MCBASSI & COMPANY

HR Analytics: Get Started By Thinking Big

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HR Analytics holds the promise of helping organizations operate in the “sweet spot’ – the intersection of sustainably profitable and enlightened management of people.  Aspiring to achieve this outcome is a powerful impetus for designing, executing and sustaining your organization’s HR Analytics strategy.

It’s always important to start with the end goal in mind.  And ideally, it should be a BHAG – a big hairy audacious goal. Otherwise, your HR Analytics efforts run the risk of devolving into another HR-check-the-box reporting initiative long on activity and short on value.

To achieve your BHAG, you’ve got to start by asking the right questions. What would any potential investor want to know about the people side of your business? How could your strategic HR measurement and analysis inform an investor’s perspective?

Of course, your Board of Directors should want to know everything investors want to know, and then some.  Similarly, your CEO, CFO and the executive team should want to know everything the Board wants to know, and more.  And senior HR leaders should want to know everything the executive team wants to know, plus still more.  You get the idea.

Now here’s the thing.  Investors, boards and executive teams currently only ask for (demand) a very limited set of HR metrics.  That’s because they don’t know more is possible.  Your job is to help educate them so they know they can, and should, expect actionable insights that provide them with the facts and analyses they need to make better business decisions.  And these facts and analyses need to go far beyond executive comp and executive-level succession planning.  That is the essence of HR analytics.  (See our ATD post from last month for more detail on this.)

Here’s our advice: incorporate into the narrative perspective on the critical risks that your work mitigates.  Risk is, in fact, the other side of value creation.  One very important lesson we’ve learned in our work with clients of all sizes and industries is that “risk sells” – all decision-makers are concerned about it and want to understand better how to minimize it.

So here’s a human capital risk framework to get your creative juices flowing:

  • Capability Risk: Do your people have the knowledge, skills, resources, and business processes that will enable them to perform effectively?
  • Alignment Risk: Do your people really understand your business strategy and goals and do their day-to-day jobs in alignment with those goals?
  • Turnover/Demographic Risk: Are you retaining key people?  Do you have a pipeline sufficient to replace departing employees?
  • Labor Market Risk: Are you able to find and acquire the right people?
  • Health/Well-being Risk: Are your people healthy and able to contribute to the organization at their maximum capacity?
  • Leadership Risk:  Do you have the leadership depth or quality needed to ensure that key initiatives will be successful?

By shifting or expanding your thinking, language, metrics, and analysis from value creation to risk mitigation, you will lay the foundation for a sustainable HR Analytics strategy worthy of sustained, high-level executive and organizational support.

The most appropriate risk-based BHAG for your organization will depend on your organization’s specific people-related challenges. The only limit is your imagination – and having the available data!

Remember HR Analytics is not about generating piles of reports.  It’s about generating insights in areas of risk affecting the very life-blood of your organization.

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Why HR Analytics? A Look at the Numbers

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There’s a lot of buzz around HR analytics.  Advances in software, newly-available data sources, and how-to manuals have made it easier than ever to dive right into HR analytics.

This month, we thought we’d take a step back and ask “Why?”  Why should organizations care about this?  Why should executives be devoting more time to people matters than they’ve ever done before?  And why should HR professionals be learning the necessary new analytic skills?  Looking at a few numbers helps to answer those questions.

Let’s start with intangibles – organizational assets that are not physical in nature.  Intangibles include intellectual property, knowledge, reputation, etc.  These sorts of assets represent an ever-growing percentage of the average organization’s market value, increasing dramatically from 9 percent of market value in 1980 to 65 percent today.

And what do all forms of intangibles have in common?  They’re created by people.  A few decades ago, if you wanted to increase your company’s value, you focused on managing your physical assets – plants, equipment, etc.  Today, if you want to increase value, you need to manage your people – your human capital.

This, more than anything else, explains why analytics is now an essential HR competence.  Executives and boards of directors are always focused on company value.  Today, that means they need to be focused on their people.

Some companies recognized this earlier than others, and some companies have done a better job managing their people.  How have those companies fared?

Extraordinarily well.

A Boston Consulting Group study from 2012 found that companies appearing on the Fortune “100 Best Companies to Work For” list at least three times in a ten-year period cumulatively outperformed the market by an average of over seven percentage points per year for ten straight years.

And our own live portfolios, through which we’ve invested in a basket of companies that invest in their employees and/or embrace Good Company principles, have outperformed the market by an average of almost eight percentage points per year for twelve years running.

All told, the numbers certainly support the world’s current fascination with HR analytics – and suggest that focus will continue to intensify in the years to come.  Are you on board?

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4 Axioms of HR Analytics

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HR analytics is a hot topic these days.  With new conferences, books, and software emerging at a dizzying pace, it’s easy to feel like you’re scrambling not to fall behind.  And with all the hype, it’s easy to lose sight of what’s really important in this realm.  What can HR analytics really do for your organization, and what traps do you need to avoid?

Here are McBassi’s 4 axioms of HR analytics:

1.  HR analytics is more than predicting turnover.

Multiple times, we’ve asked for a show of hands at conferences on who’s using HR analytics in their organization.  Many hands always go up.  Then we ask who’s using it for something other than analyzing and predicting turnover.  Almost all the hands go down.

Don’t get us wrong — predicting turnover is a worthy goal and a fantastic use of the principles and tools of HR analytics.  But it’s far from the only thing to look at.  Try using the same concepts to assess differences in sales across offices, or safety records across plants, or how to identify key issues to address after a merger/acquisition, or how to report to the board of directors.  The list goes on and on.

2. The importance of a problem is inversely related to the sophistication of the statistics available.

Sad but true: multivariate regressions, factor analysis, simultaneous equations, complex neural networks – all impressive quantitative techniques, but rarely the right tools to answer the most important questions facing a business. For example, what do we need to do to become more innovative?  How can we increase sales?  What would make our stock price grow sustainably faster than our competitors’?

The problem is that the most sophisticated statistical methods also need lots of comparable units for analysis.  They might work well if you have the necessary data on a million consumers or a thousand plant locations, but they’re much less likely to work on big questions, where the data’s usually a lot more limited.  But other, more basic, methods can still provide key insights.  Don’t shy away from comparison of means or correlations just because other methods look more impressive.

3. Risk sells better than value creation.

HR analytics can provide key insights into both risk and value creation in your organization.  But which one is much more likely to get the attention of your executives?  Risk.  Executives are keenly aware of the multiple types of risk faced by your organization, and anything that can help them quantify it – especially in a not-typically-quantified area like your organization’s people – is going to be welcomed enthusiastically.

4. Don’t forget about the forest.

Data analysts are masterful at drilling into big data sets and identifying all sorts of relationships and other interesting findings.  But that should be just the start.  More important is the next step: sorting through all those findings to determine what’s really going on.  What’s the big picture or pattern that emerges from all of these smaller pieces?  Remember that’s what your ultimate goal is, and don’t let yourself miss the forest because you’re distracted by all the interesting trees.

 

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3 Mantras for the New Year

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Happy New Year!  We hope it’s off to a good start for you.

Do you live in the world of big data and analytics?  Or are you fascinated or even mystified by the current buzz around these topics?  If so, we’d like to share three mantras we use at McBassi to guide our work in those areas:

  1. My 15-minute Board of Directors report should be filled with insights worthy of their attention.
  2. It is much more important to be helpful than it is to be smart.
  3. Let not the perfect be the enemy of the good.

Mantra #1 elicits a variety of reactions from our clients, ranging from “Geez, if I had 15 minutes in front of my company’s Board and had to fill it with insights worthy of their attention, I’d be in deep kimchi” to “We’ve got no discretion: the Board tells us what to report to them.”  Whatever your particular reaction, repeating this mantra frequently will help you focus on creating actionable business intelligence in your work (as opposed to mountains of electronic reports).

Mantra #2 is important because many people who work in this field tend to be really smart – but some of them seem to suffer from the need to prove it again and again.  This can result in impenetrable presentations that are impressively grandiose – yet also ignored.

Mantra #3 is for those who are waiting for their company’s data warehouse to be completed (or perfected) or for a technology tool that will magically produce insight at the press of the button.  That’s not going to happen – so stop waiting and start working with what you’ve currently got available.

Repeat daily for best results.

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The Smarter Annual Report: Part 2

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There is a movement underway to improve annual reporting to stakeholders, and in particular the provision of better human capital information.  (See our November newsletter for a discussion of what’s happening and who’s behind it.  You can download a copy of The Smarter Annual Report here.)

While this development represents a major opportunity for HR, it also creates a danger that HR will be unprepared and have nothing to contribute except a long list of unrelated human capital metrics that don’t tell a coherent story.

We propose a simple model that helps give structure to the story of the role human capital plays in mitigating risk and creating value for an organization:


Steps You Can Take

To benefit from – and avoid being blindsided by – the emerging demands for insightful human capital reporting, you can begin with the following steps:

  • Assemble the right team to work on the report, reflecting different types of performance (non-financial as well as financial); in particular, the CHRO should be involved.
  • Create a rough narrative about how the organization creates value. This can include a strategy map, list of key strategic issues, list of key risks, materiality map, or some combination thereof. The point is to develop the narrative before presenting metrics.
  • Let the value creation narrative guide your selection of which factors to focus on. Be sure to always combine evidence (such as metrics) with insight (“this is what the evidence indicates”).
  • Include the standard metrics that are expected (e.g. by GRI) even if they are not part of the core narrative. (For these it is not essential to interpret the data.)
  • As you move forward, be realistic about whether the metrics you want are available.
  • Work to improve your internal human capital reporting in anticipation of increasing pressure to improve your external reporting.
  • Have a candid discussion on how you will handle bad news, such as falling scores on an important metric.

 

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