Measuring Human Capital Impact to Business

Sreekanth K ArimanithayaCHRO

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Does HR add Value to

Business?

Does HR add value to business?

•For decades, human resource managers have believed that their function enhances performance. This contention has been met with scepticism on the part of executives, who wonder whether funds allocated to the human resource function are good investments.

•Does human resource management matter for organizational performance? – we take stock of the available evidence. Based on data from over 19,000 organizations, reserchers conclude that human resource management adds significant value to organizations.

•In addition, the value added is strongest when human resource systems are emphasized rather than individual practices, when human resource management decisions are tied to strategy.

Indeed, in many industries (such as those with low margins), the decisions and actions of skilled HR managers can represent the difference between making profit and losing money.

Does HR add value to business?

•For 10 of the 13 practices investigated, there is compelling evidence that each significantly affects performance. Three specific factors that impact the effectiveness of the practices discussed in the previous section:

(1) vertical alignment between HRM and firm strategy;(2) horizontal alignment among the HRM practices; and(3) the work context.

•Data from over 19,000 organizations makes it clear that HRM adds value. In particular, we believe that managers will see the most gains from HRM by

developing a comprehensive and internally cohesive HRM system that is embedded in the organization’s history, culture, and structure. Doing so not only enhances performance, but also leads the firm’s system to be more difficult for competitors to imitate.

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Relevance….

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Look at the facts…..

Ram Charan

If organizations managed money the way they managed people, they would be bankrupt!

Source: Talent Masters

Providing ROI on HR Programs & Impact of

Talent on Business

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Importance of Measurements

“If we can’t express what we know in the form of numbers, we really don’t know much about it. If we don’t know much about it, we can’t control it. If we can’t

control it, we are at the mercy of chance”

Mike J. Harry

Six Sigma Academy

Human Capital is increasingly critical

Yet we don’t study

how to measure HC

Imapct !!!

Value of typical 500 company

70%

1980 Today

IntangibleAssets

20%

Building Blocks

Business Intelligence

Reports

Analytics

Data (Value, Contextual)Soseeo Collaborator

Analyzer (Semantic searches & Algorithm)

(KPIs and Dashboards)

Employee Data linkage to Business Metrics

Employee Data linkage to Business Metrics

Decision Enabled Talent Management

GOVERN(Ability to understand return on investment

on Talent management

programs and initiatives)

MANAGE(Ensure right talent is available at the right

place and managers have the ability to manage the

life cycle)

SECURE(Ability to ensure employee

knowledge is retained and IP of the organization is

safeguarded. Also understand risk against execution of strategy with respect to

Talent Management)

StrategyStrategy Organization CapabilityOrganization Capability Operation PlanOperation Plan

Linking HR Analytics to Business

So WhatShowing HR Measurements implication & Correlation to business such as revenue, profit, Market Share, TSR etc

What

•Measure HR variables which are critical to HR function and business•Measure the HR- Business ‘Value Creation Process’•Measure HR ‘Strategic Asset’•Measure HR practices which are creating ‘Investor Intangibles’•Measure those elements that contribute to Strategy Implementation

Now WhatShowing what organization should do to improve performance of HR variables to improve business performance.

Linking HR Analytics to Business

What(What to Measure in Human Capital)

So What(What is the Implication of these HR measures to Business Measures)

Now What (Once I understand HR – Business measurement relationship, how can I improve HR performance so that business impact increases.

Manage ( Set of HR Functional Analytics to understand efficiency and effectiveness of HR Function)

HCM Efficiency and Effectiveness across Employee Life Cycle Management (ys)

Revenue, Operating Income, Market Share, TSR impact caused by HCM impact(Ys)

Causes of HR process variance , poor performance/ variables impacting efficiency & effectiveness of HR functions (Xs)

Govern ( Set of Analytics to understand ROI of HR programs and Investment in Talent )

Human-Capital FactsWhat are the key indicators of my organization’s overall health?

Human-Capital Investment Analysis Which actions have the greatest impact on my business?

Analytical HRWhich units, departments, or individualsneed attention?

Secure ( Set of Analytics to understand risk profiling of talent and knowledge in execution of strategy)

Understand HCM risk profile of organization in execution of strategy

Predict the impact of HCM risk profile in execution of strategy

Control the critical HCM risk variables so that strategy is seamlessly executed.

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HR Functional Score Card

Recruitment Total Rewards Employee Development

HR Consulting/ BP

- Quality of Hire

- Talent Mix Hiring

- Diversity Hiring

- New Hire Attrition

- Cycle Time- Cost- % Position Filled- Source Mix- New Hire Satisfaction- Hit Ratio

Revenue per FTE, Employee Satisfaction, Retention of Key Talents, Attrition Analysis, Labor Productivity,

Time to Proficiency, HR Operating Cost, HR Transaction Cycle Time, HR/FTE ratio, Separation

cost,

- Employee Satisfaction

- Retention/ Attrition

- Labor Productivity

- Employee Touch Points- PIP Action identified Vs

Completed.

- Time to Proficiency

- Talent Up-gradation

- Cross Skill Ratio

- Promotion / Progression Ratio

- Hours trained - (Employee/Course)- Training Cost- Training Satisfaction- PMS completion- Skill Gap ratio- Succession ratio

- Total Cost (to market)

- TR cost to revenue

- ROI on TR programs

- Total Rewards (cost by- components)- Benefit cost to payroll- Budget Variance- Reward / Employee- Year to Year ratio

(Merit/ Variable)

Centre Of Scale Statistics

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HR Metrics Maturity Journey- Talent Acquisition

Eff

ect

iven

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pro

vem

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t(S

tra

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Efficiency Improvements(Technology-enabled Service Delivery)

•% position filled

•Source Mix

•Cost of Hire

•Hit Ratio

•Cycle time of hiring

•New Hire satisfaction

•Talent Mix

•Diversity Hiring

•Quality of hire

•New Hire Talent Retention

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HR Metrics Maturity Journey- Managing Performance

Eff

ect

iven

ess

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pro

vem

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t(S

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Efficiency Improvements(Technology-enabled Service Delivery)

•% of Appraisal completion

•PMS rating quality Audit

•Employee Satisfaction on PMS Process

•Vitality distribution variation

•Content analysis and rating correlation

•Potential Analysis

• Demography and rating objective analysis

•Gauge R & R of PMS

•R & R analysis

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HR Metrics Maturity Journey- Managing Performance

Eff

ect

iven

ess

Im

pro

vem

en

t(S

tra

teg

ic H

R W

ork

forc

e)

Efficiency Improvements(Technology-enabled Service Delivery)

•% of Appraisal completion

•PMS rating quality Audit

•Employee Satisfaction on PMS Process

•Vitality distribution variation

•Content analysis and rating correlation

•Potential Analysis

• Demography and rating objective analysis

•Gauge R & R of PMS

•R & R analysis

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HR Metrics Maturity Journey- Talent Development

Eff

ect

iven

ess

Im

pro

vem

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t(S

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ork

forc

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Efficiency Improvements(Technology-enabled Service Delivery)

•Training Programs

•Hrs. Trained

•Skill Inventory

•PMS rating

•Promotion ratio

•Succession plans

•IDP ratio

•IDP execution Vs Completion

•Training satisfaction

•Ratio

•ROI on Training

•ROI on CM/ SM programs

•Transfer of learning

•Time/ cost to proficiency

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HR Metrics Maturity Journey- Talent Retention

Eff

ect

iven

ess

Im

pro

vem

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t(S

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Efficiency Improvements(Technology-enabled Service Delivery)

•Attrition rate

•AR by category

•Attrition Analysis

•AA by Mgr.

•AA by Demography

•Cost of TO

•ROI on RP

•Churn Management ratio

•Impact analysis

Govern: This Human Capital Analytics provide insight to HR and business leaders understanding on return on investment on Talent management programs and initiatives

Governing Human Capital thro’ Talent Analytics

Human-Capital FactsWhat are the key indicators of my organization’s overall health?JetBlue analysts developed a metric—the “crewmember net promoter score”—that monitors employee engagement and predicts financial performance.

Analytical HRWhich units, departments, or individualsneed attention?Managers at Lockheed Martin use anautomated system to collect timelyperformance-review data and identifyareas needing improvement.

Human-Capital Investment Analysis Which actions have the greatest impact on my business?By keeping track of the satisfaction levels of delivery associates, Sysco improved their retention rate from 65% to 85%, saving nearly $50 million in hiring and training costs.

Workforce Forecasts How do I know when to staff up or cut back?Dow Chemical has a custom modelling tool that predicts future head count for each business unit and can adjust its predictions for industry trends, political or legal developments, and various “what if” scenarios.

Talent Value Model Why do employees choose to stay with— or leave—my company?Google suspected that many of its low performing employees were either misplacedin the organization or poorly managed. Employee performance data bore that out.

Talent Supply Chain How should my workforce needs adapt to changes in the business environment?

Retail companies can use analytics to predict incoming call-center volume and release hourly employees early if it’s expected to drop.

Secure: This Human Capital Analytics provide insight and ability for business leaders to ensure employee knowledge is retained and IP of the organization is safeguarded. Also understand risk against execution of strategy with respect to Talent Management

Dimensions of “Secure”Secure

(Ability to ensure employee knowledge is retained and intellectual property of the

organization is safeguarded in the organization. Also understand risk against execution of strategy with

respect to Talent

Talent Dimension Potential Impact/ Risk areas to Business

Workforce Demography-Aged Workforce

Loss of Knowledge, Skills & Competency

Workforce Demography-Diversity profile not aligned with customer and vendor profile

Impact to Revenue and growth

Globalization-Off Shoring (not optimized) Low productivity

Outsourcing Intellectual PropertyKnowledge Management

Temp Staffing Intellectual PropertyKnowledge Management

Poor People Management High labor Churn

Lack of Leadership Development and Succession Planning

Low Quality Leadership Bench thus impacting growth

Securing Firm’s Most Important Asset- Talent.

Secure(Ability to ensure employee knowledge is retained and intellectual property of the

organization is safeguarded in the organization. Also understand risk against execution of strategy with

respect to Talent

Knowing what to measure!

“Not everything that can be counted counts and not everything

that counts can be counted”

Thank You

What? Of Talent Acquisition

Key Measures

Operational Definitions

Number of positions filled

Number of employees budgeted (minus) number of employees onboard.

Source Mix % of resumes received from different sources

Cost of Hire Total cost of hiring which include cost such as advertising, agency and search firm fees, referral bonuses, travel costs, relocation costs, and company recruiter costs. These costs account for 90 percent of the cost per hire. To obtain the full cost of hire, add 10 percent to the sum of all components to account for all other expense items such as testing, reference checking and other minor expenses. Total hires equal add hires plus replacement hires.Cost per Hire = Total Hiring Cost x 1.1 / (Add + Replacement Hires)

Cycle Time Of Hiring

Shows the average number of days it takes from the date of requisition is received until an offer is accepted. Requisition is when a replacement or add position becomes available. The total days to fill are not an average per hire and do not include college hires. Add hires are people hired into newly-approved positions; replacement hires are people hired into already existing positions within the organization.Time to Fill = Days to Fill / (Add + Replacement Hires)

New Hire Satisfaction

Is the total satisfaction of new hires on hiring process and experience of an organization from sourcing to on boarding (throughout the candidate life cycle management.

What? Of Talent Acquisition

Key Measures Operational DefinitionsTalent Mix Mix of talent (%) join an organization in a year diversity of industrial experience,

academic excellence, domain knowledge, etc. This can be pre defined by organization.

Diversity Hiring % of gender diversity joined an organization.

Quality of Hire Quality of hire is dined using four parameters:1.% of involuntary attrition happened in first 6 months due to poor performance.2.% of voluntary attrition happened in first year due to lack of job or organization fit. 3.Data captured through survey on perceived quality or otherwise by manager after 3-6 months. 4.New Hire vitality (Number of top performer emerged in out of new hires)

New Hire Retention

Voluntary Attrition in first 6 months.

So What

Key Measures

Business Implications

Number of positions filled

Number of open position unfilled which have direct impact on revenue for all revenue generating positions and will effect efficiency impact for all other support functions

Source Mix Source mix is an important component of talent acquisition strategy and recruitment operation plan which will have an impact on quality of candidate, cycle time of hiring, cost of hiring and conversion rate etc. For example junior level position employee referral is a good source of hiring wherein not only reduces cost and cycle time, but also increase candidate joining probability.

Cost of Hire Cost of hire is one of the component of overhead cost which have bearing on operational cost and profit margin of the organization. In an organization wherein employee churn is very high this cost can be substantial.

Cycle Time Of Hiring Cycle Time of hiring is an important metric which influences candidates ability to join and availability to business. Candidate not available to business on time can lead to huge revenue loss and business inefficiencies.

New Hire Satisfaction Candidate/ Employee experiences an organizations value proposition/ brand at the very early stage during selection/ life cycle process. Perceived value proposition impact employee engagement for newly joined employee and thus productivity.

Talent Mix Talent mix and diversity in the workplace brings diverse talents to the organization and provides a wider set of beliefs and experiences to draw innovative ideas. This is very essential to drive greater business results.

Diversity Hiring

So What

Key Measures Business ImplicationsQuality of Hire Talented and quality resource many fold impact to business compared to

average resources. As per AFP software engineering productivity study, highly talented programmer produces 12 times better results compared to average performer and poor performer impact negative 3 times compared to average performer.

New Hire Retention Losing newly hired talent not only add to operational expenses on account of rehire, but also impact revenue loss in case revenue generating position and efficiency with respect to support function.

Now What of Talent Acquisition

Key Measures (Y)

Causality {Y = f (x1,x2……Xn)

Y= Number of positions filled

f (umber of open positions decided not to fill, start of recruitment process, , ability of recruitment process, candidate joining the firm,….Xn)

Y= Source Mix f (promotional scheme of organization on each channel of sourcing, recruitment team capability, hiring manager’s belief in sourcing channel,….Xn)

Y= Cost of Hire f (source cost, recruiter cost, relocation cost, ….Xn)

Y= Cycle Time Of Hiring

f ( time taken to clarify profile, sourcing channel, time taken to source, time taken select, number of steps in selection processes, time taken to decide to offer, time taken by candidate to decide and accept….Xn)

Y= New Hire Satisfaction

f ( candidate experience with recruiter, candidate experience with hiring manager, candidate experience with HR manager, candidate experience with other hiring tools and methodologies used… Xn)

Y= Talent Mix f ( sourcing channel, talent market penetration, JD, hiring manager belief, hiring process capability…. Xn)Y= Diversity Hiring

Y= Quality of Hire f ( sourcing channel, talent market penetration, hiring manager belief, hiring process capability…. Xn)

Y= New Hire Retention

f ( sourcing channel, hiring process capability, expectation matching, on boarding processes. …. Xn)

Business Intelligence: Pulling this all together:What , So What and Now What

Key Measures (Y)te HR Business Intelligence

Number of positions filled A single index derived out of lost revenue due to positions not filled in case of revenue generating positions and efficiency loss incase of support functions. This index also need to point out 3-4 causes for not filling these positions.

Source Mix Source Mix % tracking ensures appropriate quality, reduces cost of hiring and cycle time. To get appropriate source mix target organization need to monitor sourcing strategy, monitor recruitment process and team capability and sourcing promotional scheme.

Cost of Hire Cost of hire has direct impact to operating expenses thus impacting operating margin. Maintaining optimum cost also essential for ensuring right quality and cycle time of hiring. Cost of hiring need to be monitored through controlling sourcing cost, advertising cost, selection cost and recruitment team cost.

Cycle Time Of Hiring Cycle time of hiring ensures that talent/ staff is onboard on time thus ensuring revenue target and key business deliverables are met. Cycle Time is impacted by inadequate sourcing, too high sourcing time, too lengthy selection processes, managers not taking decisions on time, candidates not taking decisions, candidates dropping etc.

Business Intelligence: Pulling this all together:What , So What and Now What

Key Measures (Y)te HR Business Intelligence

New Hire Satisfaction New Hire Satisfaction is an important measurement to understand the satisfaction level of new hire on selection processes and experiences with new organization. This not only ensure the employee join the organization, but also determine organization future ability to attract talent thus impacting business performance. The factors impacting New Hire satisfactions includes candidates experience with hiring managers, recruiters, HR, recruitment tools and methodologies and time taken to decide.

Talent Mix Diversity of Talent joining an Organization. Diversity of Talent include gender, experience, age, nationality, experience, culture etc. These diversity drives greater workplace innovation and greater efficiency including revenue and operating income. Diversity can be impacted by sourcing channel, selection process, HR programs etc.

Diversity Hiring

Quality of Hire Better quality drives greater results. As research shows quality personnel can deliver 5 to 12 times productive jobs than average resource. Quality of candidate is depend upon sourcing channel, managers selection capability, selection tools used etc.

New Hire Retention New Hire Retention impact both top line and bottom-line of organization. New Hire Retention depends on candidate job fit, organization fit, candidate quality etc.

Putting this all togetherNumber of Positions Filled

Budgetted Positions Open Positions GapFunctions Revenue Generating Support Total Revenue Support Total Revenue Support TotalSales 200 200 20 20 180 180Professional Support 30 30 5 5 25 25Support 50 50 2 2 48 48Marketting 12 12 1 1 11 11HR 5 5 2 2 3 3Finance 5 5 1 1 4 4Administration 2 2 1 1 1 1Enginnering 400 400 32 368Total 704 64 640

Revenuew per EmployeeProfessional Support Reve per employeeValue per employee

Top Drivers for Not FillingRecruitment FreezHiring InefficiencyTalent Market

Data from ERP/ XL

Logic Entered in Simply Ask

Business Impact•Lost Business Value•Key Actions to be taken