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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How to Grow Your HR Analytics Budget

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If you’re like many HR professionals, you share two characteristics:
  • You know you should be making more progress on HR analytics
  • You also don’t know where to get the money to do it

And yet, some organizations – admittedly a minority – report that they have sufficient HR analytics budgets.

So we set out to determine what distinguishes those HR functions that report having an ample budget for analytics.  To answer this question we analyzed McBassi’s HR analytics maturity benchmarking database. (If you would like a free customized benchmarking report on how your company’s current HR analytics maturity stacks up, click here.)

Our analysis showed that the following attributes distinguish HR functions that have a sufficient HR analytics budget from those that don’t:

1.  They have a strategy in place ensuring that their HR analytics initiatives are aligned with the organization’s strategic objectives.

2.  They get the basics right. They have reports/dashboards making it possible to determine whether goals are being met for each of HR’s key responsibilities (recruiting and selection, training and development, compensation and benefits, retention and promotion).

3. They have developed the capacity to link together disparate pieces of information on people and business outcomes to produce actionable, executive-level insights.

Now we know what you may be thinking – “We can’t possibly do these things because we don’t have the budget to get them done.” Classic chicken-and-egg problem. But what we’ve learned is that it doesn’t take a lot of money to make a good, running start at each of these issues. It does take being clever and resourceful – and committed.

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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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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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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!

The 3 Flavors of HR — Which One are You?

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Based on our many years of providing analytical and coaching services in the HR arena, we have concluded that organizations’ HR functions can be categorized along 3 basic dimensions.  (And these same dimensions can often be applied to HR professionals as well.)

1.  Corporate social workers:  This best characterizes those folks who went into HR because they “love people.”  Make no mistake about it: every organization (and HR function) needs a good dose of the humanizing element that this breed provides.  But troubles surface when this dimension carries too much weight.  If you (or your department) are perpetually trying to “earn a seat at the table”, it’s a good bet that the role of HR as corporate social worker has been overplayed in your organization.

2.  Corporate police:  Compliance is what makes some other HR folks tick.  And, of course, organizations have a legitimate need to avoid fines, penalties, and court time.  But all things in moderation.  If your HR function is actively disliked within your organization (or is seen primarily as a collection of paper-pushers), it’s likely that this dimension needs to be reined in.

3.  Business people:  These are the gems of the profession – experts in both HR and the business world.  They understand and speak the language of business, while providing deep HR expertise to their organizations.  They know how to help their company achieve a balance between people as assets and people as costs/risks.   These are the folks for whom the term “HR business partner” means exactly what it says.

Those HR professionals who can demonstrate significant skills along this third dimension have naturally always been in great demand.  In recent years, the growing importance of HR analytics has further elevated the status of HR people (and departments) who fundamentally understand the world of business.  HR professionals who are willing to roll up their sleeves and tackle their organization’s HR-related business challenges are increasingly central to an organization’s overall success.

What’s the best way to ensure you’re able to demonstrate value along this third dimension?  Develop your analytic skills and know-how to ensure that you can make useful contributions to people-related business decisions.

 

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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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What Does Big Data Mean for HR?

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Everyone’s talking about Big Data these days.  What does it all mean?  What’s new about Big Data?   And what are its main implications for people management and HR?

Big Data refers to huge batches of data, typically drawn from a wide variety of sources.  In addition to more traditional (spreadsheet-like) data, Big Data can include machine data (e.g., from mechanical sensors, computer activity logs, satellites), transactional data (cash register purchases), and even “unstructured” data like that from social media (e.g., tweets, Facebook relationships).

In addition to the much greater volume of data that can now be stored and accessed, new software techniques make it possible to combine and analyze a much wider variety of data types, even including unstructured data.  Further, Big Data files can be set up so they’re updated almost instantaneously, making real-time analyses of massive data flows a realistic possibility for the first time.

So what does this mean for HR?  Well, from one perspective, many of the most notable Big Data advances – analysis of machine data or real-time social media trends – don’t seem as useful in the realm of people management as they do in fields such as retail ordering, supply chain management, risk analysis, etc.

But Big Data’s most fundamental insight – that data from a wide variety of sources can be combined to yield concrete steps for improving business results – is exactly where HR should be seeking to go as well.  And it’s not necessary to have millions of data points or GPS trails or real-time transactions to benefit from this insight.

In fact, HR Analytics at its core is much more straightforward than much of what’s happening in Big Data.  All you really need to get started is to map some reasonably decent data on the “people side” of your business (e.g., from an employee survey, 360 reviews, learning records) to information on key business outcomes (e.g., financial results across locations, turnover, or a variety of other strategic outcome measures that can even be captured through an employee survey).

So don’t be overwhelmed by all the talk of Big Data – the advances it’s enabling are exciting to watch, but the HR world is already well-positioned to take advantage of analytics.  Now it’s time for more organizations to do just that!

The Achilles heel of the HR profession…

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…is measurement.

There are a variety of reasons why this is so.  HR folks are often not “numbers people.”  Analytic skills are in short supply in most HR departments.  Good data to evaluate HR programs and initiatives can be hard to come be, and the impacts are often ubiquitous and hard to pin down.

But perhaps the most fundamental problem is that all too often HR folks are doing measurement and evaluation for the wrong reason – they are doing it to “prove their worth” and/or to justify budgets.  This motivation immediately undermines the credibility of the findings and implications – even before they are produced. 

The right reason to undertake HR measurement/evaluation is to provide actionable insight for continuously improving organizational performance.  I’ve spoken to many HR professionals who are moving in this direction. 

It is impossible to overstate the significance of this shift in mindset.  When they make it, HR professionals find that their world changes (for the better).