Mo Sattar Do not copy or distribute-Connect The Dots - Strategic education : [email protected] HR...

Do not copy or distribute-Connect The Dots - Strategic education : [email protected]

Mo Sattar

HR metrics through the prism of business planning process

Do not copy or distribute-Connect The Dots - Strategic education

• Functional / departmental metrics should be view through multiple perspectives

• Value chain, Key stake holders , and their expectations• Business planning process• Business and Financial goals

• Organization structure

• The “importance” of metrics will vary “depending on the business environment”.


Few takeaways

• How is a annual business plan developed in an organization• How does it tie in with metrics discussions ?

• Steps to assess metrics• Ways to make metrics more “effective”

• Alignment• Address relative stress• Synergy via linkage between two metrics

• This will help in becoming HR professional more sought after.


Is HR in your organization sought after ?

General Manager (GM)

Other G &A departments Engineering

Human Resources

Finance & accounting

Sales & marketing

Operations

1. Sought after by “GM” for “tactical / compliance stuff” ? 2. Sought after by “GM” also for “strategic stuff” ? 3. Sought after by “Other departments ” for “strategic stuff” ?

Are you sought after and why for each question ?


What three things you ( HR )can do to become sought after ?



Human Resources


Sales & marketing

Operations

1. Actions to become sought after

2. What is holding you back?


• How often are “HR metrics “ presented or discussed or questioned by investors during quarterly earning announcement ?


• If business is not doing well what metrics are :

• Share holders focused on ?• Banks and Lenders focused on ?• Senior Management focused on ?




Human Resources


Sales & marketing

Operations

Dominant


Lets take a pause

• Before I start : 1. Write down three “Financial level metrics” in your organization that are

consistently used2. Three “HR metrics” that are also consistently used3. Identify alignment

HR- Metrics Finan

cial m

etric-

1

Finan

cial m

etric-

2

Finan

cial M

etric-

3

HR- Metric-1

HR- Metric-2

HR- Metric -3

Knowledge / Learning

gaps ?


Bringing HR and FinanceTogether with AnalyticsBy Jeff Higgins, Human Capital Management Institute

If the overwhelming majority of management teams

across the business world, including those at nonprofits and

in the public sector, all speak the financial language of business,

then is it the 95 percent in most organizations that

should stop and learn the language of HR? Or is it the 5 percent

in HR who need to learn the language of finance?


Benefits for Balanced scorecard Clarify and gain consensus

Communicate strategy throughout the organization

Align departmental and personal goals to the strategy

Link strategic objectives to long-term targets and budgets

Identify and align strategic initiatives

Perform periodic and systemic strategic reviews

Obtain feedback about and improve strategy

Reference : Page 19, The balance scorecard, Kaplan and Norton


Benefits for Balanced scorecard Clarify and gain consensus

Communicate strategy throughout the organization

Align departmental and personal goals to the strategy

Link strategic objectives to long-term targets and budgets

Identify and align strategic initiatives

Perform periodic and systemic strategic reviews

Obtain feedback about and improve strategy

Reference : Page 19, The balance scorecard, Kaplan and Norton

• Strategy • Alignment • Monitoring

Themes

Paradigm Shift for results base approach


Traditional Approach Results based approach

Human Resource is viewed as a cost center

Human Resource is viewed a an investment in employees

The HR staff is unfamiliar with operations issues

The HR staff is very knowledgeable about operations

The HR staff lacks knowledge of finance and business approach

The HR staff is versed in basic finance and business concepts.

Reference : page 22, Proving the Value of HR, Phillips and Phillips


Value added ?

Executives want to believe that "people are our most important asset," but they just cannot understand how the HR function makes that vision a reality

For measurement to matter, you have to measure only what matters.

HR metrics that cannot be tied directly to your firm strategy map should not be included in the HR Score card

Lagging Indicators, such as financial metrics, typically reflect what has happened in the past…..won't help in making decisions

Reference : Creating an HR score card. Becker, Huslid, Ulrich


Lets take a pause

1. How do you feel about the comment “ HR should be well versed in business and finance”. ?

2. How do you feel about comment that financial metrics are not useful in making decisions


• Metrics measure progress• Question : Are we are measuring the right things ?• Alignment• Value added

• Foundation: • Value Chain (Business process) • Strategy• Top level metric• Lower level metrics


Demystifying Finance

Demystifying metrics

Demystifying Strategic planning

Effective leadership and management


ROS : Return On Sales ( also called Profit Margin)

2014Sales 120.00$ Total Sales generated by the businesscost 109.00$ Total cost to run the businessProfit 11.00$ Total profit : net Income Profit Margin (ROS) 9.2% Profit generated for very dollar of sales

Examples of financial metrics• ROS, ROA, ROE• Oper. Margin, Gross margin• WC turns• Inventory turns• A.R. turns• A. P. turns• CCC


Value Chain


Harvard Business School Publishing Article : Expanding HR’s Strategic role ( Interview with Dave Ulrich)

• “Successful HR professions must be business literate and customer savvy”

• “For HR to deliver value, it needs to define its “receivers” and how to create value


• HR Metrics and Analytics : Use and Impact. Lawler, Levenson, Boudreau. (Human Resources Planning) • Three functions of Metrics:• Efficiency : How well the HR function performs its basic administrative

function• Effectiveness : Whether HR programs and practices have the intended effect .

• Example : How well “pivotal” jobs are filled • Impact : Means demonstrating a link between what HR does and tangible

effects on the organization’s ability to gain and sustain competitive advantage.

Your Metrics ???


Value chain concept and what is direct versus “indirect”

Design Operations After

market support

Accounting & Finance

Human Resources


Important to understand the alignment between Organization structure and value chain



Human Resources


Sales & marketing

Operations

Value -1 Value-2 Value-3


Linkage


Business planning process

Purpose of this review• All organization ( profit or non-profit) go through this process• Financial metrics play an important role • Setting budgets for departments• Reorientation during mid year• Short term and long term

• Thus “all non-financial managers and supervision” in an organization should be have some “financial literacy”• Helps in alignment of metrics and overall business performance


Price

Quantity

Manufacturing & quality

labor

Overhead

SG&A H&R

Purchased

Sales and marketing

Administration

Finance /accounting

Engineering R & D

Cost of Good sold

Sales

EBIT

Interest expense

EBT

Taxes

Net Income

EPS : EARNINGS PER SHARE


Cash flow

Inventory

Acct . Rec.

Acct . Payable

Dividend

Capital exp. .

Net Income

Avoid the need to borrow


• If business is not doing well what metrics are :

• Share holders focused on ?• Banks and Lenders focused on ?• Senior Management focused on ?


Manufacturin

g

Procu

rement

Quality

Marketing & Sa

les

Finance

& acct

.

Human Resource

s

Engineeering

Other staff fu

nctions

SalesManufacturing costS G & A R&D

InventoryAccounts RecievableAccounts Payables

Organization structure Ke

y Fi

nanc

ials


Value content effectiveness

Manufacturin

g

Procu

rement

Quality

Marketing &

Sales

Finan

ce &

acct.

Human Reso

urces

Engin

eeerin

g

Other staff fu

nctions

Value content

Sales P P P PManufacturing cost P P P SS G & A P P P PR&D S S S P

Inventory P P P SAccounts Recievable P PAccounts Payables P S

Value providers


• HR Metrics and Analytics : Use and Impact. Lawler, Levenson, Boudreau. (Human Resources Planning) • Three functions of Metrics:• Efficiency : How well the HR function performs its basic administrative

function• Effectiveness : Whether HR programs and practices have the intended effect .

• Example : How well “pivotal” jobs are filled • Impact : Means demonstrating a link between what HR does and tangible

effects on the organization’s ability to gain and sustain competitive advantage.


Filter the HR metrics


Run it through a filter process

Workers comp

Benefits as % H R expense

% H R cost per employee Health care

cost %

Hiring related

H R FTE ratio

H R cost per FTE

Average comp. ratios

Overtime related

Diversity

Absenteeism related

Span of control

Training related

H R cost per FTE

OSHA


I like to test metrics for “purpose, value added, and connectivity ”

This applies to any metrics ( HR, operations, financial, procurement, etc.) • Compliance & or for “defensive purposes”.• Tactical – value added • Strategic• Connectivity – overall business goals

• Tactical, in concert with “relative risk factors”. • Strategic

• Elimination process…what will happen if we stop tracking• Gap analysis …are we missing any “gauges”.


Check for alignment – for near term goals

HR- Metrics Complaince

Tactica

l busin

ess go

al-1

Tactica

l busin

ess go

al-2

Tactica

l busin

ess go

al-3

Other staff fu

nctions

Value content

Metric 1 Metric 2 Metric 3 Metric 4 Metric 5


Address relative risk factors

Department/ Function -1



Department/ Function -4 Total Actual Total target

Attrition rate 5.00% 7.00% 5.00% 5.00% 5.50% 5.00%

Relative Risk factor low low low high


Intersection of two metrics




Department/ Function -4 Total Actual Total target

Attrition rate 5.00% 4.00% 5.00% 7.00% 5.25% 5.00%Hiring - time 45 days 50 days

Relative Risk factor low low low high

Best ROI


Check for alignment – for longer term goals

HR- Metrics tied to strategies Metric 1 Metric 2 Metric 3 Metric 4 Metric 5


Harvard Business School Publishing Article : Expanding HR’s Strategic role ( Interview with Dave Ulrich)

• CF : “How do you create an outstanding strategy “.

• DU : “ What are the business challenges ?”


This is how I test goals and strategies (business level, department level or personal)?

• 1. What are you trying to accomplish ( your goal) , testing for clarity ? • We need clarity for alignment

• 2. Why ? • If Why is not strong enough ( clarity and commitment) , go back to # 1.

• 3. “How” will you achieve your goal ( “what”) • Fast forward, assume you can successfully implement your “how”• Will you accomplish your “what” ? • Test for alignment ( or misalignment)

• 4. What are the “measures” to monitor “progress” • Test for alignment, clarity, ownership, leading, lagging, tactical, strategic

• Overall test for value added ( to monitor how and what)

• 5. Test for alignment and connectivity within the “relevant organization / system ”.


Closing comments / Recommendations• Re –think your training programs in your company• Add “basic management financial literacy” , across the organization• Test the metrics for “ purpose, valued added and connectivity” • Test for “relative risk factors” and “alignment”• Employee performance and compensation in line with “value added

metrics”. • For HR staff/managers . Enhance your knowledge in the areas of

• Finance• Strategic planning• Leadership


Is HR (you) in your organization sought after ?



Human Resources


Sales & marketing

Operations

1. Sought after by “GM” for “tactical / compliance stuff” ? 2. Sought after by “GM” also for “strategic stuff” ? 3. Sought after by “Other departments ” for “strategic stuff” ?

Are you sought after and why for each question ?


What three things you ( HR )can do to become sought after ?



Human Resources


Sales & marketing

Operations

1. Actions to become sought after

2. What is holding you back?


Q&A

Mo Sattar Do not copy or distribute-Connect The Dots - Strategic education : [email protected] HR...

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