Return on Talent (ROT)

Knowledge is one of the most important factors contributing to business success. If knowledge assets are enhanced, related metrics such as sales, productivity and quality also improve.

Also known as intellectual capital, talent is one of the most significant areas of business activity and competition. To maximize knowledge and intellectual capital, companies must use a management tool called return on talent (ROT).

What is ROT?

ROT measures the relationship between people and productivity. It’s likely to become as pervasive in business lexicon as ROI in the coming years, as human capital is added to the list of regularly measured and highly valued variables.

ROT = knowledge generated + knowledge applied. For generations, companies have used ROI to determine value. Increasingly, companies are now also using ROT. If you have talented people, knowledge is just one component. The generation of that knowledge is the most important thing talent can provide. It becomes an asset only when it is captured and used effectively.

Understand the value of knowledge. The value of knowledge generated increases with its effective deployment. This leads to a more creative workforce, smoother processes, continued improvement and enhanced communication. It helps management be flexible, capitalizes on opportunities and keeps pace with the changing business climate. Talented people influence those around them and share their knowledge over time.

ROT measures payback from your investment in people. It shows whether managers are hiring the right talent and how effectively they use it. ROT can be a qualitative or quantitative measurement, based on the viewpoint of management. If you want to see quantitative results, you must put a price on knowledge generated based on results achieved.

Knowledge becomes a key productivity factor. It joins more traditional resources such as raw materials, buildings and machinery. To make your investment more profitable, you must constantly measure and continuously improve ROT.

Evaluate Your ROT Needs.

Build a culture that attracts and fosters the competencies you need to achieve desired results. To evaluate your ROT needs, consider:

·       How wide and deep is your talent pipeline?

·       What is your competition doing to attract and retain talent that you are not?

·       Do you have a formal, measurable mentorship program in place?

·       Are you rewarding the correct leadership behaviors?

·       Do you have core competencies identified for the whole organization?

·       Do your employees know what’s expected of them? Do they have the skills, experience and competencies to succeed?

The worth of a business is based on tangible and intangible values. When you hire, train and develop high-performing employees, you make a significant investment in your intangible value. This makes up about half your overall business valuation, equates to real dollars and must be effectively managed in order to ensure you get the best ROI.

Make ROT Happen.

Organizations that constantly improve their ROT grow at a rapid rate and emerge at the head of the competitive pack. ROT is an excellent performance indicator that should be managed and measured in the same way as your budget and financial bottom line.

Build a team focused on talent development. To achieve high ROT, you need a talent-centered team. Most of the individual talent within a company can be optimized if team dynamics are right.

Monitor ROT. If you see that certain employees are not generating enough knowledge relative to your investment in them, then that should be a red flag. Address the issue so your ROT value doesn’t fall below that of your competition.

Decide how to build ROT throughout your organization. Do it person by person and function by function. Assess all the talent on your team and find out who and what is bringing in the most profit and winning and keeping customers.

ROT is new, and it’s exciting and offers unlimited potential as you develop your talent management strategy.

What is the rate of return from our investment in talent (ROIT)?

This measures all the money a company puts into paying and motivating its employees, together with spend on running employee programs, against the actual dollar return those investments bring.

An analytical ‘true north’ needs to be established, against which talent’s capacity to create value can be gauged.

Tackling this issue head‑on enables the initial contribution made by ROIT to the understanding of talent to be unpacked.

Return on invested talent (or ROIT) is not a silver bullet. ROIT represents a lens through which the complexities of the financial impact of talent can be analytically viewed retrospectively and converted into the more financially nuanced perspective of the boardroom and wider investment communities.

The basic unit of this approach emulates the same logic as Return on Invested Capital (ROIC), which reflects the relationship between capital and earnings. For the purposes of this research, invested capital is replaced with cost of talent, then the price of equipment provided is added, providing for amortization and depreciation, and the result is then divided by the same.

The result gives a dollar value for returns before tax; for example a ROIT of 1.32 indicates a return of $1.32 for each $1 spent on employees. This is referred to as the Gross Return on Invested Talent (or ROIT‑G). A ROIT value of greater than one translates into a profit after employee and associated costs (arrived at by simply subtracting 1 from the return), while a value less than one indicates a loss. Although ROIT is unit‑less, a dollar amount allows ROIT and a range of other financial metrics from organizations around the world to be more easily compared.

Interestingly, on an industry basis, ROIT‑G varies considerably. In a study of 300 European leading firms by market value, it was found that the oil and gas sector has the highest rates of return from talent, with pharmaceuticals in second place and food producers in third. The least effective rates of return from employees were secured by airlines, with investment bankers second from bottom.[1]

Comparing ROIT and typical financial metrics across two different business models

Source: Deloitte

Women-Inclusive Return on Investment (WI-ROI)

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