MCBASSI & COMPANY

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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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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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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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!