How to kick start talent analytics?

Here is what Ira S. Wolfe says on this topic. Imagine receiving a balance sheet from your accountant or CFO and the report listed line item after line item but neglected to identify which ones were assets and which ones were liabilities.

If in turn you asked the HR professionals in your organization,

“What is your employee contribution rate?” you'd likely hear about the matching rate the company offers to employees for its retirement or profit-sharing plans?

While this is important to know, it really doesn't indicate what your employees contribute to the bottom line. What is important these days is getting a handle on how each employee's role in the company adds value to the organization and contributes to its financial goals. Understanding the link between individual productivity and organization performance requires metrics, human capital metrics to be exact.

How good are human resource professionals doing at demonstrating human capital metrics? All you need to do is ask them. You'll likely hear about the cost to hire, time to fill jobs, and turnover rate. While important to know, these HR functions don't necessarily have any strategic importance. In other words, they don't create new value, they manage costs.

The first thing any executive, manager, or owner responsible for the development and execution of its organization's strategy must ask is: How do our employees create value in our organization? Linking people to value creation shifts the focus from efficiency measurements to effectiveness metrics.

Human resources departments typically measure levels of customer satisfaction…and then stop there. To become an internal strategic partner with the company, it must now link what levels of customer satisfaction are needed to improve the quality of the buying experience and then how much each percentage increase in a buyer's satisfaction adds to the strategic performance of the organization.

How does this make a difference? How many organization's over the past few years reduced recruitment costs, cut benefits as a percent of revenue and lowered their turnover rates to below the industry average but didn't make any money? Staying within the budget is efficient. It's not always effective.

But moving HR from the guardians of the piggy bank and “touch-and-feely” training to the managers of the organization's most important assets requires a new perspective and a new set of measurements. While helpful as it is to measure your effectiveness against your competitors, the ultimate test of performance comes in the form of market share and profitability. If you don't own the market share you want and you're not making a profit, then who cares that you lead your industry in retaining employees?

More to the point, HR metrics defined by external industry benchmarks really measure the effectiveness of HR. Key metrics like expected human capital return (EHCR) and actual human capital return (AHCR) measure how effective the workforce is at delivering a strategic return on performance in return for the salaries and benefits paid to them.

Therefore the function of HR is not ensure that it meets or exceeds industry HR or community business standards but to know at what point a worker's output exceeds the cost of training and paying employees to show up for work. It should be telling management how well its workforce is meeting the needs of its own business. Beginning right now, HR must be held accountable for how well its workforce contributes to achieving the goals of the business.

Thinking strategically means that human capital metrics show how retaining an employee adds to the bottom line. Using a buzzword, you are “aligning” your people with the company. Identifying the right metrics also establishes the baseline to know when employee tenure without continuous improvement costs the company money and when even marginally effective individual performance cuts its competitive edge.

Although not an easy task, many HR professionals are trying hard to think like “business people.” But these people are the pioneers, which means there are no well-defined maps to follow. Making the project even more challenging is the fact that the right measures will be unique for each organizations. Even if best practice strategies and metrics were available, they might not be right nor relevant for you.

I don't propose that I have all the right answers. In fact, I'll be the first to admit that I may have more questions than answers. But when it comes to what I'll refer to as talent-analytics – a reliable method to identify how a highly successful employee will contribute now and in the future to the financial well-being of the business – we do have a solution for managers.

As a result of working within dozens of organizations – small and large - over the past 3 years on identifying the core competencies of highly successful employees, we have begun to identify key links between individual personality traits, values and abilities and peak performance.


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