Historically, it is fair to say that Chief HR Officers and other HR leaders have been criticized by CEOs and line executives as having little or no pragmatic financial, operating or strategic business sense, while being considered as only theoretical business thinkers. At the same time, they have always desired to be considered an equal business partner to their line and financial executive peers in the eyes of the CEO which is best illustrated by having a seat at the C-Suite table. To acquire that much desired seat in today’s business world, the CHRO must earn it by demonstrating HR’s business value to the company.
Today, the Chief HR Officers in several large companies have been using HR analytics to help them acquire such a seat, as they have had the fortunate advantage of being able to have a sufficiently large enough budget to fund this expensive effort. However, this present situation begs a fundamental question of whether these HR analytics should be used to improve the effectiveness and efficiency of HR’s traditional administrative duties, such as talent management, recruiting, turnover reduction, hiring costs, etc., versus being used to demonstrate HR’s ability to bring business value to the company in the achievement of its financial, operating and strategic business objectives?
The use of HR analytics is in its infancy, even though many advances have been made in a relatively short period of time. To be effective, these analytics must measure the right metrics in order to identify actionable items that will have a positive and quantifiable impact on the desired outcome. Now, if the HR analytics are used solely to improve the effectiveness and efficiency of its administrative duties, I would argue that they can have only an indirect impact of profitability while having the distinct disadvantage of keeping HR off in its own administrative world – away from the financial, operating and strategic aspects of the company. Conversely, if the HR analytics are used to support the achievement of the company’s financial, operating and strategic business objectives, they will have a direct impact on profitability while thrusting HR into the company’s operational mainstream.
To illustrate how this might be accomplished, let’s examine several examples of typical business objectives, and how and where HR analytics might be applied to achieve some business value.
- To improve earnings per share from “X” to “Y” $/share.
• With Sales, predict the HR-related aspects of increasing sales, such as the hiring of “rain-making” sales people and having key provisions in the sales incentive plan that attracts the best people, etc.
• With Finance, predict the HR-related aspects of controlling costs and inventory, such as identifying the key cost and inventory control principles that can be used for hiring and management training, and “brain-storming” various key profit improvement opportunities in management training sessions.
- To increase cash flow by “Z” dollars.
• With Sales and Accounts Receivable, predict the HR-related aspects of reducing the number and/or dollar amount of receivables over 90 days, such as identifying potential problem accounts beforehand for sales training, hiring and sales incentive purposes.
- To reduce the new product time-to-market by 25%.
• With Product Development and Marketing, predict what steps in the product design and launch cycle can be eliminated, reduced, modified, or replaced with minimum risk which can also be used for hiring and management training purposes.
• Predict what critical skill sets are needed for product designers and marketing specialists which can be used for hiring, project management and training purposes.
- To improve customer service performance to exceed industry standards.
• Predict the key customer service principles needed by customers and industry experts that can be used for hiring and training purposes.
• Predict the ability of current CS personnel to meet the new skill sets of their positions, and retrain and promote as needed.
- To acquire a new business that possesses a critical new technology needed for future success.
• Predict the key technical/job skills set that are crucial to the product’s sales and market success, and talent management endeavors.
• Predict the key provisions in the product’s Sales Incentive plan that correlate to successful sales hiring.
• Predict ability of current employees to meet the new technology requirements for talent management purposes and retrain as needed.
- To develop 20 current Business Unit Presidents to assume a Division President position within two years who possess excellent general management skills while operating a $400 million or larger division.
• Predict which hard (financial, functional, executive, strategic planning, management and stock market-related) and soft (interpersonal and leadership)skills that are crucial to job success and talent management endeavors.
• Predict the most meaningful compensation (salary, bonus and stock) and advancement rewards that correlate to executive retention.
To fully support seeking out the business value that can be derived from HR analytics, the goal of all HR leaders in the eyes of the CEO and line executives should be to be considered as a business person first and an HR person second. Additionally, HR leaders will likely have to change the mind set of most HR personnel from being risk adverse and administratively-oriented to being willing to accept risk (especially in any compensation-related aspects of their work) and being more business-oriented. The key question is whether HR leaders are up to the task of leading this major transformation?
The main challenge for the CHRO and other HR Leaders is to step back and analyze the application of the HR analytics from a business perspective. The HR Analytics staff under the CHRO will correctly be concerned with the many details regarding the design and implementation of this new tool. It is up to the CHRO to provide the business perspective and direction of HOW HR analytics will be applied in the company – either to enhance the effectiveness and quality of HR’s administrative duties OR to add business value to the company by improving its ability to achieve its most critical business objectives.