Proving the value of HR Investments. Finally.

It’s the connection between business value, intellectual capital and critical roles. Talent Valuation represents the methodology for identifying the most critical work that a company must deliver on, the roles that are responsible for delivering that work, and the value of it to the organization. In our knowledge economy, the most critical work relates to intellectual capital - brands, data, apps, strategic customer relationships, IP, etc. - the only source of which is talent. Identifying the roles that are directly responsible for this essential work, and ensuring that the very best talent is attracted, selected and retained in these roles, is the highest value work for HR.

Intellectual Capital is the dollar-figure contributions talent makes to the market value of companies. It measures the market value of a company above and beyond tangible assets, including internally developed brands, patents, technologies and other intangible assets not recorded on the company’s books as well a those on the books acquired through purchase. Our research shows that almost 90 percent of the value of leading companies is attributable to these intangible assets, the output of which is intellectual capital. The only source of intellectual capital is people - but only those in certain roles. Being able to hire and retain the very best talent in these critical roles allows a company to maximize their intellectual capital output and, in turn, the enterprise value of the business.

This index is TGA’s proprietary method for evaluating the strength of a company’s ‘engine’ for generating intellectual capital. Intellectual capital accounts for over 80% of the value of the average public corporation today. The index connects individuals in key roles with the creation of intellectual capital in a way that allows business leaders to evaluate and improve on aspects of hiring, retention, engagement. This becomes the road map for prioritizing and improving efforts to hire and retain the very best talent in the most critical roles.

Every year we analyze the results of the companies in the Dow Jones Industrial Average (DJIA) to measure this Intellectual Capital Index (ICI). In our most recent analysis, the majority of the enterprise value – on average over 88 percent – was driven by the company’s people instead of its tangible assets. The analysis also reveals that the overall value of talent-driven intellectual capital across DJIA companies now totals more than $4.3 trillion – a growth of more than $300 billion over 2015. The top five DJIA “intellectual capital” companies – those driving the most financial value from their talent – in our most recent analysis were Pfizer, Boeing, Apple, Visa and Johnson & Johnson.

Since the only source of intellectual capital is the work of people in a company’s most critical roles, the only way that a company can increase its intellectual capital is to consistently attract and retain the highest performing talent in these IC-essential roles. Because talent for these roles is usually in scarce supply and great demand in the marketplace, only the companies with the most proactive, strategic and well-executed talent acquisition and talent management approaches stand a chance of winning and keeping them.

At the heart of intellectual capital is the particular talent required to generate it. Since HR owns talent lifecycle activities, the best way to prioritize and win investment for HR is to link plans and outcomes specifically to the valuation of the company. The roles designed for this talent are the roles that require a different degree of investment from all others throughout the entire talent life cycle. This is the lynchpin to a talent strategy and a convincing investment plan for Talent Acquisition, Talent Management, and the rest of HR. With the right dose of financial discipline, HR can be uniquely positioned to express talent investmentsin these terms. Although management intuitively understands this dynamic, they have to see it in HR plans and outcomes.

Trying to build talent strategies or workforce plans across entire swaths of the business – by level, by geography – is typically too massive and unwieldy to work. Given the importance of critical roles in an organization, we recommend working to identify those roles first and doing this by reviewing the company’s business plans. Investor presentations are a great source of information for understanding a company’s most important talent needs. You can take this information about your company, interview select hiring managers, and formulate your own view of critical talent needs. Your view, once completed, can be reviewed and finalized with key leaders across the business.