Human capital decisions
The importance of human capital as a differentiating factor in an organization’s business strategy has never been greater, yet many companies still quantify it through ‘gut feel’. With the growth of advanced talent management systems and the greater understanding of statistical modeling techniques, CHROs will be able to make human capital decisions based on fact and evidence.
A key step in this transition is thinking about workforce analytics and planning as a business process rather than as a project to be completed. Projects have a definitive start and end date, while processes are ongoing and iterative. This will require innovative thinking about how to structure the service-delivery function, and evaluation of whether traditional HR business partners or generalists have the skill sets to drive workforce analytics.
Statistical modeling techniques
The key is to quantitatively identify – through statistical modeling techniques – the workforce characteristics and management practices that drive business outcomes such as productivity, profitability, growth and customer retention.
Measuring human capital drivers:
- Does productivity increase with years of service?
- What is the impact of training on customer loyalty?
- Is the incentive pay program producing the desired effects?
- Does employee turnover affect the company’s bottom line?
- Are spans of control optimal?
- Is the leadership development program increasing business performance?
Any number of measures might support such analyses; for example, metrics including turnover, cost of turnover, workforce velocity, build vs buy ratio, rates of promotion and quick quits – and serve as the starting point for analysis that links human capital to an organization’s bottom line. Data must be viewed over time and linked to a consistent organizational structure. For example, one company used the analyses to establish the business case for change. Here, organizational performance metrics were found to be negatively affected by increases in turnover. This analysis placed a value on what it was ‘worth’ to fix the problem. By statistically linking human capital data from HR information systems (HRIS) and other sources to the running record of business performance, companies can take powerful information on human capital attributes and practices to decision makers.
Brian Kelly, partner, Mercer
Brian is the global commercial leader for the human capital metrics & analytics solutions.