Conference KeyNotes key issues benchmarks action plans

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1 Conference KeyNotes key issues benchmarks action plans Human Capital Metrics Conference: Predicting Success through People As a community of business leaders, The Conference Board convenes senior executives to share innovative ideas and cutting-edge best practices. These Conference KeyNotes summarize the discussions held by the 60 leaders who attended The 2009 Human Capital Metrics Conference in New York in November The views expressed here are those of the participants of the conference. Key Issues Page 2 The value of analytics in building a strategy Human capital investment decisions Directly linking human capital and the bottom line Trends in human capital metrics Benchmarks Page 7 Most organizations have a human resources analytics team Expenditures on employees are a combination of cost and investment Human resources plays an active role in business strategy at most organizations Most organizations lack essential predictive human capital analytics skills Business managers use people measures to meet strategic targets Most organizations report people measures monthly/quarterly Action Plans Page 8 What Conference Participants Plan to Do Differently Bolstering the human resources function Working with business problems and dashboards Engaging other business functions CK

2 KEY ISSUES In the 21st century, a company s workforce is its biggest asset. Therefore, using statistical, predictive analysis of its human capital is key to helping it create business strategy and make investment decisions. Thought leaders and human resources professionals shared best practices, insight, and guidance on how to implement, innovate, and improve human capital predictive analytics in organizations. The Value of Analytics in Building a Strategy An organization s people help boost its bottom line, and there is a direct correlation between its people strategy and profits. Therefore, implementing human capital metrics is essential to any company s success. Implementing an analytics program When building people strategy in an organization that values metrics, leaders should analyze data and information, turn those findings into strategy, and then use that strategy to drive the everyday activities of the human resources function. A people strategy that leverages metrics begins with determining business challenges. Then the organization establishes people solutions to address those challenges, defines the role of human resources, identifies measures for key workforce metrics, and monitors those metrics. Human capital metrics should cascade through an organization, using periodic dashboards and summary statements to drive accountability at all levels. Key workforce metrics that link business and people strategies include productivity, talent, business strategy alignment, rewards, and employee engagement. Using targeted solutions Metrics that identify gaps in talent succession shift staffing processes, redefine where to acquire talent, create affiliations that ensure a diverse supply of talent, and help drive succession planning deeper into an organization. A lack of differentiation in evaluating performance creates the case for and accelerates the adoption of an expected performance distribution curve across an enterprise. Focus on career development options and job previews to retain critical talent, especially in departments with high turnover. To maintain a high level of employee engagement, continue line-led, two-way communication and candid, developmental performance feedback. Moving from reactive to predictive analytics Organizations are changing their focus from the reactive measurement and reporting of data to proactive, predictive analytics. Much of the human capital data that organizations capture reflects measures that occurred in the past, such as satisfaction and activity level. However, the power of analytics lies in an organization s ability to look at what has been done historically and then apply that information to make different decisions about where to invest in the future. Applying statistics to the right business questions can provide a guide for future human capital investment decision making, such as answering questions around the payoff of investments in leadership, engagement, and innovation. Making connections is at the core of predictive analytics. To successfully implement predictive analytics, companies need to integrate data across human resources, customers, operations, and financial outcomes. 2 Conference KeyNotes The Human Capital Metrics Conference

3 Human capital metrics can be measured on three levels: lagging (counting yesterday s operating results); leading (managing tomorrow s predictors in leadership and engagement); and strategic (finding connections between human capital, customer, and financial data). To fully understand how data elements interact to have an impact on the bottom line: 1. Conduct an internal and external scan of tangible and intangible assets. 2. Create a capability plan for the workforce this is an agile system that can move as structures and markets change. 3. Evaluate the most cost effective way to produce human capital outcomes. 4. Predict strategic, leading, and operational indicators. Human Capital Investment Decisions Predictive analytics can provide fact-based support for investing in human capital initiatives. Once organizations overcome the challenges of collecting relevant data and measuring the impact of human capital expenditures, they can prioritize investments in building leadership and innovation capabilities. Modernizing corporate belief systems Global competition and generational demographics directly impact the availability and value of human capital. As the U.S. economy shifts from a manufacturing to a services framework, there needs to be a natural migration from fixed to intangible assets on corporate balance sheets. However, current accounting measurements and methods were created for an industrial economy, and only assign value to tangible assets. In the 21st century economy, human assets create revenue and manage costs through innovation, engagement, and leadership none of which are accounted for in current accounting systems. Despite studies indicating productivity and GDP increases during the past 15 years that are linked to intangible assets, organizations still restrict investments in human capital and, instead, keep cash on their balance sheets. This practice can lead to limited innovation, an inability to compete globally, and insufficient leadership. Executing a measurement project Companies can measure the impact of different human capital interventions by using experimental design combined with multivariate statistical analysis. This provides a statistical, rigorous method to determine which future investments will reduce risk, increase competitive advantage, and provide the greatest benefit to the organization. Organizations need to create a measurement plan that evaluates whether a current investment is working and determines what future investment should be made in a critical project. To do this: 1. Map how performance objectives of a human capital intervention link to strategic goals; determine the impact of the intervention on business metrics; define the financial value of the intervention on the bottom line; and identify the sources of data required. 2. Identify the availability, location, quality, and ownership of data; determine where data gaps exist; and secure data for analysis. 3. Using valid, scientifically-defensible statistical analysis, evaluate the past performance of control and test groups; conduct multivariate analysis to isolate the impact of intervention on performance outcome variables; measure the multiplier of each variable to determine the magnitude of the intervention s impact on desired results; understand biases in the system; and optimize investment decisions. 4. Create an executive summary that tells the story of how the intervention delivers business outcomes; advocate for larger investment interventions that have a larger multiplier; and provide details on optimizing in the future by altering the investment for the next iteration of the intervention. 3 Conference KeyNotes The Human Capital Metrics Conference

4 Directly Linking Human Capital and the Bottom Line Companies are willing to invest in human capital when they know it will directly impact their bottom line. Human resources can have a voice in business decisions by communicating the financial benefits of human capital investments. Creating and leveraging a human capital business model To get the most out of your talent, create a human capital business model to optimize investments in recruiting, development, leadership, talent, engagement, and performance processes. Begin by defining the human capital business model. Shift conversation from cost to investment, and relate human capital to bottom-line results, such as sales, customer satisfaction, and people costs. Map your current human resources strategy to the human capital business model, and evaluate changes to infrastructure and processes. Define the employee experience across the employee lifecycle, and use it to brand all things talent in the organization. Create a strong partnership between the human resources, finance, and market/customer research groups; this is necessary to link people outcomes to business outcomes on financial statements. Then assemble a team with capabilities in analysis, strategy, and systems thinking. Map out efficient talent processes, identifying the type and manner of data collection required before applying technology. Provide regular updates to all appropriate individuals who can impact human capital outcomes. Accounting for human capital costs When accounting for a complex workforce, many factors need to be considered. With diverse operations and personnel, an organization needs to be diligent when predicting and making conscious decisions about the placement and accounting of human capital. There are multiple ways to account for human capital costs: total costs, cost per head, and cost per labor availability hour. Human capital costs are a component of policy a pre-made decision that intends to influence behavior. Define what your policy intends to achieve in behavioral terms when determining the right cost accounting structure for your portfolio. Clearly articulating the costs and predicted benefits of an employee will drive leadership commitment and engagement. Developing workforce analytics for the new economy The world is moving into the experience economy. Innovation and disruptive technology are needed to define future success. Companies should use analytics to challenge conventional wisdom and create opportunities to innovate and differentiate themselves. Organizations need to create and leverage an employee value proposition (EVP) to attract, retain, and motivate employees. The most elusive component of an EVP is meaningful work, which occurs when all other needs are met. By working in a culture that appreciates all aspects of the individual, every employee can be his/her best and achieve his/her full potential. Individuals stay for the community and culture, which drives profitability. For example, business is now social; command-and control-management is not sustainable. And the new workforce demands collaboration and customization. Companies need to recognize these changes in modern business culture, and create analytics accordingly. 4 Conference KeyNotes The Human Capital Metrics Conference

5 For jobs that are routine and require low cognitive ability, paying for performance works. However, when higher-level workers are paid for performance, they perform worse. Benefits are a commodity, built on World War II-era needs. Technology at work should reflect the consumer and employee landscape. Applying analytics to strategic workforce planning Senior leaders consider human capital risk to be one of their greatest concerns in running a global organization. Strategic workforce planning is the process of connecting business strategy with human capital efforts. Organizations can use these analyses to address future workforce needs. Implementing analytics involves change management. Engage business leaders in conversation about the future competitiveness of the organization to create a mindset open to insights from data. Then implement analytics into the strategic plan: 1. Conduct a data gap analysis to understand what data needs to be captured to measure workforce engagement, pipeline talent, and process excellence. Use a dashboard to present useful data that drives business decisions. 2. Use a comprehensive leadership profile with metrics about readiness and identification of risks to address future leadership pipeline issues. 3. Link strategic workforce planning to the organization s mission. Proactively identify and retain mission-critical talent. 4. Ask questions before providing data. Define metrics that are useful to the business. 5. Brand workforce planning efforts, such as career development and succession planning, to attract and retain mission-critical talent. Implement incentives for appropriate behaviors. When faced with how to transfer knowledge, create a strategic priority around knowledge cultivation. Conduct workforce planning throughout all levels the organization, taking the time to assess readiness to perform tasks. Implementing an analytical framework for business expansion When looking to expand your business, perform a human capital analysis using government data, public and proprietary information, and macroeconomic indicators to help guide decision making. Identify a business need and the capabilities required. Consider occupational growth, candidate profiles, and sector-specific information that will have an impact on hiring. Develop a short list of possible site locations for the expansion project; compare qualitative input, current locations, site accessibility, culture, and tax advantages. Evaluate the supply and demand side of the talent pool. Calculate talent density, evaluate posting trends, and understand the talent profile for each location. Plot supply and demand of talent to understand which markets are hyper-competitive. Analyze the economic situation. Factor in unemployment and payroll trends, economic growth, industries, cost to operate, and incentives in the regions being considered. Identify the competition. Use job-posting trends to identify your close competitors and top companies presence in each location under consideration. 5 Conference KeyNotes The Human Capital Metrics Conference

6 Trends in Human Capital Metrics Organizations are increasing the frequency and sophistication with which they use analytics. The field of human capital metrics is evolving to reflect the increasing complexity and interdependence of human capital and bottom-line results. Moving toward evidence-based human resources Introducing and leveraging analytics will fundamentally change how human resources adds value to the business. Analytics can help solve business problems by creating common definitions of data elements and analysis. This accessible, reliable data increases speed to delivery of insights, engages clients, and focuses on answering business questions and creating useful dashboards that address business problems. The proficiency level of understanding and using data directly relates to how effectively human resources and business clients apply analytics to solving business problems. Once a human resources analytics team knows where a client stands on the continuum, it can present data to clients in a way they understand. Begin any analysis by first understanding the objectives of the client. When starting with a business problem, the focus of the analysis shifts away from data reporting to providing business insights. Answering business problems takes art and science. Providing data and analysis is helpful, but by applying the other half of the story to the analysis, clients can make the best business decision. Some insights can be gained without sophistication, using common sense and eyeballing data. The use of analytics should streamline and simplify decision making for business partners. By providing helpful data and insights, business leaders can focus on the areas of highest priority that yield the desired results, such as reduced process time, better decisions, cost savings, and automation of a process that adds value. Moving toward an objective, data-driven human resources function Companies are moving away from collecting additional data and are focusing more on making business-prioritized insights from relevant data and statistical analysis. Organizations are formalizing a data governance function responsible for data quality, alignment, and integrity in management processes across the enterprise and in systems, with a designated senior executive overseeing the integration of the data and analytics. Companies are creating a more consultative human capital role. Human resources staff should include individuals with both people and analytical skills who use insights gained from predictive analyses to drive change in an organization. Organizations are embedding human capital measures in their financial statements and creating a methodology that will account for the value added by intangible assets. Businesses are embracing the adoption and application of tools, process measurements, and solutions to make human resources a strategic business process. An increasing number of companies are mapping out processes that drive business results and determining the appropriate data to capture. They are decreasing the subjectivity of the data collected, reducing process variability, and evaluating data in the aggregate. 6 Conference KeyNotes The Human Capital Metrics Conference

7 BENCHMARKS Conference participants were polled on the following questions: Yes, there is a standardized set of company outcomes all functions must track Chart 1 Does your HR analytics team track key business outcomes that are critical to other business functions? Yes, a lot 15 8 No 26 A combination: some expenditures are viewed as costs to be minimized while others are viewed as investments in the future Chart 2 How are expenditures on employees treated by your CEO? 77% 7 16 As costs to be minimized As investments in future productivity/growth Yes, a few 50% Human resources is a full partner in developing and implementing business strategy Chart 3 Which is the following best describes the relationship between the human resources function and the business strategy of your corporations? % Human resources plays no role in business strategy Human resources helps implement business strategy once it has been developed Yes, we are well staffed and can reguarly deliver predictive analytics to the CEO Yes, we have a few people on staff but not enough to fully deliver what is needed to drive business performance Chart 4 Is your HR department currently staffed with individuals capable of producing predictive analytics? 61% 8 No 31 Chart 5 To what extent do business managers use people measures as a means to meet their strategic targets or key performance indicators? Significantly 10 Moderately 33 Not at all 14 Slightly 43% Semiannually Chart 6 How often are people measures reported to top management? not at all Annually Quarterly 35% Monthly 32 7 Conference KeyNotes The Human Capital Metrics Conference

8 ACTION PLANS What actions will participants take after the conference? A post-conference action survey highlights a range of objectives. Bolstering the Human Resources Function Refine the purpose and agenda of the team Create a value proposition for the human resources analytics team Draft an action plan for how to move our company up the human capital analytic curve Develop better forecasting capability, adding a statistician to the team Clarify a human capital model and articulate a human resources strategy Drive human resources strategy from performance outcomes Create links and identify gaps in human resources initiatives with strategic plan Working with Business Problems and Dashboards Report on more actionable, regional metrics to measure what is most important Define most meaningful metrics, prioritized by business needs Discuss the value of intangible and tangible assets Reassess our employee survey to ensure we are collecting appropriate data Carefully define business questions, understanding the critical factors Identify business questions before attempting to create a scorecard Ensure the dashboard provides information to contribute to better decision making Include non-human-resources data on our dashboard Construct a data-pull map Design some experiments for human resources interventions Determine the business-related impact of key human resources interventions Engaging Other Business Functions Develop a partnership with finance to better measure value in our analyses Develop common definitions of data with the information technology department Implement a data governance board Gain alignment with finance on key human resources metrics Schedule meetings with business leaders to understand what is really important to them 8 Conference KeyNotes The Human Capital Metrics Conference

9 Trusted Insights for Business Worldwide For more information Tina Nahmias Director, Logistics & Operations U.S. Conferences The Conference Board, Inc. 845 Third Avenue New York, NY United States Tel Fax The Conference Board China Beijing Representative Office Qijiayuan, 9 Jianwai Street Beijing P.R. China Tel Fax (Chinese) (English) The Conference Board Europe Chaussée de La Hulpe 130, box 11 B-1000 Brussels Belgium Tel Fax The Conference Board Asia-Pacific 22/F, Shun Ho Tower Ice House Street, Central Hong Kong, SAR Tel Fax Related Resources from The Conference Board Research Reports Strategic Workforce Planning in Global Organizations Report 1457, January 2010 A Global Barometer for Measuring Employee Engagement Report 1560, December 2009 Working at the Intersection of Human Resources, Ethics, and Compliance The Need for Collaboration Report 1453, October 2009 Implementing Strategic Workforce Planning Report 1444, June 2009 Evidence-Based Human Resources: A Practitioner s Guide Report 1427, June 2009 Evidence-Based HR in Action: Case Studies Report 1427, July 2008 Evidence-Based Human Resources: A Primer and Summary of Current Literature Report E-0015, December 2007 Strategic Human Capital Measures: Orientation, Accountability, and Communication Report 1417, June 2008 Executive Action Reports Changing Attitudes to Work What Should HR Do? Executive Action 298, March 2009 Human Resources: Changing to Drive Business Strategy Executive Action 265, April 2008 Councils Advisory Council on Human Resources Management Asia-Pacific Hunan Resources Council China Human Resources Council European Council of Human Resources Executives Global Human Resources Council Global Human Resources Council II HR Executive Leaders Council Human Resources Council India The Conference Board Council Program For more than 80 years, The Conference Board has organized small, intimate, cross-industry networking peer groups that bring together executives in a specific function to share information and best practices. These highly interactive members-only networks facilitate ongoing interaction, communication, and benchmarking among leaders from the world s top companies. Each group is a unique memberdriven forum enhanced by the vast resources of The Conference Board, including our research, economic forecasts, conferences, Research Working Groups, webcasts, and special events. Periodic face-to-face meetings help to foster the strong personal relationships that make council participation such a powerful ongoing resource for today s busy executives who need a source of immediate and trusted feedback. The Conference Board of Canada 255 Smyth Road Ottawa, Ontario K1H 8M7 Canada Tel Fax Conference Board India 701 Mahalaxmi Heights, A Wing Keshav Rao Khadye Marg Mahalaxmi, Mumbai India Tel Copyright 2010 by The Conference Board, Inc. All rights reserved. The Conference Board and the torch logo are registered trademarks of The Conference Board, Inc. The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: to provide the world s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity, holding 501 (c) (3) tax-exempt status in the United States.