McKinsey Explainers

What is talent management?

Put simply, talent management includes all the ways that an organization brings
employees on board, keeps them happy and productive, and helps them
continue to develop their skills over time. Often handled by human resources,
or HR, putting people first is crucial to effective talent management.

May 2023
 In good times, it can be easy to take your company’s According to the research, organizations with all
talent for granted. But do so at your peril—investing three practices in place (only 17 percent of the
in talent management, or the way that your organi­ sample) are vastly more likely than their peers to say
zation attracts, retains, and develops its employees that overall performance, plus total shareholder
(sometimes referred to as “talent” or “human capital”) returns, has an edge on their competition.
can give your company an edge. Look no further
than the much-discussed “Great Resignation,” also
called the “Great Attrition” or “Big Quit,” of 2021 What’s involved in talent management?
and its impact. Putting people first is vital to building Five areas of talent management are particularly
a healthy workforce. important to the chief human resource officer’s
(CHRO) playbook:
It’s important to manage talent and deploy it well,
and leaders need to know how to rise to the — finding and hiring the right people
occasion. To help shape workforces that have the
skills to achieve, leaders can establish a talent- — learning and growing
first culture. Too many organizations don’t consider
the talent required to implement different ideas. — managing and rewarding performance
By putting talent first, companies can improve
organizational performance and potentially gain — tailoring the employee experience
a competitive advantage.
— optimizing workforce planning and strategy

Why is talent management important? A more in-depth look at these topics can
Analysis shows there is a significant relationship offer insights.
between effective talent management and an
organization’s overall performance. In fact, in a 2018
McKinsey survey, 99 percent of respondents who How do I find and hire the right people
reported their company’s talent management was or attract and retain talent?
very effective said they outperform their competitors, High-performing employees are up to eight times
compared with 56 percent of all other respondents. more productive than others. To quote the late Steve
And the effects may be cumulative, given that abilities Jobs, the iconic leader of Apple, talent matters: “Go
to attract and retain talent seem to support after the cream of the cream. A small team of A-plus
outperformance as well. players can run circles around a giant team of B
and C players.”

What actions are linked to good That may be easier said than done. But there are still
talent management? several principles to consider if you want to hire the
Survey findings indicate three practices that are most best people and keep them at your organization:
closely linked with effective talent management:
— Focus on the 5 percent of employees who
— rapid allocation of talent—that is, being able to deliver 95 percent of the value. Certain
move people among strategic projects quickly employees have a disproportionate impact on
as priorities emerge and fade creating or protecting value, and it’s not always
obvious who they are. Focus efforts on the
— HR’s involvement in creating a positive few critical areas where the best people have
employee experience the biggest impact. To do so, start by looking at
roles, not processes or specific people.
— a strategically minded HR team

2 What is talent management?

— Make your offer magnetic, and ensure that work), latent workers, or people who aren’t in the
you deliver on its promise. You might have heard workforce or actively seeking a traditional job.
of an “employee value proposition,” which is
another way of saying what employees get (for
example, monetary rewards, work experience) How can organizations help talent
for what they give (for example, time, effort, ideas). learn and grow?
Your company’s employee value proposition Companies preparing for the future of work can
should be distinctive, targeted, and real. take a variety of steps to help employees build skills
and continue learning and growing—this is vital,
— Technology is a game changer. Data and especially considering that hiring new workers can
analytics are already being used in recruiting and be twice as expensive as upskilling or reskilling
hiring, as well as in retaining top talent. Apply existing employees.
people analytics to bring rigor to these efforts.
Building workforce skills, via training and reskilling
In the era of the Great Resignation, many organiza­ or upskilling, will be essential to support new ways
tions are grappling with the prospect (or reality) of of working and new business priorities. And focusing
talented employees quitting their jobs. Companies on skills—particularly social and emotional skills
should take a step back and make sure they (sometimes called soft skills), including empathy,
understand why their employees are leaving in the leadership, and adaptability—can help close
first place—since it could help inform what might existing skill gaps.
bring them back. What drove the historic wave of
voluntary departures in the early 2020s? Several You might be wondering about the difference in
big reasons stand out: the cost of switching jobs hard skills versus soft skills. Hard skills are learned
went down significantly; employees were turned off abilities that are easy to measure. Soft skills, on
by uncaring leaders, unrealistic performance the other hand, are nontechnical skills and abilities,
expectations, and a limited ability to advance their such as personality traits and behaviors, that often
careers; and many workers were exhausted relate to how a person interacts with others. For
and dealing with burnout, stress, caregiving example, consider what might help an administrative
demands, and more. assistant succeed: hard skills that might be useful
include calendar management, proofreading, and
To repair relationships with employees amid competency with spreadsheet software, whereas
the Great Resignation, a few core principles may soft skills might include phone etiquette, conflict-
be meaningful: resolution abilities, and discretion.

— Money matters, even if it’s not a panacea; When it comes to a broad skill transformation,
companies can revise compensation and nine key practices in three overarching areas can
benefits in ways that will attract and retain be applied.
disillusioned employees.
Scout: Conduct workforce planning to assess
— “Sticky” workplaces can make a difference— potential skill gaps
listen to employees, anticipate and address their — assess demand and/or the need for specific
concerns, foster psychological safety and skills in the future
community, and measure outcomes.
— determine the current supply of specific skills
— Expand your talent pool by thinking more
creatively about candidates. That includes — analyze gaps (and develop a business case to
considering nontraditional workers (such close them)
as students or people currently doing contract

What is talent management? 3

 Embracing continuous learning can
help drive your business forward, and
employees that develop a lifelong
learning mindset may find that it keeps
them relevant and in demand.

Shape: Develop a skill strategy to ensure that the Within the learning space, intentional learning can
workforce is future-ready yield a career advantage. And if you want to get
— design a portfolio of initiatives to close skill gaps intentional when it comes to your own learning, the
3x3x3 approach can help. Here’s what it entails:
— design tailored learning journeys and
delivery plans for specific roles and/or groups — Define three development goals (for example,
of employees improve time management, expand professional
network, and hone presentation skills).
— decide on learning infrastructure and enablers
— Aim to achieve them in a three-month period.
Shift: Reimagine infrastructure for skilling at scale
— launch a “skilling hub” or other organizational — Engage three other people to support you and
structure dedicated to learning hold you accountable to them.

— deliver a skill transformation at scale across the Embracing continuous learning can help drive your
organization via comprehensive capability- business forward, and employees that develop a
building programs that address the most critical lifelong learning mindset may find that it keeps them
skill needs relevant and in demand in the eyes of employers.
Developing a growth mindset and setting goals that
— implement dynamic tracking of workforce are a stretch can be part of that journey.
and impact (for example, return on investment,
impact on business outcomes) Some companies are also exploring apprenticeship
programs to unlock continuous skill development.
Organizations that have implemented all nine Modern apprenticeship is a model for learning that
practices report a nearly 100 percent chance of is driven by relationships and based on real day-
having a successful skill transformation. It’s to-day work, thus allowing novices to gain hands-on
also important to note that a mix of learning formats, experience from experts to acquire skills and act
beyond digital learning, can improve the odds more independently.
of success.

Transforming the learning and development function How can I improve performance
may also be necessary. While good learning management?
programs are a must, their utility will be limited if they At a high level, strong performance management
don’t begin with an intimate understanding of what relies on the guiding principle that what gets
the organization needs—today and in the future. measured gets done. Ideally, an organization would

4 What is talent management?

create a cascade of metrics and targets, starting The way organizations manage and reward
with top strategic objectives and continuing down performance shifted somewhat in the wake of the
to frontline employees’ daily activities. Managers COVID-19 pandemic. This was because the crisis
keep tabs on these metrics and meet regularly with had a big impact on goals and performance plans,
teams to discuss progress. In the end, good and remote workers also grew more reliant on
performance is rewarded, and poor performance performance management as a source of feedback.
leads to actions that address the problem.
CHROs who want to help their organizations improve
A few key principles are essential in managing performance management in the postpandemic
employee performance more successfully: era can consider linking employee goals to business
priorities. At the same time, they will want to keep
— Coach employees, and do it regularly. There’s some flexibility, invest in managers’ coaching skills,
no substitute for direct feedback and direct and celebrate the broad range of good performance
coaching that happens day in and day out rather while maintaining ratings for the very highest, and
than just annually. lowest, performers.

— Make sure the process is seen as fair. What’s

crucial here is emphasizing how employees’ work What about employee experience?
fits into the organization’s bigger picture and Companies have long considered customer
ensuring that these conversations are ongoing. experience, or CX, but there is rising interest in
paying just as much attention to your workers’
— Put data and analytics to use. Data and analytics experience. Tailoring the employee experience is
can support performance reviews by giving more important than ever, especially in the wake
managers objective feedback about whether of the COVID-19 pandemic, which blurred the line
employees are performing well or not. between work and life amid remote and hybrid
setups. These days, instilling trust, building social
— Empower managers to give better feedback. cohesion, and leading with purpose are critical.
Make sure built-in touchpoints are in managers’ And it can make a big impact: according to a 2020
schedules and that managers are clear about McKinsey survey, people who report having a
their roles. Train them to give constructive, positive employee experience have 16 times the
strengths-based feedback while encouraging engagement level of those with a negative
discussions that make their colleagues experience. They are also eight times more likely
feel valued. to want to stay at a company.

— Grasp the power of differentiation. Rewards Nine elements, grouped into three overarching
should link clearly to talent ratings. Focus areas, can help make sure you’re asking the right
on rewarding clear overperformers while also questions to get employee experience right:
developing others—instead of trying to
differentiate the broad middle. Social
— People and relationships. Am I seen and treated
— Encourage peer-based feedback. Employees by my leaders as a significant contributor to
naturally work with more people as organizations the organization?
become flatter. Gathering peer-based feedback
from a large sample can help eliminate biases and — Teamwork. Do the people I work with every day
provide a more accurate, comprehensive trust and care for one another enough to create
perspective on performance. a collaborative and innovative environment?

What is talent management? 5

 — Social climate. Am I welcome in this community, steps can help you on your way: first, establish a
and do I feel like I belong? baseline for employee experience and build on it;
second, identify and transform employee journeys;
Work third, equip the full organization for transforming
— Work organization. Do I have clear employee experience.
responsibilities, interesting work, and the
resources I need to succeed in my role? The idea of finding purpose at work has also risen in
importance in the past few years. As the COVID-19
— Work control and flexibility. Do I complete my pandemic spread, employees found themselves
work efficiently, with flexibility and positive questioning business as usual. “We had this unbeliev­
integration in my life? able smashing together of two worlds: the home
world and the work world,” says McKinsey senior
— Growth and rewards. Am I given incentives and partner Bill Schaninger in an episode of The
opportunities that help me learn, grow, and McKinsey Podcast on the search for purpose at work.
provide for myself and my family? “I think it’s really brought to the fore ‘What exactly
does work mean to me? What do I have to get out of
Organization it? Is it merely a check that facilitates the rest of my
— Purpose. Does my company have a purpose that life, or is it something more purposeful?’”
aligns with mine, as well as a process to which I
can contribute? Research indicates that about 70 percent of people
say they define their purpose through work—which
— Technology. Does my company’s technology raises the stakes for ensuring that individuals can
enable me to work efficiently and without friction? easily connect what they do in the day to day with
meaning. Only 15 percent of frontline managers and
— Physical environment. Are my surroundings frontline employees say they’re currently living
safe, comfortable, and human centered? their purpose when on the job.

If your employee experience isn’t what it should be, Individuals themselves can take action. And if you’re
your organization can take a systematic approach, short on inspiration, you can explore an interactive
grounded in design thinking, to improve it. Three that unpacks nine universal values (such as

About 70 percent of people say they

define their purpose through work—
which raises the stakes for ensuring that
individuals can easily connect what they
do in the day to day with meaning.

6 What is talent management?

enjoyment, stability, and caring) that relate to — Talent systems. Tools for workforce planning can
purpose. Organizations, too, have a role to play in help in a variety of ways. For instance, AI-enabled
helping people connect their work to their life’s tools can be used in assessing people’s skills,
purpose. Here are two places to begin: and performance-management systems can
help track skills alongside performance.
— Start the conversation on purpose sooner
rather than later. People need empathetic, One way to gauge whether your company is long or
caring leaders to help process their work short on talent is to embrace a view of talent supply
experiences. Indeed, talking openly about that is expansive as well as dynamic. Companies
pressures your employees face can go that start by looking at skills, including which ones
a long way. Consider periodic, guided conver­ they need and already have, and how those
sations with direct reports a regular part could change over time, could find good ways to
of your leadership practice—think of these address mismatches.
as empathetic check-ins.
Analysis of your workforce could show either a
— Make personal reflection a business priority. shortage or a surplus of skills. The five methods here,
Create the time and space for transparent, with samples of concrete actions to take, could be
honest discussion of purpose—with managers considered to address challenges:
and direct reports alike—to explore what
matters. If you need help getting started, a 1. Build: reskill, upskill, or retrain workers; increase
simple icebreaker question such as “When do deployable hours; reshape jobs or projects.
you feel most alive?” can yield surprisingly One global manufacturer spotted opportunities
rich conversation. to build data science talent ahead of a looming
shortage, and it started by planning more
— Help people take action. Generate oppor­ meritocratic career paths and redesigning
tunities for people to live their purpose leadership tracks to help employees stay
by tailoring projects, support, communication, engaged and happy.
and coaching to suit each individual’s
unique circumstances. 2. Redeploy: loan workers; shift unneeded skill
sets. Deutsche Post, for instance, teamed
up with an elder-care provider to test a program
How do I optimize workforce planning that used postal employees as a means of
and strategy? offering one city’s pensioners support and
Workforce planning and strategy generally include referral services.
three important components:
3. Acquire: hire individuals; create and recruit from
— Critical roles. A small number of roles—fewer new talent pools. In 2011, Walmart acquired
than 50—have an outsize impact on business digital skills en masse when it bought a social-
value. You’ll need to look at the core jobs to be media company that ultimately formed the
done, the qualities leaders need, and ensure nucleus of the retailer’s digital-technology unit.
that the roles are set up for success.
4. Release: encourage voluntary attrition; divest
— Skill pools. Looking beyond individual roles to business units; create options to end contracts.
larger pools, such as digital coders, can also Some companies have experimented with
help in developing an understanding of the skills offering voluntary severance packages. These
required for the future and whether your may help organizations strengthen the workforce
organization is prepared. by allowing less committed workers to exit

What is talent management? 7

 voluntarily, while at the same time improving Articles referenced include:
Find more content like this on the
retention of other employees.
McKinsey Insights App
— “Gone for now, or gone for good? How to play the
5. Rent: for strategic partnerships, outsource new talent game and win back workers,”
functions, activate the gig economy. For McKinsey Quarterly, March 9, 2022, Aaron De
instance, in 2015, Mercy Health partnered Smet, Bonnie Dowling, Marino Mugayar-
with community colleges in the US state Baldocchi, and Bill Schaninger
of Michigan to create a paid apprenticeship
program for medical assistants. — “Talent at a turning point: How people analytics
can help,” February 24, 2022, Bryan Hancock
Scan • Download • Personalize
If your organization is short on talent, your organi­ and Bill Schaninger
zation may need to build, acquire, or rent. And
if it’s long on talent, redeploying or releasing — “‘Great Attrition’ or ‘Great Attraction’? The choice
employees may be the right path. is yours,” McKinsey Quarterly, September 8,
2021, Aaron De Smet, Bonnie Dowling, Marino
Longer term, employing a flow-to-work operating Mugayar-Baldocchi, and Bill Schaninger
model for dynamic talent allocation may help match
scarce skills to high-priority work, improve the way — “Building workforce skills at scale to thrive
organizations develop their people, and increase during—and after—the COVID-19 crisis,”
business responsiveness. Companies that rapidly April 30, 2021, Fabian Billing, Aaron De Smet,
allocate talent to opportunities are up to twice as Angelika Reich, and Bill Schaninger
likely as those that don’t to perform strongly; they
also deliver better results for every dollar spent. — “Help your employees find purpose—or watch
them leave,” April 5, 2021, Naina Dhingra, Andrew
For more in-depth exploration of these topics, Samo, Bill Schaninger, and Matt Schrimper
see McKinsey’s Insights on People & Organizational
Performance. Learn more about McKinsey’s
Talent service line—and check out talent-related
job opportunities if you’re interested in working
at McKinsey.

Designed by McKinsey Global Publishing

Copyright © 2023 McKinsey & Company. All rights reserved.

8 What is talent management?