The quantification quest is no longer an impossible dream.
By Andy Campbell and Henry Barenholz
Any finance director worth their salt will try to spend most of their time away from their statutory reporting responsibilities and instead focus on those more strategic activities that actually help to ensure the long term survival and profitability of the business.
Similarly, senior supply chain managers will care less about the organizations current stock position and more about accurately gauging future demand levels. This will enable the business to optimize its working capital position without compromising service levels to customers. Marketing managers, cognizant of the massive impact that trade promotional activity can have on the bottom line, will focus their energies on accurately modelling sales plans in order to optimize the return on their investments. While reporting of current sales is important, especially to those whose compensation might be directly influenced, management focus is elsewhere. The common thread across all of these executives is that to effectively perform their jobs, they are heavily reliant upon forward-looking reporting and analytical tools that can facilitate improved organizational decision making.
But what about the poor human resources director?
For many years it has been popular to refer to people as “our most important asset,” and if one considers the average total payroll cost as a percentage of total overheads, this is often financially accurate. The HR director has a significant responsibility to ensure that the organization is most effectively managing this ‘asset’ and that it is being optimally deployed and developed. Sadly, however, when one considers the systems and tools that are available to support this endeavour, the HR function is often the poor relation. Systems are all too often inadequate, and reporting is often weak when compared to the executives described above.
The Underlying Problems
The first problem is that HR reporting tends to be primarily transactional and operational in nature. Information is available that describes what has happened in the past, but forecasting what might occur in the future is much more difficult. The oft-used analogy is of trying to drive a car while looking in the rear view mirror. The second problem is that information is typically restricted merely to efficiency measures. Reports are available that describe costs, headcount numbers, and other data elements of a primarily volumetric nature—such as employee ratios, starters, leavers, turnover, absence, etc. By contrast, information that describes the effectiveness of the “people asset” and the impact on the performance of the business that it delivers, is often sadly lacking. The last key issue concerns the sources and reliability of the data itself. The HR function is often swamped with information, but its voracity is often suspect. Data is typically held in a myriad of independent systems that represent functional silos. As a consequence, the resulting management information is often of poor quality, inconsistent, and out of date. In addition, the process of consolidating data can be manually intensive and time consuming, and even then the resulting outputs often lack credibility and are subject to challenge at the monthly board meeting.
This position can be compounded when efforts are made to address things. The HR function is not able to offer the quality of service to its internal customers that it would wish. It can be seen as a cost center of a largely proactive nature, which offers little of business value and delivers executive information of dubious worth. As a result, its contribution to the organization can be questioned, and a place at the “top table” can remain elusive. Consequently, when its comes to investment in business systems that might help to rectify the situation, the relative priority compared to other areas of the business remains low, and so alternative uses are found for the limited investment funds available. Some might call this a vicious circle.
Change on the Horizon
The good news is that things are starting to change. Chief executives are increasingly recognizing that not only is the “people asset” of significant value, but also that this value and business contribution can be effectively measured. Enhanced business decision making can only come about as a result of improved business intelligence, and a pre-requisite for this is evidence that is fact based rather than anecdotal. This, in turn, requires both systems and reporting capabilities that are comprehensive, robust, of high quality, and analytical in nature.
The catalyst for this increasing awareness can probably be attributed to “the war on talent” that has been so well documented over the past few years. Suffice it to say that the ability to demonstrate a causal link between the performance of key individuals, the performance of the workforce as a whole and the performance of the entire organization is extremely important. Competitive advantage can often be attributed to the development of a clearly articulated business strategy and then its effective execution, both of which are dependent upon the skills and abilities of the talent within the organization. Similarly, ongoing business survival is largely a result of an organization’s ability to adapt and evolve to meet ongoing business and environmental changes.
Success can be more effectively assured by developing a culture of continuous business improvement and a healthy appetite for innovation and creativity, both of which the HR function has a significant role in facilitating. Businesses are increasingly adopting the “Ulrich business partner” model and embracing the active engagement between HR and the business that this entails. Sadly, however, business partners are often restricted in the services that they can offer by the systems and information at their disposal.
So what do senior executives need?
The most obvious answer is to ensure that the goals of the organization are achieved. Optimizing the performance of the organization requires the capabilities of the workforce to be used most effectively—something that the HR function is uniquely equipped to support. These activities should not be limited to the short term, however. It is equally important that the “bench strength” of the organization is both developed and maintained. This will facilitate the achievement of forward-thinking business strategies and longer-term initiatives. Again, the HR function has an obvious role to play in ensuring that the core competencies of the organization are supported and the skills and capabilities of the workforce are suitably planned and resourced.
A few additional issues require consideration. Information held within the HR function about the capabilities of the organization should not be seen in isolation. Executives recognize the interdependencies and synergies that exist between different data elements. For example, if one considers the management of staff in a retail outlet, staff numbers and payroll costs are an obvious area of focus. However, when this information is combined with data about store performance in terms of sales turnover, customer footfall, customer service levels, queue lengths, etc., retail managers can start to recognize trends and then implement strategies to reorganize staff schedules that mirror customer demands and thereby optimize their resources. Things start to get interesting when a more holistic and integrated view of information is taken.
Data Data Everywhere
The number of data sources is also growing significantly and adds the potential for both opportunity and complexity. External systems such as LinkedIn, Facebook, and Twitter are being increasingly used for purposes such as resourcing, and their capabilities and characteristics are being mirrored by similar workforce communication, collaboration, and social media tools within the enterprise. In most organizations this growth is unstructured and people-relate and organizational “noise” has yet to be effectively harnessed. However, this situation is unlikely to persist as such information assumes increasing importance.
What is the answer?
How can the requirements of executives be most effectively delivered and the problems overcome? The answer lies in a number of management information technologies that when combined together provide a complete HR reporting strategy. These will offer the HR team analytical and reporting capabilities that compare well with those already enjoyed by their executive peers.
Embedded analytics. Some might contend that embedded analytics have been around for some time and represent nothing new. However, many significant qualitative improvements challenge this premise. The key differences are in the areas of usability: where, from a user perspective, the dividing lines between reporting capabilities and the underlying business applications are becoming indistinguishable. Context sensitive reports and pre-built content combined with the ability to seamlessly drill to individual transactions all offer the end user an experience that makes the job significantly easier. In addition, the inherent flexibility of the tools and the availability of pre-built content combine to offer the business an opportunity to deploy such solutions at comparatively low cost, thereby optimizing investment payback and maximizing return on investment.
Pervasive analytics. As the workforce becomes increasingly connected and mobile, the need for information to be easily accessed becomes more and more important. Management reporting tools need to be actionable, information should be readily available and not be limited to any particular device or channel. Providing executable information in a manner and time that is easy for employees to use can only help improve business performance.
Predictive analytics. Reporting of historical performance is all well and good, but the ability to predict future outcomes is much more valuable. For some time, leading-edge customer relationship management (CRM) reporting systems have focussed on customer propensity modeling as a powerful mechanism to drive effective business strategies. For the HR executive, the use of similar technologies, such as the deterministic modelling of behavioral characteristics, are likely to provide equally important business insights.
Holistic analytics. It goes without saying that, at a minimum, HR analytic solutions should embrace the entire sphere of talent management and people related data that has historically hidden in independent silos. In addition, however, integration and reporting capabilities now enable this data to be enriched with data from multiple sources, both inside and outside of the organization. This might be the sales data, “big data” released from social interactions, or external benchmarking information. Whatever the source, though, the end result is improved organizational decision making about the “people asset” as a result of richer and higher quality business intelligence.
The outcome of these advances is the delivery to the HR executive of a complete suite of reporting, modeling, simulation, and planning tools that rival—and in some regards surpass—those of other, more traditional business functions.
For the business, the outcome will be a more engaged, motivated, focused, efficient, effective, and high-performance workforce. This, in turn, will translate into improved organizational performance in the short term and improved organizational resilience and potential for the longer term.
As for the HR directors themselves, who knows? Maybe they’ll even achieve the ultimate accolade, a space next to the chairman in the executive car park!
Andy Campbell is HCM evangelist at Oracle, where Henry Barenholz is senior director of global BPO.