How to get executives to pay attention to HR metrics

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HOW TO GET YOUR EXECUTIVES TO PAY ATTENTION TO HR METRICS 2011 © Dr. John Sullivan Professor, Author and Advisor to Management www.drjohnsullivan.com
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Advanced HR metrics that will impress your executives

Transcript of How to get executives to pay attention to HR metrics

  • 1.HOW TO GET YOUR EXECUTIVES TO PAYATTENTION TO HR METRICS2011 Dr. John Sullivan Professor, Author and Advisor to Managementwww.drjohnsullivan.com

2. My goals1. To make you think2. And to convince you that your current metricsapproach isnt workingand to show you a more powerful approach 2 3. Topics for today1. A quick assessment of your current approach?2. Examples of so what vs. OMG metrics3. The characteristics of OMG metrics4. Your questions3 4. Part 1 How are we doing?Questions for the audience1. Raise your hand if you have spent a considerable amount of time and resources on metrics?2. Raise your hand if you are completely satisfied with the results that your metrics produced?3. Raise your hand if youve received a large budget increase as a direct result of your metrics? 4 5. Part 2A quick demonstration of the difference betweenso what and OMG metrics5 6. So what vs. OMG metricsWhat is a so what metric? (Most HR metrics qualify)1.If seen, they are often skipped or scanned butseldom read2.If read, they get a so what or thatsinteresting response from execs3.If it covers costs, the metric omits the $returned part of the ROI equation6 7. Examples of so what metrics1. 93% of employees are satisfied with L & D2. The cost of each L&D hour is down 12%3. The cost of a new hire is $2,0364. We hired 240 new employees last year5. Our FT employee headcount is 1,052Would any of these metrics drive you to act?Would any of these cause you to give HR more budget dollars? 7 8. OMG metricsThree quick identifiers of an OMG metric1.It is read because it impacts at least onecorporate goal or executive bonus criteria2.It causes alarm because it makes clear that thehighlighted problem/opportunity directly impactscorporate revenue3.It drives managers to immediate action 8 9. Examples of OMG metricsSee if this grabs your attention & drives action1. $148k is the average yearly sales of a salesperson2. It is $197k if they completed advanced sales training within the last 2 years3. It averages $249k if they spend 6 hrs. a wk. or more on social networks sharing best practices4. It is $304k if the salesperson did bothWould this stir you to take action as an executive?And what actions would you take?Another example >9 10. If you were the CEO at IBM, would this get your attention? (the best salesperson & sales revenue)A comparison of employee output (rev per employee)Average $208,000IBM $246,600 (23% above the average)HP$406,900 (Nearly double the average)Microsoft $722,700 (Over 3.5 times average)Google $1,303,000 (Nearly 6.5 times)Apple$1,631,000 (Nearly 8 times the average & the highest stock value)It takes 6.5 X more employees at IBM toproduce the same revenue as Apple(Calculated using 2010 data) 10 11. Do HR practices increase the firms stock value?Market cap value comparisonHP - $65 B (19% of Apples value)IBM - $161 B (46% of Apples value)Google - $185 B (53% of Apples value)Microsoft - $214 B (62% of Apples value)Apple - $346 B (Soon to be the worlds most valuable firm)(Calculated using 8/9/11 data) 11 12. Do HR practices increase profit?Dollars of profit per employee (Profit per labor $ spent is a better measure)HP$19,892IBMMicrosoft$27,370 $155,253 OMG! doesnt thatApple$208,943make youcurious as toGoogle $256,749what causes thedifference?Key learning - it takes nearly 9.5X more employeesat IBM to produce the same profit as Google(Calculated using 2010 data) 12 13. If you were the CEO of IBM, would this causeyou to take action? 13 14. Continuing What is the performance differential?One top-notch engineer isworth 300 times or more than the average we would rather lose an Alan Eustace entire incoming class ofSenior Vice President, Engineering andengineering graduatesResearch than one exceptionaltechnologist.14 15. Continuing on the HR value proposition metric If you hire a single game changer at Google(where the average employee generates $1.3 millionin revenue each year) And that game changer produces the expected 300xan average employees performance ($1.3 X 300 = $390) For every one you hire you add over $390million in revenue every year And if the new hire stays for only 2 yearsthey will generate over $1 billion in added rev.Do you see why Google is such a well funded hiring machine! 15 16. And finally An display example of an OMG metric(This is what an executive would see)16 17. Example of an OMG metric displayed Rev impact: - $3.4 million Corp goal: Increase sales Top performer turnoverMetric -This years rate = 6.5%Last years rate = 4.5%Projected rate = 11.2 % (up 84%)TrendBest in the industry = 4% (7.2% behind)Action required Personalized motivation for TP ees - cost $145,000Accountable individual JT Snow, CTO17 18. Do you see the value of having attentiongetting, action driving OMG metrics?Any questions at this point?18 19. Part 3 Metric power factors 30+ years of metrics research have led to myidentification of the factors that make a metricpowerful to execsThe 30 factors are broken into five categories1. Factors that make a single metric compelling2. Ways to select metrics3. Best practices in reporting and presenting metrics4. Design metrics for enhanced decision-making5. Improve data collection & metric calculations 19 20. Lets start with the first categorythe factors that make a single metric compelling 20 21. Factors that make a metric powerful to execs1. Tie each strategic metric to a business goal executives have a narrow agenda - so you must tie each HR metric directly with one or more business goals and business problems (business problems not HR problems)Example -Bus goal Increase revenue from innovationHR metric - % of increased revenue from innovationcoming from employee generated ideas More >21 22. Metrics must directly impact business goalsA list of business goals includes1. It increases a managers bonus2. It increases the share price3. It increases profit4. It increases revenue5. It increases product innovation6. It increases brand value7. It increases market share8. It decreases time to market9. It has a high ROI22 23. Factors that make a single metric compelling2. Demonstrate your revenue impact no business goal is more top of mind with executives than topline growth.- It is essential to calculate the estimated dollar business impact on revenue of the area covered by a metric.- Work with the CFOs office to ensure the calculations are credibleExample -HR metric - # of position vacancy days for rev jobsRev impact $1.1 million ($5,000 average $ lossper day X 210 excess vacancy day) 23 24. Factors that make a single metric compelling3. Forward-looking almost all HR metrics are historical, but executives care about the future - So focus on metrics that are forward-looking and predictive, then alert managers about upcoming problems/ opportunitiesExample -A historical metric last year, turnover was 5.6%A forward looking metric Next year, we forecastturnover will double to 11.2%An alert LeBron just quit his basketball teamMore > 24 25. The business intelligence (BI) hierarchyWhat is the difference between metrics & analytics?1. Reporting metrics what happened? (Historical)2. Analytics why things happened? (Historical)3. Monitoring what is happening right now? (Current) (Dashboard or KPI scorecard)4. Predictive analytics what will happen? (Future) (Proactive preparation for resource optimization)Goal fact based decision making to maximize theperformance of your resources 25 26. Factors that make a single metric compelling4. Pretest metrics to ensure they drive executive action it is essential that you pre-test each metric that is reported to executives- To ensure that they are interesting and powerful enough to cause them to want to read and to take action immediately26 27. Factors that make a single metric compelling5. Tie rewards to metrics merely collecting and reporting metrics changes behavior - However, by rewarding managers and HR professionals for producing superior metrics results, you further drive behavior and decision- making (Whatever you measure and reward gets done faster and better)Example -A metric tied to a reward top performer turnoveris 25% of a managers bonus formulaTied to a penalty interview slates must include 1diverse candidate or the hire wont be approved 27 28. Shifting to the 2nd categoryWays to select metrics6. Develop your metrics with the CFO the CFOs office are the undisputed kings of metrics. So never begin a metric effort without directly involving the CFO to ensure upfront that each metric is useful, credible and relevantActions -Give them choices put recommended metrics andtheir justifications on 3x5 cardsRemember CFOs are not balancedDo not hold a vote among HR peopleShow them the metrics used by key competitors 28 29. Ways to select metrics7.Limit your metrics to a handful mixingpowerful metrics with low-impact ones can causethe best to be missed- 3-5 powerful ones per function is the goal -ActionLimit metrics to one for every major HR goal & major people mgmt. problem or opportunity.And only report the handful that directly impact items on executives current agenda29 30. Ways to select metrics8. Always include a quality measure a common mistake in HR is the omission of metrics that cover quality. Whenever reporting volume you also need to include a quality measure.Examples -Report the number of hires only with acomparable statistic for the quality of those hires(i.e. on-the-job performance of new hires)List the number of training hours provided butdont fail to note the quality of training (i.e. the %change in performance after training) 30 31. There are 5 elements included in the metrics forassessing a program QQTMS1. Quantity (Volume)2. Quality(Error or success rate)3. Time(On time or the time to complete)4. Money (Cost or revenue generated)5. Satisfaction(Of the users) 31 32. Ways to select metrics9. Always include business case metrics in order to receive additional funding, you may be required to produce a business case that shows that you meet each of the executives funding criteriaExamples -CFO criteria upfront money needed, thepayback period, headcount growth and the ROIOther pocket costs when facing a cutback infunding, take responsibility for reporting otherpocket costs resulting from unintendedconsequences More >32 33. An other pocket costs examplePocket #1 Reduced barista training, loweringcoffee expertise (Saved $33,000 per store)But look at other pocket costsPocket #2 Customer loyalty dropped (returnvisits decreased by 19% or - $74,000)Pocket #3 Amount spent per visit (decreased 9%or $97,000)P. #4 % of store profits from high margindrink sales (Decreased 49.3% or $203,500)Other pocket costs = - $374,500 >33 34. Another other pocket costs exampleEx. 2 Remind CFOs of other pocket costsPocket #1 Froze safety hiring (Saved $10K)But look at other pocket costsPocket #2 Accident rates doubled (+$400,000)Pocket #3 Insurance rates up 23% (+$187,000)P. #4 Turnover of safety ees +15% (+$89,000)Other pocket costs = - $676,000 >34 35. Making the business case using a split sample1. A manager is complaining about declining sales revenue from call center phone sales reps for a mobile phone company2. The manager requested that HR try skill training, then perf. management & finally incentives. All programs had no measurable impact on sales3. HR proposed that the problem was hiring reps. with the wrong capabilities. They proposed improving the candidate assessment process by supplementing the standard interview with an on- line capability assessment test 35 36. Making the business case using a split sample4. HR proposed a split sample where half of the next round of hires were assessed the standard way while the other half of the candidates were also screened with an additional (vendor supplied) on-line assessment tool designed to weed out people without the right competencies4. The manager was so happy with the scientific approach that she agreed to fund the $50k costs5. Sales from the on-line assesses candidates were over $800,000 higher than the control group the first month and over $12 million the first year36 37. Ways to select metrics10. Dont report tactical or transactional metrics they help you improve operational aspects but theydo not impress senior managers- Use the 80/20 rule and spend 80% of your timeand resources on the 20% of your metrics that aretruly strategicAction-Transactional metrics to omit include the numberof hires, the cost per hire, training hours, etc.37 38. Ways to select metrics11. Supplement with why metrics most metricstell you what happened, but in order to fix aproblem, you also need to know the causes orwhy it is happening- As a result, for critical strategic metrics you needto gather supplemental data that reveals the causesExample -Our turnover is 6.2%Post- exit interviews reveal the primary cause tobe bad managers with no motivation skills 38 39. Ways to select metrics12. Dont over benchmark dont overbenchmark so that you end up copying othersdirectly. Only select metrics that fit yourorganization and its problems13. Supplement canned metrics supplementvendor provided metrics with a few high-value metrics that fit your organizational needs 39 40. Ways to select metrics14. Provide easy to understand metrics providemetrics that the average executive canunderstand in 1 min. Continually refine and testthem so that they continually improve15. Combine many metrics into a single index when possible provide a single index (i.e. DowJones) to cover many related itemsAn example > 40 41. A Comprehensive HR Index20% - Revenue/ Profit per $ spent on people15% - Turnover to top/ bottom 10%15% - Performance of recent hires15% - % of key employees pay at risk10% - % challenged and satisfied10% -Turnover rate of poor managers5% - Manager satisfaction with HR5% - Time to fill key jobs5% - Diversity ratios of the workforce 41 42. Now shifting to category 3Best practices in reporting and presenting metrics16. Embed your metrics in financial reports strategic metrics can have no impact if they arenever seen. Separate metrics reports areseldom read so you must fight to have yourstrategic metrics embedded into standardfinancial reports that all managers receiveExample -Having the (higher) costs of employee turnover read alongside the cost of inventory turnover can be very powerful42 43. Best practices in reporting and presenting metrics17. Label individual metrics to indicate whenaction is required labeling individual metricswith action colors like a stop light (red, yellowand green) can help executives focus on themetrics that require actionAction -Also, change the order of your metrics so that the ones that demand executive attention appear 1st43 44. Best practices in reporting and presenting metrics18. Always include comparison numbers a singlenumber by itself might have little meaning- While including a benchmark comparison numbercan instantly excite them. It is smart to include afailure, passing and excellent score for eachExamples - 89% of our hires meet performance standards but11% must be terminated (Error rate) We have defined a failing turnover rate to beabove 12% and an excellent one to be below 6%More > 44 45. Best practices in reporting and presenting metrics19. Provide more information options electronic metric reports are far superior to paperreports because you can provide the user withmore information options providing any level ofdetail or depth that the reader requires- Include more detailed information, localizedinformation, a formula, a definition or a videoMore >45 46. Provide drop-down menusProvide access to in depth information Top performer turnover 7% (Up from 4%, projected togo to 11%. Rev impact $1.4 million)Drop-down menuRun your cursor over the metric Formula for turnover Definition Turnover for your unit Who quit Reasons for turnover Recommended actionsteps 46 47. Best practices in reporting and presenting metrics20. Omit metrics that dont change routinelyreporting metrics that that dont vary much overtime, that represent no major change, or thatdont require action actually waste executivetime.Actions - Either omit them until they show a change Or put them last in your report 47 48. Best practices in reporting and presenting metrics21. Provide visual snapshots - make it easy forexecs to quickly visually see what is happeningby supplementing your metrics with a chart orgraphic representation that instantly shows theproblem/ opportunity or trendExamples >48 49. A hockey stick chart can demonstrate why What happened here? Hockey stick approach 49 50. Multi-year trend and projection2009 201020112012___________________________________Top_____________________________________Average_____________________________________ Unacceptable50 51. Showing a correlation or a direct connectionHiring speed average days to fill60 days 0% bus. resultsThere is a .96 Correlation between hiring speedand a managers business results30 days51% of results10 days 100%0%% of a managers business 100%results that were achieved51 52. Before and After results of pilot program 100Sales per month $90,00090807060504030 $17,0002010 0 -10Average sales before the pilot sales Sales 1 12 mths after training session the pilot training session52 53. Best practices in reporting and presenting metrics22. Widely distribute metrics to increasecompetition - distributing ranked metrics to allmanagers is a powerful tool for gettingeveryones attention- It can also enhance learning and best practicesharing between allAn example > 53 54. Let Amy, thelow performer,know who shecan learn from(Daniel C) 55. Ex Embarrassment report TurnoverManagerTurnover%Est. $Tool used% Preventable ImpactRank1 Josephine 2%0%- 500k Challenge9 Mike 4% 1%- 700k Training30 Average 6%40%- 1.5 m Pay increases49 Mary 10 % 69 % - 2.7 mil Screaming50 John 20 % 90%- 5.0 mil Punching55 56. Best practices in reporting and presenting metrics23. Note accountability - make it easy for execs toquickly identify who is responsible by listingtheir name next to metrics that indicate a majorproblem or opportunity 56 57. Now shifting to category 4Design metrics for enhanced decision-making24. Design for decision-making - when you provideonly standalone year-end historical metrics,you are not supporting better decision-making- Instead provide metrics that facilitate real-time monitoring and decision-makingAction Supplement static year-end metrics with a smoke detector, an alert or heads up warning system in order to make managers aware of a problem when it is actually occurring 57 58. Design metrics for enhanced decision-making25. Provide action guidance even when yourmetrics cause managers to want to take action,they may still hesitate or even take the wrongaction- Provide decision-makers with guidance as to themost and least impactful actionsExample Recommended action - provide more challenging work options (It can increase retention rates by 23%)Avoid Stay on bonuses increase retention by only 1% 58 59. Design metrics for enhanced decision-making26. Always include both sides of the ROI formula focusing on cost alone can lead to some baddecision-making. Always supplement costs withthe dollar return, the $ benefits or the impactExample-Report the cost per hire of $4,223 but also include the revenue differential of a great hire of +$337,000 per year 59 60. And finally The last categoryImprove data collection & metric calculations27. Data & calculations must be judged to becredible many HR metrics are ignored,discounted or disregarded by executive becausethey doubt the accuracy of the metriccalculation or the supporting dataAction - Pretest your calculations, data accuracy andformulas with the CFOs office and a numbersgeek 60 61. Improve data collection & metric calculations28. Use sampling techniques gathering data onevery instance or employee is expensive andtime-consuming- Instead use scientific sampling to get almost asaccurate results faster and cheaperExample - When surveying applicants on their satisfaction,focus on those applying for high-priority jobs Conduct post-exit interviews only on yourregrettable turnover to save money 61 62. Improve data collection & metric calculations29. Weigh high priority items HR usuallyconsiders every occurrence to be of equalimportance- However, some occurrences simply have more ofa business impact than others. Heavily weighthe data or opinions from high-impact itemsExample -When calculating turnover, more heavily weigh the loss of a top performer or a leader 62 63. Improve data collection & metric calculations30. Integrate outside data almost all HR metricscome from databases owned by HR- But HR metrics would be more powerful if theywere supplemented with data and informationfrom other business and external databasesExample - Integrate with performance, productivity, qualitycontrol, business plans and forecasts etc. Integrate with external data including economicdatabases and industry benchmarks 63 64. Another example of an OMG metric display Rev impact: - $4.1 million Corp goal: Time to MarketMetric Time to fillThis years time = 90 daysProjected time = 112 days (up 22%)Last years time = 78 daysTrendBest in the industry = 29 days (61 days behind)Action required Cut delays with after hour interview schedules no costAccountable individual Pam Tyne, staffing analyst64 65. Talent acquisition measures to consider1. Performance differential (Average vs. a great hire)2. Performance of the hire (On the job performance)3. Number of vacancy days for key / rev positions4. New hire failure rate (% of new hires terminated)5. Vol. turnover of new hires (within six months)6. Professional/ managerial level diversity hires7. Innovation rates of new hires8. Manager & new hire satisfaction with the process9. Employment brand strength10.Process ROI 65 66. Training and Development metrics1.% of performance improvement after training2.% of surveyed managers that rank T&D as a top5 contributor to their success3.% of new hires & resigning employees that givetraining excellence as a top 5 reason foraccepting or leaving4.% of EEs citing they are on the leading edge ofknowledge5.Speed of best practice learning & copying6.Number of vacancy days for leadership positions7.ROI of T&D 66 67. Retention metrics1. Performance turnover2. Cost of losing a top performer3. Regrettable turnover4. Mission-critical, hard to replace and key job turnover5. % of top performers that went to direct competitors6. Diversity turnover in professional jobs7. Percentage of preventable turnover8. Program ROI 67 68. Workforce productivity1. Revenue per employee2. Profit per employee3. Revenue per $ spent on labor costs4. Profit per $ spent on labor costs68 69. Did I make you think?How about some questionsHundreds of articles on all aspects of HR by Dr. Sullivan can be found atwww.drjohnsullivan.com 69