1. MEASURING HR PERFORMANCE Moving from reporting to predicting “We live in a society bloated with data but starved for wisdom.” Elizabeth Lindsey, Ethnographer and National Geographic Fellow KEVIN HENSON khenson@greatplains.edu 580-250-5585

2. 1st Premise Successful organizations must achieve: Operational Effectiveness – Is your organization performing similar activities better than your competitors? Strategic Positioning – What actions can your organization take to distinguish itself from competitors? What does your organization consider to be its competitive differentiators in the marketplace? Porter, M. (1996, November–December). What is strategy? Harvard Business Review, 74 (6), 61–78.

3. 2nd Premise 3 Vision Business Strategy Organizational Strategy Human Strategy: Capability Strategic HR increases an organization’s ability to achieve its vision, mission and strategic objectives. This is done by developing (not in a vacuum) HR strategies (initiatives) that align with the organization’s direction. - SHRM HR can and should be both operational and strategic

4. 4 Table from Boston Consulting Group/WFPMA, From Capability to Profitability: Realizing the Value of People Management (July 2012). 3 rd Premise Companies that leverage human capital well outperform those that do not

5. 5 Any jerk can have short-term earnings. You squeeze, squeeze, squeeze, and the company sinks five years later. - Jack Welch HR Initiatives compete with other initiatives and priorities in the value chain Last one… Porter’s Value Chain

6. THINK The Human Resource department in my organization is focused on (operational effectiveness, strategic positioning, something else)___________________? PAIR SHARE 6

7. How can HR ….. Contribute to Op. Effectivness & Strategic Positioning Make the importance of human capital visible Compete internally for time and resources

8. 8 MEASUREMENT Develop new insights and understanding of business performance based on DATA and STATISTICAL METHODS.

9. Measurement (Analytics) help immunize firms against short-termism. 9 Business analytics (BA) - skills, technologies, applications and practices for continuous iterative exploration and investigation of past business performance to gain insight and drive business planning. Business analytics focuses on developing new insights and understanding of business performance based on DATA and STATISTICAL METHODS.

10. Analytics Competitor: A’S, Red Sox Moneyball by Michael Lewis – A’s consistently make the playoffs despite a low overall payroll – New metrics for player selection: “on-base percentage” and “on-base plus slugging percentage” Boston Red Sox – Example: Martinez easier for opposing batters after 7 innings or 105 pitches (ALCS 2003)

11. Analytics Competitor: Harrah’s Entertainment Customer loyalty card data used in near-real time to optimize yield, set prices for slots and rooms, and design traffic through the casinos – Predict the “pain point” and pull you away from the slot machine Which marketing initiatives to move through which channels HR analytics used in recruiting process

12. APQC Study: Process Measures and Analytics Five participating companies: Wyeth, ING, Marriott International, General Electric, Caterpillar Key findings: – Analytics are applied within processes as early warning indicators – Value of analytics greatly enhanced when integrated into day to day processes – Integrating process analytics with continuous improvement techniques such as Six Sigma and Lean drives action and bottom line results Analytics Competitor: Industry

13. THINK In my organization HR is evaluated based on the following measures/metrics (i.e. turnover, UI Claims, etc.) ____________________ PAIR SHARE 13

14. 90% of Fortune 500 organizations evaluate HR operations on basis of three metrics: – Employee retention and turnover – Corporate morale – Employee satisfaction These metrics do not necessarily illustrate how HR impacts – Profits – Shareholder value 14

15. Using Analytics to Seize the Opportunity

16. Getting Beyond the wall in HR measurement….. 16 Reporting Training Participat ion Numbe r of chemist ry degree s Headco unt Trending/Analyzing Average YOS for promotion to Director Time to Hire by function What factors contribute to the turnover of chemists? What critical experiences are needed to become a Plant Manager? Predicting

17. Requires a Shift in Mindset From “I think…” to “I know…” From reporting to predicting 17

18. Plan Design or revise business process components to improve results Do Implement the plan and measure its performance Check Assess the measurements and report the results to decision makers Act Decide on changes needed to improve the process Applying PDCA INPUT Value Added Tasks OUTPUT How does your department and your process add value to FM and the customer? 4-18 Adopt an analytical view of HR

19. Measures of... Who Cares?HR efficiency HR effectiveness Business impact of human capital strategies Human capability and risk HR ●●●● Senior executives ●●● Board of directors ●● Investors ● Value Added Tasks How does your department and your process add value to FM and the customer?

20. “Bottom-Line” HR Metrics. Value Added Tasks WHAT SHOULD I MEASURE? It depends… What is the value added task?

21. 21 HR Measurement Hidden slides in the packet available to you digitally Top Ten HR metrics list

22. 22 Summary Top Ten Recommended HR Metrics 1.Compensation Average hourly rate (AHR); average annual salary 2.Benefits Company paid portion of medical plan costs; of all benefit plan costs 3.Employment Cost per hire; response time 4.Turnover/Absenteeism Complete cost of turnover per hourly/salaried employee Complete cost of absenteeism per hourly/salaried employee 5.Training and Organization Development Positive financial impact per delivered training unit

23. 23 Summary Top Ten Recommended HR Metrics 6.Workers Compensation Workers Compensation costs 7.Employee Attitude Surveys Employee satisfaction versus median and 75 th percentile companies 8.Labor Contracts Change in average hourly rate (AHR), other cost savings/avoidance 9.HR Dept costs HR expense as % of total Manpower expense (do the same for other functions as well) 10.Revenues per FTE Revenues per FTE

24. 24 Top Ten Recommended HR Metrics Prioritized 1.Revenues per FTE Revenues per FTE 2.HR Dept costs HR expense as % of total Manpower expense (do the same for other functions as well) 3.Employment Cost per hire; response time 4.Compensation Average hourly rate (AHR); average annual salary 5.Benefits Company paid portion of medical plan costs; of all benefit plan costs 6.Workers Compensation Workers Compensation costs 7.Training and Organization Development Positive financial impact per delivered training unit % of internal applicants filling promotional opportunities 8.Turnover/Absenteeism Complete cost of turnover per hourly/salaried employee Complete cost of absenteeism per hourly/salaried employee 9.Employee Attitude Surveys Employee satisfaction versus median and 75 th percentile companies 10.Labor Contracts Change in average hourly rate (AHR), other cost savings/avoidance

25. A short detour to “ how-to”… 25

26. So where do I start…… 26 THE “BASIC SEVEN TOOLS OF QUALITY ” 105,000,000 results on gooogle Cause-and-effect diagramCause-and-effect diagram : Identifies many possible causes for an effect or problem and sorts ideas into useful categories. Check sheet:Check sheet: A structured, prepared form for collecting and analyzing data Control charts:Control charts: Graphs used to study how a process changes over time. Histogram:Histogram: Graph for showing frequency distributions Pareto chart:Pareto chart: Bar graph which factors are more significant. Scatter diagram:Scatter diagram: Graphs pairs of numerical data, to look for a relationship. Stratification:Stratification: A technique that separates data gathered from a variety of sources so that patterns can be seen (some lists replace “stratification” with “flowchart” or “run chart”).

27. FMLA Absence last 120 days 12.6 13.7 14.1 14.3 14.5 14.8 14.9 15.2 15.3 15.6 16 16.4 12.8 13.7 14.1 14.4 14.5 14.8 15 14.8 15 15.2 15.4 15.6 16 16.5 13.1 13.8 14.2 14.4 14.5 14.8 15 15.2 15.4 15.7 16 16.6 13.3 14.5 16.3 17.6 13.7 14.1 14.3 14.5 14.7 14.9 15.2 15.3 15.6 15.9 16.4 18.6 16 16.5 13 13.8 14.2 14.4 13.3 13.9 14.3 14.4 14.6 14.9 15.1 15.2 15.4 15.7 16.1 16.9 13.4 14 14.3 14.9 15 15.2 15.4 15.7 14.4 14.6 14.9 15.1 15.2 15.5 15.8 16.1 16.9 13.5 14 14.3 14.4 14.6 14.9 15.2 15.3 15.6 16.1 16.8 15.1 15.3 15.5 15.8 16.2 17 13.6 14 14.3 14.4 14.7 14.9 15.1 15.3 15.6 15.9 13.9 14.2 14.4 14.5 How would you interpret this data? What can you say about the amount of variation? What about the pattern of variation? Example

28. Histogram of FMLA DAYS 12.6 13.7 14.1 14.3 14.5 14.8 14.9 15.2 15.3 15.6 16 16.4 12.8 13.7 14.1 14.4 14.5 14.8 15 14.8 15 15.2 15.4 15.6 16 16.5 13.1 13.8 14.2 14.4 14.5 14.8 15 15.2 15.4 15.7 16 16.6 13.3 14.5 16.3 17.6 13.7 14.1 14.3 14.5 14.7 14.9 15.2 15.3 15.6 15.9 16.4 18.6 16 16.5 13 13.8 14.2 14.4 13.3 13.9 14.3 14.4 14.6 14.9 15.1 15.2 15.4 15.7 16.1 16.9 13.4 14 14.3 14.9 15 15.2 15.4 15.7 14.4 14.6 14.9 15.1 15.2 15.5 15.8 16.1 16.9 13.5 14 14.3 14.4 14.6 14.9 15.2 15.3 15.6 16.1 16.8 15.1 15.3 15.5 15.8 16.2 17 13.6 14 14.3 14.4 14.7 14.9 15.1 15.3 15.6 15.9 13.9 14.2 14.4 14.5 The histogram gives us a visual summary of the data. Days Frequency

29. Histogram of sales measurements What does the histogram show us? Shape of the data Spread of the data Center of the data

30. Example – analytics drives better decisions 30

31. Staffing 6-Up Chart

32. Sample Follow-up Chart Issue: While the Time to Fill cycle time (Offer to Accept) was a respectable 40 days, the Time to Start cycle time (Open to Start) was exceeding the external benchmark. In addition, from a customers point of view, the cycle time was unacceptable at 91 days (Create to Start). The following action steps will be taken: Communicate to managers the need to improve the approval cycle and provide visibility to initiating manager of the status of the requisition Investigate why the Approval (final management sign-off) to Open (assignment to recruiter) is taking so long Be more diligent on closing the deal (shorten offer acceptance and accept to start)

33. 33 QI Macros Fill-in-the-Blank Templates and Tools for Lean Six Sigma Drawing flowcharts, value stream maps and Ishikawa diagrams? Updating monthly charts and dashboards? Advanced analysis like Gage R&R, DOE, and so on? QI Macros SPC Software for Excel Free 30-Day Trial for PC & Mac Users A good tool to consider…..

34. Charting – Some rules of thumb for constructing charts and graphs – Hidden Slides in the packet available to you digitally 34

35. Global Data What not to do… Chart tells to many stories

36. Some Basic Principles The definition of the metric should be documented. In this case, Staffing Cycle Time is measured from the date the requisition is open to the date an offer is accepted.

37. Some Basic Principles The timeline is long enough for the identification of trends, if any. A rolling 12-18 months is recommended.

38. Some Basic Principles A benchmark or goal line is included in the chart and stated. If you are displaying an external benchmark, it may be helpful to include the source and date of the information.

39. THINK In my organization HR use the following analytical tools and software to provide a predicative capability ____________________ PAIR SHARE 39

40. Does this sound familiar? 40 Evaluating enterprise products and services

41. 41 An Evaluation of ‘Systems’ must include: PEOPLE PROCESS TECHNOLOGY

42. Start with the end in mind… Return on Investment Why would the CxO write the check for technology procurement? Don’t automatically accept the incumbent system due to investment – those are sunk costs Return on Expectations What is your strategy? What are your drivers? Does the system align with your needs? At the end of the day, how do stakeholders expect the system to add value and improve their work life? 42

43. Items to consider for planning Staffing – Without an appropriately staffed HRIS group to deploy, own and continuously market the applications, the effort will die on the vine – Hybrid skill set – high tech, high touch – If you depend on an internal IT group, what is their skill set? What type of technologies can they support? Define your key drivers – Determine organizational direction – Global expansion? – Emphasis on talent management? Economics – Funding availability Timing – The world moves quickly; if process and technology rollouts don’t keep up you’ll set yourself up to fail – Short term planning (up to 1 year) should be your target 43

44. Caveat Emptor The 80/20 rule applies – In most cases 80% of the functionality will be common – What’s that 20% difference and does it matter to you? – A long list of features doesn’t matter unless they match your requirements Use scenario-based requirements for demos – Send to the short-list vendors ahead of time so they can prepare – Allow the requisite exec summary and system overview – Always remember what your drivers are – Make sure all scenarios are addressed – Save the glitz for last and be a healthy skeptic (demos are meant to be smooth) Reality checks – Search reference lists for comparable situations – software versions, services selection, consultant roles – Bad marriages lead to ugly divorces – Best practices aren’t necessarily the ‘best’ for your company – Beware the stylish haircut – look in the mirror and make an honest self-assessment 44

45. Finding a consultant 45

46. How do you find a consultant? Selection should be as rigorous a process as system selection – Problem solver – Excellent communicator – Personally disciplined – Passion for doing what’s best for the client Know your ‘needs requirements’ – strategic planning, project management or group therapy? You must ‘click’ on – Approach – Cost – Personality/Culture Check references Use websites and referrals from similar companies/projects 46

47. The Consulting Landscape Independents Broad HR Boutique Broad HR Boutique The Big Boys – Multiple practices The Big Boys – Multiple practices Strategic/ C-Level Strategic/ C-Level Benchmarking Niche Centric Implementation Research & Advisory Research & Advisory ???? ERP Vendors SAP Oracle IT body shops CSC EDS (HP) CAP Gemini Product boutiques – Oracle: Kbace 47

48. Finding software 48

49. Objective Vendor/Product Analysis – Decision drivers and Scenario-based demos (not RFPs) Decision DriversWeightVendor AVendor BVendor CVendor D Vendor ViabilityXX% UsabilityXX% FunctionalityXX% TechnologyXX% ConfigurabilityXX% ScalabilityXX% Global CapabilityXX% IntegrationXX% Cost/ROIXX% 49

50. HRMS Enterprise Software Comparisons Comparehris.com Capterra.com http://free-report.technologyevaluation.com – “This knowledge base on human resources management systems affords clients the opportunity to rapidly determine their criteria for management and employee personnel tasks. Its extensive criteria include benefits and payroll management, employee self service, data warehousing, and health and safety requirements.” 50

51. More reality checks… Input is a dirty job but someone’s has to do it There is no magic solution Be realistic when looking at potential functionality – how is the data going to get there? Maintain data accuracy - edit and audit continuously Output is the true value of the system Work backwards during the requirements phase – what do you want to get out of the system? Reports/dashboards/metrics should be considered first, not last Investigate retrieval tools, whether bundled or third party – getting at history in a meaningful way is still a challenge Integration/interfacing is a key element 51

52. Back to the bigger questions 52

53. Best Practices Adopt a “business intelligence mindset” Start small and build credibility – In the early stages, focus on solving immediate problems Have the end in mind and build an infrastructure to support it Collaborate with other analytic groups within your company Build/buy analytics competence with HR Engage a leader who has an analytics understanding, passion, and interest 53

54. Pitfalls to Avoid Using analytics to “prove HR’s worth” Assigning this mission to a lower level technician Don’t confuse: – Data dumps with insight – Benchmarking with analytics Rushing the process Allowing the perfect to become the enemy of the good 54

55. MEASURING HR PERFORMANCE Moving from reporting to predicting “We live in a society bloated with data but starved for wisdom.” Elizabeth Lindsey, Ethnographer and National Geographic Fellow KEVIN HENSON khenson@greatplains.edu 580-250-5585