Getting to grips with metrics shouldn’t be left to the number crunchers. How is a new wave of HR professionals finding meaningful insight?
Having a problem with staff turnover? Not sure why? Your gut instinct is probably to give everyone a pay rise. After all, the days of the recession are behind us, and employees who have stuck with you are now looking to see what else is out there.
It could be an expensive mistake. Look more closely at the mass of information about your people on your HR system, and an entirely different narrative might emerge. Turnover figures for the majority of your staff are as good, if not better, than the industry average; it’s people who live more than 50 miles away who are leaving, to join competitors closer to home.
Once you’ve identified the issue it’s relatively easy to address it – by putting more effort into local recruitment, for example, or providing enhanced relocation benefits or subsidised train fares. And such targeted interventions will be cheaper and more sustainable than simply throwing money at the problem.
It’s more than three decades since Peter Drucker announced that “what gets measured gets managed” and longer still since the quest for true ‘human capital metrics’ was launched, to try and quantify the real value of people, often a business’s largest but least tangible asset. And yet a recent report from HR strategy consultancy Hackett Group noted that “data analysis and modelling are employed with poor results by most HR groups.” It’s a missed opportunity, because with a better grasp of human capital data, business decisions could be made more effectively, return on investment would be easier to quantify and greater accountability might have prevented some of the people-related scandals of the recent banking crisis and Mid Staffs.
What’s stopping a proper appreciation of the value of people in business success? It certainly isn’t lack of data. In fact it’s too much data (the ‘big data’ revolution the media has been trumpeting over recent years) that’s the real challenge, and which leaves many companies long on information but short on insight.
“When you get a good flow of HR data, the temptation is to produce books of it,” says Mike Taylor, a consultant on HR effectiveness. “Senior people get interested in something and dig deeper and deeper – regardless of its value to the business. What you need instead is a dashboard of key HR metrics that are directly relevant to the business goals, and to focus down only when you need to.”
“There is huge potential in big data, but it is not a proxy for real insight,” agrees Edward Houghton, metrics research adviser at the CIPD. “Big data exists at both an organisational and a wider economic level, but most of the information you need is likely to be already in the organisation. Measure and report on what you’ve got, and be transparent, but be aware of what else is out there and how it might help.”
For an example of how a better grasp of people metrics can change organisational outlook, just ask Gillian Quinton, strategic director, resources and business transformation at Buckinghamshire County Council. Her data epiphany happened slowly. “We are a big, diverse organisation, so there are lots of things we can measure, and we used to measure a lot,” she says. “But we probably measured too much, because the danger is you lose the messages. It is better to focus on fewer things and act on what they tell you. Last year we narrowed down our focus to the things that have the biggest impact.”
Quinton and her team identified seven business-critical issues: cost of workforce; spans of control and layers; number and skills of people; starters and leavers; talent management; succession planning; workforce commitment and engagement; and sickness absence. They now deploy a report, sent to the organisation’s top 20 managers every quarter. It gives them detailed metrics in these seven areas, and is linked to performance management objectives, to encourage them to address areas of concern.
The new, more focused approach has already yielded impressive results. “It’s been brilliant in helping us look at resourcing, for example,” says Quinton. “We were able to identify pockets of expensive, agency-based staff, which we have already managed down and thereby saved money. We also identified areas where turnover was particularly high or where sickness absence was increasing, and have made interventions to address the problems. Engagement levels, though good by public sector standards, were lower than we wanted, so we have put a lot of effort into addressing those too.”
The new measurement approach has also helped to foster the commercial mindset that is now required of managers.
“They can now say ‘I reduced sickness absence or turnover by x, leading to a cost saving of £x’,” says Quinton. “Giving them the metrics allows them to see, and demonstrate to others, what a difference they are making.”
Not everyone is so well travelled in their metrics journey. Sandy Begbie, group operations officer HR, IT, Property and Procurement at Standard Life, says too many people still don’t know where to start. “The first link in the chain of human capital analytics is what I call ‘a single source of truth’ for all people data, and that first link is often broken,” he says.
Taylor agrees: “Some HR functions can barely tell you how many people they have, let alone where their talent lies. There is no consistent way of counting people even within one organisation.”
The CIPD is launching a framework to help address such concerns, and ease organisations up the metrics value chain until empowered HR leaders are able to have informed discussions about the intrinsic value of the workforce and how it can support future growth.
The Human Capital Framework is part of the Valuing your Talent (VyT) initiative, which the CIPD has undertaken in conjunction with organisations including the RSA, the UK Commission for Employment and Skills (UKCES), the Chartered Institute of Management Accountants (CIMA) and the Chartered Management Institute (CMI). The framework outlines four ‘analytical steps’, from assessing the size and nature of the workforce, through measuring investments in workforce development and resulting capabilities, to the impact of human capital management on the business.
“Data is very important for evidence-based management, and the interest around big data is an opportunity for us to think about how we train people to use and interpret data and to ‘sell’ it into the business,” says Houghton. “Other parts of the business are further ahead in this regard – finance, obviously, but also marketing, which applies behavioural science to customer data to improve bottom-line profits.
“Valuing your Talent is designed to help HR professionals to raise their game by giving them a clear set of measures and an organisational framework by which to understand the value of the workforce. Not only does this help you manage them better, but also, if you have numbers as evidence, you are far more likely to persuade the CEO of the need to invest in people – their knowledge, skills and expertise. And in our current post-recession economy, building and maintaining the best talent is more important than ever.”
Early adopters of a human capital-led approach can boast some impressive results. Royal Bank of Scotland (RBS), for example, has concentrated on the link between leadership, engagement and business performance since the economic crisis of 2008 that nearly brought it down, says group head, people strategy and insight, Greig Aitken.
While we might know intuitively that engaged, well-led staff deliver superior results, the bank is able to quantify the link through detailed analysis of employee, finance and marketing data. For example, when comparing the top and bottom 10 per cent of business units across a range of measures, RBS has identified a gap of 19 per cent on customer service, 27 per cent in engagement scores, and 31 per cent when it comes to effective leadership.
Likewise, while most people are aware of the key drivers of engagement and performance, detailed analysis builds an understanding of what ‘good’ looks like, says Aitken: “Attaching numbers to what might otherwise feel like nebulous concepts allows you to start conversations that lead to more informed decisions on both people and business strategies.”
Aitken runs one annual global employee survey, which asks more than 60 questions of more than 100,000 employees, and uses marketing segmentation techniques to cut the data in myriad different ways. He also measures joiners’ and leavers’ information very carefully: “A key measure for any business is how good they are at attracting, developing and retaining staff, and you may identify an issue with short-term tenure – people who leave within a year of joining. The average numbers may look healthy, so you have to drill down to a more granular level to see where the problem lies – typically with a few particular line managers – and once you identify that you can address it.”
But however great the insight they deliver, metrics are not an infallible source of information on the health of a company and its people. RBS has long had outstanding metrics, but the well-documented failings that led to its near-implosion during the crisis didn’t show up in the patterns, any more than they were spotted by regulators or the board.
And over-reliance on data is dangerous, warns Standard Life’s Begbie: “Don’t use it to drive decisions without stepping back and taking a reality check. You need to walk out of the HR function and find out what’s going on in the business. But equally, if you sense something is wrong, try to find the data to back your hunch.”
Lack of meaningful metrics isn’t the only thing preventing greater progress towards talent-driven organisations. Many fear HR’s unique ability to relate across different levels of the business will be lost for good, replaced by rows of operatives hunched over spreadsheets. Others worry the skills HR professionals have developed over decades will be overtaken by an amalgam of marketing and accounting. Alistair Shepherd, founder of people analytics company Saberr, seems to confirm this when he says: “At the moment you do need a mix of quantitative rigour and more qualitative measures, but as we get more sophisticated we will be able to do more through data than the touchy-feely stuff.”
But that doesn’t mean HR professionals will be replaced by robots, he believes: the nature of the job will change, much as doctors’ roles have been altered by computerised diagnostic techniques. “Performance is enhanced by new techniques and processes, and the results are more reliable,” he says.
While Shepherd is well aware of the need to measure the right things and draw out the correct insights (“it’s dangerous to put blind trust in data without truly understanding what it’s telling you”), much of his work is designed to remove the judgement and subjectivity from people-related decisions without dehumanising it.
Understanding the crucial importance to the success of a business of positive relationship dynamics between team members, he has developed a ‘Team Optimisation Tool’, which is based on a blend of the latest academic thinking in behavioural science and the kind of information that leads to the most successful matches in online dating.
He has demonstrated the rigour of his algorithm at numerous innovation competitions, asking members of different teams carefully formulated questions and presenting the results to judges in a sealed envelope to be opened once they have announced their decision. He claims 95 per cent accuracy in predicting the ranking of teams.
But even Shepherd says organisations already have at their fingertips lots of the data they need to drive better business decisions. “You don’t need the millions or billions of data points that ‘big data’ implies,” he says.
Begbie says: “HR’s fundamental skill set needs to change. In the past they used to manage processes, but processes are now embedded in data, so they need to analyse instead, and use that analysis to drive the right conversations.”
They also need to see people through a business rather than an HR lens, he adds. “In the past, HR measured what data was available rather than what was of use. If you have a robust platform, and confidence in your data, that allows you to raise your game. But while some HR professionals have been desperate to move away from admin into added-value areas, others have built their careers on efficiently managing processes.”
What’s required, the experts agree, is HR professionals who are fluent in the numbers but can articulate the links, for example, between greater investment in people and enhanced business results. This might mean closer collaboration between HR and the departments Houghton says are already having these conversations, and a greater evidence base for metrics-driven HR of the kind VyT is trying to introduce.
For the time being at least, it might seem safe to leave big data on the back burner, particularly given the recent news that Google’s much-hyped, supposedly revolutionary flu tracker, Google Flu Trends, has consistently overestimated flu cases in the US for the past three years. Not to mention the growing sense that big data has become a label attached with abandon by commentators who understand little of its real implementation.
But that would be unwise. MIT research says companies who use ‘data-driven decision-making’ are 5 per cent more productive and profitable. And as Begbie, Aitken, Quinton and others show, it’s possible to glean real insight without getting stuck in a spreadsheet. For many years organisations have proudly claimed that their people are their greatest asset. Now they have the perfect opportunity to prove it.
Find out more about Valuing your Talent at cipd.co.uk/valuingyourtalent. There will be a research launch event will be on 24 July. To register your interest, please email valuingyourtalent@cipd.co.uk
Initiate the human capital analytics journey and improve the quality and credibility of your HR decision-making. bit.ly/analyticstrain