Linking KPIs to Critical Human Capital Questions Webinar

7/30/2019 Linking KPIs to Critical Human Capital Questions Webinar

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August28,2013

HumanCapitalManagementInstitute

Presents:

LinkingKPIstoCritical

HumanCapitalQuestions

HUMAN CAPITALMANAGEMENT INSTITUTE


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AboutHumanCapitalManagementInstitute

HCMI Background:

SpecializedinHRanalysis&measurement

DeepexpertiseinWorkforceAnalytics&Planning

BoardmadeupofCFOsandHRheads

What We Do:

Measuretheimmeasurableinhumancapital

Transformworkforcedataintobusinessintelligence

Providetechnology,consultingandtrainingsoHRcanpartnerwithFinance

2

SOLVEWorkforceIntelligenceSoftware StrategicConsulting Training

BestPractices WorkforceAnalyticsandPlanning Benchmarking

TheHumanCapitalManagementInstitute(HCMI)wasfoundedonthebeliefthatorganizationscanandmust,findbetterwaysofmeasuringtheirinvestmentsinhumancapital.Ourvisionofthefutureisoneinwhichhumancapitalmeasurementandinformationisasintegraltobusinessdecisionmakingasfinancialinformationistoday.

We

Bring

Financial

Discipline,

Standards

and

Rigor

to

the

HR

Function



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HCMIProductsandServices

HumanCapitalFinancialStatements HumanCapitalImpactStatement HumanCapitalAssetStatement

HumanCapitalFlowStatement

WorkforceQuantifierROICalculator ROIofWorkforceDecisions CostofTurnover,WorkforceCost,CostperHire BusinessCaseforHRInterventions

DataIntegrationBlueprint ModularTalentManagementComponents DetailedDataDictionary+MetricFormulas KeyAnalysisSegmentsandDimensions

HumanCapitalMetricsHandbook Over600MetricsandDetailedDefinitions Morethan100KPIandBestinClassMetrics UniqueMetricsthatMonetizeHumanCapital

WorkforcePlanning LinkWorkforceandFinancialMetrics AdvancedRetirementCalculator ForecastSkills,Costs,TalentandProductivity

JobFrameworkMapping

IntegratedTaxonomy15,000+jobs MapCriticalJobRoles

WorkforceCapabilityAssessment DataandSystemsCapability+RiskAnalysis HumanCapitalMeasurementStandards

SpanofControlOptimizerTool BenchmarkandOptimizeSpans OptimizeManagementLayers

CareerPath

Quantifier

ROIofCareerPath Build,Buy orLease TalentAnalysis

AnalyticEngagementProjects HighPerformerProfiles EngagementROIandSalesImpact TurnoverandRetentionDriverAnalysis

InitialReports& Analysis

DataGathering

FirstGoodMetrics

HRData WarehouseDrilldown,standardreports

ScenarioAnalysis

External

BenchmarkingContextfordecisions

DataDriven Decision

Making!

Turnover,Headcount,Hiring

HRISsystemdata

COEFormation

DataErrors

HRAnalytics

Mandate

HRStandardsEstablishedLost HR

Credibility

HRdata/systemsAssessed

HRData Cleansedhistoricaldatascrubbed

Bus.UnitsReject

Analysis

Data Errors

Historicaldatastillbad

1stAnalyticsStudy

Advanced

AnalyticStudies

HRAnalysis

ValidatedIntegratedHRDatabases

COELaunchesTraining

Courses

Bus. UnitsDemandmore

Analyticsjourneysteps

Setbacksalongtheway

Journeypathandgoal

HRRoadmapDesign StepbyStepActionableDeliverablesandInsights Mapfor,Systems,Data,Tools,Skills,Metrics+more

TrainingandAdvisorySupport Expert,Guided,StandardandCustomized OngoingAdvisorySupportServices BeginningandAdvancedTraining

SOLVEWorkforceIntelligenceSoftware IntegratedDashboard,AdvancedTools,Metrics,

DataBlueprintandPredictiveModeling AutomatedCompletionofHCFS

StatisticalSales

Predictor

PredictRevenuebyEconomic/WorkforceFactor LinktoEconomicDriverstoWorkforceMetrics

HumanCapitalManagementInstitute 3


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Background:MeasuringHumanCapital



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MeetingtheNeed:WhatDoesitTake?

WorkforceMeasuresthatLinktoBusinessResults

Asinglepointofdataisnotenoughtomakeastory

We

need

context

to

show

value

and

explain

the

linkage

Historicaldataisimportant,predictivedataiscritical

What

will

our

workforce

will

look

like

in

5

years

? Wherearewegoing,thenwelldecideifweneedtochangecourse?

Dataisnotenough,analyticsmustshowstoriesandinsights

Whatareourcriticalworkforceissues?

Whatareourcriticalworkforcemetrics?



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TheChallengeofMeasuringHumanCapital

Compensation

Transfers

New HireTurnover

SuccessionData

Turnover

Training

Recruiting

EmployeeData

Benefits

Span

of Control

Workforce

Planning

SuccessAdvanced

Analyti cInsights

ComplexityofWorkforceData

Employee/FullTimeEquivalent(FTE)

Jobs/Roles/Skills

Time Tenure

Compensation($vs.Equity)

Frequencyof

Change

Promotions,Transfers,Hires,Terminations

Jobs/Roles/Skills

Time Tenure

MeasuringtheIntangible

LackofStandards

LackofAnalyticSkills



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WorkforcePlanningvs.WorkforceAnalytics


WorkforceAnalytics

WorkforcePlanning

Present

Future

Past

PredictiveAnalytics

Trend

Analysis

Workforce

Knowledge

Key

Performance

Indicators

WorkforceOptimization

FutureScenarios

Workforce

PlanningPlanningandAnalytics

WorkforceAnalytics

WorkforcePlanningandAnalyticsLinkageStrong WorkforceAnalyticsinsightsenable

futureWorkforcePlanningsuccess.


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TheMetricsJourney

BaseData NoMetrics

CalculatedMetrics(e.g.TurnoverRate)

SimpleMetrics(e.g.Headcount,Terminations)

CombinedSourceMetrics(e.g.TimetoProfitability)

InsightfulMetrics(e.g.RevenueperFTE)

AdvancedMetricscombinedcalculatedmetrics(e.g.CareerPathRatio)

IndexMetrics(e.g.NewHireSuccessRate)

ComplexIndexMetrics(e.g.QualityofHire)

HowdoyouStackUp?



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MetricsandtheTalentManagementLifeCycleQuantifying

Workforce

and

HR

Impact

Whatareyourorganizationskeymetricsateachtalent

managementlifecyclestage?

Howareworkforce

productivity,valueandimpactcalculated?

9

Recruiting&Hiring

Training

(L&D)

Performance&

Engagement

MobilityCareerPath

Turnover&Retention

Leadership&

Management



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LinkingKPIstoCritical

HumanCapitalQuestions



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AnsweringtheRightQuestions

WhatIfHRcouldanswerthefollowing:

1. Whatisourworkforceproductivity?Isitimproving?Howdowerank?

2. Isitbettertobuild,buyorrenttalent?Whatistherightworkforcecost?

3. Areleaderseffectivelymanaginghumancapital? Doleaderscorrelatetoemployee

engagement,retentionandperformance?

4. WhatistheROIonourtraininginvestment?

WhatWorkforceandBusinessIssuesdoyouFace?



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Question1:WorkforceProductivity

HCROIRatio =(Revenue (TotalExpenses TotalCostof

Workforce))/TotalCostofWorkforce


Question:

Whatisourworkforceproductivity?Isitimproving?Howdowerank?

Metric:

Description:

Net operating profit impact of each dollar invested in human capital.

Background:Organizations tracking Human Capital ROI Ratio can effectively measure the linkage of overalltrends in market value over time (for publicly traded or other organizations for which a relativemarket value is obtainable). Ideally, this metric should be used for long term strategicpredictions rather than short term measurement as market value can fluctuate dramatically dueto uncontrollable events as well as industry and market changes.


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Example1:WorkforceProductivity

Traditional

Productivity

Metrics

Leading

Productivity

Metrics

SummaryHumanCapitalImpactStatement

HumanCapitalROIRatio PriorYearCurrentYear%Chg

RelativeValueAdd

(Productivity)by

JobGroup



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CaseStudy1:ProductivitybyJobCategory

QuestionsAnswered

WhichJobsHavetheHighestROI?

WhichJobsCreatetheMostValueRelativetoCost?

WhichJobsHavetheBestOpportunityforTrainingInvestment?

Human Capital ROI Ratio by Job Family

HumanCapita

lValueAddROI

HumanCapitalROIRatiobyJobCategoryFinancialServicesCompany



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Question2:TotalCostofWorkforce


Question:

Isitbettertobuild,buyorrenttalent?Whatistherightworkforcecost?

Metric:

TCOWIncludes:

TotalCostofWorkforce =TotalCompensationCosts+

BenefitsCosts+OtherWorkforceCosts

Employeecompensation (salaries/wages,incentives,overtime,equityandotherpay)

Contingenttemporary/contractlabor (costs)

Employeebenefits andperks(costs)

HRfunctioncost (e.g.,recruiting,trainingandsupport)

Retiree orinactiveworkforcecosts(costs)

AdditionalMetricsforConsideration:

Internalvs.ExternalCompensationCostDifferential,Internalvs.ExternalRecruitingCostDifferential


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TheBottom

Line

Managing

Workforce

Costs

Existingcostcontroltoolsdontwork(Budget?)

Statusquodrivesbinge(hiring)/purge(layoff)cycles Offshoring/Outsourcingreducescostsbutnotcompetition

HowdoesTCOWcontrolcosts? Settargetstobudget,forecast,benchmarkorimprovementgoals Linktonewhirerequisitions,hiringfreezes,bonusincentivepayouts Benchmarkbusinessunitandorganizationalperformance

TCOWasa%ofRevenueorasa%ofTotalExpenses

1%TCOWsavingsataFortune500Co.=$30million

Example2:TotalCostofWorkforce

Example: Business Case for Total Cost of Workforce

An organization with 100,000 employees at the end of 2011 and 100,000 employees at the

end of 2012 would appear to have effectively controlled workforce cost by managing totalworkforce headcount.

However, due to increases in benefits, wages, and changes in the workforce such asbonuses, promotions, and mix of jobs hired, organizations with flat headcount growth caneasily (and often do) experience 10% or greater increases in Total Cost of Workforce.



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CaseStudy2:TotalCostofWorkforce

Career

Paths:

Employees

are

Assets

to

be

Developed

StaffAccountant

Mgr.,Accounting

Dir.,Accounting

Accountant

Sr.Accountant

CAGR:CompoundAnnualGrowthRate

Account ing Job Family Career Salary Progression

$46,400

$49,600

$59,800

$67,000

$79,100

$94,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

0 1 2 3 4 5 6 7 8 9 10 10+

Years of Experience

BaseS

alary

Staff Accountant

Accountant

Sr. Accountant

Mgr., Accounting

Dir., Accounting

Ave Annual Rate

Market Rates

(50%-75%ile)

CAGR = 10.0%

$130,000

CAGR = 6.6%

Entry level Staff Accountant

hired at 50%ile needs annual

salary growth of 10.0% to stay

with market(Assumes mkt growth of 3% annually

w progression to . Director in 10

years.)

50th %ile

ThetenyearcostsavingsistheareabetweenthecostofExternalHirescomparedtothecareerpathofanInternal

StaffAccountant



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Question3:LeadershipEffectiveness


Question:

Areleaderseffectivelymanaginghumancapital?Doleaderscorrelatetoemployeeengagement,retentionandperformance?

Metric:

Aholisticmeasureencompassingamanagerstotaltalentmanagement

practicalresultsandimpacts Designedtoholdseniormanagementaccountablefortalentmanagement

Ideally,indexmetriccomponentsshouldbecalculatedonanindividualmanagerbasis

TalentManagement

Index

=Combinationofselectkeymetrics,

weighedbyimportanceandimpacttotheorganization

Background:


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Example3:LeadershipEffectiveness

CareerPathRatio

20%

NewHireHighPerformerRate

Mobility

HighPerformerTurnoverRate

or

HighPerformerRetentionRate

%ofHighPerformers

Performance

ManagementTurnover

and

Retention

OverallEmployeeEngagementRate

EmployeeEngagement

Index

20% 20% 20% 20%

Recruitingand

Hiring

TalentManagementIndexThe Talent Management Index is a holistic measure encompassing a managers total

talent management practical results and impacts. Such a metric can be used as anincentive compensation modifier. It is designed to hold senior managementaccountable for Talent Management. Ideally, all index metric components should becalculated on an individual manager basis.

TalentManagementIndex



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CaseStudy3:LeadershipEffectiveness

Canyouquantifywhichofyourmanagersaremoreeffectiveatmanagingtalent?

ManagerA ManagerB

Exceedsbusinessgoals

Hiresexpdemployees Notraining

Highturnover

Lowmobility

Mixedperformance

LowEngagement

Exceedsbusinessgoals

Hiresjunioremployees

Trainsteampersonally

Lowturnover

Moretransfers/promotions

Highemployeeperformance

Highengagement

ManagementGroup

PercentofManagers

PercentofTurnover

30%

34%

22%

14%

10%

81%

8%

2%

LowTurnover

HighTurnover

NewManager*

1Employee**

ManagerQualityisakeycomponentofemployee

turnover Cohortanalysis issegmentingbyhighandlow

turnovermanagers

Result: Spotting managerswithturnoverdisproportionatetoworkforcesize

1%



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Question4:ROIofTraining


Question:

WhatistheROIonourtraininginvestment?

Metric:

Notalltrainingiscreatedequal!

Focusoncriticalrolesandworkforcegroupssuchassales,operations,customerservice,andmanagement

Measureimpactofperformance,engagement,productivityandretention

TrainingPerformance

Differential

=

TotalProductivity,OutputorPerformanceAfterTraining/Total

Productivity,OutputorPerformance

BeforeTraining

Background:


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CaseStudy4:ROIofTraining

Retail

Sales

Atalllevelsoftenure,Salespositionscompletingsomeorallcompanycourseshavehigherproductionthanthosethathavenot.

Positionswith>3yearsoftenurecompletingallcompanycoursesproduceover$250,000USDmorerevenueannuallythanthosewithsimilartenureandnotraining.

Coursescompleteddoesnotcorrelatewithtenure;manytenuredsalespeoplehavenotcompletedcompanycourses.

SalesRepsthatcompletesome/allmodulesaremorelikelytobefromcertain

locations.Trainingresultsinthemost$benefitattheselocationsversusothers.

KeyFindings:



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NextSteps



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MetricsLinking Financial Results to Human Capital

Productivity/ValueCreation

Impact

Low Medium High

High OpenPositionLostRevenueor

ProductionperDay 3

MarketCapitalizationvalueper

FTE2 ManagementSpanofControl

HighPerformerProductivityDifferential

AveTrainingPerformanceDifferentialperEmployee

EmployeeEngagementRevenueLinkage

QualityofHireIndex

ProfitperFTE2

TCOW1 perFTE2

HumanCapitalROIRatio

Internalvs.ExternalHireCompensationDifferential4

AveReplacementHireCompensationCostDifferential

TCOW1 %ofRevenue

TCOW1 %ofExpenses

RevenueperFTE2

AverageCostofTurnover

TrainingInvestment perFTE2

ReturnonHumanCapitalInvestment

EmployeeEngagement Index

TalentManagementIndex

TrainingEffectivenessIndex

HighPerformerTurnoverRate

Low

Job Tenure

TimetoFill

CostperHire

CareerPathRatio ManagerialBenchStrength

Experience&EducationIndex

AvgInternalvs.ExternalCostperHire

Differential

(1.) TCOW =Total Cost of Workforce(2.) FTE =Full Time Equivalent Workforce

Link

to

FinancialResults

(3.) Listed in Human Capital Financial Statements as Average Lost Revenue or Production per Day per Position(4.) Listed in Human Capital Metrics handbook as Internal vs. External Hire Compensation Difference



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WorkforceAnalyticsBusinessCaseROIExamples

15%ProductivityGain:OutputUp,CostsDown ($55.0BillionPackageDeliveryCo.)

5%ReductioninCostofWorkforce(TCOW)(Fortune30TechnologyCompany)

ProfiletoHireSalesStarswithSuperiorPredictiveMetrics($1.0BillionBank)

ROIofSalesTraining($2.0BillionRetailCo.)

EmployeeEngagementServiceLevelRevenueImpact($1.0BillionPublicAirline)

40%VoluntaryTurnoverReduction (MidsizedPublicFinancialServicesCo.)

ROIofinternalvs.externalhires(PublicBank)

$1.1BillionAnnual

$650MillionAnnual

$264Million

Annual

$1.1millionperSalesperson

$250MillionAnnual$250kperSalesperson

$96MillionAnnual$5perflightpremium

$12Million

Annual

$6MillionAnnual



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SOLVEWorkforceIntelligenceSoftware



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SOLVEMethodologyOverview

WorkforcePlanning

WorkforceROICalculator

HumanCapitalFinancial

Statements

CareerPathQuantifier

ScenarioManager

AdvancedIndexMetrics

LocationOptimization

(InDevelopment)

WorkforceOverview

RecruitingandHiring

Performanceand

Engagement

Productivity Turnover Management

MobilityHumanCapital

FinancialStatements

Workforce

ROIandCareerPath

Dashboards

(BasicUserSuite)

TalentManagementDashboards

AdvancedToolset

(PowerUserSuite)

DataIntegrationBlueprint

WorkforceStandards

PrimarySystems

SecondarySystems

ExternalDatabases

SOLVE Wizard

1 2 3Foundation

(DataIntegration)

Outputs4

QuestionDrivenAnalyticsand

Planning

ActionableWorkforce

Insights

PredictiveFinancialand

WorkforceModeling

WorkforceLinkageto

BusinessResults

QuantifyWorkforce

ProductivityandROI

FilterAnalysisandReporting,Compare

ScenariosbyWorkforceGroup,Position,Region,

Location,Location,BusinessUnitandMore.

BuildScenarios,DetailedAnalysisand

ModelingforWorkforceGroups,

Positions,Regions,Countries,

Locations,BusinessUnitsandMore.

EELevelDataandDimensions,

ConfiguredforOrganization

SpecificDriversandAnalysis.



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WhatyouGetwithSOLVE

CEO/COO CFO

CHRO

HRFunction

Leads

CIO

WorkforceProductivity

ROIoftheWorkforce

HumanCapitalFinancialStatements

ToolstoControlWorkforceCost

AutomaticHRDataWarehouse

DataIntegrationBlueprint

IntegratedTalentMgmtScorecard

HRPowerTools(i.e.ROICalculator)

HRTalentManagementDashboards

WorkforceandHRKPIMetrics



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QuestionandAnswer



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ContactInformation:

HumanCapital

Management

Institute

www.hcminst.com

JosephMorrissey,[email protected]

GrantCooperstein,[email protected]

MounPeterson,DirectorofResearch

[email protected]

Formoreinformationaboutthefollowingproductsandservices,pleasevisitthelinksbelow:

SOLVE WorkforceProductivityReports HumanCapitalFinancialStatements

Training HumanCapital

Metrics

Handbook Thought

Leadership

WorkforceIntelligence

ConsortiumGroup@HCMI

HumanCapital

Management

Institute 31

Documents

Linking KPIs to Critical Human Capital Questions Webinar