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Transcript of Mo Sattar Do not copy or distribute-Connect The Dots - Strategic education : [email protected] HR...
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Mo Sattar
HR metrics through the prism of business planning process
Do not copy or distribute-Connect The Dots - Strategic education
• Functional / departmental metrics should be view through multiple perspectives
• Value chain, Key stake holders , and their expectations• Business planning process• Business and Financial goals
• Organization structure
• The “importance” of metrics will vary “depending on the business environment”.
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Few takeaways
• How is a annual business plan developed in an organization• How does it tie in with metrics discussions ?
• Steps to assess metrics• Ways to make metrics more “effective”
• Alignment• Address relative stress• Synergy via linkage between two metrics
• This will help in becoming HR professional more sought after.
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Is HR in your organization sought after ?
General Manager (GM)
Other G &A departments Engineering
Human Resources
Finance & accounting
Sales & marketing
Operations
1. Sought after by “GM” for “tactical / compliance stuff” ? 2. Sought after by “GM” also for “strategic stuff” ? 3. Sought after by “Other departments ” for “strategic stuff” ?
Are you sought after and why for each question ?
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
What three things you ( HR )can do to become sought after ?
General Manager (GM)
Other G &A departments Engineering
Human Resources
Finance & accounting
Sales & marketing
Operations
1. Actions to become sought after
2. What is holding you back?
Do not copy or distribute-Connect The Dots - Strategic education
• How often are “HR metrics “ presented or discussed or questioned by investors during quarterly earning announcement ?
Do not copy or distribute-Connect The Dots - Strategic education
• If business is not doing well what metrics are :
• Share holders focused on ?• Banks and Lenders focused on ?• Senior Management focused on ?
Do not copy or distribute-Connect The Dots - Strategic education
General Manager (GM)
Other G &A departments Engineering
Human Resources
Finance & accounting
Sales & marketing
Operations
Dominant
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Lets take a pause
• Before I start : 1. Write down three “Financial level metrics” in your organization that are
consistently used2. Three “HR metrics” that are also consistently used3. Identify alignment
HR- Metrics Finan
cial m
etric-
1
Finan
cial m
etric-
2
Finan
cial M
etric-
3
HR- Metric-1
HR- Metric-2
HR- Metric -3
Knowledge / Learning
gaps ?
Do not copy or distribute-Connect The Dots - Strategic education
Bringing HR and FinanceTogether with AnalyticsBy Jeff Higgins, Human Capital Management Institute
If the overwhelming majority of management teams
across the business world, including those at nonprofits and
in the public sector, all speak the financial language of business,
then is it the 95 percent in most organizations that
should stop and learn the language of HR? Or is it the 5 percent
in HR who need to learn the language of finance?
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Benefits for Balanced scorecard Clarify and gain consensus
Communicate strategy throughout the organization
Align departmental and personal goals to the strategy
Link strategic objectives to long-term targets and budgets
Identify and align strategic initiatives
Perform periodic and systemic strategic reviews
Obtain feedback about and improve strategy
Reference : Page 19, The balance scorecard, Kaplan and Norton
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Benefits for Balanced scorecard Clarify and gain consensus
Communicate strategy throughout the organization
Align departmental and personal goals to the strategy
Link strategic objectives to long-term targets and budgets
Identify and align strategic initiatives
Perform periodic and systemic strategic reviews
Obtain feedback about and improve strategy
Reference : Page 19, The balance scorecard, Kaplan and Norton
• Strategy • Alignment • Monitoring
Themes
Paradigm Shift for results base approach
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Traditional Approach Results based approach
Human Resource is viewed as a cost center
Human Resource is viewed a an investment in employees
The HR staff is unfamiliar with operations issues
The HR staff is very knowledgeable about operations
The HR staff lacks knowledge of finance and business approach
The HR staff is versed in basic finance and business concepts.
Reference : page 22, Proving the Value of HR, Phillips and Phillips
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Value added ?
Executives want to believe that "people are our most important asset," but they just cannot understand how the HR function makes that vision a reality
For measurement to matter, you have to measure only what matters.
HR metrics that cannot be tied directly to your firm strategy map should not be included in the HR Score card
Lagging Indicators, such as financial metrics, typically reflect what has happened in the past…..won't help in making decisions
Reference : Creating an HR score card. Becker, Huslid, Ulrich
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Lets take a pause
1. How do you feel about the comment “ HR should be well versed in business and finance”. ?
2. How do you feel about comment that financial metrics are not useful in making decisions
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• Metrics measure progress• Question : Are we are measuring the right things ?• Alignment• Value added
• Foundation: • Value Chain (Business process) • Strategy• Top level metric• Lower level metrics
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Demystifying Finance
Demystifying metrics
Demystifying Strategic planning
Effective leadership and management
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ROS : Return On Sales ( also called Profit Margin)
2014Sales 120.00$ Total Sales generated by the businesscost 109.00$ Total cost to run the businessProfit 11.00$ Total profit : net Income Profit Margin (ROS) 9.2% Profit generated for very dollar of sales
Examples of financial metrics• ROS, ROA, ROE• Oper. Margin, Gross margin• WC turns• Inventory turns• A.R. turns• A. P. turns• CCC
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Value Chain
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Harvard Business School Publishing Article : Expanding HR’s Strategic role ( Interview with Dave Ulrich)
• “Successful HR professions must be business literate and customer savvy”
• “For HR to deliver value, it needs to define its “receivers” and how to create value
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
• HR Metrics and Analytics : Use and Impact. Lawler, Levenson, Boudreau. (Human Resources Planning) • Three functions of Metrics:• Efficiency : How well the HR function performs its basic administrative
function• Effectiveness : Whether HR programs and practices have the intended effect .
• Example : How well “pivotal” jobs are filled • Impact : Means demonstrating a link between what HR does and tangible
effects on the organization’s ability to gain and sustain competitive advantage.
Your Metrics ???
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Value chain concept and what is direct versus “indirect”
Design Operations After
market support
Accounting & Finance
Human Resources
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Important to understand the alignment between Organization structure and value chain
General Manager (GM)
Other G &A departments Engineering
Human Resources
Finance & accounting
Sales & marketing
Operations
Value -1 Value-2 Value-3
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Linkage
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Business planning process
Purpose of this review• All organization ( profit or non-profit) go through this process• Financial metrics play an important role • Setting budgets for departments• Reorientation during mid year• Short term and long term
• Thus “all non-financial managers and supervision” in an organization should be have some “financial literacy”• Helps in alignment of metrics and overall business performance
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Price
Quantity
Manufacturing & quality
labor
Overhead
SG&A H&R
Purchased
Sales and marketing
Administration
Finance /accounting
Engineering R & D
Cost of Good sold
Sales
EBIT
Interest expense
EBT
Taxes
Net Income
EPS : EARNINGS PER SHARE
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Cash flow
Inventory
Acct . Rec.
Acct . Payable
Dividend
Capital exp. .
Net Income
Avoid the need to borrow
Do not copy or distribute-Connect The Dots - Strategic education
• If business is not doing well what metrics are :
• Share holders focused on ?• Banks and Lenders focused on ?• Senior Management focused on ?
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Manufacturin
g
Procu
rement
Quality
Marketing & Sa
les
Finance
& acct
.
Human Resource
s
Engineeering
Other staff fu
nctions
SalesManufacturing costS G & A R&D
InventoryAccounts RecievableAccounts Payables
Organization structure Ke
y Fi
nanc
ials
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Value content effectiveness
Manufacturin
g
Procu
rement
Quality
Marketing &
Sales
Finan
ce &
acct.
Human Reso
urces
Engin
eeerin
g
Other staff fu
nctions
Value content
Sales P P P PManufacturing cost P P P SS G & A P P P PR&D S S S P
Inventory P P P SAccounts Recievable P PAccounts Payables P S
Value providers
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
• HR Metrics and Analytics : Use and Impact. Lawler, Levenson, Boudreau. (Human Resources Planning) • Three functions of Metrics:• Efficiency : How well the HR function performs its basic administrative
function• Effectiveness : Whether HR programs and practices have the intended effect .
• Example : How well “pivotal” jobs are filled • Impact : Means demonstrating a link between what HR does and tangible
effects on the organization’s ability to gain and sustain competitive advantage.
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Filter the HR metrics
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Run it through a filter process
Workers comp
Benefits as % H R expense
% H R cost per employee Health care
cost %
Hiring related
H R FTE ratio
H R cost per FTE
Average comp. ratios
Overtime related
Diversity
Absenteeism related
Span of control
Training related
H R cost per FTE
OSHA
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I like to test metrics for “purpose, value added, and connectivity ”
This applies to any metrics ( HR, operations, financial, procurement, etc.) • Compliance & or for “defensive purposes”.• Tactical – value added • Strategic• Connectivity – overall business goals
• Tactical, in concert with “relative risk factors”. • Strategic
• Elimination process…what will happen if we stop tracking• Gap analysis …are we missing any “gauges”.
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Check for alignment – for near term goals
HR- Metrics Complaince
Tactica
l busin
ess go
al-1
Tactica
l busin
ess go
al-2
Tactica
l busin
ess go
al-3
Other staff fu
nctions
Value content
Metric 1 Metric 2 Metric 3 Metric 4 Metric 5
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Address relative risk factors
Department/ Function -1
Department/ Function -2
Department/ Function -3
Department/ Function -4 Total Actual Total target
Attrition rate 5.00% 7.00% 5.00% 5.00% 5.50% 5.00%
Relative Risk factor low low low high
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Intersection of two metrics
Department/ Function -1
Department/ Function -2
Department/ Function -3
Department/ Function -4 Total Actual Total target
Attrition rate 5.00% 4.00% 5.00% 7.00% 5.25% 5.00%Hiring - time 45 days 50 days
Relative Risk factor low low low high
Best ROI
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Check for alignment – for longer term goals
HR- Metrics tied to strategies Metric 1 Metric 2 Metric 3 Metric 4 Metric 5
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Harvard Business School Publishing Article : Expanding HR’s Strategic role ( Interview with Dave Ulrich)
• CF : “How do you create an outstanding strategy “.
• DU : “ What are the business challenges ?”
Do not copy or distribute-Connect The Dots - Strategic education
This is how I test goals and strategies (business level, department level or personal)?
• 1. What are you trying to accomplish ( your goal) , testing for clarity ? • We need clarity for alignment
• 2. Why ? • If Why is not strong enough ( clarity and commitment) , go back to # 1.
• 3. “How” will you achieve your goal ( “what”) • Fast forward, assume you can successfully implement your “how”• Will you accomplish your “what” ? • Test for alignment ( or misalignment)
• 4. What are the “measures” to monitor “progress” • Test for alignment, clarity, ownership, leading, lagging, tactical, strategic
• Overall test for value added ( to monitor how and what)
• 5. Test for alignment and connectivity within the “relevant organization / system ”.
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Closing comments / Recommendations• Re –think your training programs in your company• Add “basic management financial literacy” , across the organization• Test the metrics for “ purpose, valued added and connectivity” • Test for “relative risk factors” and “alignment”• Employee performance and compensation in line with “value added
metrics”. • For HR staff/managers . Enhance your knowledge in the areas of
• Finance• Strategic planning• Leadership
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Is HR (you) in your organization sought after ?
General Manager (GM)
Other G &A departments Engineering
Human Resources
Finance & accounting
Sales & marketing
Operations
1. Sought after by “GM” for “tactical / compliance stuff” ? 2. Sought after by “GM” also for “strategic stuff” ? 3. Sought after by “Other departments ” for “strategic stuff” ?
Are you sought after and why for each question ?
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
What three things you ( HR )can do to become sought after ?
General Manager (GM)
Other G &A departments Engineering
Human Resources
Finance & accounting
Sales & marketing
Operations
1. Actions to become sought after
2. What is holding you back?
Do not copy or distribute-Connect The Dots - Strategic education : [email protected]
Q&A