How to get executives to pay attention to HR metrics


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Advanced HR metrics that will impress your executives

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How to get executives to pay attention to HR metrics

  1. 1. HOW TO GET YOUR EXECUTIVES TO PAYATTENTION TO HR METRICS 2011 © Dr. John Sullivan Professor, Author and Advisor to Management
  2. 2. My goals1. To make you think2. And to convince you that your current metrics approach isn’t working… and to show you a more powerful approach 2
  3. 3. Topics for today1. A quick assessment of your current approach?2. Examples of “so what” vs. OMG metrics3. The characteristics of OMG metrics4. Your questions 3
  4. 4. 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? 4
  5. 5. Part 2A quick demonstration of the difference between… “so what” and OMG metrics 5
  6. 6. “So what” vs. OMG metricsWhat is a “so what” metric? (Most HR metrics qualify)1.If seen, they are often skipped or scanned but seldom read2.If read, they get a… “so what” or “that’s interesting” response from execs3.If it covers costs, the metric omits the $ “returned” part of the ROI equation 6
  7. 7. Examples of “so what” metrics1. 93% of employees are satisfied with L & D2. The cost of each L&D hour is down 12%3. The cost of a new hire is $2,0364. We hired 240 new employees last year5. 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? 7
  8. 8. OMG metricsThree quick identifiers of an “OMG” metric1.It is read… because it impacts at least one corporate goal or executive bonus criteria2.It causes alarm because it makes clear that the highlighted problem/opportunity directly impacts corporate revenue3.It drives managers to immediate action 8
  9. 9. Examples of OMG metricsSee if this grabs your attention & drives action1. $148k is the average yearly sales of a salesperson2. It is $197k… if they completed advanced sales training within the last 2 years3. It averages $249k if they spend 6 hrs. a wk. or more on social networks… sharing best practices4. It is $304k if the salesperson did bothWould this stir you to take action as an executive?And what actions would you take?Another example > 9
  10. 10. 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 $208,000IBM $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) 10
  11. 11. Do HR practices increase the firm’s stock value?Market cap value comparisonHP - $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) 11
  12. 12. Do HR practices increase profit?Dollars of profit per employee (Profit per labor $ spent is a better measure)HP $19,892IBMMicrosoft $27,370 $155,253 OMG! doesn’t thatApple $208,943 make you curious… as toGoogle $256,749 what causes the difference?Key learning - it takes nearly 9.5X more employeesat IBM… to produce the same profit as Google (Calculated using 2010 data) 12
  13. 13. If you were the CEO of IBM, would this cause you to take action? 13
  14. 14. Continuing – What is the performance differential? One top-notch engineer is worth “300 times or more… than the average … we would rather lose an Alan Eustace entire incoming class of Senior Vice President, Engineering and engineering graduates Research than one exceptional technologist.” 14
  15. 15. 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! 15
  16. 16. And finally –An display example… of an OMG metric (This is what an executive would see) 16
  17. 17. Example of an OMG metric displayed Rev impact: - $3.4 million Corp goal: Increase sales Top performer turnoverMetric -This 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 $145,000Accountable individual – JT Snow, CTO 17
  18. 18. Do you see the value of having… attentiongetting, action driving… OMG metrics? Any questions at this point? 18
  19. 19. Part 3 – Metric “power” factors 30+ years of metrics research… have led to my identification of the factors… that make a metric “powerful” to execsThe 30 factors are broken into five categories1. Factors that make a single metric compelling2. Ways to select metrics3. Best practices in reporting and presenting metrics4. Design metrics for enhanced decision-making5. Improve data collection & metric calculations 19
  20. 20. Let’s start with the first category…the factors that make a single metric compelling 20
  21. 21. Factors that make a metric “powerful” to execs1. 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 innovationHR metric - % of increased revenue from innovationcoming from employee generated ideas More > 21
  22. 22. Metrics must directly impact business goalsA list of business goals includes…1. It increases a manager’s bonus2. It increases the share price3. It increases profit4. It increases revenue5. It increases product innovation6. It increases brand value7. It increases market share8. It decreases time to market9. It has a high ROI 22
  23. 23. Factors that make a single metric compelling2. 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 credibleExample -HR metric - # of position vacancy days for rev jobsRev impact – $1.1 million ($5,000 average $ lossper day X 210 excess vacancy day) 23
  24. 24. Factors that make a single metric compelling3. 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/ opportunitiesExample -A “historical” metric – last year, turnover was 5.6%A forward looking metric – Next year, we forecastturnover will double to 11.2%An alert – LeBron just quit his basketball teamMore > 24
  25. 25. The business intelligence (BI) hierarchyWhat 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 theperformance of your resources 25
  26. 26. Factors that make a single metric compelling4. 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 26
  27. 27. Factors that make a single metric compelling5. 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 turnoveris 25% of a managers bonus formulaTied to a penalty – interview slates must include 1diverse candidate or the hire won’t be approved 27
  28. 28. Shifting to the 2nd category…Ways to select metrics6. 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 relevantActions -Give them choices – put recommended metrics and their justifications on 3x5 cardsRemember… CFOs are not balancedDo not hold a vote among HR peopleShow them the metrics used by key competitors 28
  29. 29. Ways to select metrics7.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 29
  30. 30. Ways to select metrics8. 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) 30
  31. 31. There are 5 elements included in the metrics for assessing a program QQTMS1. 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) 31
  32. 32. Ways to select metrics9. 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 criteriaExamples -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 > 32
  33. 33. An “other pocket” costs examplePocket #1 – Reduced barista training, loweringcoffee expertise (Saved $33,000 per store)But look at “other pocket” costs…Pocket #2 – Customer loyalty dropped (returnvisits 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
  34. 34. Another “other pocket” costs exampleEx. 2 – Remind CFO’s of “other pocket” costsPocket #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 >34
  35. 35. Making the business case – using a split sample1. A manager is complaining about declining sales revenue from “call center” phone sales reps for a mobile phone company2. The manager requested that HR try skill training, then perf. management & finally incentives. All programs had no measurable impact on sales3. 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 35
  36. 36. Making the business case – using a split sample4. 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 competencies4. The manager was so happy with the “scientific approach” that she agreed to fund the $50k costs5. 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 year36
  37. 37. Ways to select metrics10. 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 strategicAction-Transactional metrics to omit include… the numberof hires, the cost per hire, training hours, etc. 37
  38. 38. Ways to select metrics11. 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 causesExample -Our turnover is 6.2%Post- exit interviews reveal the primary cause to be bad managers with no motivation skills 38
  39. 39. Ways to select metrics12. 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 problems13. Supplement canned metrics – supplement vendor provided metrics… with a few high- value metrics that fit your organizational needs 39
  40. 40. Ways to select metrics14. 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 improve15. Combine many metrics into a single index – when possible provide a single index (i.e. Dow Jones) to cover many related itemsAn example > 40
  41. 41. A Comprehensive HR Index20% - Revenue/ Profit per $ spent on people15% - Turnover to top/ bottom 10%15% - Performance of recent hires15% - % of key employees pay at risk10% - % challenged and satisfied10% -Turnover rate of poor managers5% - Manager satisfaction with HR5% - Time to fill key jobs5% - Diversity ratios of the workforce 41
  42. 42. Now shifting to… category 3Best practices in reporting and presenting metrics16. 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 receiveExample -Having the (higher) costs of employee turnover read alongside the cost of inventory turnover can be very powerful 42
  43. 43. Best practices in reporting and presenting metrics17. 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 actionAction -Also, change the order of your metrics… so that the ones that demand executive attention appear 1st 43
  44. 44. Best practices in reporting and presenting metrics18. 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 eachExamples - 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 > 44
  45. 45. Best practices in reporting and presenting metrics19. 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 videoMore > 45
  46. 46. Provide “drop-down” menusProvide access to “in depth” information Top performer turnover 7% (Up from 4%, projected togo to 11%. Rev impact $1.4 million) Drop-down menuRun your cursor over the metric • Formula for turnover • Definition • Turnover for your unit • Who quit • Reasons for turnover • Recommended action steps 46
  47. 47. Best practices in reporting and presenting metrics20. Omit metrics that dont change – routinely reporting metrics that that dont vary much over time, that represent no major change, or that dont require action actually waste executive time.Actions - Either omit them until they show a change Or put them last in your report 47
  48. 48. Best practices in reporting and presenting metrics21. 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 trendExamples > 48
  49. 49. A hockey stick chart can demonstrate “why” What happened here? Hockey stick approach 49
  50. 50. Multi-year trend and projection2009 2010 2011 2012___________________________________ Top_____________________________________ Average_____________________________________ Unacceptable 50
  51. 51. Showing a correlation or a direct connection Hiring speed – average days to fill60 days 0% bus. results There is a .96 Correlation between hiring speed and a manager’s business results30 days 51% of results10 days 100% 0% % of a manager’s business 100% results that were achieved 51
  52. 52. “Before and After” results of “pilot” program 100 Sales per month $90,000 90 80 70 60 50 40 30 $17,000 20 10 0 -10Average sales before the pilot sales Sales 1 – 12 mths after training session the pilot training session 52
  53. 53. Best practices in reporting and presenting metrics22. 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 allAn example > 53
  54. 54. Let Amy, thelow performer,know who shecan learn from(Daniel C)
  55. 55. Ex – Embarrassment report TurnoverManager Turnover % Est. $ Tool used % Preventable ImpactRank1 Josephine 2% 0% - 500k Challenge9 Mike 4% 1% - 700k Training30 Average 6% 40% - 1.5 m Pay increases49 Mary 10 % 69 % - 2.7 mil Screaming50 John 20 % 90% - 5.0 mil Punching 55
  56. 56. Best practices in reporting and presenting metrics23. 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 56
  57. 57. Now shifting to category 4Design metrics for enhanced decision-making24. 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-makingAction –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 57
  58. 58. Design metrics for enhanced decision-making25. 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 actionsExample –Recommended action - provide more challenging work options (It can increase retention rates by 23%)Avoid – Stay on bonuses increase retention by only 1% 58
  59. 59. Design metrics for enhanced decision-making26. 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 impactExample-Report the cost per hire of $4,223… but also include the revenue differential of a great hire of +$337,000 per year 59
  60. 60. And finally… The last categoryImprove data collection & metric calculations27. 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 dataAction - Pretest your calculations, data accuracy and formulas with the CFOs office and a numbers geek 60
  61. 61. Improve data collection & metric calculations28. 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 cheaperExample - 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 61
  62. 62. Improve data collection & metric calculations29. 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 itemsExample -When calculating turnover, more heavily weigh the loss of a top performer or a leader 62
  63. 63. Improve data collection & metric calculations30. 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 databasesExample - Integrate with performance, productivity, quality control, business plans and forecasts etc. Integrate with external data including economic databases and industry benchmarks 63
  64. 64. Another example of an OMG metric display Rev impact: - $4.1 million Corp goal: Time to MarketMetric –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 costAccountable individual – Pam Tyne, staffing analyst 64
  65. 65. Talent acquisition measures to consider1. Performance differential (Average vs. a great hire)2. Performance of the hire (On the job performance)3. Number of vacancy days for key / rev positions4. New hire failure rate (% of new hires terminated)5. Vol. turnover of new hires (within six months)6. Professional/ managerial level diversity hires7. Innovation rates of new hires8. Manager & new hire satisfaction with the process9. Employment brand strength10.Process ROI 65
  66. 66. Training and Development metrics1.% 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 leaving4.% of EE’s citing they are on the leading edge of knowledge5.Speed of best practice learning & copying6.Number of vacancy days for leadership positions7.ROI of T&D 66
  67. 67. Retention metrics1. Performance turnover2. Cost of losing a top performer3. Regrettable turnover4. Mission-critical, hard to replace and key job turnover5. % of top performers that went to direct competitors6. Diversity turnover in professional jobs7. Percentage of preventable turnover8. Program ROI 67
  68. 68. Workforce productivity1. Revenue per employee2. Profit per employee3. Revenue per $ spent on labor costs4. Profit per $ spent on labor costs 68
  69. 69. Did I make you think? How about some questionsHundreds of articles on all aspects of HR by Dr. Sullivan can be found at… 69