Bringing HR and Finance Together with Analytics, a Presentation to PIHRA in Woodland Hills

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HR and Measurement, The Path to People Analytics

Human Capital Management Institute

About Human Capital Management Institute

Workforce Assessment Strategic Consulting Training

Best Practices Workforce Analytics and Planning Benchmarking

- We Bring Financial Discipline, Standards and Rigor to the HR Function -


HCMI Background:

World leading tools/methodology

100+yrs experience Analytics & Planning

Deep Finance & HR expertise

Advisory Board CFOs and HR heads

What We Do:

Measure the immeasurable in human capital

Full service tools, consulting & training

Transform workforce data into intelligence

Tools so HR can make the business case

The Human Capital Management Institute (HCMI) was founded on the belief that organizations can and must, find better ways of measuring their investments in human capital. Our vision of the future is one in which human capital measurement and information is as integral to business decision making as financial information is today.

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Value Creation in Todays Marketplace

Human Capital Management Institute 3

Intangible Capital Value

Tangible Assets/Value

Human Capital = employee knowledge, training, productivity, experience, culture, leadership, development, performance, creativity, etc.

Are we managing the right things or just measuring what we know how to measure?

Measures are well established for modern Finance as a Decision Support Science

Hard to Measure

Easy to Measure

Market value driven by factors not on a balance sheet

Intellectual or Human Capital

vs.

The Future of Talent = Analytics Attraction, Development, Retention and Performance

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Analytics Adoption Over Time

Source: Gartner 2014

Analytics Are No Longer a Nice-to-Have


Getting Finance to See the Value of HR


What is the Language of Business?

What does Management Care About Most?

What is HR most uncomfortable talking about?

$$$

$$$

$$$

Polling Question


A. We measure joiners(new hires), leavers (terminations), and total staff headcount

B. We measure recruiting time to fill and cost per hire

C. We measure turnover rate and management span of control

D. We measure quality of hire and ROI of training

E. We measure workforce productivity and Human capital ROI

What are you Measuring Today

What to Measure Measurement Trick #31

Measurement Best Practices: 1. Metrics that link to business results

2. Metrics that are actionable

3. Metrics that identify, quantify, and clarify issues across the employee cycle

4. Metrics to capture leading versus lagging indicators


Challenge of Measuring Human Capital

Compensation

Transfers

New Hire Turnover

Succession Data

Turnover

Training

Recruiting

Em

ploy

ee D

ata

Benefits

Span

of Control

Workforce

Planning

Success Advanced

Analytic

Insights

Complexity of Workforce Data

Employee/Full-Time-Equivalent (FTE)

Jobs/Roles/Skills

Time - Tenure

Compensation ($ vs. Equity)

Frequency of Change

Promotions, Transfers, Hires, Terminations

Jobs/Roles/Skills

Time - Tenure

Measuring the Intangible

Lack of Standards in HR

Lack of Analytic Skills

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Start

World Class Analytics

Data Driven Decisions!

Data Errors

Lost HR Credibility

Analytics journey steps

Pitfalls along the way

Journey path and goal

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Challenges and Pitfalls on the journey

Data Gaps, Inconsistent Data

Management Support

Standards &Governance

Resources and Analytic Skills

Data Integration

Systems & Tool Limitations

ROI and Success Stories

Avoid analytics journey pitfalls

The Human Capital Analytics Journey Typically a 2-3 Year journey and NOT a straight line

Asking the Right Questions Are you measuring the right things


What If you could answer the following?

1. Which workforce metrics link to business results?

2. What is our workforce productivity? Is it improving? How do we rank?

3. Is it better to build, buy or rent talent?

4. What is truly the right size and cost of workforce?

5. What is our quality of hire (i.e. Top Talent)? Is it improving?

6. Do we know drivers of employee turnover and retention?

7. Are leaders effectively managing talent? Do leaders correlate to engagement, retention and performance? YES, but you MUST prove it

Traditional Financial Statements Whats Missing from this Picture

Financial statements are used by many different stakeholders

But they leave out the company's most valuable asset: The Workforce.

Stakeholder Use

Company Leadership

Tool for business decision making that may affect an organizations continued operations and annual report to stockholders

Prospective Investors Assess the success and viability of investing in a business

Financial Institutions (banks and other lending companies)

Decision to lend to a company or extend debt securities

Government Entities (tax authorities)

Ascertain the propriety and accuracy of information for legal, tax and audit purposes

Vendors who extend credit Assess the creditworthiness of the business

Media and the General Public Variety of reasons


Oops!

SHOW ME THE MONEY!


15% productivity gain and lower costs ($55.0 Billion Package Delivery Co. )

Predicting sales stars pre hire

{$1.0 Billion Bank}

ROI of sales training {$2.0 Billion Retail Co.}

Location optimization for talent growth

{ West Coast Regional Bank}

Employee engagement to revenue impact {$1.0 Billion public Airline}

40% voluntary turnover reduction {public, financial services co.}

ROI of internal vs. external hires {public bank}

$1.1 Billion Annual

$264 Million Annual $1.1 million per sales person

$250 Million Annual $250k per Salesperson

$200 Million 10 years

$96 Million Annual $5 per flight premium

$12 Million Annual

$6 Million Annual

Reporting and Data Quality Overview

Workforce data is complex, but from the right combinations, a fact-based story can emerge

Auditing and cleansing workforce data is foundational

Management buy-in, governance and analytic skills are critical

Define metrics and standardize reporting

HRIS, ERP and workforce system providers do not know what HR data is critical.

If you rely on software and technology vendors for workforce wisdom, it will be a long and expensive wait.

Focus &

Resources

(Center of

Excellence)

Business

Complexity &

Structure

Measurement

& Analytic

Capability

Speed, Systems

Integration &

Automation

Standards,

Processes & Data

Quality

Reporting,

Scorecards &

Accountability

Workforce

Cost and

Productivity

Workforce

Knowledge

Business,

Workforce &

HR Strategy

Linkage

Where are we today?

Where do we start? How can we tell?

What does it all mean?

How do we improve?

I have the foundation, but where are my insights?


Introduction

Keys to Reporting Success:

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The Most Important Metrics for Human Capital

Source: Softscape Inc. Survey 2008

The Real Impact and

Focus


The Metrics Journey Basic to Advanced Metrics

Base Data - No Metrics

Calculated Metrics (e.g. turnover rate)

Simple Metrics ( e.g. headcount, terminations )

Combined Source Metrics (e.g. Time to profitability)

Insightful Metrics (e.g. Revenue per FTE)

Advanced Metrics combined calculated metrics (e.g. Career path ratio)

Index Metrics (e.g. New hire success rate)

Complex Index Metrics (e.g. Quality of Hire)

How do you Stack Up?

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Start

World Class Analytics

Data Driven Decisions!

Data Errors

Lost HR Credibility

The Analytics & Planning Journey


Pitfalls along the way



Roadblocks and Pitfalls on the Path

Data Gaps, Inconsistent Data

Executive Support

Standards/Governance

Job Framework/Mapping

Resources and Analytic Skills

Data Integration

System/Tool Limitations

ROI and Success Stories

Avoid Analytics Journey Pitfalls

What to Include in a Business Case

1. Compelling Questions Ask the Right Questions

2. Objective Measures and Facts Historical Data, Key Metric Indicators, Segmented Data

3. Powerful Visuals Charts Chart(s) that Show Insight (i.e. Story) and Drive Action

4. Use Qualitative Story Telling Two of our Top 3 Salespeople came from other industries

5. Link to Business Impact (ROI/Cost/Profit) The Cost Savings is a range of $1.0 to $3.0 Million

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Components of a Business Case

1. A Business Need or Imperative Why A defined problem/opportunity or question(s) to be answered

2. Quantitative Analysis What Current state assessment

Alternatives Evaluated, (be sure to include do nothing)

Cost Benefit Analysis or ROI What do we get

3. Risks List key risks what we miss out on (address What if we do nothing)

4. Timing, Resources, Process When, include roadmap or project plan (must have 90 day deliverables)

How, the process to be used (e.g. GEs six sigma process)

Who, document who will do it (champion, oversight, partners)

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JetBlue and Net Promoter Score (NPS)

The Net Promoter Score is a numerical representation of Crewmember responses

Calculate the percentage of detractors and promoters

Subtract detractors from promoters

Calculate score

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How likely are you to recommend JetBlue as a good place to work?

Three Types of Employee Crewmembers Crew members = CM

Based on the answer to the ultimate question

Promoters dedicated Crewmembers who LOVE working at JetBlue and recommend that their friends work here

Passives (aka Neutrals) Crewmembers who are satisfied with working at JetBlue but are not raving about it

Detractors Crewmembers who may advise: Do not work at JetBlue!

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JetBlue: Identifying Workforce KPIs Leveraging Workforce Metrics to Drive Business Results

CASM

Load Factor

BELF

Passenger RPM

TCOW

JetBlue Performance

Metrics

Link workforce metrics to key business drivers Employee Engagement, Customer Satisfaction, Revenue and Profit

Build metrics and scorecards to measure results

JetBlue tops J.D. Powers annual customer service survey 7 years in a row

1.1 million following JetBlue Airlines on Twitter

Cost per Available Seat Mile: JetBlue = $.0899 (industry lowest)

Competitors = $.0976

Load Factor: JetBlue = 79.7%

Competitors = 73.1%

Break even Load Factor: JetBlue = $.0888

(industry lowest)

Revenue per Seat Mile: JetBlue = $.1128

Competitors = $.1281

Total Cost of Workforce: JetBlue = 23.6% of revenue

Competitors = 34% of revenue

Does high Employee Engagement increase Profitability? Issue:

Process:

Identified Net Promoters

Created Net Promoter Score, or NPS to measure highly engaged employees

Flights with higher average NPS correlate to increased customer satisfaction and revenue

Employee Net Promoters = Customer Net Promoters = Loyalty = Revenue

Outcome:


Note: JetBlue data illustrative with limited data gathered from

external sources/no internal data used

www.hcminst.com

JetBlue Employee-Customer-Profit Chain

1. Total Cost of Workforce

2. Cost per Hire

3. Cost of Turnover

4. Employee (NPS) Link to Customer Satisfaction

5. Customer Satisfaction Impact on Profits

Workforce ROI Calculator Workforce ROI Dashboard

Increasing the number of Net Promoters by

10% =

$26 - $96 Million

Actionable Intelligence

Quantify and Predict


Linking It Together: JetBlue NPS and Engagement

Net Promoter

Score Engmnt

Customer NPS

Adverse Events

Discret Effort

Revenue

5.0% 6.0% ? ? ? ?

5.0% 5.0% 10.0% -5.0% 5.0% 1.0%

5.0% 8.0% 2.0% 0.0% 3.0% 0.5%

Overall

Management

Pilots

Inflight CMs

Technicians

Customer Support CMs

Airports CMs

Support Center CMs

Systems Operations CMs

If NPS goes up 5% what does the business get?

If crew-leader drives NPS, does it then drive the rest? =


NOTE: CMs = Crew Members aka Employees

Managers Drive Engagement & NPS

Employees with Net Promoter Managers are more likely to be Net Promoters

Employees with Detractor Managers are less likely to be Net Promoters


18.9%

44.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Manager Detractor Manager Not Detractor

Percent of Employee Net

Promoters

High

Low

Median

Manager Net Promoter

< 3 Months 3 - 6 Months 6 - 12 Months 12 - 24 Months 24 - 36 Months 36+ Months

Em

plo

ye

e S

ale

s P

rod

uct

ion

Employee Tenure

Annual Difference Between All and No Courses No Courses Some Courses All Courses

High

Case Study: ROI of Sales Training A $3.0 Billion+ Retail organization with 6,000 sales people at 2,000 locations

Average

Low

At all levels of tenure, training by the sales manager significantly increases employee sales production.

70% of EEs

10% of EEs

20% of EEs

r2 = .63

Employees completing some courses have 45% higher sales than those who completed no courses.

Employees completing all courses have $250,000 USD or 75% higher sales than those who took no courses.


The ROI of training remaining employees between 12 and 36 months of tenure is over $180M the year after training is complete.

Best Practices of HR Analytics Programs

Focus on solving business issues first before HR issues

Find the talent you need to execute

Focus on questions rather than answers or available data

Aim small; seek out quick wins (define formulas, publishing KPIs, etc)

Integrate workforce data to business data (financial, customer, operations etc..)

Tell a complete story:

Quantitative with strong numbers

Visual with powerful visual charts

Qualitative with a story and real world examples from the business


Contact Information:


Jeff Higgins, CEO [email protected]

For more information on products and services:

www.hcminst.com

SOLVE Software Human Capital Training and Financial Statements Consulting

Human Capital Workforce Data Workforce Metrics Handbook Integration Blueprint Planning

Workforce Intelligence Consortium Group

@HCMI


HCMI Products and Services


Human Capital Metrics Handbook Training and Advisory Support Workforce Analytics Training Workforce Planning Training Custom onsite training

620+ Metrics and Detailed Definitions

Data Integration Blueprint

Workforce Analytics Assessment

Analytic Consulting On-Demand

Analytics COE and Roadmap Design

Statistical Prediction

Correlation Coefficient ( 0-1)

Factors Leading to Increased Turnover

Job Title or Position

Dissatisfaction With Compensation

High vs. Low Turnover Manager

Commute Distance

Driver #3

Driver #2

Driver #1

.50

.33

.27

.02

Low

Turnover Impact

High

Turnover

Impact

Some

Turnover

Impact

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Work Location

Number of Jobs in Last 3 Years .70

Hired Through Employee Referral .19

Initial Reports & Analysis

Data Gathering

First Good Metrics

HR Data Warehouse

Drill-down, standard reportsScenario Analysis

External Benchmarking

Context for decisions

Data

Driven Decision

Making!

Turnover, Headcount, Hiring

HRIS system data

COE Formation

Data Errors

HR Analytics Mandate

HR Standards EstablishedLost HR

Credibility

HR data/systems Assessed

HR Data Cleansed historical data scrubbed

Bus. Units

Reject

Analysis

Data Errors

Historical data

still bad

1st Analytics Study

Advanced Analytic Studies

HR Analysis Validated

Integrated HR Databases

COE Launches Training Courses

Bus. Units Demand

more


Setbacks along the way


CONSULTING SERVICES

Integrated Dashboard

DASHBOARDS PRO

TECHNOLOGY SOLUTIONS

Human Capital Financial Statements Human Capital Impact Statement Human Capital Asset Statement Human Capital Flow Statement

Workforce Quantifier ROI Calculator ROI of Workforce Decisions Cost of Turnover, Cost per Hire

Workforce Planning Link Workforce and Financial Metrics Forecast Skills, Costs, Talent and

Productivity

Job Framework Mapping Integrated Taxonomy 15,000+ jobs Map Critical Job Roles

Span of Control Optimizer Tool Benchmark and Optimize Spans Optimize Management Layers

Career Path Quantifier ROI of Career Path Build, Buy or Lease Talent Analysis

$$$ Financial Impact

Metrics

Data Blueprint

Predictive Modeling

TRAINING & SUPPORT


Total workforce Direct business costs + HR, including:

+ Employee compensation (salaries/wages, incentives, overtime, equity & other pay)

+ Contingent temporary/contract labor (costs)

+ Employee benefits and perks (costs)

+ HR function (costs e.g., recruiting, training & support)

+ Retiree or inactive workforce costs* (costs)

Total Cost of Workforce (TCOW) The Bottom Line = Controlling Workforce Costs

Control/Benchmark business unit and organizational performance

TCOW as a % of Revenue

TCOW as a % of Total Expenses

Total Cost of Workforce =

Why is it important?

1% TCOW savings at a Fortune 500 co. = $30 million

Workforce costs are the largest cost (average 70% of operating expenses)

What gets poorly measured, gets poorly managed

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Human Capital ROI Ratio


Human Capital ROI Ratio =

Total Operating Revenue (Total Expenses Total Cost of Workforce)

Total Cost of Workforce

Description: Net operating profit impact of each dollar invested in human capital or the total cost of the workforce. NOTE: If Total Cost of Workforce is not available, total costs of employees can be used as an alternative. Best use: Organizations tracking Human Capital ROI Ratio can effectively measure the linkage of overall workforce changes to trends in the organizations market value over time. This metric is optimized when analyzed by employee productivity, performance, turnover, and future workforce changes in support of optimizing overall market capitalization along with value provided per FTE employee or worker.

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Return on Human Capital Investment


Return on Human Capital Investment

=

Total Operating Profit

Total Cost of Workforce

Description: Return on investment in terms of net operating profit, expressed as a percentage of the total dollar amount invested in human capital workforce costs.

Best use: "Leading" - Return on Human Capital Investment is a strongly linked leading indicator of (for publicly traded or other organizations for whom a relative market value is obtainable), Organizations measuring or tracking this metric can effectively measure the linkage of overall or large scale workforce changes to trends in the organization's market value over time. NOTE: this metric is optimally used for long term strategic predictions rather than short term measurement since organizational market values can fluctuate dramatically due to uncontrollable events as well as industry and market changes.

Bringing HR and Finance Together with Analytics, a Presentation to PIHRA in Woodland Hills

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