Calculating Return On Investment from HR Analytics

Presented by:

Scott Mondore, Ph.D.

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Work Group Speakers

Scott Mondore, PhDManaging Partner

Hannah Spell, PhDDirector of Research and Analytics

Shane Douthitt, PhDManaging Partner

Matt Betts, PhDConsultant

SMD OVERVIEW: Driving Business Results Through Surveys & Assessments

OU

R T

EC

HN

OLO

GY Analytics Based:

Links People to Critical Business Outcomes through:

• Employee Surveys

• 360 Feedback

• On-boarding & Exit Surveys

• Selection Assessment

• Competency Modeling

OU

R P

RO

CESS 4 Steps:

• Prioritization of Key Business Drivers

• Selection of Improvement Areas

• Customized Action Items

• Business-Focused Action Plans

YO

UR

BO

TTO

M-L

INE Common Outcomes:

• Operations Metrics

• Financial Metrics

• Customer Satisfaction

• Patient Satisfaction

• Turnover / Retention

• Whatever is most critical to your bottom-line

Participating Organizations

Presentations & Presenter

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Scott Mondore, Ph.D.Managing Partnersmondore@smdHR.com

http://smdhr.com/leadershipteam.html

Learning Objectives

Define the goals of analytics

Real Bottom Line Indicators

Calculating Return on Investment

THE GOALS OF ANALYTICS

CASE STUDIES

AFTER THE ROI….

A Critical Definition

• ROI does NOT stand for: Reporting Out Information

• ROI is not based on how many data visualizations and reports you create—or how cool they look

• The same analytics that create the initial models can be used to show the actual ROI

• At some point, a CEO is going to ask: “We’ve spent all this money on the HR Analytics team/tools…..what’s the ROI?”

The Biggest ROI Obstacle

• As with most HR interventions (leadership development, employee surveys, 360s)….it isn’t the calculation or the math or getting the data

• It’s just taking the time to do the ROI study

Goal and Definition of HR Analytics

• Ultimate Goal – Leverage people insights to inform changes to organizational policies/procedures to better align with BUSINESS OUTCOMES

• Simply Defined –The analysis and application of a company’s people data– Often involves multiple sources of data (some of which come from non-

traditional HR sources)

– Includes both primary as well as secondary data collection strategies

• Implications – Can impact broad spectrum of HR (and organizational) activities

• Turnover analysis

• ROI and Cost calculation

• Reporting• Data

Management• Compensation• Training

• Competency models

• Predictive talent profiles

• Succession Planning

• Performance Assessment

• Training effectiveness

• Survey development and analysis

• Targeted assessments

• New Hire, Onboarding, Exit Surveys

• Climate Assessment

• Change Readiness Assessment

HR ANALYTICS

Talent Management

HR Operations

Employee Experience

Recruiting & Selection

• Target Candidates

• Selection Assessment Development and Analysis

• Role Play, Work Sample, Behavioral Interview, Knowledge Assessment Development and Weighting

• Hiring Algorithms

Why Analytics?

• HR Analytics connect employee data to business outcomes

• HR Analytics prioritize where and how much to invest

• HR Analytics calculate impact/ROI from people investments

Analytics Business ResultsPeople Investments

The Opportunity – HR Analytics

• Discover the attitudes, competencies, skills, experiences, etc. that drive business results

• Make people investments based on drivers of results

• Take the lead in making HR processes business-focused

• Build a business case based on ROI

• Become viewed as a strategic partner that drives business results

Prioritization

• The key take away from any analytic project should be prioritization for follow-up

• Analysis paralysis is common – make sure you are doing analytics with a purpose

• Don’t get bogged down in information overload

• There will always be more analysis you can do, more ways to cut your data…determine what is needed and useful

Analysis Goals

Connect the dots between people and business results – don’t just assume

Uncover actionable insights

Determine a priority for follow-up

Generate strategic plans – direct resources to the priorities

THE GOALS OF ANALYTICS

CASE STUDIES

AFTER THE ROI….

• Pharmaceutical company with 23% market share facing new competitors and recent stagnant growth

• Sales training is a significant investment, but not sure of ROI

• Need to conduct skills assessment and ROI study to create company-wide training strategy

• Included customer assessments (e.g., physicians) in the assessment process

CASE STUDY: Small Pharmaceutical Company

CASE STUDY: Small Pharmaceutical CompanySelling Skills Assessment Sample Items

Competency Sample Item

Account Management Responds with appropriate urgency to requests that require follow up

Advanced-Level Selling Skills Engages in discussions with healthcare providers that are relevant and interactive

Evidence-Based Selling Skills Easily discusses concerns about bias in XYZ’s clinical studies

Product & Disease State Expertise

Articulates all potential effects that XYZ can have on patients depending on therapy paradigm and patient profile

Managed Care Expertise Effectively finds solutions to managed care challenges and restrictions

Relationship Building Comfortably builds rapport with healthcare provider’s office staff

Consultative Selling Skills Asks pertinent and insightful questions during interactions to identify customer needs

CASE STUDY: Small Pharmaceutical CompanyOverview of the Full Model

Evidence-Based Selling Skills

Consultative Selling Skills

Managed Care Expertise

Product & Disease-State Expertise

XYZ Script Writing

Market Share0.10*

0.29*

0.54*

0.16*

0.19*

0.60*

*Higher path values indicate a stronger impact based on a 0.0 to 1.0 scale.

1

2

3

4

Circled numbers indicate the development priority based on the magnitude of the relationship with script writing & market share.

Findings & Implications:

• Evidence-Based Selling Skills are a significant, causal driver of Script Writing and Market Share.

• Evidence-Based Selling Skills, in turn, are driven by Product & Disease State Expertise, Managed Care Expertise, and Consultative Selling Skills.

• Prioritizing initiatives that target the key drivers listed above will lead to improvements in sales performance among XYZ Sales Representatives.

CASE STUDY: Small Pharmaceutical CompanyCritical Item-Level Drivers

Priority* Competency Item

Evidence-Based Selling Skills

Easily discusses concerns about bias in XYZ’s clinical studies

Accurately answers questions about clinical study methodology

Product & Disease State Expertise

Possesses broad knowledge of the therapeutic market

Articulates all potential effects that XYZ can have on patients depending on therapy paradigm and patient profile

Managed Care Expertise

Understands the specifics of managed care plans

Effectively finds solutions to managed care challenges and restrictions

Consultative Selling Skills

Understands physicians’ unique approaches to treating the disease state and provides solutions based on needs

Asks pertinent and insightful questions during interactions to identify customer needs

1

2

3

4

*Priorities determined based on the magnitude of the relationship with script writing & market share.

CASE STUDY: Small Pharmaceutical CompanyCompetency-Level Change in Performance

Competency2017

Average**2016

Average**Difference

(2017 – 2016)Significant Change

Account Management 6.65 6.64 +0.01 No

Advanced-Level Selling Skills 6.55 6.59 -0.04 No

Consultative Selling Skills* 6.59 6.47 +0.12 Yes

Product & Disease State Knowledge* 6.65 6.51 +0.14 Yes

Evidence Based Selling Skills* 6.56 6.34 +0.22 Yes

Managed Care Expertise* 6.64 6.42 +0.22 Yes

Relationship Building 6.70 6.64 +0.06 No

Sales Representative Overall 6.61 6.53 +0.08 No

Rating Scale: 1 = Strongly Disagree; 2 = Disagree; 3 = Somewhat Disagree; 4 = Neither Agree nor Disagree; 5 = Somewhat Agree; 6 = Agree; 7 = Strongly Agree

* Denotes 2016 key drivers of Script Writing and Market Share Performance.** Averages calculated for XYZ Sales Representatives who participated in the assessment in 2016 and 2017 (N=84); therefore, 2017 averages reported here differ slightly from 2011 averages presented previously. All averages exclude self ratings.

CASE STUDY: Small Pharmaceutical CompanyLongitudinal Impact on Sales Performance

Evidence-Based Selling Skills

Consultative Selling Skills

Managed Care Expertise

Product & Disease-State Expertise

XYZ Script Writing

Market Share0.10*

0.29*

0.54*

0.16*

0.19*

0.60*

Change in Mean from

2016 to 2017 of +.14

Change in Mean from

2016 to 2017 of +.22

Change in Mean from

2016 to 2017 of +.12

Change in Mean from

2016 to 2017 of +.22

299 Scripts 371 Scripts

2016 2017

Sales Outcome Estimated Impact*Actual Sales

Improvement (2016 to 2017)

Total Sales Impact

XYZ Script Writing3.2% of Script Writing

Improvement+24% +.77%

Market Share3.8% of Market Share

Improvement+1.0% +.04%

23% 24%

2016 2017

*Impact based on 0.2 change in Evidence-Based Selling Skills Mean; Results based on the average Script Writing and Market Share performance of XYZ Sales Representatives who participated in the Sales Assessment and remained in the same sales territory between 2016 and 2017 (N=54).

By focusing on improving Sales Reps’ Evidence-Based Selling Skills, the training team played a key role in

improving bottom line sales (i.e., Script Writing and Market Share) performance .

Increasing Script Writing by .77% equates to approximately

$15,400,000in additional revenue.

Keys to ROI Calculations

• Instead of running a concurrent model, we are running a model that shows change in key drivers (Time 1 to Time 2) against change in business outcome (Time 1 to Time 2)

• The beta weights show the IMPACT (and amount of variance accounted for) of key driver change on the business outcome

• Use SEM for the analysis when possible

Large Retail Organization

• $93 million annual shrink problem

• Succeeded in reducing shrink by $14 million dollars in 1 year

• 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

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

• Employee opinion survey results

• Performance Mgmt/Competency ratings

• LMS training data

• HRIS data – dishonesty terminations

• Store turnover data

• Customer satisfaction results

Key HR Processes

Business Outcomes

Performance Management

Selection

Employee Survey

360 Feedback

Succession Planning

Competency Builder

Career Development

HRIS Data

Training

Business Outcomes

People• TurnoverService• Customer satisfactionQuality• ShrinkFinance• Cost reduction

Dimensions of the Employee Survey

Engagement

Regard for Employees

Manager Effectiveness

Career Development

Recognition & Perf. Mgmt.

Resources Available

Job-Person Match

Policies Hours Worked

Customer FocusWork Environment

Benefits

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

Salaried Employee Competencies

Employee Development Leadership

Strategic Decision Making

Cross-Organizational Collaboration &

Teamwork

Execute With ExcellenceAchieve Extraordinary

Results

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

Drivers of Shrink

ShrinkLegend

Employee Survey

Training Participation

Terminations

Competency Ratings

Numbers indicate the intervention priority based

on the magnitude of the relationship with shrink.

Job-Person Match

Manager Effectiveness

Dishonesty Terminations

Ethics Course Participation

Achieve Results

Shrink Course Participation

3

3

2

1

2

2

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:

1. Achieving Extraordinary Results

2. Ethics Course

3. Shrink Course

4. Dishonesty Terminations

5. Job-Person Match

Intervention Framework

People TechnologyProcess

Planned Interventions & Cost

• Build optional shrink training courses for specific roles

• $300kTraining

• Deploy a store-level incentive program for meeting quarterly shrink goals

• $5 million

Recognition & Reward

• Nothing plannedSelection

• Insert shrink focused messaging in a larger “customer experience” initiative

• $250k

OD & Leadership Development

Recommended Actions to Reduce ShrinkTRAINING:

• 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

Revised Interventions & Cost

• Enhance and update ethics and shrink course – make both mandatory

• $50kTraining

• Nothing plannedRecognition &

Reward

• Improve selection process for front-line employees –background checks & integrity testing

• $2 millionSelection

• Develop shrink management routines

• Develop shrink partnering program

• $50k

OD & Leadership Development

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 Impact & ROI

Intervention Beta Potential Shrink Impact Level of Investment

Manager Competency .14 $13.0 million Under-investing

Ethics Course .10 $9.3 million Under-investing

Shrink Course .09 $8.4 million Under-investing

Dishonesty Terminations -.08 $7.4 million Under-investing

Engagement .04 $3.7 million Appropriate

Reward & Recognition ns ns Over-investing

Customer Satisfaction ns ns Over-investing

• $93 million in annualized shrink

• Example – average Manager Competency score of 3.92

• Moving 0.30 could result in additional savings of $975,000Approximate cost of $200,000 (build, employee time)

• We also took a 25% conservative impact factor

• Expected ROI: 487%

Doing the ROI Math

• Predictive Model Competency Beta: 0.14

• Shrink Problem: $93 million

• Time 1-Time 2 Model: Actual Impact Beta 0.12

• $30M improvement X .12 Impact Beta=

– $3,600,000

Complex Methods – Simple Insights

Make sure the methods are stringent and appropriate to accurately answer the question

Keep the methodology behind the scenes

Only share the key take-aways

THE GOALS OF ANALYTICS

CASE STUDIES

AFTER THE ROI….

After Your ROI Calculation

• COMMUNICATE!– Share the ROI with key stakeholders and all leaders– Keep the story simple (but bring the complex math with you)– Include the story as part of the OD interventions/change management

• Keep Analyzing the Time 2 Data– Over time, you will find new key drivers because change happens– You will need to create a new strategy for Year 3 based on latest analysis

• It’s a Hot Seat– More ROI will be expected the next time around, but respect for the HR

Analytics will be gained

The CEO’s Question

• Remember the CEO’s question: “We’ve spent all this money on the HR Analytics team/tools…..what’s the ROI?”

• Answer:

– “To date, we have spent $XYZ dollars on team, technology, tools and we have returned $ABC dollars in terms of……”:

• X% improvement in direct sales by our sales reps

• Y% reduction in turnover

• Z% improvement in actual Shrink dollars

Revisiting Practical Tips• We have to change our mindset and approach:

– Move from reporting HR-focused metrics to identifying the drivers of business results– Then show if focusing on drivers actually had the desired impact (ROI)

• Focus on Predictive Analytics that are linked to business outcomes– More reports do not equal (ROI)

• The analytics are complicated – but the story that emerges has to be simple– Boil the story down to critical drivers and priorities– Improve x (people measure) & y (people measure) and z (business outcome) will improve– Then prove it with analytics (ROI)

• Start with one project and try it out before jumping all the way in. Ask yourself:– Can I articulate why this really matters to the business? (ROI)– Can I articulate the business value of moving this number? (ROI)– Why would senior and front-line leaders care about this metric? (ROI)

Recommendations

• Have a measurement strategy – it can’t be to just measure more often

• Harvest the intelligence from the data you already have, before investing in more data

• Think about what you will do with the data to drive results

• Define the business problem first and then identify potential data sources that will likely provide intelligence

• Show the impact of the measurement process (ROI) and leaders will champion HR measurement…not question it

Questions and Comments

• Please use the chat function to submit a question

• Recorded meeting and PPT deck will be posted to the HR Analytics Work Group website

• On HR Analytics Work Group LinkedIn page you can ask the group and speakers additional questions after the meeting

WHAT NEXT?

SMD OVERVIEW: Driving Business Results Surveys & Assessments

OU

R T

EC

HN

OLO

GY Analytics Based:

Links People to Critical Business Outcomes through:

• Employee Surveys

• 360 Feedback

• On-boarding & Exit Surveys

• Selection Assessment

• Competency Modeling

OU

R P

RO

CESS 4 Steps:

• Prioritization of Key Business Drivers

• Selection of Improvement Areas

• Customized Action Items

• Business-Focused Action Plans

YO

UR

BO

TTO

M-L

INE Common Outcomes:

• Operations Metrics

• Financial Metrics

• Customer Satisfaction

• Patient Satisfaction

• Turnover / Retention

• Whatever is most critical to your bottom-line

What SMD Provides for Organizations

What good is a prediction without a

guarantee?

Integrated Solutions:

Turnover Reduction

Employee Lifecycle Surveys

Labor Relations Assessments

Consulting:

Analytics On-Call

HR Analytics Check up

Competency Builder

Assessment and Hiring

Surveys:

Employee

360 Feedback

New Hire and Onboarding

Exit

Pulse

Physician

2017 Analytics Work Group Completed- Now What?

• Stay informed on SMD research– White Papers: http://smdhr.com/whitepapers/– Webinars: http://smdhr.com/webinars/

• Complimentary Analytics Consultation– One of SMD’s Analytics Consultants (PhD) will take a look at your

organization’s current process to collecting and/or analyzing employee data and provide feedback on improving collection and diagnosis

– More information, contact Heidi Kamm hkamm@smdhr.com

• Post-Analytics Work Group Survey– We’d enjoy your feedback on the Retention Work Group, please take

survey here

Let’s get in touch:

Scott MondoreManaging Partner

smondore@smdhr.com404.808.4730

smdhr.com