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Page 1: How to get executives to pay attention to HR metrics

HOW TO GET YOUR EXECUTIVES TO PAY

ATTENTION TO HR METRICS

2011

© Dr. John SullivanProfessor, Author and Advisor to Management

www.drjohnsullivan.com

Dr John Sullivan

[email protected]

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My goals

1. To make you think

2. And to convince you that your current metrics

approach isn’t working…

and to show you a more powerful approach

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Topics for today

1. A quick assessment of your current approach?

2. Examples of “so what” vs. OMG metrics

3. The characteristics of OMG metrics

4. Your questions

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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 you’ve received a large budget increase as a direct result of your metrics?

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Part 2

A quick demonstration of the difference between…

“so what” and OMG metrics

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“So what” vs. OMG metrics

What is a “so what” metric? (Most HR metrics qualify)

1.If seen, they are often skipped or scanned but seldom read

2.If read, they get a… “so what” or “that’s interesting” response from execs

3.If it covers costs, the metric omits the $ “returned” part of the ROI equation

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Examples of “so what” metrics

1. 93% of employees are satisfied with L & D

2. The cost of each L&D hour is down 12%

3. The cost of a new hire is $2,036

4. We hired 240 new employees last year

5. Our FT employee headcount is 1,052

Would any of these metrics… drive you to act?Would any of these cause you to give HR more

budget dollars?

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OMG metrics

Three quick identifiers of an “OMG” metric

1.It is read… because it impacts at least one corporate goal or executive bonus criteria

2.It causes alarm because it makes clear that the highlighted problem/opportunity directly impacts corporate revenue

3.It drives managers to immediate action

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Examples of OMG metrics

See if this grabs your attention & drives action

1.$148k is the average yearly sales of a salesperson

2. It is $197k… if they completed advanced sales training within the last 2 years

3. It averages $249k if they spend 6 hrs. a wk. or more on social networks… sharing best practices

4. It is $304k if the salesperson did both

Would this stir you to take action as an executive?

And what actions would you take?Another example >

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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 $208,000

IBM $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)

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Do HR practices increase the firm’s stock value?

Market cap value comparison

HP - $65 B (19% of Apple’s value)

IBM - $161 B (46% of Apple’s value)

Google - $185 B (53% of Apple’s value)

Microsoft - $214 B (62% of Apple’s value)

Apple - $346 B (Soon to be the world’s most valuable firm)

(Calculated using 8/9/11 data)

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Do HR practices increase profit?

Dollars of profit per employee (Profit per labor $ spent is a better measure)

HP $19,892

IBM $27,370

Microsoft $155,253

Apple $208,943

Google $256,749

Key learning - it takes nearly 9.5X more employees at IBM… to produce the same profit as Google (Calculated using 2010 data)

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OMG! doesn’t that

make you curious… as to

what causes the difference?

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If you were the CEO of IBM, would this cause

you to take action?

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Continuing – What is the performance differential?

One top-notch engineer is worth “300 times or

more… than the average

we would rather lose an entire incoming class of engineering graduates than one exceptional

technologist.”14

Alan EustaceSenior Vice President,

Engineering and Research

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Continuing on the HR value proposition metric

If you hire a single game changer at Google (where the average employee generates $1.3 million in revenue each year)

And that game changer produces the expected 300x an average employee’s performance ($1.3 X 300 = $390)

For every one you hire… you add over $390 million in revenue every year

And if the new hire stays for only 2 ½ years… they will generate over $1 billion in added rev.

Do you see why Google is such a well funded hiring machine!

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And finally –

An display example… of an OMG metric

(This is what an executive would see)

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Example of an OMG metric displayed

Metric - Top performer turnoverThis year’s rate = 6.5%Last year’s rate = 4.5%Projected rate = 11.2 % (up 84%) TrendBest in the industry = 4% (7.2% behind)

Action required – Personalized motivation for TP ee’s - cost $145,000

Accountable individual – JT Snow, CTO

Rev impact: - $3.4 million Corp goal: Increase sales

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Do you see the value of having… attention

getting, action driving… OMG metrics?

Any questions at this point?

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Part 3 – Metric “power” factors

30+ years of metrics research… have led to my identification of the factors… that make a metric

“powerful” to execs

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The 30 factors are broken into five categories1. Factors that make a single metric compelling2. Ways to select metrics 3. Best practices in reporting and presenting metrics 4. Design metrics for enhanced decision-making5. Improve data collection & metric calculations

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Let’s start with the first category…

the factors that make a single metric compelling

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Factors that make a metric “powerful” to execs

1. 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 innovation

HR metric - % of increased revenue from innovation coming from employee generated ideas More >

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Metrics must directly impact business goals

A list of business goals includes…

1. It increases a manager’s bonus

2. It increases the share price

3. It increases profit

4. It increases revenue

5. It increases product innovation

6. It increases brand value

7. It increases market share

8. It decreases time to market

9. It has a high ROI

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Factors that make a single metric compelling

2. 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 credible

Example - HR metric - # of position vacancy days for rev jobsRev impact – $1.1 million ($5,000 average $ loss per day X 210 excess vacancy day)

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Factors that make a single metric compelling

3. 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/ opportunities

Example - A “historical” metric – last year, turnover was 5.6%A forward looking metric – Next year, we forecast turnover will double to 11.2%An alert – LeBron just quit his basketball teamMore >

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The business intelligence (BI) hierarchy

What 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 the performance of your resources

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Factors that make a single metric compelling

4. 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 immediately

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Factors that make a single metric compelling

5. 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 turnover is 25% of a managers bonus formula

Tied to a penalty – interview slates must include 1 diverse candidate or the hire won’t be approved

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Shifting to the 2nd category…

Ways to select metrics

6. 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 relevant

Actions - Give them choices – put recommended metrics

and their justifications on 3x5 cardsRemember… CFOs are not balancedDo not hold a vote among HR peopleShow them the metrics used by key competitors

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Ways to select metrics

7.Limit your metrics to a handful – mixing powerful metrics with low-impact ones can cause the best to be missed

- 3-5 powerful ones per function is the goal

Action - Limit metrics to one for every major HR goal &

major people mgmt. problem or opportunity.And only report the handful that directly impact

items on executive’s current agenda

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Ways to select metrics

8. 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 a

comparable statistic for the quality of those hires (i.e. on-the-job performance of new hires)

List the number of training hours provided… but don’t fail to note the quality of training (i.e. the % change in performance after training)

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There are 5 elements included in the metrics for assessing a program

1. 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)

QQTMS

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Ways to select metrics

9. 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 executive’s funding criteria

Examples - CFO criteria – upfront money needed, the

payback period, headcount growth and the ROI Other pocket costs – when facing a cutback in

funding, take responsibility for reporting “other pocket costs” resulting from unintended consequences More >

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An “other pocket” costs example

Pocket #1 – Reduced barista training, lowering coffee expertise (Saved $33,000 per store)

But look at “other pocket” costs…

Pocket #2 – Customer loyalty dropped (return visits decreased by 19% or - $74,000)

Pocket #3 – Amount spent per visit (decreased 9% or $97,000)

P. #4 – % of store profits from “high margin” drink sales (Decreased 49.3% or – $203,500)

Other pocket costs = - $374,500 > 33

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Another “other pocket” costs example

Ex. 2 – Remind CFO’s of “other pocket” costs

Pocket #1 – Froze safety hiring (Saved $10K)

But look at “other pocket” costs…

Pocket #2 – Accident rates doubled (+$400,000)

Pocket #3 – Insurance rates up 23% (+$187,000)

P. #4 – Turnover of safety ee’s +15% (+$89,000)

Other pocket costs = - $676,000 >

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Making the business case – using a split sample

1. A manager is complaining about declining sales revenue from “call center” phone sales reps for a mobile phone company

2. The manager requested that HR try skill training, then perf. management & finally incentives. All programs had no measurable impact on sales

3. 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

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Making the business case – using a split sample

4. 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 competencies

5. The manager was so happy with the “scientific approach” that she agreed to fund the $50k costs

6. 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 year

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Ways to select metrics

10. Don’t report tactical or transactional metrics – they help you improve operational aspects but they do not impress senior managers

- Use the 80/20 rule and spend 80% of your time and resources on the 20% of your metrics that are truly strategic

Action -

Transactional metrics to omit include… the number of hires, the cost per hire, training hours, etc.

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Ways to select metrics

11. Supplement with “why” metrics – most metrics tell you “what happened,” but in order to fix a problem, you also need to know the causes or “why” it is happening

- As a result, for critical strategic metrics you need to gather supplemental data that reveals the causes

Example - Our turnover is 6.2%Post- exit interviews reveal the primary cause to

be bad managers with no motivation skills

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Ways to select metrics

12. Don’t “over benchmark” – don’t “over benchmark” so that you end up copying others directly. Only select metrics that fit your organization and its problems

13. Supplement canned metrics – supplement vendor provided metrics… with a few high-value metrics that fit your organizational needs

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Ways to select metrics

14. Provide easy to understand metrics – provide metrics that the average executive can understand in 1 min. Continually refine and test them so that they continually improve

15. Combine many metrics into a single index – when possible provide a single index (i.e. Dow Jones) to cover many related items

An example >

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A Comprehensive HR Index

20% - Revenue/ Profit per $ spent on people15% - Turnover to top/ bottom 10% 15% - Performance of recent hires15% - % of key employees pay at risk10% - % challenged and satisfied 10% -Turnover rate of poor managers5% - Manager satisfaction with HR 5% - Time to fill key jobs5% - Diversity ratios of the workforce

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Now shifting to… category 3

Best practices in reporting and presenting metrics

16. Embed your metrics in financial reports – strategic metrics can have no impact if they are never seen. Separate metrics reports are seldom read… so you must fight to have your strategic metrics embedded into standard financial reports that all managers receive

Example -

Having the (higher) costs of employee turnover read alongside the cost of inventory turnover can be very powerful

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Best practices in reporting and presenting metrics

17. Label individual metrics to indicate when action is required – labeling individual metrics with action colors like a stop light (red, yellow and green) can help executives focus on the metrics that require action

Action -

Also, change the order of your metrics… so that the ones that demand executive attention appear 1st

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Best practices in reporting and presenting metrics

18. Always include comparison numbers – a single number by itself might have little meaning

- While including a benchmark comparison number can instantly excite them. It is smart to include a “failure, passing and excellent score” for each

Examples -

89% of our hires meet performance standards but 11% must be terminated (Error rate)

We have defined a failing turnover rate to be above 12% and an excellent one to be below 6%

More >

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Best practices in reporting and presenting metrics

19. Provide “more information” options – electronic metric reports are far superior to paper reports because you can provide the user with more information options providing any level of detail or depth that the reader requires

- Include more detailed information, localized information, a formula, a definition or a video

More >

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Provide “drop-down” menus

Provide access to “in depth” information Top performer turnover 7% (Up from 4%, projected to go to 11%. Rev impact $1.4 million)

•Formula for turnover•Definition•Turnover for your unit•Who quit•Reasons for turnover•Recommended action steps

Drop-down menu

Run your cursor over the metric

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Best practices in reporting and presenting metrics

20. Omit metrics that don't change – routinely reporting metrics that that don't vary much over time, that represent no major change, or that don't require action actually waste executive time.

Actions - Either omit them until they show a change Or put them last in your report

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Best practices in reporting and presenting metrics

21. Provide visual snapshots - make it easy for execs to quickly visually see what is happening by supplementing your metrics with a chart or graphic representation that instantly shows the problem/ opportunity or trend

Examples >

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A hockey stick chart can demonstrate “why”

What happened here?

Hockey stick approach49

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Multi-year trend and projection

2009 2010 2011 2012___________________________________

Top

_____________________________________ Average

_____________________________________

Unacceptable50

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Showing a correlation or a direct connection

Hiring speed – average days to fill

% of a manager’s business results that were achieved

There is a .96 Correlation between hiring speed and a manager’s business results

100%

60 days

30 days

10 days

0%

51% of results

0% bus. results

100%

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“Before and After” results of “pilot” program

-100102030405060708090100

Average sales before the pilot sales training session

Sales per month

Sales 1 – 12 mths after the pilot training session

$90,000

$17,000

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Best practices in reporting and presenting metrics

22. Widely distribute metrics to increase competition - distributing ranked metrics to all managers is a powerful tool for getting everyone’s attention

- It can also enhance learning and best practice sharing between all

An example >

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Let Amy, the low performer, know who she can learn from (Daniel C)

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Rank

1 Josephine 2 % 0 % - 500k Challenge

9 Mike 4 % 1 % - 700k Training

30 Average 6 % 40% - 1.5 m Pay increases

49 Mary 10 % 69 % - 2.7 mil Screaming

50 John 20 % 90% - 5.0 mil Punching

Ex – Embarrassment report Turnover

Manager Turnover % Est. $ Tool used

% Preventable Impact

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Best practices in reporting and presenting metrics

23. Note accountability - make it easy for execs to quickly identify who is responsible by listing their name next to metrics that indicate a major problem or opportunity

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Now shifting to category 4

Design metrics for enhanced decision-making

24. Design for decision-making - when you provide only standalone year-end historical metrics, you are not supporting better decision-making

- Instead provide metrics that facilitate “real-time” monitoring and decision-making

Action –

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

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Design metrics for enhanced decision-making

25. Provide action guidance – even when your metrics cause managers to want to take action, they may still hesitate or even take the wrong action

- Provide decision-makers with guidance as to the most and least impactful actions

Example –

Recommended action - provide more challenging work options (It can increase retention rates by 23%)

Avoid – Stay on bonuses increase retention by only 1%

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Design metrics for enhanced decision-making

26. Always include both sides of the ROI formula – focusing on cost alone can lead to some bad decision-making. Always supplement costs with the dollar return, the $ benefits or the impact

Example - Report the cost per hire of $4,223… but also

include the revenue differential of a great hire of +$337,000 per year

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And finally… The last category

Improve data collection & metric calculations

27. Data & calculations must be judged to be credible – many HR metrics are ignored, discounted or disregarded by executive because they doubt the accuracy of the metric calculation or the supporting data

Action - Pretest your calculations, data accuracy and

formulas with the CFOs office and a numbers geek

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Improve data collection & metric calculations

28. Use sampling techniques – gathering data on every instance or employee is expensive and time-consuming

- Instead use scientific sampling to get almost as accurate results faster and cheaper

Example - When surveying applicants on their satisfaction,

focus on those applying for high-priority jobs Conduct post-exit interviews only on your

regrettable turnover to save money

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Improve data collection & metric calculations

29. Weigh high priority items – HR usually considers every occurrence to be of equal importance

- However, some occurrences simply have more of a business impact than others. Heavily weigh the data or opinions from high-impact items

Example -

When calculating turnover, more heavily weigh the loss of a top performer or a leader

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Improve data collection & metric calculations

30. Integrate outside data – almost all HR metrics come from databases owned by HR

- But HR metrics would be more powerful if they were supplemented with data and information from other business and external databases

Example -

Integrate with performance, productivity, quality control, business plans and forecasts etc.

Integrate with external data including economic databases and industry benchmarks

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Another example of an OMG metric display

Metric – Time to fillThis year’s time = 90 daysProjected time = 112 days (up 22%)

Last year’s time = 78 days TrendBest in the industry = 29 days (61 days behind)

Action required – Cut delays with after hour interview schedules – no cost

Accountable individual – Pam Tyne, staffing analyst

Rev impact: - $4.1 million Corp goal: Time to Market

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Talent acquisition measures to consider

1. Performance differential (Average vs. a great hire)

2. Performance of the hire (On the job performance)

3. Number of vacancy days for key / rev positions

4. New hire failure rate (% of new hires terminated)

5. Vol. turnover of new hires (within six months)

6. Professional/ managerial level diversity hires

7. Innovation rates of new hires

8. Manager & new hire satisfaction with the process

9. Employment brand strength

10.Process ROI

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Training and Development metrics

1.% of performance improvement after training2.% of surveyed managers that rank T&D as a “top

5” contributor to their success3.% of new hires & resigning employees that give

training excellence as a “top 5” reason for accepting or leaving

4.% of EE’s citing they are on the leading edge of knowledge

5.Speed of best practice learning & copying 6.Number of vacancy days for leadership positions7.ROI of T&D

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Retention metrics

1. Performance turnover

2. Cost of losing a top performer

3. Regrettable turnover

4. Mission-critical, hard to replace and key job turnover

5. % of top performers that went to direct competitors

6. Diversity turnover in professional jobs

7. Percentage of preventable turnover

8. Program ROI

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Workforce productivity

1. Revenue per employee

2. Profit per employee

3. Revenue per $ spent on labor costs

4. Profit per $ spent on labor costs

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Did I make you think?

How about some questions

Hundreds of articles on all aspects of HR by Dr. Sullivan can be found at…

www.drjohnsullivan.com69