Posts tagged ‘Human Capital Strategy’
My second prediction – in this series of five predictions for where HR is moving (se #1 here) – I predict that HR will outsource a lot more in the future. A lot more.
There are three primary drivers for this:
- Technology will make new solutions possible by vendors. Technology will be a major driver for productivity, service quality and efficiency within HR for many years to come. Thus, it will in many cases be more cost effective and better from a service quality point of view to let vendors who specialize in this area to do the job for two reasons; firstly because it is more cost effective
- The need for more specialized knowledge and services. It will require significantly more specialists to deliver HR in the future. Many companies will not find it possible to attract those profiles or find it cost effective if they can. So they will instead hire from the growing support of specialist consultants to help them with those specific projects. This is for most companies the best way to deliver service excellence in the most cost effective way.
- The continued focus on driving costs lower. If you are in HR you will have noticed the relentless focus of top management on your costs. You may secretly hope that this is just an adjustment period and that the good times (like 2006) will return. They won’t. In many ways, that’s a good thing. HR will therefore continuously need to focus on how to drive cost down. Outsourcing will be an obvious way.
Whenever it comes to outsourcing, the trend starts in US, then UK, later Asia then then finally Europe. This is true for IT, Facilities Management, Business Processes and other areas where US is 5-8 years ahed of Europe (where I am located). My experience is that this prediction therefore is not a surprise in US where outsourcing has been on the agenda for many years and where vendors and suppliers are aggressively pushing for this to happen (surprise). Here in Europe this prediction is still greeted with some skepticism.
What will this mean for HR going forward? I see three impacts:
Firstly, HR will need to fully understand what is core and what can be outsourced. The easy answer is to outsource all the transactional and operational stuff such as recruitment for simple replacements, payroll, surveys, basic reporting, IT to support most processes, most training and the kind. However, in reality it is more complex than this. Much of the tactical stuff such as some performance management processes, talent processes, leadership training and more are also candidates for outsourcing whereas some of the tactical stuff may be considered to be out-of-scope. It will vary from company to company. But HR must ask itself, what is my core business and what can I outsource?
Secondly, because what will be left (which is still a lot) will be what I call ‘an intelligent client’, the composition of who works in HR will be different. They will be required to have a more strategic and business focused mindset to a much larger degree than today. Much more. More people from business schools and fewer with “I am in HR because I like to work with people” profile. Hopefully there will be plenty of room for both profiles, but relatively more will be of the former profile.
Thirdly, the in-house HR will need to articulate much clearer why the top management team shouldn’t outsource the whole HR department. I don’t think they ever should, but there will be vendors who at some point will offer that to the CEO. HR must then respond with a clear business case of why this shouldn’t be done.
In my last post I argued that great workforce/HR analytics share four common traits; they are
- made on reliable data
- combined with qualitative data (and perhaps some intuition)
- used an evidence based approach.
But there is one thing missing and probably the most important thing; It must be based upon a strategic approach. I know that”‘strategic” is such an overused word in HR now and frankly most of what is said about strategic is anything but. However there is no getting away from the fact, that you can do good analytics with the above four traits without actually adding much value. Without doing analytics on the right things AND in the right way it really amounts to very little.
Or to put it in another way: Workforce analytics without a strategic approach will only with the help of luck turn out to be truly value added.
What does strategic approach mean in practice? The best way to illustrate this is to look at the difference between a bottom-up or top-down approach.
Analytics can be bottom-up (operational) or top-down (strategic). The bottom-up approach is the approach many take. They combine their data into Big Data and look through interesting ways of diagnosing, measuring, illustrating, visualizing, trending and reporting the data. They find interesting links between employee turnover and profits (no kidding!), talent profiles and performance or particular training programs and customer satisfaction. That’s when they are good. Sometimes they just show which divisions are experiencing lower employee turnover!
The top-down approach on the other hand start with your HR strategy (which of course is aligned with the business strategy). You then look at which areas you want to focus your HR efforts. Then you find the desired knowledge you require to make the right decision. The you design the data required to provide you with this knowledge.
Good analytics made from a bottom-up approach can give good results; they can surprise you, show links you hadn’t seen before and even challenge your strategy. BUT that approach must not stand alone. The primary use of analytics should be top-down. That’s the strategic approach and that is likely to support you most.
Remember: Workforce Analytics is ‘just’ a tool to make better HR decisions. It is a great tool for that, but if you are an HR executive looking to make strategic HR decisions, your analytics has to be strategic too. Don’t look at the data you’ve got and make the best of them but instead look at what data you need to create the most value-added predictive analytics.
ROI is used more and more in HR when justifying or evaluating HR projects. But it has at the same time come under a lot of criticism for being too difficult to use in HR. The first alternative I suggested was another financial ratio – CROCI – which may be better due to its focus on cash and the balance sheet. But while it is a much better ratio than ROI, it is more complicated to use. The second alternative was friction & flow, which is highlighting that HR should create flow and remove friction allowing employees to get on with their day-to-day things. This alternative is very common sense (its strength) but very vague (its disadvantage).
My third alternative is trying to measure HR’s strategic relevance. To understand why, let’s take a step back and ask “what is the purpose of HR?”. What is the ultimate outcome of the services HR provides? I am not thinking about HR’s activities (recruitment, annual appraisals, talent management etc.). So answers like “To hire the best talent” or “To retain our best people” are not good answers. They are ‘means’ not ‘ends’ purposes/goals. I am thinking about HR’s true and ultimate purpose.
For me, there is only one purpose for HR, which is to: “support the vision and strategy of the company”. This can be followed up by “…by hiring, developing, deploying and retraining the best talent and creating an environment for high performance “. In other words, an HR activity has value if brings the company closer to its strategic targets.
So my third alternative to ROI is what I will call the “Strategic Value Index” (made up for the occasion). It goes something like this. Any HR initiative will get a number of points – from 0 to 100 – based on how strategic and impactful it is.
Two examples may illustrate the index:
- Imagine a succession management program. It is designed to identify emergency and long term successors for top 100 managers, identify skills gaps for the long term successors and create individual development programs to fill these gaps. The design is excellent but in reality it does not work. The long term successors are not used with a position becomes available and the development programs are seldom effective. This program will get a Strategic Value Score of, say, 40. It will get a lot of points for a great design, being strategic in its set-up, but very little for execution. In addition, the program has an annual total cost of $1m, which gives a Strategic Value Index score of 40 (40/1.0).
- The second example is an upgrade to the annual assessment days for graduates. Each year, 100 graduates are invited to the annual assessment days with a prospect of a job. 25 young hopefuls are offered a job. The current selection process is not good (close to random). An upgrade will align the company’s strategic competency needs with the exercises and selection criteria of the assessment centre. The Strategic Value Score is, say, 20. The program gets a lot of points for being strategic, its ability to align competency needs with recruitment criteria but does not get many point for impact. The upgrade will cost $100k, which gives a Strategic Value Index score of 200 (20/0.1).
A program should only be approved if it is above the dotted line on the graph to the right. If there are more programs to choose between, the program which is furthest above the line should be approved (best value for money). In the above example, of the two programs HR should choose the upgrade to the assessment centre.
The advantage of this tool is, that it rewards strategic impact, which is really important. Better to do a smaller program which gets the company in the right direction according to its strategy than creating a monster of a program which has no strategic value. A second advantage is that it is relatively easy to measure AND you can use it in case you want to evaluate to investment decisions. ALSO it is an excellent communication tool with you C-suite.
This index does not really exist. I just made it up. But perhaps it should be used?
I have written specifically about HR analytics in my last few posts because I am very intrigued about it. On one hand, I freely admit that I am a big believer that HR analytics can add a lot of value, not just to HR and to the quality of its decisions, but also to the organization itself . I don’t know if HR analytics is the answer, but there is still much which suggests that HR is still not an important strategic partner in most organizations. On the other hand, I also experience many companies struggle with HR analytics. They don’t get the most out of it.
The challenge for HR analytics is not the software. I am no expert, but the few solutions I have examined, seems to be able to do the basics of what analytics is supposed to do. There are many times compatibility issues with existing IT solutions and often major problems with the quality of the data going into the programs. That leads to the issue of “garbage in – garbage out“. But in reality, I don’t believe this is the biggest challenge.
The challenge is also no the people in HR analytics. Again, I have not met all – or indeed that many – in the field, but my overall feeling is that they know how to retrieve, analyze and present data in a fairly good way. They understand data manipulation and care a lot about getting the right data and converting that to useful information.
The challenge, as I see it, is with the mindset – specifically the mindset of the HR executives. Let me explain. Potentially, HR analytics can get you as many facts as it is even possible to conceive. It is also able to give you a ton of interesting information – i.e. converting data and facts into information (note the difference between the two!). But the most difficult thing – and the most value-added – is to find and convert the right information into strategic actionable knowledge. And the only way you can generate this knowledge is to truly understand the business and strategy of the company, know what the primary workforce drivers are behind delivering on this strategy and finally understand how to get information and convert it into strategic actionable knowledge. This ability – or mindset – is not always present.
This must come from someone within HR. Top executives don’t always know what they want from HR or HR analytics. In general, I believe that they are quite excited about the prospect of what analytics can do (although many confuse it with metrics and normal reporting), they like the concept and some actually ‘get it’. The problem is, that they don’t know what to ask for and how to use it. Frankly, many times not even the head of HR know what they want from HR analytics. So, someone in the analytics, management information, HR data (or whatever the department is called) must have this mindset, ask the right questions and deliver value added knowledge in the form of analytics.
This challenge represents an opportunity. As I stated at the top, analytics is a tool which can help HR add significant value. To utilize this tool requires a strategic mindset. Master this, and reap significant rewards.
Talent Management is difficult to get right. Let’s be sure about that. In fact, most talent programs have a negative ROI if properly measured. However, there is one mistake you should avoid at all costs as it will lead to high turnover of talents (and a negative return on investment). That mistake is not having a plan for what happens with the talents after the program ends. And that plan should be made and communicated up front.
The unique thing about Talent Management – and Human Capital in general – is that if an employee decides to leave the company, he (or she) will then take the entire investment with him. In other words the cost of a talent leaving is not only loss of productivity, cost of rehire etc. but also the money spent on developing that person.
A key objective of a talent program must therefore be to ensure that talents stay after the talent program as this is the only way to get a return on the program. When the talent programs is ongoing talent turnover decline. But what many fail to understand is, that talent turnover often goes up when the program finishes. And sometimes quite a lot.
Why is that?
Evidence suggests that frustration with advancement opportunities is among the most important factors . Generally, the single biggest reason for why talents leave organisations is lack of advancement and development according to a 2006 Global Workforce Study by Tower Watson.
During the program, talents will – rightly or wrongly – expect that something will happen afterwards; a promotion, a big assignment, an outpost or something new. If they are ‘leadership talents’ they will expect to move up the organisation. If they are ‘specialist talents’ they will expect being offered better and more prestigious projects to work on after the program.
Studies suggest that the talent turnover can be halved post the program if proper post-program plans are in place. Don’t make the biggest mistake of not addressing this up front.
Human Capital Institute (HCI) has produced an interesting report/survey on the issue of contractors in talent management initiatives (see here for report). They conclude that procurement and selection of contract talent (CT) should be centralized in HR and the strategy around CT should be aligned with the general Talent Management Program.
The background for the study is the fact that most organizations has a huge gap between how they manage their contractors and their strategic needs for competencies.
One of the problems is that it is not always (sometimes rarely) that HR is even involved in hiring and administering contractors. A study showed that it was only the case in 50% of cases. Most of the times it is from the business units themselves. This ownership issue is a problem.
But should contractors be part of a talent management? Well, I think it depends on how you define it. It think contractors should be administred from HR and should form part of the overall Human Capital strategy. Contractors is an important part of the overall workforce planning tool and issues about who and what competencies should be hired are important strategic HR decisions. But from there to be included in a talent management strategy? I am not sure it make sense.