Posts tagged ‘Human Capital’
Storytelling is rightly hailed as a must-have competence in people analytics. In my own competency model, it is one of the six core competencies any analytics team must have. Other models do the same. Compelling arguments are being made about the value of good storytelling. In other words; master it or beat it.
So don’t get me wrong; it is important. But my point in this post is that storytelling requires the presence of a theory to be successful. If you do not have a proper – i.e. a plausible and documented – theory behind your data, storytelling can do more harm than good.
Angela Duckworth observes in her book: Grit – the power of passion and perseverance, that “a theory is an explanation. A theory takes a blizzard of facts and observations and explains, in the most basic terms, what the heck is going on”. I could not have put it better myself. And funnily enough, this is also what storytelling is doing – explaining what the data says.
Let me give you an example why you need a theory to tell a story: ZengerFolkman – an excellent US data-driven leadership development consultancy company – has compared the combined leadership effectiveness scores as measured on 360-degree evaluations for men and women respectively at different leadership levels. The result is, as you can see below, that women score better than men at all levels and that this difference is more significant the more senior the leaders are.
I recently made the same observation within a financial institution. They had collected performance data for all their leaders and we were comparing performance data – split into different KPI groups – and it was clear that the performance rating was significantly better for the female leaders and also that difference was greater the more senior the leaders were. The data at this company confirmed the international data I had found. I had data and I had other similar data points to back them up.
So far so good.
The problem is, that although the difference between performance scores is significant the data makes little sense without a theory to explain the observations. Why are women leaders rated better than men? All we know is that the performance ratings/360-degree evaluations put women higher than men. It may be that women are better leaders than men. It could also be that women are reported to be better leaders but in reality are on par with men. Maybe there is a bias in the evaluation of female leaders. Or it could be a third reason.
Another thing to consider is the relationship between the portion of female to male leaders vs. overall performance. Is it linear or does it have another shape as depicted in the figure below? If it is linear and you conclude that females are better than male leaders, then a natural recommendation is that you should replace all male leaders with female. If on the other hand the relationship has some other shape – such as the one in the second figure below – you should identify the optimal point to reach leadership effectiveness.
My point is that without an answer as to why there is a difference you cannot create a story and a recommendation. To come up with a proper recommendation you must have a proper theory to explain the why. The basic analysis cannot explain it and you cannot go straight to storytelling because you are still left with the basic question of ‘why’. And what you will be left with are leaders sitting around a table wondering what to do. In this case, maybe there is a good theory. I don’t know of it (but would love to hear it if you happen to have one).
So you need a theory behind your data. An explanation if you will. It does not need to be verified by Harvard or any such institution. But you do need an explanation. Let’s say that you find that the talent you source from one university performs significantly better than the talent you source from another. You need to understand why. If you cannot explain why through a theory, your storytelling will lack the power it has the potential to have.
So: please do not do storytelling on people analytics without a proper theory explaining your data. It really makes no sense.
Succeeding with workforce analytics is difficult. It requires a mix of skills not found in one person only, and you should not assume, that you can do it on your own. We are all decent at most things but really only good in a few. You should therefore assemble a team, which has a multiple of superheroes each with a superpower of their own.
I described this in a previous post, where I suggested six competencies a superhero analytics team should have:
- Strong data management skills
- Captivating storyteller
- Understand the business
- Ability to visualize your results
- Strong psychological skills
- Excellent statistics and numbers skills
But what happens if just one of those skills are not present? Can’t we manage anyway? My answer is no. If just one of the skills is missing from the team, six outcomes are possible – each with a disastrous outcome – as shown in the figure below:
In essence, if you:
- have no good data, you will not be able to perform analytics. It is as the old saying goes: crap in – crap out. If you do not have good data, it is sometimes better not to do analytics.
- lack of storytelling abilities, the message will nog. As Tom Davenport describes: “Narrative is the way we simplify and make sense of a complex world” and it is the way messages are most effectively conveyed and the best way to get people to change (which is the ultimate goal of analytics).
- have no business acumen will mean that your team will perform excellent analytics on the wrong issues. Workforce Analytics should help decision making on vital must win battles for your organization. Understanding the business is vital to understand what those must win battles are.
- are not able to do visualizations you will bore your audience. Data and numbers are boring (and I am a numbers guy), but data and numbers effectively conveyed through visualization
- lack psychological skills you will misunderstand your findings, be unable to convert your information to knowledge and be subject to important challenges such as bias, cognitive dissonance, imposter syndrome etc.
- have poor numbers and statistics abilities, your analysis will just be plain poor. You can get really far with simple regression-, factor- and t-test analysis skills but at other times, you will need skills in more advanced statistics when the data set become really big or you are looking for more predictive analysis.
Analytics require a lot of skills and abilities – superpowers if you like. The best way to ensure that you have the right ones to deliver on your task is to assemble the best team. An analytics superhero team.
My second take-away from the workforce analytics case-studies and conferences I have heard, attended and experience over the last year is what I call the confusion of cost savings and value creation. While the good news is that we are starting to deliver, my warning would be, that we should be careful not to deliver on the wrong things – or more important; on the least value added things. Let me elaborate.
At most conferences and in most reports by leading consultants, we are being presented with a maturity model, which illustrates activities from the least mature to the most. It goes something like this; first there is some descriptive methods, such as reporting and trend analysis, then maturity increases and the methods goes on to being predictive and prescriptive and finally the maturity goes on to machine learning or something like this. One example of such as maturity model is from IBM shown below (but frankly they all look very similar).
I fully agree with the idea of maturity and that prescriptive analysis is better than descriptive. It is also a good way to illustrate this maturity journey albeit they could be a little more operational in terms of assessing level of maturity and suggested next step depending upon current level. However there is one dimension missing from this picture: the focus of the analysis itself. All good at being mature of the methods but we must also assess maturity on the object of our analysis.
In rough terms: If it the focus is on cost savings elements then the potential shareholder creation will always be limited (it will be the net present value of the cost savings minus the investment). If the focus is directly on creating customer value/business value then the potential shareholder creation will be great.
In fact, I will propose, that there is more value added in doing predictive analysis on a business matters than doing prescriptive analysis on an HR matter.
To be clear, let me come with a few examples. If you are analyzing sickness, employee turnover, recruitment effectiveness or training effectiveness, you are really at the cost savings end of the spectrum. There is no harm (at all) in coming up with evidence based suggestions to reducing employee turnover. Indeed for many companies there are significant money to save in doing that. It is however still cost savings and it won’t get you a seat at the table. So do some of that, but don’t put all your efforts there.
At the other end of the spectrum, you are adding workforce data to customer/profit/sales/other business data. Here the examples are less generic as they are (should be) tailored to each company’s specific strategy and situation. A few I have witnessed/been part of: Finding which service behavior adds the most impact to customer experience/satisfaction, and which training programs are most effective in embedding this behavior. In this example, the workforce data leads straight on to more sales and higher profits. Another example; how does change load (employees’ load of change relative to ability to handle change) impact strategy execution.
These two specific examples had a heavy use of non-workforce data as part of the analysis. In fact, you can test your value maturity on the cost/value axis by testing how much business data you have compared with how much workforce data. If you only work with workforce data, you are probably focusing on cost savings rather than value creation.
Some will sometime argue that “Attracting talent is always business critical and therefore what we do is value creating”. That may be true in some cases but they are missing the point. Indirect value creation is important but less straight forward to prove. In most cases they misunderstand HR processes with business matter.
I therefore suggest that we add a dimension to our maturity models. Perhaps some large consultancy company can show how this may look?
The HR Partner role (the HR generalist) is very much in vogue. Everywhere I look (here in Northern Europe) this model is being applied. In fact, over the last five years the title “HR Partner” has probably received a bit of a mini-revival again. It is cool to be a HR Partner theses days.
The introduction of the HR Partner model was right and welcome when it was introduced 20 years ago. HR had built ivory towers in company headquarters and did not know what was going on in the business. Managers and leaders did not feel that HR understood or even cared about what the company was about. They felt that HR was all about creating big processes and programs that did not match the business need. So a change was good. And in stepped Dave Ulrich and with him the HR Partner model. The pendulum began to swing back towards the generalist.
Now I believe things are about to change again. Why? Simply, because they have to. And because new trends are emerging which requires HR specialists to do the job. 20 years ago the structure of HR did not match the need of the business. I think the same is true again.
Many companies have hired HR Partners while downsizing HR specialists. The HR Partner is a generalist who is moved out in the business as close as possible to the unit-manager. The idea is that the partner should be the right hand man/woman to the function leader. The job itself is a mix of administrative and tactical work with a hint of strategic work in some (often rare) cases. The result: HR is now close to the business and is visible to the rest of the organization. But at the same time they must master everything HR related. They are jack of all trades.
This will change.
I don’t think that things will go back to the old. It never does. And nor should it. But specialists are needed. New and important trends are emerging which requires specialists. Just take the area of HR data which includes Big HR Data, Analytics and the fact that HR is being more software driven in general. To master this HR must employ specialists. But not in big centralized headquarter departments. Instead I think companies will create some HR Excellence Centers which will support both HR partners – of which there will be fewer – and corporate HR. They will be very specialized in key HR areas such as Social Media, Workforce Analytics, Talent Management, Leadership Development and Performance Management.
So my prediction for HR for 2020: Outsource more, focus on HR strategy and increase specialization. That will, by the way, make HR more influential and so much better.
I am convinced that ROI can offer significant value to HR. ROI can make HR better by making better investment decisions and improve evaluation of activities. Also ROI can show how HR adds shareholder value. In theory at least. Because ROI has a lot of problems.
The number one problem is that ROI calculations are not used as they should. Never. Ever.
In many HR departments a business case is made before any new initiatives are approved. The expected return on investment is also included. This is good. The expected benefits are identified and estimated together with the expected costs (usually easier to identify). If the ROI is positive – as it usually is in these cases – the program may be approved. Here ROI is used ahead of the program to get a budget.
The value of doing ROI estimation is however not in the business case, but in the evaluation of the program afterwards. You evaluate the program versus your expectations – and then you get valuable insights into how to make the program more efficient and effective. Also you get a good feeling for how to make realistic ROI estimations in your future business cases (something very few are capable of) which will make them more trustworthy.
But, I have only met a handful of HR executives and companies where they have actually calculated the ROI post of the program. The fact is that most companies do not evaluate the value of their activities and initiatives. Once the budget has been approved the interest in the ROI estimation completely disappears.
The reasons are many, but usually they have something to do with lack of resources (“do you know how much it costs to evaluate a talent management program?”) or lack of incentive (“we’ve got the funds, who cares about evaluation”) or even ability (“we don’t know how to do it”).
This way of doing things typically favors those, how are good at making models with impressive benefits and those, who can convince others about their assumptions rather than those, who can make realistic assumptions and execute well. Implementing well is not rewarded.
While this may be true for all kinds of ROI-like measures – and there are many good alternatives – I believe that ROI is especially prone to this misuse.
So my advice is; either follow-up on your pre-program estimated ROI or don’t do it at all. Frankly, it is a waste of time.
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?