Aon Hewitt Talent, Rewards and Performance People Strategy Turbocharged by people analytics November 2017
Table of contents Introduction...1 People analytics as a foundation...2 Building a data driven people strategy blueprint approach...4 Conclusion...7
Introduction Over the past few years, companies have faced new challenges: an increasingly dynamic business environment, the emergence of disruptive technologies and demographic changes are making the future of their businesses increasingly uncertain. As a result, business planning and forecasting has become a key element of corporate strategy. At the same time, technological advances such as automation, big data, machine learning and artificial intelligence have increased the sophistication and accuracy of the predictive models used for business planning. This has meant that companies have become more focussed and precise in their strategy implementation. Business Planning People Strategy HR Strategy Analytics HR Planning Arguably the most important part of the business is the people, without whom nothing can run. The people strategy is the part of business strategy that identifies the workforce requirements and capabilities and explains how they contribute to achieve the expected business outcomes. The people strategy is a business discipline; it drives the HR strategy. In this framework, the HR strategy is a concrete set of programmes and initiatives that HR will need to define and implement to achieve the objectives as set by the people strategy. Companies are not only facing new business challenges, but also fundamental people challenges. People expectations are more complex and fragmented than they used to be. A need for individual and/or flexible working patterns, more recognition in the workplace, personalised training, portfolio careers; these are just a few examples. In parallel, the job market is becoming more specialised and fast-changing: there is increasing need for professionals with more tailored skillsets and both the demand and supply of talent are evolving fast. The complexity of business planning needs to be mirrored in both the people and HR strategies. Here we provide two examples that we often experience in companies where strategies are defined within the HR team. Example: In Company A, the business strategy is developed every three years and updated annually. Business leaders gather market, customer and financial data, discuss in multiple sessions and summarise their assumptions and actions in a strategy document, which then becomes the main source of input for the HR strategy. The people-related strategy is analysed and discussed during a series of workshops with a number of business and HR stakeholders. The outcome of these workshops is a list of concrete HR actions that are then prioritised on flip charts, and summarised in an HR strategy document. In this scenario, the HR strategy is defined based on experience, individual preferences, gut feelings and, potentially, internal politics. Actions based on such an approach cannot be easily tracked. There is no real use of data to understand the workforce, their needs and how their actions will impact engagement, productivity, innovation or collaboration. Example: In Company B, the business leaders decide that their priority is a stronger ownership culture to increase the entrepreneurship of the company. HR steps in and proposes a long-term incentive plan based on employee share ownership. The plan despite costing Company B a lot of money seems trustworthy, because it is designed using solid benchmarking with peer companies. Before implementing the plan, Company B should answer the following business questions: How does the company know that this initiative will lead to the expected results? Does the benchmarking data accurately reflect the employee target groups in the company? What is the expected ROI of the initiative? In a business context, these sorts of questions are usually expected and addressed with data. In an HR context, however, this is still not the case. In our opinion, we have reached a tipping point in people strategy development. Based on our research, we see a substantial investment in people analytics units in companies. In order to reap the anticipated benefits, these initiatives should be linked directly to business outcomes, including measurable financials. A data-driven people strategy will then enable the HR functions to provide the strategic advice business leaders require to compete and survive in an evolving marketplace. Aon Hewitt People Strategy 1
People analytics as a foundation People analytics is the foundation of a successful people strategy. It refers to the practice of analysing data about an organisation s people to gain perspective that can help business leaders make informed HR decisions; creating actionable insights that drive business performance. In recent years, people analytics has become a hot topic, with the emergence of many success stories in organisations around the world. Many HR professionals despite recognising the importance of adopting an analytical approach are still showing a certain resistance and postpone the discussion on how to transition to a mature people strategy; common justifications include the idea that there is not enough data to make the analytics relevant, that the data may not be secure and that dataprivacy or internal data-breach policies might prevent it. On one hand, it is important to recognise that these concerns are often well founded; on the other, they should not prevent an organisation from moving forward in its people analytics journey. No two situations are ever the same, and no two companies are at the same stage on their maturity model (see figure); but those that are more behind if anything should work even harder to bridge the gap with those further down the path to data-based decision making. External view Cross-functional view HR View Starting point Analytics journey Tier 1 Basic dashboard Tier 2 Reporting Tier 3 Insights Tier 4 Research predictive models Aon Hewitt People Strategy 2
Starting a journey of a data-driven people strategy will always have its challenges. Before you start, you will need to address: Aggregated vs. individual data People analytics truly comes to life with data sets on individual employees rather than generic data sets containing aggregated results. Therefore, it is vital that companies maximise the amount of individual data that is available for the analyses that will then feed into building the strategy. Data privacy and protection are very important, of course, but they should be seen as the framework within which to operate, rather than an insurmountable obstacle. In our experience, it is possible to operate effectively even in the toughest legal environments: Secure the governance for people analytics! Data quality Data sets need to be brought together from different sources. This often unveils data errors, gaps and other other inconsistencies. Typically, the extent and impact of the problem will only be fully understood when the first strategic assumptions are being checked. Companies will then be able to understand what data sets are required and develop a systematic plan for obtaining them to close the gaps. Data quality is an integral part of the analytical work and should not be used as an excuse to slow it down; HR managers need to break through the silos: Start with what you have and continuously improve! Isolated HR processes HR tends to be separated, technically and logically, from other business functions and this means that additional and often very important data is not accessible because of these data silos within the company. It is important to encourage more cooperation within HR as well as across functions, for example with Finance, where useful information such as KPI data often sits. To facilitate this, companies should focus on the processes and data that are critical for business outcomes. In addition, while the people strategy should focus on processes and analytics that drive business outcomes, part of the HR strategy should be about solving these HR operational issues: Integrate and collaborate! Lack of analytical capabilities in HR With the exception of a few companies, the HR function typically does not have analytical capabilities in the team; starting a new journey in the HR space that is characterised by data, analysis, and hypothesis-testing can therefore be very discouraging. Those capabilities are often present in other parts of the organisation, but tapping into them is often complicated because of the siloes mentioned above, and because of the sensitivity of the data analysed: Start building capabilities now! Aon Hewitt People Strategy 3
Building a data driven people strategy blueprint approach The people strategy always starts from the business strategy process. The people strategy and the business strategy need to be intertwined: they should reinforce each other and they are both part of a standard corporate strategy process. A one-size-fits-all solution does not exist, and the integration of the people strategy into the business will be unique to every company. In our experience, the quality of the people strategy is greatly enhanced by following a systematic ( scientific ) approach. We introduce a process based on the analysis of company data to understand the internal context; the findings are then integrated with benchmarking research to compare them with the wider business context; lastly, external/public data are used to provide a holistic picture. 1 Business strategy 5 Act and monitor 2 Myths 4 3 Benchmark Facts Step 1: Make business strategy assumptions transparent Every business strategy is built on assumptions around industry drivers, competition and market consumer trends. Companies need to add sophistication to the assumptions made about the workforce. Questions around required productivity, innovation, sales effectiveness and overall organisational capabilities are some of the key inputs to the success of business strategy. Example: A technology company s key priority in the coming years is to invest in R&D, with the aim of developing three to five highly innovative products that will revolutionise and disrupt the market. Investment has been approved to increase the workforce by 10% each year, for the next five years, in the business lines that the Board sees as more likely to succeed. To reach this point, assumptions have been made concerning workforce productivity and availability. Aon Hewitt People Strategy 4
Step 2: Define myths Assumptions lead to beliefs about the workforce, their behaviours and outputs. These beliefs are usually derived from the experience of managers, assumed knowledge and gut feeling. We call them myths or company wisdom passed along in the organisation from manager to manager, sometimes kept alive for years and rarely tested by analytics. Making business assumptions transparent will enable myths to emerge. For example, a company that assumes that the R&D department is sufficiently innovative to achieve the strategic business objectives. Example: Following on from the previous example, the board of the company wanted to ensure a future growth strategy based on new product innovation. The key questions the board wanted to check were: Are we sourcing the right talent, with the right innovativeness profile and sales effectiveness, and with the right skillset to complement what exists within our current workforce? Are we promoting the right talent to ensure they are kept engaged and willing to innovate? And do our leaders have the right tools to drive innovation and performance in the company? Are our high performing and high potential employees committed to the strategic objectives? Step 3: Provide facts Hypotheses are statements about the workforce that can be checked with data and analytics. Individual data sets are combined to derive patterns and provide aggregated insights and to confirm or reject the hypotheses. Notice that real business scenarios are never black or white and hypotheses are rarely verified or rejected for the company as a whole, but require a more granular segmentation based on business units, geographical regions, or other demographic factors. The output of this analysis is a set of proven facts (as opposed to the myths) that provide the foundation on which a truly data-driven people strategy can be built. Example: The company was confronted with facts that were, at times, surprising and counterintuitive: Analysis of personality tests taken at the time of hire confirmed that the sourcing strategy was working and new hires had the profile of innovator On the other hand, employees in R&D functions were not truly innovative, with the exception of high performers Contrary to expectations, only 30% of high potentials or high performers were truly engaged Finally, other data points were provided that would confirm or reject other specific hypotheses Step 4: Supplement with benchmarking Companies do not have all the information to define a holistic and integrated people strategy; one which takes into account the complex environmental, political, economic, and societal dynamics that the workforce is subject to. The use of benchmark data is essential to understand how a company is positioned in the wider context, how wide the gap is with their competitors, and what can realistically be achieved, taking all external factors into consideration. Example: The technology company benchmarked data from leading companies to understand what other companies are focussing on and to compare their data with its own key performance indicators analysed in the previous phases. For example: Cultural traits of high growth or innovative companies and their leadership behaviours Importance of specific programmes for employee target groups, for example those in the area of flexible working for talented young innovators Aon Hewitt People Strategy 5
Step 5: Define actions and monitor over time Based on the facts (instead of gut feelings) and on the appropriate benchmark data, HR can calibrate a set of actions upon which the business can confidently rely. Actions should be measurable initiatives, the effectiveness of which can be tracked over time. Companies should develop tools to monitor the effectiveness of the implemented actions. Over time, a successful people strategy will have an impact on both the business and the workforce. As a result of this, the original assumptions and hypotheses will change and so the process will start again. Timing is key and the system in place should produce reports that are detailed yet intuitive enough to provide the right level of information to the business decision makers. Example: A web-based tool has been developed to enable the company s people analytics team to explore and interact with the data on an ongoing basis. The data is refreshed regularly, allowing the team to monitor changes in the workforce s KPIs as HR programmes and actions are rolled out and to focus their analyses on new segments of the workforce that were not analysed before. This information is periodically fed back to the Board, who can review and adjust the strategy as necessary. Developing a data-driven people strategy requires different skill sets which HR has not yet fully developed or was not focussed on in the past. HR needs to be able to analyse data journeys and the ways that data can be combined to achieve insights. The most important capability is storytelling, based on patterns that you uncover. We fully subscribe to Daniel Kahnemans quote: Nobody ever made a decision based on a number. They need a story. Aon Hewitt People Strategy 6
Conclusion We have shown how to define an audit trail from the business strategy to the people strategy and how this naturally leads to the definition of HR programmes and actions, which can be monitored over time to measure effectiveness and to feed back into the business strategy, in a virtuous loop that links people performance to business outcomes. The journey to full integration between the people and business strategies is a long one. People analytics will provide the basis for a more data-driven process, but implementing it is not easy. It is characterised by a number of technical and organisational challenges that need to be resolved before reaching full maturity. In addition to that, developing a data-driven people strategy requires skill sets which HR has not yet fully developed or was not focussed on in the past. HR needs to become more analytical to be able to analyse data journeys and the way data can be combined to achieve insights. It also needs to become more business-oriented to be able to create strong links between insights and the business strategy. In addition to that, there are broader questions that HR professionals should address: Is HR prepared to support the people strategy process? Is the people strategy integrated into the business strategy? Do we have sufficient data aligned to the business strategy assumptions? Can we predict the success of the strategy based on people analytics? Are we tracking the right metrics derived from the people strategy? Despite these complexities, we believe it is time for HR to take bold steps and tackle the potential internal roadblocks for this vital development. People analytics should be the starting point of any strategic process involving the workforce. Investment is needed, but the benefits are fascinating. Aon Hewitt People Strategy 7
Contacts Piotr Bednarczuk Strategic Advisory Senior Partner Aon Hewitt +44 (0)20 7086 3645 piotr.bednarczuk1@aonhewitt.com Alessandro Linari Lead Data Scientist Aon Hewitt +44 (0)20 7086 5081 alessandro.linari@aonhewitt.com Eddie Short Managing Director Aon Hewitt +44 (0)20 7086 5075 eddie.short@aonhewitt.com About Aon Hewitt Aon Hewitt empowers organisations and individuals to secure a better future through innovative retirement, health, and talent solutions. We advise and design a wide range of solutions that enable our clients success. Our teams of experts help clients navigate the risks and opportunities to optimise financial security; redefine health solutions for greater choice, affordability, and wellbeing; and achieve sustainable growth by driving business performance through people performance. We serve more than 20,000 clients through our 15,000 professionals located in 50 countries around the world. For more information, please visit aon.com Aon Hewitt People Strategy 8
About Aon Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance. For further information on our capabilities and to learn how we empower results for clients, please visit http://aon.mediaroom.com. Aon plc 2017. All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales. Registered No: 4396810. Registered Office: The Aon Centre The Leadenhall Building 122 Leadenhall Street London EC3V 4AN Copyright 2017 Aon plc www.aon.com