end at the executive level. If an executive’s vice presidents, directors, and managers are not on board with the strategy, they can become roadblocks to success. Blair rolls out development in a tiered system, beginning with executive development and spreading out to critical teams. He builds multiple versions of a talent and leadership development program, tailored according to the organizational level. “By doing that, we are able to have more impactful change more quickly,” he said. Organizations must be willing to spend equally on development for high-potential employees as for the C-suite—that’s the hourglass.
Why Does Talent Development Matter?
Talent development matters for many reasons. Here are two that should stand out to companies seeking to maximize their talent development budgets.
1. Talent development promotes retention. Organizations that emphasize learning by providing an annual average of 75 hours of talent development per employee retain employees 5% more and promote employees 7% more than those that don’t.
2. Talent development promotes engagement. Forty-one percent of employees who quit name a lack of career development and advancement as their main reason. Remember, pushing the leadership development experience lower in the organizational chart can uncover hidden potential and aid succession planning.
Blair gave one of the strongest reasons to prioritize talent development: “There’s a real opportunity to make organizations more effective and make the lives of employees much better if people really, truly take the time and effort to invest in the development of their talent across their organization, both vertically and horizontally. The democratization of talent development is healthier for organizations than perhaps anything else we could do right now.”
Talent development helps both organizations and employees thrive. Even though the slice of budgetary pie may be shrinking, there is more appetite than ever for the benefits of investing in and maximizing talent development.
The original version of this article appeared on hoganassessments.com, posted on October 30, 2023
EXPERD, Human Resources Consultant, Jakarta – Indonesia