How to Build an HR Analytics Center of Excellenceeccinternational.com/iNugget/newsletter/kpacket_How_to_Build_an_HR... · How to Build an HR Analytics Center of Excellence Using analytics

WHITEPAPER

How to Build an HR Analytics Center of ExcellenceHarnessing workforce data to drive strategic decision-making

How to Build an HR Analytics Center of Excellence Using analytics to turn data into insights regularly provides strategic advantage to all areas of organizations, from marketing to supply chain management and finance. So why does HR struggle to succeed where other functions do so well? The formation of an HR Analytics Center of Excellence can enable firms to derive strategic insights from workforce data and justify the investments made in HR programs and technology. Based on extensive research, this paper discusses the challenges and best practices when creating an HR Analytics Center of Excellence and can guide organizations in setting realistic expectations for establishing an HR Analytics CoE.

WHY BUILD AN HR ANALYTICS CENTER OF EXCELLENCE?

a) Workforce Analytics and Planning in the Spotlight

Organizations have invested significant amounts in HR technology over the years, with AMR Research estimating the total annual spend to exceed $12.8 billion by 2012.1 HR is therefore increasingly challenged to deliver value to the business from the vast troves of information.

Some HR systems provide efficiencies, such as transaction automation, that justify the investment. However, many large systems (including ERP/HRIS) cost millions to acquire, implement and maintain; and total costs can increase due to the significant levels of IT support required to process transactions and store data efficiently.

Getting meaningful business information out of these HR systems is a challenge for many HR organizations. Companies are often forced to create new analyst roles that revolve around pulling data from various systems on request. A greater challenge is the need for HR to provide deeper insights about an organization’s workforce, which are usually promised as an outcome of these projects. This is a promise that, to date, very few organizations have been able to fully keep, with Gartner estimating that 70% to 80% of all corporate business intelligence projects fail to deliver the expected value.2

The bottom line is this: the “return on information and insights” promised when these systems were acquired have failed to materialize for many organizations, creating significant pressure to deliver them.

b) Lessons Learned from Marketing and Finance

Why is it so hard for HR and IT to turn workforce information into business insight? How can they achieve a return on their investment not only in systems but also on the ever-growing stores of data they contain? More to the point, why does it always seem that HR is so far behind finance and marketing in its ability to answer critical business questions?

SUCCESSFACTORS / WHITEPAPERHow to Build an HR Analytics Center of Excellence

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Relative to other business functions, HR measurement is in its infancy. The accounting discipline dates back over 500 years: its birth widely credited to Luca Pacioli, a Franciscan Friar and contemporary of Leonardo da Vinci. Marketing has evolved over many years into a decision-based function with a heavy emphasis on analytics and statistics. The analytical market research of companies like Procter & Gamble and Johnson & Johnson allow them to determine not only what color packaging will sell the most product, but also how much more incremental revenue that product will provide. By contrast, HR did not begin its transformation from personnel administration to a true decision science until the late 1970s and early 1980s, and is only now beginning to overcome its reputation as a “soft skills” function.

The more mature business functions are enjoying their head start, having already honed the ability to gather data and leverage analytic techniques to turn information into insights. Their ability to make data-driven recommendations on how to reduce costs and increase revenue has provided a significant strategic advantage to many leading companies – and significantly increased the value placed on these analytical roles. These jobs are now so deeply embedded and valued within these organizations that many companies feel they can’t function without them. This is particularly significant given the current economic climate and the competition for human resources that comes with it.

What can HR learn from these examples and how can this be applied to achieve the same kinds of results?

c) Transform HR Data into your Biggest Asset

First, there is a specific set of skills and, by extension, workers that are necessary to take data and turn it into insights that can drive strategic decisions. For many companies these are new skills that will need to be built internally or bought on the open market, and it won’t happen overnight. Second, there needs to be a dedicated group whose primary focus is workforce analytics. While some organizations succeed in making this discipline a part of someone’s job, most ultimately find that dedicated resources are necessary.

Gartner frames the challenge and the opportunity that this presents: “In times of economic uncertainty, HR and business leaders who are able to make tough decisions based on a strong factual position will succeed where others fail.”3 Fact-based decision-making of this kind is only possible through collection and analysis of reliable workforce data. But for most organizations the problem is not that there is not enough data – it’s that there is too much.

This is why an HR Analytics Center of Excellence (CoE) is such a valuable asset for many organizations. A dedicated team with the capability to extract and interpret the data – as well as communicate its implications to stakeholders within the business – allows HR to have a significant bottom-line impact. This is essential to increase HR’s influence because it ultimately facilitates the alignment of a company’s workforce objectives with its broader objectives. In short, it delivers business results.


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NINE SECRETS OF CREATING A SUCCESSFUL HR ANALYTICS CoE

For all its benefits, forming a functioning HR Analytics CoE is a daunting task for many organizations. The time it takes to get sponsorship, build a team, establish credibility and begin to deliver results is often longer than many organizations anticipate.

To better understand the key elements in establishing such a function, SuccessFactors has conducted in-depth research in collaboration with its customers to identify best practices. The findings of this study highlight key considerations and can guide organizations in setting realistic expectations for establishing an HR Analytics CoE.

1: Appoint an Analytics CoE Champion to Build Support

A successful CoE requires sponsorship by a senior level HR executive who will evangelize the benefits of an HR analytics function and clearly articulate how the CoE model will best deliver value.

While the CoE champion will play many roles, the first will be to help define the mission and overarching agenda for the CoE. This will allow him or her to identify those business leaders most critical to the success of the endeavor and build support with these key players. A major element in this effort is to set and manage expectations as to what the CoE can realistically deliver and, more importantly, how quickly. Once established, it will be important for the champion to revisit the agenda frequently to ensure that its objectives remain well aligned with the evolving needs of the business.

It is critical that the CoE champion understands the broader business strategy and is able to explain the impact that workforce outcomes have on the revenue, productivity, and profit of the organization. He or she will need a strong sense of how ready the culture is to start using HR data in a new way, and have the wherewithal to remove roadblocks that can drive a CoE off mission.

Sherry Holtz, Director of HR Effectiveness for Thrivent Financial for Lutherans, a diversified financial services firm, explains that the implementation of their CoE was part of a broad-based “transformation of HR” into a decision science. Thrivent Financial’s SVP of HR drove this transformation and saw the value in establishing a CoE to mobilize the effort. “We knew we couldn’t achieve our vision for HR without establishing and then maturing HR’s expertise and tools in human capital analytics,” Holtz notes.

Once the CoE is up and running, one pitfall that organizations sometimes face is CoE findings that contradict messages communicated previously by HR, or challenge long-held orthodoxies. Here a champion can play a critical role by pre-communicating results to sensitive parties and helping to properly frame communications from the CoE.

“We knew we couldn’t achieve our vision for HR without establishing and then maturing HR’s expertise and tools in human capital analytics.” Sherry Holtz, Thrivent Financial for Lutherans

2: Review Existing Processes in a New Light

Individual organizations, and even business units, will vary in their readiness for an HR Analytics CoE. Surprisingly, organizations that have had little reliance on HR data may find it easier to launch a CoE than those that have struggled for years to deliver basic HR information consistently and accurately. In the latter case, more time will be needed to address data quality and existing reporting information around the organization.


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This was the case at Safeco, a property and casualty insurance firm recently purchased by Liberty Mutual, where many people from both inside and outside of HR were already doing regular workforce reports and small analyses. Jared Flynn, former Director of Workforce Planning and Analytics, says that part of his job was to identify who was performing these tasks and to decide, going forward, which tasks should be done by the CoE and which didn’t need to be done anymore. He speaks of creating a huge “stop-doing” list of redundant or unnecessary tasks. While time-consuming, this kind of scope audit can be extremely valuable. “For every task you may find 1/10th of a full-time equivalent (FTE) sucked in. Eliminate ten of those small tasks and that’s one full FTE you’ve saved.”

Still, many will cling to their existing activities and resist giving up those tasks. Flynn says: “I spent a lot of my first few months just having coffee with people, trying to listen and understand what they were doing.” A key step in assessing the level of readiness is to review the current usage of HR data, the appetite for doing more with the information, and how many teams are currently providing reporting or analysis on HR data. Existing data quality issues and competing metrics definitions are common initial hurdles. Accurately assessing these items and overall readiness will be critical to the success of establishing a CoE.

A key step at this stage is to clean up historical data, instead of just implementing rigorous data standards on a go-forward basis. Brian Priebe, who heads Thrivent Financial’s CoE, describes the approach they took: “Our PeopleSoft system had always been viewed as a tool for processing transactions, not as a reporting system. We knew that to really move forward we had to treat it as more than just a transactional tool. We spent several months cleaning up over 1,000 data records, fixing reason codes and standardizing transactions. This was essential in establishing it as our ‘single source of truth’ and allowed us to feel confident in the accuracy and consistency of our data.”

Holtz adds: “It was really important that we had historical data going back several years, otherwise any of our findings could just be attacked as aberrations in the data. While it was tedious and time-consuming to clean-up the historical data, it was necessary to ensure our credibility.”

3: Find the Right Talent to Build the HR Analytics CoE Team

A successful CoE requires a mix of analytical, consultative and communication skills. On the analytics side, familiarity with HR systems, data, and processes is critical from the start as data quality is assessed and standards are established. Consultative skills are needed to understand the priorities of the organization and translate those issues into analytics projects that will resonate with business leaders. It is fairly rare that one individual will possess, at least initially, both of these critical skill sets. As such, it is important to note that most CoEs need to have at least two FTEs, even if they are shared in some capacity with other parts of HR or the broader organization.

One key point noted by the companies interviewed for this study is the need to have the right people on the team at the right time. In particular, it is important not to “over-hire” and take on someone whose skills will be little used during the initial rollout of the CoE.

Dan Barry, Director of HR Metrics and Analytics at Healthco, a health benefits firm, describes his thinking in staffing his team: “Organizational readiness drives, to some degree, your talent needs. For example, a strong statistical background is paramount to predictive modeling. But if your organization doesn’t ‘get’ the rudiments of reporting and analytics, the value is likely to fall on deaf ears. The CoE has to be able to do the basics first, and also do it well, to be credible. Your CoE needs to be one step ahead of what the organization is ready for; two may be too great a leap and your talent may not be used in the most effective and value-added way.”

“Your CoE needs to be one step ahead of what the organization is ready for; two may be too great a leap and your talent may not be used in the most effective and value-added way.” - Dan Barry Healthco


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Figure 1 shows how the headcount of different roles in a typical CoE might evolve.

Figure 1: Sample Resource Allocation - Analytics Center of Excellence (in # of FTEs)

Role “Start-up” “Building Momentum” “Expanding”

CoE Leader1.0 FTE

0.5 1.0

Consultant 1.0 2.0

Analyst 1.0 FTE 2.0 3.0

Statistician / Economist - - 1.0

Workforce Planner - - 1.0

Once the roles have been identified for the CoE, organizations must find the talent required; and this is often the most difficult obstacle. Gartner forecasts that at least 70% of organizations will fail to effectively exploit workforce analytics through 2012 due to a lack of skilled resources.3

This was borne out in our conversations with those who had built successful CoEs, who stressed the challenges they faced in finding the right skills to building their teams. Flynn describes it as “terribly painful” and, along with Barry, echoes the point that it may be necessary to look outside of HR to find the right people. “An HR background is a ‘nice to have,’ but I’m really looking for someone with the right analytical and consultative skills who I can put in front of execs. It’s enough for them to have the broad-based business savvy and learning ability to pick up the HR piece. The analytics skill set is much harder to teach,” he explains.

Figure 2 shows the three key roles that employees in a CoE must play to be successful. In most cases, no one individual will have the skill set to perform all three effectively. As such it is important to build a CoE with the appropriate mix of skills represented.

Figure 2: HR Analytics Roles

InformationHRIS Analyst

Insight Business Analyst

Impact Business Partner

Role in Data-Driven HR• Ensure high data quality• Connect systems activities with

HR strategy• Design systems with

consideration of ease of reporting and analysis

Expected Activities• Modify systems and data entry

processes to optimize data quality• Take corrective action to improve

systems and data quality as needed

• Prioritize data quality and IT projects given strategic importance

Role in Data-Driven HR• Deliver useful and relevant data to

decision makers• Transform raw data into

information and conclusions• Influence decisions and data

design

Expected Activities• Use consistent data calculations

and measure formulas• Analyze data in support of

strategic priorities• Communicate findings clearly to

relevant parties

Role in Data-Driven HR• Review data and analysis for

insights and conclusions• Serve as a connector to

and influencer of other data consumers

• Incorporate data into actions taken and decisions made

Expected Activities• Review reports and findings of

data processors• Communicate findings to others• Influence and drive analysis

activities• Review analysis in decision making

and policy setting meetings and activities

“It’s enough for them to have the broad-based business savvy and learning ability to pick up the HR piece. The analytics skill set is much harder to teach.” - Jared Flynn, Formerly of Safeco


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> >

4: Choose the Right Structure

Until the CoE has demonstrated proven results, it may not be possible to centralize your organization’s analytics function. As such, resources may need to be borrowed, shared or distributed. For example, the initial structure for the analytics function adopted by Pearson, an international media company, consisted of HR Directors representing Pearson’s business lines who brought a mix of analytical skills and senior level contacts. This approach may prove challenging from a resource allocation standpoint. Pearson’s Lisa Sullivan indicates “their participation is an added responsibility to their already full plates; they are limited in the time and energy they can spend on the team and its activities.”

There can be benefits, however, to starting out with a decentralized analytics delivery model. Sullivan continues” “In the beginning, when trying to prove results and gain momentum, shared resources with the key business contacts is a good start in getting the metrics word out to the line managers,” adding that this may be a great precursor to the organization “having a dedicated staff” which “would allow for more focused structure and workflow.” Some organizations do successfully maintain a decentralized analytics model on an ongoing basis.

In a distributed model, it is important that incentives and accountabilities are designed to ensure active participation from those selected to take part. These incentives need not exclusively be monetary, however. Building an HR analytics function provides excellent opportunities for learning and professional development, and the chance to help HR become more data driven is appealing to many HR professionals. Sullivan notes that the opportunity to develop analytics expertise and become a stronger strategic partner with business executives helped attract employees to join Pearson’s analytics team.

A centralized model can avoid some of the issues associated with lack of accountability, but other questions must be answered when using this structure. Specifically, who will the CoE’s staff report to? Will existing headcount be used, or will the CoE require additional employees? These can be challenging questions, particularly when resources are scarce and the CoE’s output is still hypothetical. In some cases it makes sense to leverage outside resources to mitigate these initial challenges. External consultants can act as arbiters in decisions related to metrics and the adoption of best practices.

Brian Priebe from Thrivent Financial speaks of the value in pointing to SuccessFactors’ The Metrics Standards4 when trying to drive different parties to adopt common definitions. “When we had a decision to make around how to define a particular metric or what type of transactions to include, we always found it helpful to point to the SuccessFactors’ Metrics Standards. It was really beneficial to have an unbiased third party, especially when we were asking people to change their practices.”

Figure 3: Distributed vs. Concentrated Structures- Same Amount of Resources, Different Challenges

Distributed Concentrated

Staffing40 people x 2 hours / week

80 HOURS2 people x 40 hours / week

80 HOURS

Structure

GENERALIST DRIvEN SUPPORT CENTER OF EXCELLENCE


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Director, HR Line Support Director, Human Capital Analysis

Business Partner

Business Partner

Business Partner

Human Capital Analyst

Human Capital Analyst

5: Have a Clear Vision. And Shout About It.

CoEs benefit enormously from a clearly defined vision statement that is circulated among key business partners. This helps to distinguish the purpose of the CoE from traditional HRIS, reporting and data management functions. Those functions remain important, but role clarity and scope for the CoE is essential in managing expectations and preventing it from becoming a “dumping ground” for anything related to HR data.

At Healthco, Barry wrote a mission statement for his team: “Through strategic partnerships, we will unleash the power of data and analytics to reveal human capital insights that help optimize and quantify business results.” - Mission Statement for CoE at Healthco

Holtz and Priebe from Thrivent Financial say they wished they had worked more with their HR business partners to establish expectations and role clarity right from the start. A vision statement would have helped, though they stress it would have needed to be flexible because, as Holtz notes: “At the beginning of our journey, we didn’t know what we didn’t know. So, we would have likely created a mission that was quite narrow and a vision that was short term. It was difficult until we were into our journey to understand the many possibilities for human capital analytics.”

Keeping a tight focus and building on small wins is important. Priebe says that he wishes they had focused their efforts on a couple of key metrics at the outset, instead of trying to “boil the ocean.” Thrivent Financial faced some resistance from its HR business partners at first, because “we threw a lot of metrics at them. We really needed to identify two or three meaningful metrics for each division.”

It is important to define and explain the fundamental differences between an analytics function and a reporting function. The reporting function involves the transfer of information from a system to a specific audience to provide visibility into an operation or to monitor key performance metrics. An analytics function exists to transform the information into insights to enable better strategic decisions. An HR analytics CoE leverages data from external systems to develop insights, integrating data from financial and operational systems, surveys and interviews, external government data, etc.

6: Choose Quick Win Projects that Showcase CoE Value

As quick wins will help to establish the credibility of the CoE, it’s important to select the right initial projects. These projects should be limited in scope and have a clear relationship to the bottom-line performance of the organization. They may be stand-alone projects or recurring analyses that will be revisited on an ongoing basis. Figure 4 provides examples of sample “starter” CoE projects that can be used to start small and build credibility for the CoE.


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Figure 4: CoE “Starter” Projects - Projects that can be addressed in 2 - 4 Months.

Sample Ad Hoc Projects Sample Recurring Projects

Analyze impact of downsizing efforts on managerial effectiveness

Assess training penetration for annual curriculum updates

Analyze pulse survey data before and after employee value proposition campaign

Indentify hiring trends to improve accuracy of recruiting forecast

Track timing of payroll errors to indentify seasonal trends

Report on health and safety incidents for annual status update

Review termination activity following performance review cycle

Any organization concerned about the costs of building a CoE should consider the potential payback from a better-understood and managed workforce. One of the first projects tackled by Barry and Healthco was an investigation of the turnover within a critical job family in the first year of employment. Healthco’s broad rate of turnover as an organization was quite good, but this group was much higher than the rest of the organization. Working with partners within the business, Barry’s team identified two areas driving 75% of this group’s turnover and worked with them to design a series of interventions allowing the business to avoid $7.5 million in costs in the first year. “The key was to calculate the cost of voluntary turnover in the first year of employment first, and then we established metrics to monitor this group more effectively.”

That’s just the payback from one project. In addition, the efficiency of HR itself improves as organizations develop a focus on, and understanding of, the value of good, actionable data. While this is not the primary reason to build a CoE, it is a valuable side benefit; think of the one FTE that can be saved by eliminating ten 0.1 FTE tasks. In some cases this will be the selling point that gets a CoE blessed.

7: Collect Data that Can Be Trusted and Used

Nothing risks credibility more than basing an analysis on flawed data. Ultimately, data is the outcome of processes and systems, which can become a tangled web of inconsistent definitions and department specific sub-processes over time. Left unaddressed, data quality issues will risk the credibility of the work produced by the CoE. It is therefore important to adhere to the following tenets:

Focus on the Critical Data: Determine which data elements are vital to understanding the specific challenges your organization is facing. For example, if turnover is a main concern, ensure that the data on termination and hire dates, department IDs and position types are accurate. Influence Upstream Processes: Consistent processes are at the heart of accurate and complete data. Understanding how data is generated (by whom, using what systems, after what training) will be critical to increasing data quality. Measure and Monitor: Ensuring data quality cannot be a one-time event. For many organizations this requires a cultural shift and will benefit from a system of ongoing data audits to ensure that progress gained is not lost later.

Getting the data right is a lot of work, but the payoff is substantial. Flynn says: “It’s all about how you want to spend your time. Do you want to be focused on the rendering of data, or on figuring out how to apply it to the critical questions you’re facing?”


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8: Use the Right Tools for the Job

While it is possible to be successful using basic tools including Excel™ or Access™, the benefit of using more robust tools and technologies quickly becomes apparent. Specifically, better data tools can add significant value by: i. Reducing the amount of time spent on low-value data activities ii. Increasing the capacity for innovation by reducing the time needed to revise analyses iii. Helping to avoid a “battle of the spreadsheets” requiring the reconciliation of multiple facts and figures from disparate sources of data.

As an example, one financial services firm SuccessFactors spoke with was spending over 120 hours each month gathering data and recreating Excel charts for a Human Capital report for senior leaders. Since implementing a software-as-a-service HR reporting solution, the report is created with a single click. Now the team is focused on managing data quality and providing strategic insights to business partners.

Limiting the “data heroics” required to complete an analysis will provide better analyses and save time – both of which have financial value. Flynn talks about reducing the turnaround time on his core HR reporting from ten days to four. This is faster than the numbers come in from finance, which provides a huge credibility boost in and of itself. Sarah Shiiki, formerly Program Manager for Workforce Analytics at Safeco, notes: “Our EVP of HR has stated he does not want anyone using people data unless it’s from our dashboard. That was a big win for us.”

9: Establish a Process and Communicate your Brand

Effective analytics requires a scientific approach to solving problems and developing interventions. To facilitate this, the CoE should work with business partners to develop hypotheses to be tested and proved or disproved. This enables the CoE to refine and clarify the relevant issues and also gain buy-in from the business, before allocating time and resources to a project. It also helps to clarify the ultimate goals of the business partner and the potential strategic impact of the project. Having this information facilitates the selection and prioritization of projects, and also provides guidance to the CoE during the course of the project.

The key is in establishing effective partnerships with other areas of the organization. Priebe from Thrivent Financial believes that they truly turned the corner with their CoE when they made a well-received presentation to the CEO and CFO of their organization. “We presented some forward-looking analysis on our Base Salary Run Rate and Manager Span of Control, showing them what the results would likely be if we continued down the same path. It was some information that was not only relevant at the time, but also actionable. After that presentation, they became champions for our analytics work.”

Developing consistent processes, and a recognizable look and feel for the CoE’s output, will help to establish credibility and company-wide familiarity. Coupled with valuable analysis, this CoE brand will generate confidence in the product and the capabilities of the team. Start building a brand from the beginning.

“We presented some forward-looking analysis [to the CEO and CFO]...that was not only relevant at the time, but also actionable. After that presentation, they became champions for our analytics work.” - Brian Priebe, Thrivent Financial for Lutherans


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CONCLUSION: IT’S NEvER TOO EARLY TO GET STARTED

Ultimately, forming a CoE requires three key steps: Prepare the organization, build the team and identify the projects. While there’s not one “right” way for an organization to start and structure an Analytics CoE, it is essential to build high-level support and identify team members with the right skill sets to be successful.

A common refrain heard from HR partisans is the desire for a seat at the strategic table. By leveraging business intelligence and analytic insights to have a bottom-line impact on the business, HR organizations with an Analytics CoE may just find their chair pulled forcibly into the boardroom. The question is not whether your organization can afford a CoE; it’s whether it can afford to go without one.

As McKinsey Quarterly puts it: “New tools and methods for analyzing data enable HR to define the link between ‘people practices’ and performance more effectively…the upshot: if you and your head of HR haven’t recently discussed ideas for using data to generate a talent strategy that’s more closely linked to business results, it’s time to start.” (March 2011)

About SuccessFactors

SuccessFactors is the leading provider of cloud-based Business Execution Software, which delivers business alignment, team execution, people performance, and learning management solutions to organizations of all sizes across more than 60 industries. With approximately 15 million subscription seats globally, we strive to delight our customers by delivering innovative solutions, content and analytics, process expertise and best practices insights from serving our broad and diverse customer base. Today, we have more than 3,500 customers in more than 168 countries using our application suite in 34 languages.

1 The Human Capital Management Market Sizing Report, 2007-2012, AMR, 2008

2 2011 CIO Survey, Gartner, January 2011

3 Best Practices, Workforce Skills are Vital for Effective Cost Optimization, Gartner, 2008

4 SuccessFactors’ publication The Metrics Standards teaches organizations how to interpret and use

200 individual measures across core HR topics including staffing, retention, capability and organizational effectiveness

* The names Dan Barry and Healthco are pseudonyms to protect the anonymity of the interviewee and company


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San Mateo, CA 94404, USA

PHONE 650 645 2000

FAX 650 645 2099

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How to Build an HR Analytics Center of Excellenceeccinternational.com/iNugget/newsletter/kpacket_How_to_Build_an_HR... · How to Build an HR Analytics Center of Excellence Using analytics