Using HR Analytics to Build a Business-Focused HR Strategy

Using HR Analytics to Build a

Business-Focused HR Strategy

Scott Mondore, Ph.D.

Strategic Management Decisions

Learning Objectives

• A step-by-step process for building an HR strategy

• How to connect people data to business outcomes

• How to create true alignment between your people and

the business strategy

• How to identify key metrics and quantify their impact

(calculate ROI)

• Integrate the key Talent Management drivers of business

outcomes into one dashboard for Sr. Leadership, front-

line managers and staff

• Build a business case for investing in talent/employees –

treat HR like a profit center!

SMD Publications

Published by

SHRM (2009)

Published by

SHRM (2011)

Bestseller for 2011 &

2012

HR People & Strategy has awarded SMD The Walker

Award for their article on Talent Management Analytics.

“The Walker Award is given to the article that ‘best

advances state-of-the-art thinking and practices in human

resources.’"

About SMD: Driving Business

Results Through Talent Management

Our Process

• Implement Talent Management processes based on analytics, linking people

to critical business outcomes

• Partner with our clients to create and execute people strategies that drive

business outcomes and maximize ROI

Our Results

• Linkage of Talent Management (e.g., engagement

survey results, training, performance ratings,

competency assessments) to a variety of business

outcomes:

▫ Operations Metrics (e.g., operating margin)

▫ Financial Metrics (e.g., sales dollars, productivity)

▫ Customer Satisfaction

▫ Turnover/Retention

▫ Employee Safety

• Significant bottom-line improvements and

return-on-investment for our clients.

Connecting Employees

to Business Results

• HR Strategy & Planning

• Human Capital Measurement

• Talent Management

• Leadership Development

• Executive Assessment & Coaching

• Organizational Effectiveness

Presenter Bio


Scott has over 15 years of experience in the areas of strategy, talent management,

measurement, customer experience and organizational development. He has internal and

consulting experience across a variety of industries including transportation, healthcare,

manufacturing, pharmaceuticals, utilities, and hospitality.

Scott is currently a managing partner of Strategic Management Decisions (SMD). Before

SMD, he served as East Region President for Morehead Associates, a healthcare HR

company. Before joining Morehead, Scott worked as a Corporate Strategy Director at Maersk,

Inc. He also worked as an Organizational Effectiveness Leader at UPS, focusing on

employee assessment and measurement as well working as a consultant to large and small

organizations in both the private and public sector.

He is the co-author of “Investing in What Matters: Linking Employees to Business Outcomes”

and has published several articles on various topics, including employee turnover, employee

safety, coaching, litigation and leadership. Scott is also an Adjunct Professor of Psychology at

the University of Georgia, Fairleigh Dickinson University & the University of North Carolina-

Charlotte.

Scott holds a master's degree and doctorate in applied psychology from the

University of Georgia.

Talent Link Key HR Processes

Business Outcomes

Performance Management

Selection

Employee Survey

360 Feedback

Succession Planning

Competency Builder

Career Development

Training

Examples of Business Outcomes

People • Turnover • Employee engagement

Service • Customer satisfaction • Wait times

Quality • Clinical outcomes • Product Defects

Finance • % to budget • Cost reduction

Growth • Sales growth • Margin growth

Agenda

• What is an HR strategy?

– HR scorecard

• Linking HR data to business outcomes

• A case study

• Using analytics to build an HR strategy

– The process and timing

– Integrated HR scorecard

– Useful reporting

WHAT IS A HR STRATEGY?

HR Analytics & Big Data

9

KNOWING/DRIVING OUTCOMES

ASSUMING

Best Practice says that

people leave because of

their boss Everyone knows that

problem solving is

our most important

competency

Our data tells us that

people leave because

of career opportunities

Our analytics tell us

that Customer Focus

is actually the key

business driver

Organizational Impact

www.metrus.com

What is an HR Strategy

• What should HR be doing to help support the business strategy of the

organization?

• The HR or People strategy should:

– Impact the organization’s performance

– Contribute to the organization’s Competitive Advantage

– Have a medium to long-term focus

• Four facets of the HR strategy:

– Culture: the beliefs, values, visions of the organization

– Organization: the structure, roles and reporting relationships of the

organization

– People: the skill levels, staff potential and management capability

– Human resources systems: the people focused mechanisms which

deliver the strategy - employee selection, training, compensation,

career development, etc.

Aligning HR Processes with the

Business Strategy

Business Strategy

HR Strategy

HR Process & Program Design

• Understand the business strategy

• What are the priorities?

• What are the key business metrics?

• What HR processes and programs will likely have the biggest impact on the business strategy?

• What HR data can be linked to the key business metrics to identify the key drivers?

• How will the business strategy impact the organizational design in the next 3-5 years?

• Given the business strategy over the next 3-5 years, what types of employees are needed?

• Experiences required

• Competencies needed

• What targeted actions can be taken to support the business strategy?

HR Processes

Attract & Hire

Employer Branding

Recruiting

Assessment Process

Hiring Process

University Recruiting

Internship Programs

Internal Placement

Onboard

Orientation

Benefit and Program Enrollment

Assimilation

Develop & Motivate

Goal Setting & Evaluation

Feedback & Coaching

Training

Career Development

Succession Planning

Leadership Development

Compensation

Transition or Exit

Retirement

Termination

Voluntary Turnover

Re-recruitment

The Typical HR Scorecard

HR Scorecard

Element Definition

Deliverables The key HR deliverables that will help to leverage HR’s role in

your company’s overall business strategy

Processes The key HR processes (e.g., selection, performance

management, compensation)

Alignment Clear alignment between the HR deliverables/processes and

the overarching business strategy

Results Indicators of the effectiveness with which the deliverables are

executed

1. Lagging indicators are those measures that reflect only what has happened in the past.

2. Leading indicators assess the status of key drivers that lead to the success of the organization’s strategy. Leading indicators stress the effect of future rather than past decisions.

The Scorecard represents how success or failure of the strategy will be measured, tracked and assessed.

SMD’s Approach to HR Metrics

1. HR processes and investments must be directly linked to critical business outcomes (e.g., sales, productivity, customer satisfaction, safety) to understand their impact how they drive those outcomes.

2. By quantifying the relationship between HR processes and critical business outcomes in the past (lagging indicators), algorithms can be created to predict future impact of HR investments (leading indicators).

3. HR must look holistically at all HR processes and potential investments to understand their HR priorities and make investment decisions like other lines of business/functions.

4. When principles 1-3 have been followed, an expected ROI can be calculated to help HR leaders make investment decisions.

RETHINK Your Approach to HR!

Make HR a Profit Center

• Quantify the impact of employees on business outcomes

• Calculate an expected ROI for investments in employees

• Define the relationship between HR processes and business outcomes

Connect Key HR Processes

• Provide a single, integrated view of key HR processes

• Reduce your HR related costs through integration and strategic alignment

• Connect HR processes to business results

Spend More Time Driving Results

• Align HR professionals, organizational leaders, & employees to focus on actions that drive results

• Provide customized analytics and simplified reporting through business-focused scorecards

LINKING HR DATA TO

BUSINESS OUTCOMES

Aligning the HR Strategy with the Business Strategy

Talent-Link Key HR Processes

Business Outcomes


Selection

Employee Survey

360 Feedback

Succession Planning

Competency Builder

Career Development

Reward & Recognition

Training

Examples of Business Outcomes

People • Turnover • Employee engagement

Service • Customer satisfaction • Wait times

Quality • Clinical outcomes • Product Defects

Finance • % to budget • Cost reduction

Growth • Sales growth • Margin growth

Assess Business Impact:

Business Partner RoadMapTM

1. Determine Critical

Outcomes

2. Create Cross-Functional Data

Team

3. Assess Measures

4. Analyze the Data

5. Build Program &

Execute

6. Measure & Adjust

Business Partner RoadmapTM


Analytic Approach –

Structural Equation Modeling

• Traditional data analysis includes: • Qualitative analysis or gap analysis (strengths/weaknesses) • Correlation • Regression

• Advantages of SEM: • Consider multiple independent & dependent measures

concurrently • Imply causality • Calculate ROI • Correct for measurement errors

• SEM is commonly used in other industries (econometrics, market research)

A CASE STUDY

Aligning the HR Strategy with the Business Strategy

Our Proposal – Large Retail Organization

• Create a business-focused HR Strategy:

– Empirically link employee data to meaningful business outcomes

– Identify ‘invisible levers’ in employee attitudes, skills and behaviors that will drive outcomes

– Leverage existing data to create the strategic framework

– Prioritize employee-focused interventions to drive business outcomes

– Provide customized solutions to drive business outcomes

Data Utilized in the Study

• Shrink data at store level—as an example (used

multiple business outcomes in the full study)

• Employee opinion survey results

• Performance Mgmt/Competency ratings

• LMS training data

• HRIS data – dishonesty terminations

• Store turnover data

• Customer satisfaction results

SMD-Link Key HR Processes

Business Outcomes


Selection

Employee Survey

360 Feedback

Succession Planning

Competency Builder

Career Development

HRIS Data

Training

Business Outcomes

People • Turnover Service • Customer satisfaction Quality • Shrink Finance • Cost reduction

Dimensions of the

Employee Survey

Engagement

Regard for

Employees

Manager

Effectiveness

Career

Development

Recognition &

Perf. Mgmt.

Resources

Available

Job-Person

Match

Policies Hours Worked

Customer

Focus Work

Environment

Benefits

Scales range from 2-5 items. Alphas range from .79-.91.

Salaried Employee Competencies

Employee

Development Leadership

Strategic Decision

Making

Cross-Organizational

Collaboration &

Teamwork

Execute With

Excellence

Achieve

Extraordinary

Results

Individual Ratings for the Store Manager and

Assistant Mangers were used.

Drivers of Shrink

Shrink

Legend

Employee Survey

Training Participation

Terminations

Competency Ratings

1a

1b

3

2

2

1

Numbers in paths indicate the intervention priority based

on the magnitude of the relationship with shrink.

Job-Person

Match

Manager

Effectiveness

Engagement

Dishonesty

Terminations

Ethics Course

Participation

Achieve

Results

Shrink Course

Participation

2

Further Prioritizing the Levers

• While all of the ‘levers’ identified in the model

significantly impact shrink, the ‘levers’ can be

prioritized even further based on the magnitude of

their relationship with shrink

• Further Prioritization:

1. Achieving Extraordinary Results

2. Ethics Course

3. Shrink Course

4. Dishonesty Terminations

5. Job-Person Match

Intervention Framework

People Technology Process

Planned Interventions & Cost

•Build optional shrink training courses for specific roles

•$300k Training

•Deploy a store-level incentive program for meeting quarterly shrink goals

•$5 million

Recognition & Reward

•Nothing planned Selection

•Insert shrink focused messaging in a larger “customer experience” initiative

•$250k

OD & Leadership Development

Recommended Actions to Reduce Shrink

TRAINING:

• Code of Ethics Course

– Has a direct, significant impact on shrink

– Opportunity to re-train or conduct refresher courses with managers and employees

– Senior leaders regularly re-communicate the key messages from the Code of Ethics

• Sales and Shrink Course

– Has a direct, significant impact on shrink

– Currently not mandatory

– Opportunity to make the course mandatory and re-train managers and employees

Revised Interventions & Cost

• Enhance and update ethics and shrink course – make both mandatory

• $50k Training

• Nothing planned Recognition &

Reward

• Improve selection process for front-line employees – background checks & integrity testing

• $2 million Selection

• Develop shrink management routines

• Develop shrink partnering program

• $50k

OD & Leadership Development

Actions Taken and Actions Cut

• Initial budget was $5.55 million

• Revised budget was $2.1 million

– Cut incentive plan

– Cut major training build

– Cut “shrink focused” customer experience programs

• Data analysis

– Did not identify pay/benefits as a major driver of shrink

– Showed the existing training courses were having an impact

– Did not identify “customer focus” as a major driver of shrink

– Showed that “dishonesty terminations” were a significant driver

of shrink

• Created an HR Strategy with a known impact on shrink

CALCULATING ROI

Linking Employees to the Bottom Line

Drivers of Shrink

Shrink

Legend

Employee Survey

Training Participation

Terminations

Competency Ratings

1a

1b

3

2

2

1

Numbers in paths indicate the intervention priority based

on the magnitude of the relationship with shrink.

Job-Person

Match

Manager

Effectiveness

Engagement

Dishonesty

Terminations

Ethics Course

Participation

Achieve

Results

Shrink Course

Participation

2

Calculating Impact & ROI

Intervention Beta Potential Shrink Impact Level of Investment

Manager Competency .14 $13.0 million Under-investing

Ethics Course .10 $9.3 million Under-investing

Shrink Course .09 $8.4 million Under-investing

Dishonesty Terminations -.08 $7.4 million Under-investing

Engagement .04 $3.7 million Appropriate

Reward & Recognition ns ns Over-investing

Customer Satisfaction ns ns Over-investing

• $93 million in annualized shrink

• Example – average Manager Competency score of 3.92

• Moving 0.30 could result in additional savings of $984,897

• Approximate cost of $200,000 (build, employee time)

• Expected ROI: 497%

USING ANALYTICS TO BUILD A

HR STRATEGY

Analytics and Scorecards

Integrating Line-of-Business and

HR Priorities

LOB Priorities

Linkage Priorities

HR Priorities

Becoming a

Business Partner

Timing

Beginning of 4th Quarter

End of Fiscal Year; Beginning of 1st Quarter

Business Partner RoadMapTM Process

Ends

Strategic Planning Begins

Financial Planning Begins

The Process A

NA

LYZE

Analyze linkages between data and business outcomes to identify key drivers of performance

AC

T Translate results into action by providing senior and frontline leaders with easy-to-interpret reports and follow-up training

AC

HIE

VE Track results/goals on

leader’s performance plans and the organization’s balanced scorecard

Linking People Assessments to

Business Outcomes

Critical Business Outcome (e.g. Sales)

Leadership Competencies

Personality Factors

Experience

The linkage analysis will demonstrate the level of impact that each competency, experience, skill, etc. has on individual performance and business outcomes. This allows leaders to focus on the most important competencies, skills, experiences and determine the appropriate level to invest in developing each area.

Identifying Critical Drivers of Business Outcomes

Employee Attitudes

Technical Skills/Abilities

Salesforce Competencies

Hire, train, &

reward based on

KNOWN drivers

of results!

Key HR Processes in One Place-

on One Scorecard

Impact on Revenue (Beta Weight)

Pe

rfo

rma

nce

Prioritizing Interventions:

Sample Survey HeatMap

Linked to LMS

Courses

360 Reports: Connect Behaviors to

Business Outcomes

Prioritizing Interventions:

Sample District HeatMap

Key Drivers of Business Outcome

Department Name Retention Mission/Goals Commitment Sr. Leadership Leadership Corp Image Co-Workers Recognition Safety Benefits Compensation

WEST 67% 67% 71% 75% 43% 73% 72% 29% 58% 63% 29%

EAST 67% 93% 100% 53% 80% 60% 90% 80% 100% 75% 33%

MIDWEST 69% 80% 84% 69% 86% 70% 84% 64% 69% 50% 48%

MIDCENTRAL 71% 91% 90% 83% 90% 88% 93% 81% 91% 84% 58%

MIDSOUTH 75% 100% 100% 83% 69% 95% 100% 58% 100% 88% 92%

EAST CENTRAL 77% 93% 88% 86% 94% 88% 81% 82% 87% 77% 23%

NORTH DALLAS 80% 97% 90% 87% 88% 100% 95% 93% 93% 75% 27%

EAST DALLAS 83% 94% 93% 93% 84% 87% 91% 79% 98% 89% 76%

SOUTH DALLAS 83% 95% 94% 86% 94% 92% 92% 100% 95% 82% 79%

CENTRAL DALLAS 85% 100% 98% 100% 96% 97% 96% 95% 100% 93% 79%

WEST DALLAS 88% 96% 97% 96% 90% 85% 100% 67% 92% 64% 50%

NORTHEAST DALLAS 96% 98% 100% 100% 97% 100% 100% 93% 96% 83% 93%

SOUTHWEST DALLAS 100% 100% 100% 100% 100% 100% 81% 83% 100% 100% 75%

SOUTH CENTRAL DALLAS 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80%

DOWNTOWN DALLAS 100% 80% 98% 70% 90% 82% 98% 70% 90% 15% 30%

District A Key Performance Drivers

District Name

Examine Strengths and Gaps:

Business-Focused Ready Now ScorecardTM

Key Drivers of Business Outcomes

Utilize the Ready Now Scorecard to Assess Overall Talent Pool Health…

• Refer to the scorecard during talent review sessions; incorporate

stakeholder ratings of performance and potential to identify true

Ready Now talent

• Assess performance strengths and gaps across the entire talent pool

Questions that Analytics Can Answer

• Recruiting:

– Which sources produce best future employees?

– Which labor pools should I focus more time?

• Hiring:

– Which assessed competencies yield the best hires?

– Which assessments yield the best hires?

– Did I make a true business case to convince front-line

managers to follow the structured hiring approach?

• On-boarding:

– What aspects of the on-boarding process reduce 6-month

turnover?

– Which managers have on-boarding issues?


• Employee Surveys:

– Which attitudes drive intent-to-stay?

– Which attitudes drive key business outcomes?

• Performance Management:

– Which competencies drive performance outcomes?

– Do all leaders have targets that are measurable?

– Do performance ratings drive/connect with business

results?

– Do ratings cause the right compensation decisions to

be made?


• 360:

– Which competencies drive business outcomes?

– Do certain areas of the business need more help

on key competencies?

– Do our current competencies capture enough

performance variance?

• Exit Interviews

– Do we really know why high performers leave?

– Have we re-recruited them back?

• Learning:

– Which learning courses drive key business

outcomes/behaviors/performance?

– Is online learning as effective as in-person

learning?

– Have we made the business case that justifies

our investment in our LMS, corporate schools

etc.?


• Succession/Talent Planning:

– Do we objectively know how our talent performs

on the areas that drive the business?

– Do we have a measure of overall talent

performance on key business drivers?

– Are talent planning meetings objective or

subjective?

– Did I make a true business case for analytics to

be used in succession decisions?


Key Analytics Takeaways

• Analytics CANNOT be limited to slicing-and-dicing HR

data

• Analytics must be true cause-effect and predictive

• Analytics must be reported and actionable to all front-

line leaders

• Actual business impact must be shown

• Talent management platforms must be truly integrated

with business results—one password does not mean

integration


Executing the Analyses

• “Apples to Apples” Comparison: Line up each leader’s or

employee’s individual data (e.g. 360, employee survey)

with their performance outcomes (e.g. percent to goal on

business outcomes)

• Identify Key Drivers: Run statistical analyses (i.e., SEM)

to identify the individual factors that evidence the

strongest relationships with performance outcomes

• Utilize local universities/graduate student if in-house

statistical expertise is not available

• Get the most out of your Talent Management platform if

you have one already

What We Have Covered

• The definition of an HR strategy

• How to connect HR data to Business

Outcomes

• How to build an HR scorecard

• Useful tools for executing an HR strategy


Managing Partner [email protected]

404.808.4730

www.smdhr.com

Contact Information

mailto:[email protected]

http://www.smdhr.com/

Using HR Analytics to Build a Business-Focused HR Strategy

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