The Role of Talent Management and Absorptive Capacity in Company Performance: An empirical study focused on the case of the Netherlands

Abstract

The purpose of this study is to explore the relation between talent management activities of firms in the Netherlands, in particular the attraction, development, and retention of talented and highly capable individuals, and absorptive capacity, referring to their potential towards the acquisition, assimilation, transformation, and exploitation of externally generated knowledge, and moreover, how these two concepts relate to their performance both collectively and individually. Following the rise of the knowledge economy in conjunction with growing economic pressures, both talent management and absorptive capacity have been recognized for their role in respectively utilizing the strategic potential of the firm’s workforce and knowledge stocks so as to create competitive advantages. In order to empirically validate this notion and thus provide a deeper understanding of both constructs, which are still theoretically underdeveloped, the study applied a quantitative method with data collected via an online survey directed at HR professionals in both small and large-scale firms located in the Netherlands. The study draws upon the underlying mechanisms by which talent management and absorptive capacity relate to both each other and to improved firm performance. The findings reveal that Dutch firms committed towards the adoption of more sophisticated talent management routines, especially talent development and retention, not only performed above their industry average, but also exerted higher absorptive capacity. In the latter context, knowledge assimilation and exploitation were positively related to higher performance. Despite the direct implications of talent management, part of its effect on firm performance was proven to be mediated through absorptive capacity. Another key finding concerns the scope of talent management and shows that the inclusion of all employees in talent programs corresponds to increases in performance and absorptive capacity. Similar observations were made in view of R&D-intensive firms, where increased knowledge dependencies led to the development of more advanced talent management tactics and higher levels of absorptive capacity. Additionally, the processes to manage and, in particular, retain talent, were more developed in large multinational firms, which likewise had a higher capability to transform and exploit external knowledge than their small, local counterparts. The research recommends further studies to build upon the results and limitations of this thesis, including the investigation of both constructs in small and medium-sized firms, on the basis of different understandings of talent, as well as other national contexts.