Unlocking the Value of Human Capital Analytics for the CFO

Unlocking the Value of Human Capital Analytics for the CFO Mick Collins, Vice President, Workforce Analytics & Planning, SuccessFactors October 9, 2015 Public

The goal of human capital analytics is to drive business outcomes by optimizing investments in talent The reality is that HR often defaults back to traditional metrics with little connection to business strategy 2015 SAP SE or an SAP affiliate company. All rights reserved. 2

The CFO s role is to assist in taking the raw human capital insight and helping quantify the extent to which it creates a material risk that could impact strategy and growth Source: CFO.com 2015 SAP SE or an SAP affiliate company. All rights reserved. 4

How Terminations Harm Firm Performance How does the voluntary termination of high-performers correlate to financial measures of firm performance? For every 1 percent increase in terminations research showed a decrease in Return on Assets (-3%) and Return on Equity (-8.2%) The effect is greater for those firms that invest less in human capital (selecting, training, and compensating high-performers) and thus have smaller talent pools with fewer high-quality replacements Source: Kiwook Kown and Deborah Rupp, High-Performer Turnover and Firm Performance: The Moderating Role of Human Capital Investment and Firm Reputation (Journal of Organizational Behavior, May 2012). 2015 SAP SE or an SAP affiliate company. All rights reserved. 5

Human Capital Metrics Link to Stock Price Human Capital Metrics Track With Stock Price 30% 25% 20% 15% 10% 5% 0% -5% -10% Financial Services Industry Change Rates (CAGR) 2012-2014 19,9% 14,8% 12,9% 10,9% 9,8% 5,7% 0,4% -2,7% -7,0% 28,0% 25,4% 26,2% Low-Performers Mid-Performers Top Performers Human Capital ROI Ratio Stock Price Return on Human Capital Investment Market Value (Capitalization) Top quartile companies improved workforce productivity 9.8% & 25.4% annually, seeing 26.2% annual stock price gains, double the market average improvement Source: Human Capital Management Institute, Human Capital and Market Capitalization, Financial Services, October, 2015 2015 SAP SE or an SAP affiliate company. All rights reserved. 6

One Question, Two Approaches How Many People Do We Have? Finance has the answer Wait HR has the answer We have our own definition So do we We use this data to plan our budgets We use this data to identify talent gaps Please fill in the spreadsheet Where does this data go? 2015 SAP SE or an SAP affiliate company. All rights reserved. 7

CFOs Expect CHROs to Develop Financial Acumen and to Align Workforce & Financial Strategies Improve Knowledge of Metrics Monitor Headcount & Costs CHRO Competencies Develop financial expertise to engage in cost benefit analysis and strengthen the financial acumen of the HR team Business Alignment CFOs and CHROs set realistic expectations - for line managers - about workforce needs, allowing for disciplined decision-making Source: Bridging the CHRO/CFO Divide: Four Areas Where CFOs and CHROs Disagree, www.executiveboard.com/blogs/bridging-the-chrocfo-divide-four-areas-wherecfos-and-chros-disagree/?business_line=finance 2015 SAP SE or an SAP affiliate company. All rights reserved. 9

Human Capital Risks, Revenues, & Costs: How Well Do You Know Your Organization? Near-Term Mid/Long-Term Risks In the last five years, has workforce productivity increased, decreased, or remained the same? Which executive roles face the greatest vacancy/readiness risk? Do you retain your key/most productive people at a higher rate than our best competitors do? Which BUs have the greatest annual knowledge loss from terminations, transfers, & promotions? How many workplace injuries occur each year? Which locations have the highest incident rates? What will be the five most important competencies for your firm in 2, 3, or 5 years? How do you define talent innovation and what data will you use to measure it? What percentage of your workforce will retire in the next five years? What percentage of your high performers are at high risk for departure? Which demographic trends (aging population, outsourcing, etc.) will most impact your business? Revenue & Costs What is your revenue per FTE, compared to your competitors? Which BUs have the lowest? How many units of profit are generated for every unit invested in compensation & benefits? What is the increase in workforce performance resulting from every 1 percent increase in pay? What hidden costs such as contingent labor spend - does your business not track? What percentage of HR programs actually achieve the ROI stated in their project proposals? Is the human capital ROI higher than working capital, invested capital, or plant/equipment ROI? Are you understaffed in areas that, if you were to add people, you could increase our profitability? What new sources of revenue will require a very different type of employee that those of today? What is the percentage increase in performance as a result of every $1,000 spent on training? What is the Total Cost of Workforce required to fill long-term talent gaps? 2015 SAP SE or an SAP affiliate company. All rights reserved. 10

1. Shaping and Executing a Workforce Plan CHRO Align HR & Corporate Plans Identify Critical Talent Needs Director of Operations Determine Organizational Design Establish Productivity Baselines Chief Financial Officer Review Total Cost of Workforce Allocate Budget for Talent Spend Director of HR Assess Supply of Talent Review HR Strategies HR Business Partner Incorporate BU Needs Execute Workforce Plan 2015 SAP SE or an SAP affiliate company. All rights reserved. 11

2. Improving Operational Efficiency Contingent Labor Manage Hidden Costs Workforce Mix Operational Efficiency Span of Control Unscheduled Absence Manage Human Capital Supply Chain Risks Controllable Turnover Productivity 2015 SAP SE or an SAP affiliate company. All rights reserved. 12

Start With a Business Hypothesis, Use Big Data, Change Behaviors Wawa finds a high correlation between terminating employees that are younger than 30 and have <3 months tenure, prompting the firm to use big data to investigate related trends. Wawa educates their managers on policies for new-hire scheduling and working hours. The company plans to revisit recruitment, onboarding, training and other engagement practices to ensure employees receive full cultural immersion The company finds that the danger zone for high turnover risk is employees working seven to 16 hours per week and those with less than 39 days of tenure. If the firm can get employees to 39 days, their probability of staying one year rises dramatically. with turnover cost savings estimated at $1 million per year. $1M Sources: Wawa Uses Analytics to Bring Fresh Insights to Strategic Workforce Planning and Corporate Strategy, SuccessConnect 2015; America s Favorite Convenience Store Finds Recipe for Fresh Workforce Analytics, http://news.sap.com/wawa-americas-favorite-convenience-store-finds-recipe-for-fresh-workforce-analytics/ 2015 SAP SE or an SAP affiliate company. All rights reserved. 14

How SuccessFactors Workforce Analytics & Planning Can Help What SuccessFactors Offers: 30 years of domain expertise, including workforce planning GAAP-like industry standard metrics; pre-built analytical models Revenue, cost, and risk metrics, delivered directly to people managers Strategy-driven workforce forecasting to identify and mitigate human capital risks On my desk is one of the most amazing pieces of HR work I ve ever run across. At 600 pages, the spiral bound book is a ream of paper devoted to the documentation of HR Metrics. John Sumser (HR Examiner.com) Extensive partner network, to deliver added capabilities 2014 SAP SE or an SAP affiliate company. All rights reserved. 15

Thank you Contact information: Mick Collins Vice-President, Workforce Analytics & Planning Email: mick.collins01@sap.com Twitter: @mickcollins 2015 SAP SE or an SAP affiliate company. All rights reserved.