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Driving Strategy with Human Capital Analytics. Shane Douthitt, Ph.D. Scott Mondore, Ph.D. About SMD. Learning Objectives. Understand the process for linking employee data to critical business outcomes – our Business Partner RoadMap TM

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driving strategy with human capital analytics

Driving Strategy with Human Capital Analytics

Shane Douthitt, Ph.D.

Scott Mondore, Ph.D.

learning objectives
Learning Objectives
  • Understand the process for linking employee data to critical business outcomes – our Business Partner RoadMapTM
  • How to use analytics to determine where to cut and where to invest in your HR strategy
  • How to calculate an expected ROI for initiatives
  • Understand practical tips for driving the process
agenda
Agenda
  • The State of HR – Economic Impact
  • Business Partner RoadMapTM
    • Using Structural Equations Modeling
  • Case Study
  • Calculating ROI
  • Practical Tips for Implementing the Process
  • Q&A
the state of hr in today s economy
The State of HR in Today’s Economy

Making the Tough Choices

what our clients are saying
What Our Clients Are Saying…
  • “I am being asked to cut my budget by 30%.”
  • “How can I create an HR strategy with budget cuts and have an impact on the business?”
  • “I don’t want to just cut my most expensive programs. I want to cut the costs with the least impact on the business.”
  • “I have programs that seem like ‘nice-to-haves’, but they may have real ROI. How can I determine their ROI?” (e.g., work-life balance programs)
the typical approach to hr cuts
The Typical Approach to HR Cuts
  • Lay-offs
  • Hiring freezes
  • Cutting expensive programs (e.g., leadership development)
  • Cutting training programs
  • Reducing benefits
  • Delaying employee surveys and other high-cost initiatives
the opportunity
The Opportunity
  • To discover the impact of various HR initiatives
  • To cut costs and still make a strong impact on the business with the strategy
  • To make strategy decisions based on expected ROI instead of other factors (e.g., perceived impact, business partner opinion, cost)
  • The goal is to run with a lean strategy…but still have significant impact!!
ten guiding principles
Ten Guiding Principles
  • Organizations already spend significant amounts of money on their people….they just don’t spend it on the right things.
  • Organizations make investments in people without any data or with the wrong data.
  • Employee engagement in itself is not a business outcome.
  • People and organizations are complex. The linkages between attitudes and outcomes have to be understood within your organization using your data.
  • The people data and outcome data do exist—you just have to go and get it.
  • The organization’s data exist in silos.
  • There will be obstacles and barriers to obtaining the data (e.g. politics, turf battles).
  • Once a connection/linkage is made with the data—accountability is unavoidable (and that’s a good thing).
  • Don’t assume a link between employee data and business outcomes—define it and understand why or why not.
  • Perceptions alone do not show up on the profit and loss statement.
hr and measurement
HR and Measurement
  • HR Measurement has increased in quantity and somewhat in quality
  • Internal HR efficiency metrics (e.g. time to hire; profit per employee) are limited in impact
  • HR is still one of the first expenditures to get cut when business gets lean (like right now!)
  • While business leaders view HR as an investment, it is still a significant cost with only assumed benefits
business partner roadmap tm14
Business Partner RoadMapTM
  • Organizations and HR functions are comfortable with executing every step of the process in some form
  • In the Data Analysis step:
    • Structural Equations Modeling (SEM) has some major advantages over traditional data analysis techniques
    • Using SEM for data analysis is a barrier in many organizations
structural equations modeling
Structural Equations Modeling
  • Traditional data analysis includes:
    • Qualitative analysis or gap analysis (strengths/weaknesses)
    • Correlation
    • Regression
  • Advantages of Structural Equations Modeling (SEM)
    • Consider multiple independent & dependent measures concurrently
    • Imply causality
    • Calculate ROI
    • Correct for measurement errors
  • SEM is commonly used in other industries (e.g., econometrics, market research)
case study
Case Study

Prioritizing Where to Invest in Your Strategy

our proposal large retail organization
Our Proposal – Large Retail Organization
  • Create a business-focused HR Strategy:
    • Empirically link employee data to meaningful business outcomes
    • Identify ‘invisible levers’ in employee attitudes, skills and behaviors that will drive outcomes
    • Leverage existing data to create the strategic framework
    • Prioritize employee-focused interventions to drive business outcomes
    • Provide customized solutions to drive business outcomes
data utilized in the study
Data Utilized in the Study

Shrink data at store level—as an example (used multiple business outcomes in the full study)

Employee opinion survey results

Management competency ratings

LMS training data

HRIS data – dishonesty terminations

Store turnover data

Customer satisfaction results

dimensions of the employee survey
Dimensions of the Employee Survey

Engagement

Resources Available

Job-Person Match

Policies

Hours Worked

Regard for Employees

Customer Focus

Manager Effectiveness

Work Environment

Career Development

Benefits

Recognition & Perf. Mgmt.

Scales range from 2-5 items. Alphas range from .79-.91.

salaried employee competencies
Salaried Employee Competencies

Employee Development

Leadership

Strategic Decision Making

Cross-Organizational Collaboration & Teamwork

Execute With Excellence

Achieve Extraordinary Results

Individual Ratings for the Store Manager and Assistant Mangers were used.

drivers of shrink
Drivers of Shrink

Job-Person Match

1a

Engagement

Manager Effectiveness

1b

3

Ethics Course Participation

2

2

Shrink

Shrink Course Participation

2

Dishonesty Terminations

Legend

Employee Survey

Training Participation

Terminations

Competency Ratings

1

Achieve Results

Numbers in paths indicate the intervention priority based on the magnitude of the relationship with shrink.

further prioritizing the levers
Further Prioritizing the Levers
  • While all of the ‘levers’ identified in the model significantly impact shrink, the ‘levers’ can be prioritized even further based on the magnitude of their relationship with shrink
  • Further Prioritization:
    • Achieving Extraordinary Results
    • Ethics Course
    • Shrink Course
    • Dishonesty Terminations
    • Job-Person Match
intervention framework
Intervention Framework

People

Process

Technology

defining the priority levers
Defining the Priority Levers

MANAGER COMPETENCY:

  • Achieving Extraordinary Results
    • “Meets or exceeds challenging goals and strives for continuous improvement.”
    • “Holds self and direct reports accountable for achieving challenging results in sales, profitability, cost controls and shrink.”
    • “Constantly raises the bar by pushing self and coaching others toward higher levels of achievement.”
    • “Constantly focuses on solutions that contribute to driving sales, reducing cost and improving the bottom line.”
    • “Uses knowledge of operational policies, procedures and standard practices to achieve outstanding results.”

If 360 tool measures individual behaviors, further analysis could determine which behaviors most directly lead to reduction in shrink.

recommended actions to reduce shrink
Recommended Actions to Reduce Shrink

MANAGER COMPETENCY:

  • Achieving Extraordinary Results
  • Onsite ‘Best Practice’ Assessments of the Top 10 Shrink Managers with High Competency Rating
    • Focus groups with employees & interviews with managers
    • Typical approaches/competencies & best practices
    • “How/Why are managers achieving results?”
    • “How/Why are employees achieving results?”
  • Onsite ‘Help-Needed’ Assessments of the Bottom 10 Shrink Managers with Low Competency Rating
    • Focus groups with employees & interviews with managers
    • Typical approaches/competencies
    • “Why aren’t managers executing?”
    • “Why aren’t employees executing?”
recommended actions to reduce shrink28
Recommended Actions to Reduce Shrink

MANAGER COMPETENCY:

  • Shrink Partnering Program
    • Top shrink managers partner with help-needed shrink managers for coaching/mentoring
    • Regular meetings to share best practices
    • Build a management routine to continually focus on shrink and share best practices
recommended actions to reduce shrink29
Recommended Actions to Reduce Shrink

TRAINING:

  • Code of Ethics Course
    • Has a direct, significant impact on shrink
    • Opportunity to re-train or conduct refresher courses with managers and employees
    • Senior leaders regularly re-communicate the key messages from the Code of Ethics
  • Sales and Shrink Course
    • Has a direct, significant impact on shrink
    • Currently not mandatory
    • Opportunity to make the course mandatory and re-train managers and employees
recommended actions to reduce shrink30
Recommended Actions to Reduce Shrink

HRIS DATA:

  • Dishonesty Terminations
    • Communicate to managers the impact of poor hiring (e.g., cost of dishonesty terminations)
    • Re-assess hiring practices
      • Think beyond background checks
        • Biodata assessments
        • Integrity testing
    • Warm-bodies vs. employees with integrity
    • Re-think labor pools and recruitment strategies
actions taken and actions cut
Actions Taken and Actions Cut
  • Initial budget was $5.55 million
  • Revised budget was $2.1 million
    • Cut incentive plan
    • Cut major training build
    • Cut “shrink focused” customer experience programs
  • Data analysis
    • Did not identify pay/benefits as a major driver of shrink
    • Showed the existing training courses were having an impact
    • Did not identify “customer focus” as a major driver of shrink
    • Showed that “dishonesty terminations” were a significant driver of shrink
  • Created an HR Strategy with a known impact on shrink
calculating roi
Calculating ROI

Linking Employees to the Bottom-Line

drivers of shrink34
Drivers of Shrink

Job-Person Match

1a

Engagement

Manager Effectiveness

1b

3

Ethics Course Participation

2

2

Shrink

Shrink Course Participation

2

Dishonesty Terminations

Legend

Employee Survey

Training Participation

Terminations

Competency Ratings

1

Achieve Results

Numbers in paths indicate the intervention priority based on the magnitude of the relationship with shrink.

calculating impact roi
Calculating Impact & ROI
  • $93 million in annualized shrink
  • Example – currently 65% participation in Ethics Course
    • 95% participation could result in additional savings of $4.3 million
    • Approximate cost of $1,100,000 (employee time, communication)
    • Expected ROI: 390%
timing
Timing

Strategic Planning Begins

Business Partner RoadMapTM Process Ends

Financial Planning Begins

Beginning of 4th Quarter

End of Fiscal Year; Beginning of 1st Quarter

practical tips for implementing the process
Practical Tips for Implementing the Process

Overcoming Barriers and Driving Results

practical tips
Practical Tips
  • The data already exists…you just have to get access to it
  • Engage stakeholders early in the process
    • Stakeholders identify the critical business outcomes
    • Use stakeholder interviews to engage leaders across functions
  • Get senior-level advocates to build cross-functional buy-in
  • Although the analysis is complicated – make the results practical and action-oriented
  • “Low hanging fruit” can be a priority in a slow economy – look for big returns with little investment
  • Outsource the analysis
  • Analysis with recommendations can be delivered in 3-4 weeks
what we have covered
What We Have Covered
  • The process for linking employee data to critical business outcomes – the Business Partner RoadMapTM
  • How to use analytics to create your HR Strategy
  • How to calculate an expected ROI for initiatives
  • Practical tips for using analytics to drive strategy
slide40

To Contact Us:

Shane Douthitt, Ph.D.

Executive Consultant

sdouthitt@smdhr.com

(704) 975-6820

www.smdhr.com

Scott Mondore, Ph.D.

Executive Consultant

smondore@smdhr.com

(404) 808-4730

www.smdhr.com