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, frontline managers and staff Build a business case for investing in talent/employees treat HR like a profit center!
SMD Publications Published by SHRM (2009) Bestseller for 2011 & 2012 Published by SHRM (2011) 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 Connecting Employees to Business Results HR Strategy & Planning Human Capital Measurement Talent Management Leadership Development Executive Assessment & Coaching Organizational Effectiveness 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.
Presenter Bio Scott Mondore, Ph.D. 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 Performance Management Examples of Business Outcomes Career Development Training Competency Builder Business Outcomes Selection 360 Feedback Employee Survey People Turnover Employee engagement Service Customer satisfaction Wait times Quality Clinical outcomes Product Defects Finance % to budget Cost reduction Growth Sales growth Margin growth Succession Planning
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 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 KNOWING/ DRIVING OUTCOMES Our analytics tell us that Customer Focus is actually the key business driver 9
www.metrus.com Organizational Impact
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 The Scorecard represents how success or failure of the strategy will be measured, tracked and assessed. HR Scorecard Element Deliverables Processes Alignment Results Definition The key HR deliverables that will help to leverage HR s role in your company s overall business strategy The key HR processes (e.g., selection, performance management, compensation) Clear alignment between the HR deliverables/processes and the overarching business strategy 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.
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
Aligning the HR Strategy with the Business Strategy LINKING HR DATA TO BUSINESS OUTCOMES
Talent-Link Key HR Processes Performance Management Examples of Business Outcomes Reward & Recognition Career Development Training Business Outcomes Selection Employee Survey 360 Feedback People Turnover Employee engagement Service Customer satisfaction Wait times Quality Clinical outcomes Product Defects Finance % to budget Cost reduction Growth Sales growth Margin growth Competency Builder Succession Planning
Assess Business Impact: Business Partner RoadMap TM 1. Determine Critical Outcomes 6. Measure & Adjust 2. Create Cross- Functional Data Team Business Partner Roadmap TM 5. Build Program & Execute 3. Assess Measures 4. Analyze the Data
Assess Business Impact: 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)
Aligning the HR Strategy with the Business Strategy A CASE STUDY
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 Performance Management Business Outcomes HRIS Data Training Business Outcomes Selection Employee Survey People Turnover Service Customer satisfaction Quality Shrink Finance Cost reduction Career Development 360 Feedback Competency Builder Succession Planning
Dimensions of the Employee Survey Engagement Resources Available Job-Person Match Regard for Employees Policies Hours Worked Manager Effectiveness Work Environment Customer Focus Career Development Benefits Recognition & Perf. Mgmt. 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 Job-Person Match Manager Effectiveness 1a 1b Engagement Ethics Course Participation 2 3 Legend Employee Survey Training Participation Terminations Competency Ratings Shrink Course Participation Dishonesty Terminations Achieve Results 2 2 1 Shrink Numbers in paths indicate the intervention priority based on the magnitude of the relationship with shrink.
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 Process Technology
Planned Interventions & Cost Training Build optional shrink training courses for specific roles $300k Recognition & Reward Deploy a store-level incentive program for meeting quarterly shrink goals $5 million Selection Nothing planned OD & Leadership Development Insert shrink focused messaging in a larger customer experience initiative $250k
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 retrain managers and employees
Revised Interventions & Cost Training Recognition & Reward Enhance and update ethics and shrink course make both mandatory $50k Nothing planned Selection OD & Leadership Development Improve selection process for front-line employees background checks & integrity testing $2 million Develop shrink management routines Develop shrink partnering program $50k
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
Linking Employees to the Bottom Line CALCULATING ROI
Drivers of Shrink Job-Person Match Manager Effectiveness 1a 1b Engagement Ethics Course Participation 2 3 Legend Employee Survey Training Participation Terminations Competency Ratings Shrink Course Participation Dishonesty Terminations Achieve Results 2 2 1 Shrink Numbers in paths indicate the intervention priority based on the magnitude of the relationship with shrink.
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%
Analytics and Scorecards USING ANALYTICS TO BUILD A HR STRATEGY
Integrating Line-of-Business and HR Priorities LOB Priorities HR Priorities Linkage Priorities Becoming a Business Partner
Timing Strategic Planning Begins Business Partner RoadMap TM Process Ends Financial Planning Begins Beginning of 4 th Quarter End of Fiscal Year; Beginning of 1 st Quarter
ANALYZE ACT ACHIEVE The Process Analyze linkages between data and business outcomes to identify key drivers of performance Translate results into action by providing senior and frontline leaders with easy-tointerpret reports and follow-up training Track results/goals on leader s performance plans and the organization s balanced scorecard
Linking People Assessments to Business Outcomes Identifying Critical Drivers of Business Outcomes 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. Salesforce Competencies Leadership Competencies Personality Factors Technical Skills/Abilities Experience Hire, train, & reward based on KNOWN drivers of results! Critical Business Outcome (e.g. Sales) Employee Attitudes
Key HR Processes in One Placeon One Scorecard
Performance Prioritizing Interventions: Sample Survey HeatMap Linked to LMS Courses Impact on Revenue (Beta Weight)
360 Reports: Connect Behaviors to Business Outcomes
Prioritizing Interventions: Sample District HeatMap District A Key Performance Drivers Key Drivers of Business Outcome District Department Name 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%
Examine Strengths and Gaps: Business-Focused Ready Now Scorecard TM Utilize the Ready Now Scorecard to Assess Overall Talent Pool Health Key Drivers of Business Outcomes 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?
Questions that Analytics Can Answer 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?
Questions that Analytics Can Answer 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?
Questions that Analytics Can Answer 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.?
Questions that Analytics Can Answer 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 frontline leaders Actual business impact must be shown Talent management platforms must be truly integrated with business results one password does not mean integration
Assess Business Impact: 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
Q&A
Contact Information Scott Mondore, Ph.D. Managing Partner smondore@smdhr.com 404.808.4730 www.smdhr.com