MCBASSI & COMPANY

Using Analytics to Create a Bridge Between HR & Finance

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In many companies, the relationship between HR and Finance ranges from uneasy to downright unpleasant. Given Finance’s ability to veto its initiatives, it is easy for HR to come to think of Finance as the arch-enemy.

If you are in HR and this sounds even vaguely familiar, we invite you to a webinar co-presented by McBassi CEO Laurie Bassi later this week.  The webinar (Wednesday, June 15, 2016 at 12:00 noon EDT) is being put on by Financial Executives International (FEI).

Entitled “Balancing Effective People Management and Profitable People Management,” the webinar focuses on how CFOs and HR are partnering to drive a more profitable and strategic business.  Click here for more details and registration information.

Laurie will be discussing how to use analytics to bridge the HR/Finance gap by doing the following:

  • Focusing on measuring the “human drivers” of value creation (not just employee engagement)
  • Linking “people data” to business data
  • Creating the “right” human capital metrics/indices for tracking & reporting
  • Building these metrics into the performance management & compensation systems

There’s a lot of wisdom in the old adage, “If you can’t beat them, join them.”  Analytics is the language of finance.  And increasingly, it is becoming the second language of HR.

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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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The Smarter Annual Report

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McBassi & Creelman Lambert is pleased to announce the release of The Smarter Annual Report: How companies are integrating financial and human capital reporting, a report that provides guidance to companies on how to respond to the movement toward improved annual reporting to stakeholders.  The report focuses in particular on the provision of better human capital information.  [We thank Halogen Software, which sponsored the study.]

A receive a free copy of the report, please visit The Smarter Annual Report page of our website.

Here’s a quick primer on what’s been going on in this area:

What is happening?
There is a well-established global movement to improve annual reports to go beyond narrow financial reporting. The intent is to better convey how an organization creates value and meets the needs of varied stakeholders.

  • A core element is the integration of human capital and financial information in a single report.
  • Organizations are starting to grasp that ‘sustainability’ is about both long-term performance and contributing to the planet’s survival – and that people are a critical ingredient of both.

Who is behind this?

  • The big players pushing for smarter annual reports are the Sustainability Accounting Standards Board (SASB) in the US and the International Integrated Reporting Council (IIRC) globally.
  • A well-established player in sustainability reporting is the Global Reporting Initiative (GRI). Their focus is more on corporate responsibility than value creation; nonetheless they play an important role in defining the metrics inserted into smarter annual reports.
  • A variety of other bodies are actively supporting improved corporate reporting. For example, The B-Team is a group of socially-aware leaders pushing corporate responsibility with “True Accounting” being an explicit part of their mission.

Will anything come of this?

  • A sizeable number of large, international companies have followed IIRC guidelines for integrated reporting on a trial basis for three years.
  • Michael Bloomberg and Mary Schapiro are serving as the Chair and Vice Chair of SASB. People of this caliber have the power to drive change in the world.
  • An Association of Chartered Certified Accountants survey of 200 CFOs indicates that half of the firms surveyed anticipate adopting integrated reports within three years.
  • Bottom line? Yes, change is coming.

HR’s opportunity & challenge

  • Human capital reporting offers great opportunities for the HR function to contribute by playing a core role in shaping the organization’s value creation narrative, and in developing better teamwork across functional boundaries.
  • HR may remain a bit player in the corporate reporting process, however, if it is unprepared, with little knowledge of the various emerging standards.  HR information systems and analytics must be integrated and able to demonstrate the cause and effect between human capital investment and business results. Otherwise, HR is unlikely to be able to contribute to — and benefit from — the changing world of corporate reporting.

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Strategic People Measurement

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As the importance of human capital management continues to grow as a differentiator between high and low performing firms, there is both the opportunity and necessity for the HR function to become more strategic.

The process of becoming more strategic requires asking better questions, deploying clever analytics, and just as important, being able to articulate how HR creates value.  The graphic below is the framework we use to help guide HR functions as they seek to become more strategic.

While the specifics, of course, vary from firm to firm, the framework is sufficiently general to serve as a powerful foundation and starting point, no matter what your firm’s size or industry.

So what do you think?  Is this a framework that could work for your firm?  Let us know – we’d love to hear from you!

An Analytics-Enhanced Employee Survey

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Welcome back (at least to those of you in the northern hemisphere) to the new, even-more-frenzied, post-summer work reality!

For those of you beginning to be immersed in 2015 planning and budgeting, we’d like to offer some thoughts on how to get more bang for your buck from your next employee engagement survey.  In one sentence: you should use it as cornerstone for a strategic, analytics-enhanced HR measurement strategy.

When employee engagement data is properly designed and cleverly analyzed, it is an enormously powerful foundation for creating actionable, fact-based insights to drive better business results.  It is the single most important source of data enabling you to move beyond “descriptive” HR metrics to “predictive” human capital analytics.  By identifying the human drivers (and impediments) of business results, these analytics insights provide a strong evidence base both for guiding HR investments and documenting their impact.

Through linkage analysis – the mapping of employee engagement to important business outcomes­ – it is possible to develop insights into the HR strategies that will have the greatest positive impact on your organization’s greatest challenges, such as the following:

  • Revenues
  • Cost containment
  • Profitability
  • Customer service issues
  • Productivity
  • Safety
  • Managerial effectiveness
  • Training effectiveness
  • Employee engagement
  • Absenteeism
  • Regretted turnover

The bottom line – an analytics-enhanced employee survey is a far better investment than the traditional, HR check-the-box employee engagement survey!

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A Smarter Annual Report webinar

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Join us on May 29, 2014, at 12:00 noon EDT for a webinar on “A Smarter Annual Report — how companies are integrating financial and human capital reporting.”

To register for the webinar, simply click here.

We hope to see you there!

Six Human Capital Risks Your Board Needs to Know About

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Boards of directors have a fiduciary responsibility to manage risk.  Although there is no shortage of risk on the “people side” of most businesses, it is rare for boards of directors to have the right information to prudently manage these risks.

Part of the problem is that boards tend to focus too heavily on executive talent and too little on employees below the executive level.  But another part of the problem is that HR often fails to provide a coherent view of what creates, limits, or destroys value on the people side of the business.

The figure below, originally proposed by Jim Marchiori (Executive Director, University of Colorado Global Energy Management Program), presents a risk-based “people management framework.”  It can be used both for helping boards to ask better “human capital questions” and for improving HR reporting to the board.

  

Some questions to bring this perspective to life include:

1.  Capability Risk:  Do our people have the knowledge, skills, resources, and business processes that will enable them to perform effectively?
2.  Alignment Risk:  Do our people really understand our business strategy and goals?  Do they perform their day-to-day jobs in alignment with those goals?
3.  Availability Risk:  Are we finding and acquiring the right people?
4.  Turnover/Demographic Risk:  Are we retaining key people?  Do we have a pipeline sufficient to replace departing employees?
5.  Engagement Risk:  Do our people go the extra mile?  Does this show through to our customers?
6.  Leadership Risk:  What is the risk that any initiative will fail because we don’t have the leadership depth or quality needed?

These are the sorts of questions you should be building into your organization’s HR analytics strategy, including a process for regularly updating your board of directors on high-level metrics, trends, and predictive analytics.

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How Does Your Organization Stack Up?

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As we’ve mentioned before in this space, people are one of the few remaining sources of long-run competitive advantage; in the short run, however, they are a cost.

To grow and profit, companies must manage this unavoidable tension with awareness and insight.  Increasingly it is the ability to do so (superior “human capital management”) that is sorting out the economic winners from the losers.

This reality is, in turn, elevating the role of the HR function. Those HR professionals who can provide the intelligent analysis on which superior human capital management depends will be the winners within their field.

We’ve spoken to lots of HR professionals who want to get there but aren’t sure where to begin.  With that in mind, we’ve added a new section to our website, containing quick (and free!) interactive self assessments you or your colleagues can use to get a snapshot of the state of your company’s current employee survey, its current analytics capacity, and more.  We’ll be continuing to expand the number of assessments in this section in the months ahead.

Deploying HR Analytics with actionable employee surveys greatly increases the possibility of achieving what we at McBassi refer to as “all-win” solutions.  Analytics helps companies operate in the “sweet spot” – the intersection of sustainably profitable and enlightened management of people.  We work to help HR professionals build exceptionally successful organizations worthy of the best efforts of their people.

That is why we are so passionate about this field.

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Five “must haves” for effective change management

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Most of us want to work for a “Good Company” – one that prospers because it is a good to its employees, customers, and the environment.   But most of us also know how challenging it can be to make the necessary changes.

Over the past decade, we have learned a great deal about what it takes to get (and stay) good, both from companies that have succeeded, and maybe even more importantly, from those that have failed.

There are five components essential to successful change management:

  1. A CEO who “gets it” and commits the resources necessary for change to occur. If your CEO doesn’t fit this description, then this is where your change management work has to begin.  You have to make the case for change in the language of the “C suite” – by presenting a compelling business case for change, based in evidence and hard-nosed analysis.
  2. Managers who are skilled in the behaviors needed to make change happen from the ground up. Achieving this requires a systematic, disciplined approach to change management. (Remember that “hoping” is not an effective change management strategy!)
  3. A performance appraisal system that supports the desired change. If you want people to change their behaviors, then that message needs to be reinforced through your performance appraisal system.  For example, if the only performance that is appraised and rewarded is achieving short-run business results, then that is what will get done.
  4. Smarter measurement systems. Ditto on #3 above.  In order for an organization to change, the metrics it uses to measure its progress must include some that focus on the desired change.  In particular, they must go beyond short-term measures of productivity and profits.
  5. An HR strategy that supports all of the above. Change is about getting people to behave differently.  As a result, HR has a critical role to play.

Change management is a subset of human capital management.  Those organizations that build this competence are better positioned to be the good companies that will survive and prosper for years and decades to come.

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New report on board of directors and HR

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A new report by David Creelman and Andrew Lambert is the first that I have seen on boards of directors’ evolving role on the people side of the business.

It places “a spotlight on how boards are now addressing their responsibilities for oversight of human capital; how they themselves are changing their own behavior; and what part the senior ‘people professionals’ are now playing in facilitating boards in both of these dimensions.”

It’s an encouraging read – one that I commend to you.