Linking Talent Metrics to Business Results

Transcription

1 Linking Talent Metrics to Business Results October 20, 2011

2 About Human Capital Management Institute The Human Capital Management Institute (HCMI) was founded on the belief that organizations can and must, find better ways of measuring their investments in human capital. Our vision of the future is one in which human capital measurement and information is as integral to business decision making as financial information is today. We Bring Financial Discipline, Standards and Rigor to the HR Function HCMI Background: Specialized in HR analysis & measurement Deep expertise in Workforce Analytics & Planning Board made up of CFOs and HR heads Over 40 years of experience What We Do: Measure the immeasurable in human capital Transform workforce data into business intelligence Provide Tools and Training so HR can Partner with Finance Workforce Assessment Strategic Consulting Training Best Practices Workforce Analytics and Planning Benchmarking 2

3 The Challenge of Measuring Human Capital Complexity of Workforce Data Employee/Full Time Equivalent (FTE) Jobs/Roles/Skills Time Tenure Compensation ($ vs. Equity) Lack of Standards Frequency of Change Promotions, Transfers, Hires, Terminations Jobs/Roles/Skills Time Tenure Lack of Analytic Skills Measuring the Intangible Revenue / Revenue per FTE Job Role Workforce Costs Performance Data Quality / Data History Benefits Turnover Advanced Analytic Insights Compensation Span Transfers of Control Demographic Data Succession Data Employee Data Workforce Planning Success New Hire Turnover Engagement Training Recruiting HR Systems Profit / Profit per FTE Tenure Manager Data Promotions 3

4 Value Creation in Today s Marketplace Are we focused on managing the right things or just managing what we know how to manage? Tangible Asset/Value Tangible asset management tools are established and form the basis of modern Finance as a Decision Support Science. (DCF, FCF, IRR, WACC, etc) Well Measured Standard and Poor s S&P 500 Company Index Easy to Measure Intangible Capital Value In the Post Industrial Marketplace Market value Is driven primarily by factors that do not show up on a balance sheet. The largest being Intellectual or Human Capital*. <30% of value of Standard & Poor s 500 index can be explained by tangible/intangible book assets. Hard to Measure Not well Measured Source: Ocean Tomo Research, Inc., 2011 Human Capital = employee knowledge, training, productivity, experience, culture, leadership, development, performance, creativity, etc. 4

5 Workforce Planning and Analytics Analyze the Past to Predict the Future Past Historical Workforce Present Current Workforce Future Future Workforce Trend Analysis Workforce Knowledge Future Scenarios Predictive Analytics Key performance Indicators Workforce Optimization Workforce Analytics Decision Making Workforce Planning 5

6 Human Capital Measures Linked to Financial Performance How do we go from Human Capital to Financials with actionable data? Data Integration Model + Quantifying the Talent Management Life Cycle Human Capital Financials Recruiting & Hiring Recruiting Training Mobility Engagement Lead/Manage Retention Operations & Business Days Worked Cycle Time Quantity Customer Satisfaction Net Promoters Price/Margin Revenue Expenses Profits Assets Liabilities Turnover & Retention Leadership & Management Training (L & D) Quality Retention Return rate Mobility Career Path Performance & Engagement 6

7 Measuring Complex Activities and Actions HCMI Metrics Hierarchy Measuring manager effectiveness requires advanced measures and metrics Complex Index Metrics (e.g. Quality of Hire) Index Metrics (e.g. New hire success rate) Base Data No Metrics Calculated Metrics (e.g. turnover rate) Simple Metrics ( e.g. headcount, terminations ) Combined Source Metrics (e.g. Time to profitability) Advanced Metrics (e.g. Career path ratio) Insightful Metrics (e.g. Revenue per FTE) 7

8 25 Key Human Capital Questions Use Critical Questions to Search for Answers 1. How do we Know we have the Right Workforce Size and Cost? 2. Can we model our workforce to optimize for productivity and profitability? 3. What is our revenue per full time equivalent employee (FTE)? What is our profit per FTE? Is it higher than our peers? 4. Is workforce productivity increasing, decreasing or static? How are we performing versus peers? 5. What is the Value of our Workforce? What is our ROI of Workforce? Human Capital Management Institute 8

9 Case Study #1, JetBlue Airways 9

10 Linking It Together: The NPS/Engagement Ribbon If NPS goes up 5% what does the business get? = If crew-leader drives NPS, does it then drive the rest? NPS Engagemen t Disc Effort Union Index Custome r NPS Revenue Overall Management Pilots Inflight CMs Technicians Customer Support CMs Airports CMs 5.0% 6.0%???? 5.0% 5.0% 10.0% 5.0% 5.0% 1.0% 5.0% 8.0% 2.0% 0.0% 3.0% 0.5% Support Center CMs Systems Operations CMs Human Capital Management Institute 10

11 JetBlue: Identifying Workforce KPIs Leveraging Workforce Metrics to Drive Business Results Issue: Does high employee engagement increase profitability? Process: Link workforce metrics to key business drivers Employee Engagement, Retention, Customer Satisfaction, Customer Loyalty, Revenue and Profit Build metrics and scorecards to measure results Outcome: Identification of Net Promoters Developed Net Promoter Score, or NPS to measure highly engaged employees at JetBlue Airlines Employee Net Promoters drive Customer Net Promoters which drives loyalty which drives revenue Locations /Flights with higher average NPS show the correlation to increased customer satisfaction and revenue JetBlue Performanc e Metrics Note: JetBlue data illustrative with limited data gathered from external sources/no internal data used Cost per Available Seat Mile: JetBlue = $.0899 (industry lowest) Competitors = $.0976 Load Factor: JetBlue = 79.7% Competitors = 73.1% Break even Load Factor: JetBlue = $.0888 (industry lowest) Revenue per Seat Mile: JetBlue = $.1128 Competitors = $.1281 Total Cost of Workforce: JetBlue = 23.6% of revenue Competitors = 34% of revenue Human Capital Management Institute 11

12 Employee Customer Profit Chain JetBlue Airways Quantify and Predict 1. Total Cost of Workforce 2. Cost per Hire 3. Cost of Turnover 4. Employee (NPS) Link to Customer Satisfaction 5. Customer Satisfaction Impact on Profits Workforce ROI Calculator Actionable Intelligence Increasing the number of Net Promoters by 10% = $26.0 Million USD or $96.0 Million USD Workforce ROI Dashboard 12

13 Case Study #2, Financial Services Co. 13

14 Quantifying Manager Effectiveness Can you quantify which of your managers are more effective at managing talent? Manager A Hires experienced employees Exceeded business performance goals High employee turnover Low employee mobility Manager B Hires junior employees Exceeded business performance goals Trains and grows team members Employees stay and move up in the organization High employee performance 14

15 Case Study: Key Turnover Driver Management Scofield Financial Corp Management Group Percent of Managers Percent of Turnover Low Turnover High Turnover New Manager* 1 Employee** 30% 34% 22% 14% 10% 81% 8% 2% In most companies, the quality of management is a key component of employee turnover It is possible to segment management population by high and low turnover managers Look for managers with turnover disproportionate to the size and mix of their workforce * Managers with under 1 year of supervisory experience ** Managers with only 1 direct report 15

16 Building a Talent Management Index Example Talent Management Index Recruiting and Hiring Performance Management Mobility Cost of Workforce 20% 20% 20% 20% Turnover and Retention 20% New Hire High Performer Rate % of High Performers Career Path Ratio Total Cost of Workforce % of Expenses High Performer Turnover Rate Talent Management Index The Talent Management Index is a holistic measure encompassing a manager s total talent management practical results and impacts. Such a metric can be used as an incentive compensation modifier. It is designed to hold senior management accountable for Talent Management. Ideally, all index metric components should be calculated on an individual manager basis. 16

17 Case Study: Metrics in Organization Charts VoiceCo Communications High Level Org Chart View Color coding by performance level Span of Control / Total EEs managed Management / Non Management at a glance Additional manager data and detail breakouts Custom Metrics: Talent Management Index Custom index metric combines multiple KPIs Measures development, retention, and performance Managers evaluated and graded on how well they create and retain talent at the organization Sums and averages vertically to the leader and creates Custom scorecards with unique information is for each manager Note: Org charts developed using Org Plus software by Human Concepts Turnover Data by Manager Supervised and total managed turnover New hire and high performer turnover Custom weighting Talent Management Index roll up 17

18 Case Study #3, BroadTek Communications. 18

19 What if we had Human Capital Financial Statements HCMI has developed three unique statements collectively known as Human Capital Financial Statements for organizations to disclose human capital information: Human Capital Impact Statement Workforce Productivity Impact Summary Total Cost of Workforce Sub Schedule Talent Management Impact Schedule Human Capital Asset Statement Human Capital Headcount Summary Human Capital Asset Cost Schedule Human Capital Training Value add Schedule Return on Human Capital Investment Schedule Total Human Capital Value Schedule Prior Year New Current Year Human Capital Flow Statement Talent and Headcount Flow Summary Human Capital Job Value Schedule Workforce Primary Category Headcount Hires % Chg Turnover % Chg Retirement % Chg Subtotal % Chg Promotions % Chg Transfers % Chg Headcount % Chg Employees 13,300 1, % % % 14, % % 5 0.0% 14, % Management 1, % % % 1, % % 5 0.4% 1, % & Senior Leadership Professional Staff 2, % % % 2, % % 2 0.1% 2, % Sales Staff 3, % % 0 0.0% 3, % % % 3, % Specialists and Technicians % % % % % % 1, % Skilled Trade Staff % % 0 0.0% % % % % Operations Staff 1, % % % 1, % % 5 0.3% 1, % Service Staff 2, % % % 2, % 8 0.3% 5 0.2% 2, % Administrative Support Staff % % 0 0.0% 1, % % 0 0.0% 1, % Laborers and Helpers % % 0 0.0% % % % % Contingent Staff 1, % % 0 0.0% 2, % % 5 0.3% 1,950 #### Temporary 1, % % 0 0.0% 1, % % 5 0.5% 1, % Contractors % % 0 0.0% % % 0 0.0% % Total or Average Workforce 15,000 2, % % % 16, % 0 0.0% 0 0.0% 16, % 19

20 The Human Capital Impact Statement Case Study: BroadTek Communications Revenue Prior Year Current Year Variance % Chg Net Operating Revenue $4,114,540,000 $4,444,560,000 $330,020, % Total Workforce Headcount (FTE) 4,645 4, % Revenue per FTE $885,800 $935,697 $49, % Costs Total Expenses $2,788,752,921 $2,809,406,376 $20,653, % Total Operating Expense $2,262,997,000 $2,377,839,600 $114,842, % Total Cost of Workforce (TCOW) $447,661,952 $467,567,712 $19,905, % TCOW Percent of Revenue 10.9% 10.5% 0.4% 3.3% TCOW Percent of Expenses 16.1% 16.6% 0.6% 3.7% TCOW Percent of Operating Expenses 19.8% 19.7% 0.1% 0.6% Profit EBITDA (1) $1,316,652,800 $1,511,150,400 $194,497, % Net Operating Profit $573,155,422 $680,017,680 $106,862, % Profit per FTE $123,392 $143,162 $19, % Productivity and ROI of Human Capital Total Market Capitalization (2) $6,304,709,642 $6,800,176,800 $495,467, % Average Market Capitalization Value per FTE $1,357,311 $1,431,616 $74, % Human Capital ROI Ratio % Return on Human Capital Investment 128.0% 145.4% 17.4% 13.6% TOTAL WORKFORCE PRODUCTIVITY IMPACT: $355,630,545 $700,578,523 $344,947, % 20

21 The Human Capital Impact Statement Case Study: BroadTek Communications 2010 Financial KPIs KPI Variance Productivity Variance 3 Note: All Dollars in Thousands Data for 2009 and 2010 Fiscal Years KPI = Key Performance Indicator FTE = Full Time Equivalents 21

22 The Human Capital Asset Statement Case Study: BroadTek Communications Step #1: Measure Changes in Workforce Headcount Total Employees Sales Staff and Service Staff = Core Workforce Administrative + Laborers and Helpers = Non Core Workforce Step #2: Quantify Differential Value of High vs. Low Value Add Roles Core Job Roles add Greater Value Critical Job Roles add Greater Value Human Capital Headcount Deployed Prior Period Percent of Total Current Period Percent of Total Variance Employees 4, % 4, % 3.2% Management & Senior Leadership % % 0.8% Professional Staff 1, % 1, % 7.3% Sales Staff % % 10.3% Specialists and Technicians % % 2.9% Skilled Trade Staff % % 8.7% Operations Staff % % 0.0% Service Staff % % 1.8% Administrative Support Staff % % 12.0% Laborers and Helpers % % 19.0% Contingent Staff % % 14.0% Total Workforce 4, % 4, % 2.3% 22

23 Measuring Critical Job Roles Case Study: BroadTek Communications Low Value Add High Value Add Core Roles that are revenue generating Roles that are key to bringing in future revenue Roles that are customer facing Roles that directly support revenue generation / or manage cost Non Core Roles that indirectly supports revenue generation Roles that are not customer facing Roles that are administrative in nature Roles that do not make decisions Typically easier to outsource % % Roles that establish strategy Roles that make critical decisions that will impact Results Roles that manage a team or key business processes 48.5% 18.5% 23.5% 21.5% 4.5% % 23

24 What if Productivity could be Measured by Job Category? Highlights Which Job Category(s) Have the Highest ROI? Which Job Category Creates the most Value Relative to Cost? Which Job Category is the best place to Invest more $$$ in Training? Human Capital Value Add ROI Service Staff Laborers & Helpers Human Capital ROI Ratio by Job Family Operations Staff p y y Adminstrative Support Staff Sales Staff Professional Staff Specialists Contingent Staff Management & Sr. Leadership 0.00 Average Total Compensation Cost Human Capital Management Institute 24

25 Questions? Jeff Higgins, CEO Human Capital Management Human Capital Financial $tatements Workforce Intelligence Consortium Workforce Intelligence Consortium 25