20 Dec. 2013 | Comments (0) Share Follow @Conferenceboard
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In his New Your Times bestseller The Agenda, Michael Hammer observed that “a company’s measurement systems typically deliver a blizzard of nearly meaningless data that quantifies practically everything in sight, no matter how unimportant; that is devoid of any particular rhyme or reason; that is so voluminous as to be unusable; that is delivered so late as to be virtually useless; and that then languishes in printouts and briefing books without being put to any significant purpose. Other than that, our measurement systems are just fine. In short, measurement is a mess.”
While Hammer’s observation applies to measurement systems throughout organizations, HR has a unique challenge. Ed Gubman, former Executive Editor of People & Strategy put it this way: “Our field (HR) has been pursuing better human capital metrics for a long time now, but despite some real creativity, we are hampered by lack of agreement on the big outcome measures. We have trouble getting metrics to capture mind share and popular usage because we have nothing comparable to finance’s ROI, net income and the like. And, without accepted outcome measures, deep-dive, HR analytics leads us further into the trees without knowing where the forest is. Until we do these things, we will have sequoia-size measurement aspirations and sapling-size realities.”
Unfortunately, most of the contemporary approaches to human capital analytics do not effectively address the criticism offered by Hammer or Gubman. Several prominent organizations in the analytics space describe a continuum that goes from anecdotes to descriptive metrics to predictive and prescriptive metrics. While worthwhile in understanding the relationship of the metrics, this continuum, by its nature, lacks a coherent context for a systemic, integrated, business-centered approach to human capital analytics. To make matters worse, all too often, many of the analytic projects are one-off exercises designed to solve a single problem. These problem specific projects occur frequently, requiring the discovery process to restart again and again– a very inefficient, time consuming and expensive approach.
A Business-Centered Approach to Human Capital Analytics
In response to Hammer and Gubman’s admonitions, and in the spirit of offering a cohesive business-centered, integrated approach to human capital analytics, consider the following three steps:
1. Recurring human capital financial performance -
As posited in the blog “Human Capital Analytics: Foundational Concepts” (link), companies spend financial resources on human capital (people and programs) to drive the revenue and profits of the business. To that end, start by measuring, on an on-going basis, the ROI and productivity of human capital. Several formulas for this were included in earlier blogs, as follows:
- Human Capital ROI – The Holy Grail (link),
- Human Capital ROI: Measuring Value-Added Formulas (link),
- Measuring Productivity (link) and
- Productivity: Normalizing for Different Business Models (link).
Report the results on a regular basis for the business overall, and across business units and other natural business segments (i.e. product lines, geographic regions), analyze and describe the factors driving the results, and the actions necessary to drive continuous improvement. (More on this below.)
This approach gives HR the sequoia-size measures Gubman argues are needed for HR to populate the forest and capture mind share. Also, by focusing on these two measures, one avoids the information overload described by Hammer.
2. Business strategy alignment – While it is trite to say that the human capital strategy needs to be aligned with the business strategy, there’s a very real role for human capital analytics in assessing the degree of such alignment. It starts with having a deep understanding of the business strategy for the overall business as well as each strategic business unit. Understanding what is needed from a human capital strategy perspective will give clarity to the specific metrics to assess the degree of alignment. For example, if Company X is launching a new product line and will need a cadre of experienced sales reps worldwide, a half dozen or more HR metrics can be readily used to measure and monitor successful execution of the talent strategy.
3. Issue driven situations – If human capital financial results, as described above, aren’t meeting a minimum performance threshold or trending in the wrong direction, why is that? There are any number of HR metrics that can help identify the nature of the problem. Examples include job vacancy rates, employee engagement scores, performance management ratings, competency profiles, turnover, etc. The HR metrics will help identify the factors driving the financial outcomes.
The other type of issue driven situations are ad-hoc projects initiated by HR and/or business operations in response to a performance problem or upcoming opportunity. For instance, HR identifies an emerging trend or upcoming business event and begins an investigation; or business operations seek HR’s help in solving a human capital problem it is facing or will be facing. In either event, a discovery process begins in order to identify the root causes and appropriate corrective actions.
The RBI Approach to Human Capital Analytics
For all you baseball fans, imagine the business-centered approach described above as the RBI (Runs Batted In) method to human capital analytics. Think of it as:
- Recurring human capital financial performance
- Business strategy alignment
- Issue driven situations
The RBI approach to human capital analytics will help companies make better human capital strategy decisions faster and more consistently --- a hallmark of highly effective organizations, while avoiding the chaos so keenly pointed out by Hammer and Gubman.
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