Measuring Human Capital Impact to Business Sreekanth K

Measuring Human Capital Impact to Business Sreekanth K Arimanithaya CHRO

Does HR add Value to Business? 2

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.

Relevance…. 5

Look at the facts…. . 6

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

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 9

Human Capital is increasingly critical Value of typical 500 company 70% 20% 1980 Today Intangible Assets Yet we don’t study how to measure HC Imapct !!!

Building Blocks Business Intelligence Reports Analytics Data (Value, Contextual) Employee Data linkage to Business Metrics (KPIs and Dashboards) Analyzer (Semantic searches & Algorithm) Soseeo Collaborator

Decision Enabled Talent Management Strategy Identifying Talent • Where, what and how much? Organization Capability Attracting Talent Developing Talent • Who, when, how soon, what quality • How much developed, productive, engaged MANAGE (Ensure right talent is available at the right place and managers have the ability to manage the life cycle) GOVERN (Ability to understand return on investment on Talent management programs and initiatives) Operation Plan Retaining Talent Leveraging Talent • How long staying, Who is staying, Are they discretionary efforts. • Do we move internally, Are we optimized and orchestrated 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)

Linking HR Analytics to Business So What Now What Showing HR Measurements implication & Correlation to business such as revenue, profit, Market Share, TSR etc • 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 Showing 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 Facts What are the key indicators of my organization’s overall health? Human-Capital Investment Analysis Which actions have the greatest impact on my business? Analytical HR Which units, departments, or individuals need 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.

HR Functional Score Card 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, Recruitment - Quality of Hire - Cycle Time Cost % Position Filled Source Mix New Hire Satisfaction Hit Ratio Talent Mix Hiring Diversity Hiring Employee Development Total Rewards - Total Cost (to market) - TR cost to revenue - ROI on TR programs New Hire Attrition - Total Rewards (cost by components) Benefit cost to payroll Budget Variance Reward / Employee Year to Year ratio (Merit/ Variable) - Time to Proficiency - Hours trained (Employee/Course) Training Cost Training Satisfaction PMS completion Skill Gap ratio Succession ratio Talent Up-gradation Cross Skill Ratio - Employee Satisfaction - Retention/ Attrition - Labor Productivity Promotion / Progression Ratio Centre Of Scale Statistics 15 HR Consulting/ BP - Employee Touch Points - PIP Action identified Vs Completed.

HR Metrics Maturity Journey- Talent Acquisition • Quality of hire (Strategic HR Workforce) Effectiveness Improvement • New Hire Talent Retention • Talent Mix • Diversity Hiring • Cycle time of hiring • New Hire satisfaction • Cost of Hire • Hit Ratio • % position filled • Source Mix 16 Efficiency Improvements (Technology-enabled Service Delivery)

HR Metrics Maturity Journey- Managing Performance • Demography and rating objective analysis • Gauge R & R of PMS • Content analysis and rating correlation (Strategic HR Workforce) Effectiveness Improvement • R & R analysis • PMS rating quality Audit • Employee Satisfaction on PMS Process • Vitality distribution variation • Potential Analysis • % of Appraisal completion 17 Efficiency Improvements (Technology-enabled Service Delivery)

HR Metrics Maturity Journey- Managing Performance • Demography and rating objective analysis • Gauge R & R of PMS • Content analysis and rating correlation (Strategic HR Workforce) Effectiveness Improvement • R & R analysis • PMS rating quality Audit • Employee Satisfaction on PMS Process • Vitality distribution variation • Potential Analysis • % of Appraisal completion 18 Efficiency Improvements (Technology-enabled Service Delivery)

HR Metrics Maturity Journey- Talent Development • Transfer of learning • ROI on Training (Strategic HR Workforce) Effectiveness Improvement • Time/ cost to proficiency • IDP ratio • IDP execution Vs Completion • Skill Inventory • PMS rating • Training satisfaction • Promotion ratio • ROI on CM/ SM programs • Ratio • Succession plans • Training Programs • Hrs. Trained 19 Efficiency Improvements (Technology-enabled Service Delivery)

HR Metrics Maturity Journey- Talent Retention • Churn Management ratio • Cost of TO (Strategic HR Workforce) Effectiveness Improvement • Impact analysis • ROI on RP • AA by Demography • Attrition Analysis • AA by Mgr. • Attrition rate • AR by category 20 Efficiency Improvements (Technology-enabled Service Delivery)

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 Facts What are the key indicators of my organization’s overall health? Jet. Blue analysts developed a metric—the “crewmember net promoter score”—that monitors employee engagement and predicts financial performance. Analytical HR Which units, departments, or individuals need attention? Managers at Lockheed Martin use an automated system to collect timely performance-review data and identify areas 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 misplaced in the organization or poorly managed. Employee performance data bore that out. Talent Supply Chain How should my workforce needs adapt to changes business environment? in the 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

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 Dimensions of “Secure” 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 Property Knowledge Management Temp Staffing Intellectual Property Knowledge 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. • HR Audits • Business Reviews • HR Analytics • Operational Reviews • SLA reviews with HRO/ RPO vendors • Talent Reviews Understand Predict • Simulations • Modeling • Strategic Planning • Operational Planning 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 • Business Controls • Process Reengineering Measures • Knowledge Management • New Controls • New Programs • New Initiatives Control

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 Definitions Talent 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 Implications Quality 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 (x 1, x 2……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 % 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 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 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 together Number of Positions Filled Functions Sales Professional Support Marketting HR Finance Administration Enginnering Total Revenuew per Employee Professional Support Reve per employee Value per employee Top Drivers for Not Filling Recruitment Freez Hiring Inefficiency Talent Market Data from ERP/ XL Budgetted Positions Open Positions Revenue Generating Support Total Revenue Support 200 20 30 5 50 2 12 12 5 5 2 2 400 704 Logic Entered in Simply Ask Total 1 2 1 1 Gap Revenue Support Total 20 180 5 25 2 48 1 11 11 2 3 3 1 4 4 1 1 1 32 368 64 640 Business Impact • Lost Business Value • Key Actions to be taken