Find the VALUE in a Talent VALUE Cell.

It's hidden in plain sight.

Considering feedback on my previous newsletter, “Do you know your STAR TVC (Talent Value Cell),” this newsletter will open the next layer of analysis.

We will return later to discussing a segmented HR strategy in subsequent newsletters.

Let’s start with the diagram in the previous newsletter.

To recap, the value created by a TVC is the difference between the COST and VALUE of the TVC. While absolute value created by a TVC is important, more crucial is the relative value created by a TVC, compared to other TVCs. That is why it is important to identify your STAR TVC, your HIGH CONCERN TVC and the other TVCs with differing contribution to the company’s total value-creation.

While reviewing the COST of a TVC, two factors are critical.
Inflation and Market Position of Salaries.

Inflation:
Two important aspects of inflation.

• Increase in average salary of talent in a particular TVC.
  For example, if the TVC is Data Scientists in Business Unit A in the US, then you need to know:

• Market movement of average salary for the type of talent in this TVC, over a two/three-year period.

  • Compare it with the movement of internal average salary (within your company) in this TVC for the same period.
    If the growth of internal salary is in line with market or above, then look at attrition. If attrition is stable or low, then you are good.
    (We will have a full blow up of the economics of attrition and retention in a set of 3-4 newsletters. You will be surprised with the findings!)

• General inflation (CPI) in the economy: While this is a less important factor, it has gained more importance in these inflationary times. It is useful to know if the average salary of your TVCs is growing slower or higher than inflation rate. If it is growing slower than inflation, then ‘real income’ of talent is falling. This may have a negative implication, especially for your STAR TVCs.

Market Position of Salaries:
If the average salary of a TVC is below 50th percentile of the market you are vulnerable to attrition and low-quality talent. Even if the rate of growth of your average salary is faster than market salary growth rate, if you are salaries are below 50th percentile, you are vulnerable.

In summary, ideally, you want to be in a situation where:

• Market position of average salary in a TVC is higher than 50th percentile. 

• Rate of growth of average salary is equal to or greater than:

  •   Cost of living inflation rate and

  •   Rate of growth of market salary of the type of talent within a TVC.

The ideal situation cannot be achieved if the Revenue per Employee of a TVC is not rising at a rate higher than the cost per employee (Average Salary).

This brings us to the VALUE part of the equation.
Pricing Power and Productivity.

Pricing Power:
The movement of Revenue Per Employee of a TVC is a direct outcome of the company’s ability to price the product or service that this TVC is engaged in.

Most HR and business leaders are shy of reviewing this metric. They are comfortable at looking at cost per employee, mostly with a view to driving it downwards.

In companies that create high value, cost per employee rises faster than the market and revenue per employee rises faster than the cost per employee. A great HR strategy creates this virtuous cycle of value-creation.

Pricing power is an outcome of competitive advantage, either in the inherent value of the product/service or its perception. A TVC that cannot create this advantage will not be able to afford competitive salaries. This is where a segmented HR strategy will play a important role.

Productivity:
Yes, you can increase the value of a TVC without increasing its Revenue per Employee (and, therefore, pricing). You can do this be reducing the number of people in the TVC, while delivering the same output and leaving the average salary unchanged.

This approach is highly recommended so that you have the right number of people in a TVC. But such an approach cannot be sustained in the long term. You will reach a limit to the number of people that you can reduce.

Reach out to me if you want to discuss any particular subject in Talent Economics.

In the next few newsletters, we will open up HR Strategy and a highly effective, quantitative approach to Retention and Attrition of talent.

As always, would love to hear and learn from you.