Look What’s Coming Tomorrow
“Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome.”
—BOOKER T. WASHINGTON
The theme from the start of this book has been that of managing tomorrow today. More explicitly, this book is about human capital management for the twenty-first century, as developed in our model, HCM:21. I’ve shown how this model of predictive management is built around the tools of human capital analytics. Several practitioners and thought leaders have shared their experience with you, as well. By now you should have a clear idea of what human capital analytics is and how you can use it to build a more effective human resources function or business unit in your organization. In every organization, regardless of function, it is people who produce its product or service. By applying these principles and tools, you will be helping build the competitive position of your company or, in the case of nonprofits, contribute to its organizational effectiveness.
What We Know About Tomorrow
Without attempting to be a fortune-teller, I can state with a high degree of confidence that the new normal will be notable for:
A market of intense competition
A workforce quite different from that of the last quarter of the twentieth century
Technological advances that hit at a speed you will find difficult to assimilate
Political upheavals that will affect business in many parts of the world
A continuation of terrorism threats that raise the general level of tension
Structural changes in the way corporations are organized
All this will make managing a large organization an extremely difficult task. It will be a challenge that will demand not only better data collection and information management but also a quantum leap into business intelligence founded on hard evidence and statistical analysis. Organizations that aspire to market leadership will have no choice but to manage predictively. The days of buying vendor packages without doing a thorough analysis of both internal and external conditions are rapidly coming to a close. That’s because when managers aren’t good communicators, a new performance management software package won’t make them better, especially if they don’t want to or know how to talk to people. Packages cannot give you competitive advantage, for a very simple reason: Whatever you can buy anyone else can buy also. And management is still a person-to-person phenomenon.
What Analytics Can Deliver for Your Organization
High-risk decisions have to be made under circumstances that are seldom crystal clear. For example, what actions are necessary to retain mission-critical talent under certain market conditions? Would you select incentive compensation, challenging assignments, work-life balance, or rapid promotions? What data do you have to support such a critical future decision? If the mission-critical population is large and geographically dispersed, and the technology or customers are changing, who can say which action will have the highest success rate? And can you afford to be wrong? Certainly, relying on the past to predict the future is the summit of stupidity.
Software vendor SPSS points out the advantages of predictive analytics:
1. Get a higher return on your data investment. Predictive analytics combines information on what has happened in the past, what is happening now, and what’s likely to happen in the future to give you a complete picture of your situation.
2. Find hidden meaning in your data. Predictive analytics enables you to uncover hidden patterns, trends, and relationships and transform these into action.
3. Look forward, not backward. Use the data you already have to help you anticipate future events, and be predictive rather than reactive.
4. Deliver intelligence in real time. With predictive analytics, you can automatically deploy analytical results and act as changes occur.
5. See your assumptions in action. Advanced analytics tools help you develop hypotheses, test them, and choose the scenario most likely to give you the desired results.
6. Mitigate risk. Predictive analytics helps you evaluate risk using a combination of business rules, predictive models, and past employee actions, thus minimizing exposure to unforeseen events.
7. Discover unexpected opportunities. You can use predictive analytics to respond with greater speed and certainty to emerging challenges and opportunities.
8. Guarantee your organization’s competitive advantage. With predictive analytics, you drive improved performance in all operational areas. When your organization runs more efficiently, you have what it takes to outthink and outperform your competitors.
Thought Drives Action
The companies that have leapfrogged the market have done so not by buying “packaged solutions” but by gaining insights into opportunities that others either did not see or did not have the courage to realize. Amazon, Avon, Federal Express, McDonald’s, Nucor, Sony, Swatch, Volkswagen, and other trailblazers capitalized on disruptive technologies to change their markets. In doing so, they set the pace for others, forcing the laggards to scramble and try to catch up.
Thomas Alva Edison allegedly had a sign in his office that said: “It is remarkable how far some people will go to avoid thought.” And that says it all about the potential for your organization. Thought drives action. Buying prepackaged HR programs will keep you in the back of the pack. Our predictive management model, HCM:21, vaults you over your talent-war competitors, who are busy putting patching on their old organizational models. HCM:21 will lead your organization into a new realization of human capital management.
Still Evolving
Over the past thirty-plus years we have evolved human capital measurement from transactional metrics through benchmarking and descriptive analytics to predictability. But we are not finished. The next stage, soon to be written, is data integration.
The leading practitioners of human capital metrics tie HR services to some organizational outcome. They may link it to changes, positive or negative, in operating processes, customer behavior, or financials. This is how they show value added. It is the goal toward which we have been striving over these last three decades.
Once this is completed, never again will people be seen as an expense. Human resources services and programs will be viewed and managed as investments. In the best of cases accounting will be able to capitalize at least some HR services as future value-building investments. This will profoundly shift the perception of employees in the direction of being assets and of human resources services as essential business tools. It will be up to HR professionals to demonstrate that they can operate accordingly. If they cannot, I foresee the department’s being split into governance services reporting to the CFO and business services reporting to the COO, with IT taking over HR data management.
Now we are engaged in expanding those admirable one-off efforts into a data-integration methodology. Just as we did with the Predictive Initiative, we have organized a consortium to apply data mining and advanced statistics to build a tool that will support organizations’ attempts to make connections between human capital and the functional outcomes of the enterprise on a regular basis. Figure 12.1 shows this new vision.
VIEWS OF THE FUTURE: HUMAN CAPITAL ANALYTICS
I’ve asked a number of bright people with whom I have had the pleasure to work over the years to share their insights into the future of human capital analytics—good and bad. These people have not been afraid to think. Pay attention to them.
Figure 12.1. Data integration: linkages and feedback.
TIM MACK
President, World Future Society
Out of this group of prognosticators, I am probably the one with the least HR experience. However, it is clear that Jac Fitz-enz and the colleagues who have contributed to this book are thinking seriously about where HR and human resources analysis should be heading.
More reliable and relevant qualitative metrics will assist in bridging the gap between the HR professional and senior management. The most critical element here is relevance. Reliability can be easily demonstrated, but it is the ability to cross the disconnect in emphasis and experience that is critical—that is, to translate the metrics concerning human capital into a management frame that resonates with the stakeholders—and that top managers must effectively integrate to keep “their doors open.” In this instance, combining overview with storytelling by practitioners lends authenticity and reality to observations about new directions. Interfacing quantitative and qualitative thinking is critical, and this is the direction that the field needs to move in—to speak to both the head and the heart. Finally, “collapsing the silos” is a necessary goal, but a challenging one. The barriers between functions are often seen as beneficial and protective, and are usually well defended. Nevertheless, it is essential that organizations speak with one voice.
DAVID ULRICH
Professor, University of Michigan
Decisions based on evidence are more accurate, sustainable, and trustworthy. Often in the “soft” field of individual and organization capabilities, we rely on instinct rather than evidence. While leaders with many years of cumulative experience may have great instincts, too often novices or new leaders have instincts that are not grounded in experience. Evidence-based management is basically the manifestation of accumulated experience. By translating many unique experiences into databases, leaders can begin to see patterns that drive informed decisions. Most leaders would not make product decisions based on feelings alone; rather, they use data based on how different product features meet or do not meet customer expectations. We should expect no less from people analytics.
First, to produce better people analytics, we need to do a more rigorous job describing what is done. The field of psychology has developed standards for what characterizes soft psychological states in its Diagnostic and Statistical Manual (DSM)—for example, states of depression, anxiety, or obsessive compulsive are defined in behavioral and operational terms. Similarly, HR needs to create generally accepted and more rigorous descriptions of HR practices.
Second, with clear definitions, HR can identify the antecedents and consequences of HR practices. Antecedents might include the factors that shape how HR investments are made; consequences detail the outcomes of HR efforts—namely, individual abilities and organization capabilities.
As HR analytics become more accepted, the intuition that derives from experience can be transferred to those new to the profession. In baseball, the book Moneyball, by Michael M. Lewis, changed leadership thinking by bringing discipline to intuitive thinking. Likewise, HR professionals who become comfortable with analytics will have another tool for delivering the value they have to offer the organization.
CHARLES GRANTHAM
Executive Producer, Working Design Collaborative
As the old adage says, “If you can’t measure it, you can’t manage it.” Looking into the future, we see an increasing emphasis on the so-called triple bottom line, which extends corporate performance monitoring into new areas of environmental impact and “social factors.” Although many of these concepts are still only loosely defined, the metrics that relate to building greater capability in human resources development will take center stage within the next five years. Investors will shun companies that don’t invest in human resources development for the long term. Work-force development will become a corporate responsibility, and hence we are going to need good measurements to gauge progress in that field.
STEPHEN WEHRENBERG
Director, Future Force, U.S. Coast Guard
The future of analysis in HR lies in developing a simple model of learning. The learning cycle begins with events—something happens. We observe those events and reflect on what we have observed. We compare what we have observed to our existing model of reality, and when it doesn’t fit, we either adjust our model or create a new one to explain what we have observed. Based on the model, we predict what outcome a certain action might have. We test our prediction by acting in such a way as to intentionally create a desired or predicted result. We then compare the result (event) to the prediction, reflect on those observations (the gap), and so on.
For far too long, those of us in HR have failed to complete this cycle. We have created policies that are prima facie good, without a clear understanding of what we are trying to achieve. And once the policy is in place, we rarely assess our success in the years that follow. In other words, the learning loop is broken. The application of analytic methods that helps us understand how much of benefit A leads to how much of the desired result B—or how much A is needed to achieve result B—will enable us to better predict our policy results, connecting the loop so that we have “organizational learning.” It’s as simple as stating what we are trying to achieve and measuring the degree to which we have achieved it.
KEVIN WILDE
Vice President, Organizational Learning and Chief Learning Officer, General Mills, Inc.
My speculation is that analytics for human capital will become much more useful in the near future for successful organizations. The enablers of this brighter future will be:
Continued investments in technology, making it easier to access the right information and gain insight
More critical thinking about what matters and what drives performance
Advancements in how business HR leaders manage the function to add value
JESSE HARRIOTT
Chief Knowledge Officer, Senior Vice President, Monster Worldwide
The future use of analytics in human capital management is unfolding rapidly. Demands from senior management to show an ROI from HR, as well as the proliferation of technology in this field, are enabling this change. But these factors cannot be expected to drive the change. Leaders in the adoption and utilization of human capital metrics need to be the human resources professionals. Only they understand how HR can really add value to the organization and, therefore, are in the best position to predict and find causal relationships between HR initiatives and business outcomes.
In order for HR to lead the adoption of human capital metrics, HR professionals across the field will need to learn these analytic methods. Training and certification programs will certainly help, but this effort will also require a secular shift in what it means to be an HR professional. Formal analytic disciplines related to human capital metrics will certainly emerge as they have in other departments, such as marketing (marketing research), finance (accounting), and sales (sales operations). The future world-class HR department will track and understand the work-force, applicants, and alumni as vigorously as marketing tracks an organization’s customers.
In the future, HR-related metrics will be accessible to everyone in an organization, not just the HR department. To be data-driven will be an expectation, not a way for top HR staff to stand out. The real challenge will be learning how to deal with the overwhelming amount of data. Therefore, the successful HR professional will add value by focusing the organization on the most important HR metrics and by acting on HR initiatives that measurably impact the business.
DAVID SCARBOROUGH
Scientist at Large, Kronos, Inc.
There are several important trends in employee selection and HR analytics that can be reasonably extrapolated forward. Identity theft (now the most common white-collar crime) is likely to become so pervasive that personal-identity scanning technology will be necessary for Internet commerce. Technical solutions are likely to lead legislative and enforcement responses to this crime wave. Biometric and other personal-identity authentication devices will become routine at the consumer level.
In this regard, employers will incorporate identity authentication into online employment application processing, partially resolving one of the biggest constraints to pre-employment testing over the unproctored Internet. The role of machine intelligence in HR information systems is likely to continue to expand on several other fronts as well. Expert systems are likely to find new uses in data acquisition, data warehousing, and decision support. Other types of artificial intelligence (neural networks, genetic algorithms) will increasingly be used to extract practical information from online data flow. Blended AI technologies, which combine different types of intelligent processing, will result in better tools for behavioral prediction, training delivery, performance monitoring, compensation management, career development, and succession planning.
Computer gaming technology will be adopted by employers seeking to improve employee training efficiency and effectiveness. Advances in speech recognition, virtual reality simulation, and visual and sensory display technologies will permit surprising advances in the machine–human interface. Some scientists anticipate job-related machine implants to improve human performance and expand human potential.
New technology has a way of migrating across disciplines. Unfortunately, our ability to merge advances from genetics, robotics, material science, nanotechnology, and other domains with the applied behavioral sciences and management is limited. Perhaps the only thing we can reliably anticipate is surprise.
NICK BONTIS
Director, Institute for Intellectual Capital Research; Associate Professor, McMaster University
Unfortunately, HR departments have generally been given the negative moniker of “hard to empirically defend their existence.” No one can argue against the fact that human capital is the most critical asset of any organization. What we really need is the analytical and empirical capability that other organizational functions (e.g., marketing, finance, operations) have enjoyed for decades. Future respect for HR will come only if the profession adopts sophisticated modeling and measurement processes.
LEE ELLIOTT
Vice President, Human Resources, St. Francis Medical Center, Grand Island, Nebraska
There certainly has been dramatic progress made in the area of human capital management, principally by Jac Fitz-enz and Wayne Cascio, but as Dick Beatty has said, it is possible to become “overmeasured and underinformed.” The question now is: What is coming in the future for HR metrics? Fortunately, that answer has already begun to appear.
There is a critical need for HR metrics to be included in annual reports. Not just one or two numbers, but enough numbers to truly show what is happening to the people in an organization. Some discussions have been held on this; however, more work is needed.
Another need is for higher-order numbers crunching to better understand the HR dynamics of an organization. A laundry list of HR metrics included on some dashboards is certainly informative. Unfortunately, the knowledge gained from these metrics is a long way from understanding what is truly going on. Discovering that will require advanced statistics.
Fortunately, there are people working with such advanced statistical tools, such as David Scarborough, who has shown how neural networks can be used to enhance understanding. At Saint Francis Medical Center, we’ve been using qualitative research tools from fields such as anthropology to predict HR metrics.
The last idea to be mentioned—and certainly the most exciting—is using HR metrics to predict the future. Dr. Fitz-enz is leading the pack in this effort. He is using advanced statistical tools to show what human capital will look like in the future. In all, huge progress has been made, and the path ahead to the future is clear. Now, it’s time to make it happen.
DAVID CREELMAN
CEO, Creelman Research
In the future, HR leaders will have access to skilled analysts who can do the HR analytics. They won’t necessarily be in the HR department; they could be part of a central analytics group or be consultants, but the point is that they will be readily available. Access to this expertise will make analytics much more of a normal activity for HR. Data should be available, too, although I expect that in the future getting the data from different systems will still feel like a lot of work.
Access to HR analytics should be a great thing for HR, bringing useful insights and more rigor to the function. My only concern is that we will end up with analytics snobs at war with HR traditionalists. Analytics have their place, but they are still only part of the answer. Just as a business leader needs to know enough about IT not to get snowed, so too HR leaders need to know enough about analytics to use it wisely.
ROW HENSON
Oracle Fellow
I believe the future of analytics for human capital management is quite bright, as compared to the dim efforts of the past several decades. Of course, we’ve all been talking for many years about the value of measuring human capital, but after many talks and many books, we find that few organizations have really been able to analyze HCM information effectively.
So, why do I think the future is bright? Technology for analytics is more easily used to collect, analyze, and even predict future trends. Instead of analysis being an afterthought that gets tossed to the “number cruncher,” we are now seeing analytics embedded in the business process instead of as an after-the-fact report. For example, as a recruiter goes to fill an open requisition, the recruiting process can automatically present an analysis of where the last best fit for that position came from, what it cost, and what the average time is in the position. With Web 2.0 technologies, analytical information from both inside and outside the organization can be presented in myriad ways—charts, graphs, text—as a part of the process and not separate from it. In addition, powerful tools are available to look at predictive trends, based on which organizations can take action before there is a problem—for example, in turnover, which is the most costly loss for many organizations.
The industry is seeing proof that investment in human capital is a leading indicator of financial results, not a lagging indicator, as often thought in the past. Industry leaders such as Dr. Jac, Dave Ulrich, Robert Kaplan, and Laurie Bassi have been preaching this gospel for many years, and finally the numbers show without a doubt that people, indeed, are our greatest asset!
In the past, human resources organizations were not typically known for their analytical skills. But the next generation of human resources leaders are being introduced to “analytical thinking” as a key competency for the effective management of people. Colleges and universities now include this topic as standard in their curriculum. Thus, I continue to be optimistic. As the benefits of good analytics prevail, there will be no turning back! Better tools. Better decisions. Better organizations.
STEPHEN GATES AND PASCAL LANGEVIN
Respectively, Professor of Strategy, Audencia Nantes School of Management, France, and Professor of Management Accounting and Control Systems, EM LYON Business School, France
Since the beginning of the twentieth century, when financial performance measures such as ROI were developed, there have been warnings of the dangers in allowing dominance over all business activity. Critics have insisted that these measures led to management by the “rearview” mirror. After all, financial measures only report the effects of decisions taken in the past, and they do not provide information about future performance. In addition, they encourage managers to maximize short-term results to the detriment of long-term performance. The dominance of financial measures, and more broadly, the search for profit maximization and shareholder wealth, can and has led to disasters just as the one we are currently experiencing.
Nevertheless, the role played by men and women, and their competencies, knowledge, and motivation, in value creation has long been recognized. Various tools have been proposed to try to measure a company’s human capital. Among those, the balanced scorecard tries to link indicators of human capital to financial performance. However, there is still a long way to go. On the one hand, human capital indicators that are truly linked with strategy remain to be developed. On the other hand, companies tend to give responsibility for implementing performance measures to their financial department, which reinforces the link between these nonfinancial and financial measures.
Companies should step back and adopt a more cross-functional approach. In particular, they should strengthen the collaboration among HR managers, management accounting experts, and business unit managers to implement HC measures. HR managers have knowledge of various aspects of human capital, management accounting experts have experience in designing and implementing performance measurement systems, and business unit managers can identify the means necessary to attain strategic objectives.
With a little time and experience, companies will be able to develop performance measurement systems that can help them not only create more value but also share this value more equitably.
KIRK SMITH
Performance Consultant
I see this field expanding into measuring the patterns of relationships in the organization. Organizational network analysis (ONA) and the entire field of network science is fertile with possibilities for measuring the value of the “shadow system” of relationships in an organization. In their groundbreaking book of the 1990s, Improving Performance: How to Manage the White Space in the Organization Chart, Rummler and Brache touched on this idea without realizing that an entirely new branch of science would emerge based on the “white space.”
White space is the area between boxes on an organization’s chart and it represents the “interstellar” space of communication (or lack thereof) between cross-functional processes—in short, how work gets done. If we would measure and manipulate the patterns of relationships that are most productive in facilitating cross-functional processes, we could take human capital management to a new level.
Rob Cross and Robert Thomas have broken new ground in this field, as discussed in their book, Driving Results Through Social Networks: How Top Organizations Leverage Networks for Performance and Growth. They are not talking about social media—those are just tools. It is the patterns of relationships optimum for specific situations that are more important. The authors give real-life examples of how charting patterns of relationships in an organization has helped with strategy execution, culture change, onboarding, project success, and process improvement. As the saying goes, if you can measure it, you can manage it. Organizational network structures can now be measured and the potential for improving results by manipulating (managing) those structures is virtually unlimited.
The flow of information in social networks, or organizational networks, is an important form of communication, and leaders in organizations often say one of their biggest problems is a lack of communication. Maybe more attention should be paid to the structure of the networks in organizations. This is where the real informal learning takes place. Indeed, informal learning is a large part of human capital, and this type of measurement can take us far in quantifying human capital.
MICHAEL BOYD
Professor, Bentley University
Without being prepared for the expected future, it is impossible to move beyond the present. In the arena of managing and leading human organizations, the search for the best formula has become a key concern across all areas of human activity—business, government, athletics, religion, politics, and so on. There really are no exceptions to the need for finding the “best” methods, practices, activities, perspectives, science, or social interface capability in how human beings create value in an organized endeavor.
The absolute truth is that one cannot prepare for a future without first knowing the starting point. A key insight of the industrial age was the realization that work and activity could and should be measured in order to understand and improve processes and outcomes. Only through full understanding of how the present has been accomplished can we intelligently plan a path to the desired future.
While establishing that plan is critical to organizational success, the impact of human free will (including competition) often creates the need to react to the present in nonpredicted ways. That unplanned activity then changes the data used for measurement and analysis of organizational activity. So any analysis used for decision making must be sufficiently sophisticated and scientific to account for abnormal or unexpected considerations. Sometimes the data may impact the future; other times they simply reflect an anomaly that should be discarded. The skill, of course, is in determining the difference.
The strategic aspects of a business that are human centric are normally managed within the science and art of human resources management. The knowledge and skill necessary to determine how to accomplish objectives through human organizations is extensive and complex. Without the ability to analytically design, measure, and improve the processes used to accomplish work, the results, at best, will be only as good as the past. The questions for us all to focus on are: What should we measure? How do we measure it? and What does it mean? Those who have spent decades creating the science used to answer these questions, such as Dr. Jac Fitz-enz, can offer guidance and tools to help organizations move ahead in a world requiring infinitely more complex and impactful human resources management analytics. Everything keeps moving faster. There is less time for decisions. Analytics will become the means for competitive advantage.
LAURIE BASSI
CEO, McBassi & Company
A well-designed employee survey is a powerful tool for systematically tapping the wisdom of your workforce, and hence, it is the foundation for human capital analytics. Unfortunately, traditional one-size-fits-all employee engagement/satisfaction surveys are inadequate to the task, and they are impeding progress on human capital analytics in far too many organizations.
Employee engagement, while necessary for driving business results, is not sufficient. Stated another way, employee engagement and business results are not synonymous. Many executives and HR professionals, however, have become far too focused on employee engagement. In this environment, I have seen employee engagement come to be viewed as an end, rather than a means to an end.
I’m not suggesting that you throw out your employee surveys. Rather, I’m suggesting that you demand more of them—that they begin to produce actionable business intelligence. The way to get there is to use employee surveys, along with human capital analytics techniques, to systematically identify the true human drivers of your business results.
NOEL HANNON
Hannon Associates; Retired HR Director, Motorola
Predicting the future of anything is risky business. (How many times will the Chicago Cubs be picked to become champions of Major League Baseball?) In this case, though, the answer may be self-contained: The future of analytics is “the future.” It is time we move beyond looking behind us and reporting what has happened and, instead, understand where we are headed and how we will get there. This being said, the past will play an important role in the future. Pattern recognition will be important to building the analytics that will ensure we remain on track, moving toward the achievement of business and financial goals.
For example, just reporting overtime and absence data is not very compelling. But analyzing them with data on shrinkage (in retail) or accident rates (in manufacturing) may give the insights, such as when multiple weeks of more than 10 percent overtime in a department appear to coincide with increased absenteeism and an increase in shrinkage or accident rates. And these insights can be used to build the early warning system that will allow the business to make necessary adjustments before problems occur.
We need to begin working hand in hand with the businesses in an organization to define the role of human capital in the achievement of short- and long-term objectives. Then, we need to construct the analytics that will allow us to monitor, manage, and optimize that human capital to ensure it is fulfilling its role.
As human capital analytics grows in its importance, there are also likely to be organizational impacts. Those who have worked in the areas of HR technology and measurement recognize that we now have more data about the workforce than at any time before. The problem is that we have not been good at turning the data into information that makes a difference in meeting business (not HR) objectives.
What causes this? Is it limited depth of knowledge of the business strategy and operation? Is it lack of analytic skills and an inability to see the links between data and business objectives? Or, is it simply that these two important traits seldom exist in the same individuals or organizations—that is, the individuals who are “at the table” lack the analytic skills to envision how workforce data could be used, while those who know the data and have the necessary skills do not understand the relationships among the workforce, HR strategy, and business strategy?
Whatever the cause, there is a sense among my colleagues in consulting and technology development that the HR organization may not be the place to begin a dialogue on the importance of human capital analytics. There is growing concern that HR may never completely understand the power that exists in the data it has traditionally “owned.” It appears that the responsibility of applying the science of human capital analytics will reside outside of HR, either in a different part of the organization (perhaps the strategy office or finance) or in a totally new organization carved out of HR—one that would focus on the management of the work-force drivers of today and the talent that will define the workforce of tomorrow.
REX GALE
Principal, Buck Consultants
Predicting the future is somewhat akin to programming your GPS. Once you know your destination, and even the pathway to get there, human action is still required to reach your goal.
Predictive cognition is the next frontier in improving business performance. Business has largely ignored the fifty years of research on the predictability of human behavior and the impact on business performance. Humans predictably err, and mountains of research on cognitive biases, decision biases, and other heuristics that predict human behavior and performance are the next data-mining frontier. Many companies use psychological assessments for selection and succession, yet they are not mining the most critical data: predictive cognitive data.
Instead of the “war for talent,” companies should be fighting the “war for high performers.” What are the predictive factors that cause top performers to deliver better results? What are their specific behaviors? What are their specific skills? What are their specific traits? Understanding what drives high performance, by role, then systematically embedding these high-performance insights and selection standards in your sourcing, screening, selection, and promotion processes will drive individual and organizational performance.
Predictive analytics peels back the onion skin of the enterprise to uncover the insights within that will predictably improve business performance. Similarly, predictive cognition peels back the onion skin of the mind to uncover the insights of the high performers who not only know what needs to be done but know how to get it done.
WAYNE CASCIO
Professor, University of Colorado, Denver
A 2008 survey on human capital management technology by the Institute for Corporate Productivity found that satisfaction with current human capital management technology is mediocre at best, that larger companies are most likely to use it, and that recruitment is the one function for which companies are most likely to use a vendor. Conversely, performance management, compensation, and succession planning are areas that companies are most likely to customize and for which they develop internal solutions. The same survey also found that integration with other systems and products is clearly lagging.
I expect that this situation will change dramatically in the next decade or so. This will happen as broad frameworks that capture more than just measurement per se begin to catch on, and as Web-based software that provides a “road map” to identify key cost and productivity elements will be used more widely to assess the costs and benefits of investments in people.
One such framework is LAMP: logic, analytics, measures, and process. After all, analytics and measures are just tools to improve decisions about talent. They are likely to have maximum impact when they are presented as part of a broader logic designed to influence decisions about talent, and rolled out using a process designed to bring about genuine organizational change. As users begin to appreciate how different HR activities and important outcomes like absenteeism, turnover, and productivity are interrelated, human capital analytics will play a central role in driving strategic business decisions.
KAREN BEAMAN
CEO and Founder, Jeitosa Group International
One critical direction for the future of human capital analytics is to bring the “human” aspect into our efforts. Today’s metrics cover a broad spectrum of counting (e.g., heads, positions, terminations), measuring (e.g., time to hire, performance, turnover), evaluating (e.g., FTE ratios, average salaries), comparing (e.g., actual versus budget, top performers versus average performers, industry benchmarks), and assessing (e.g., productivity of new hires, business impact of talent development). Yet there is little or no regard for the relevance of the metrics we use within a global context.
The languages we speak, the cultures we live in, the experiences we have, and, yes, the metrics we use all shape our perceptions of reality and influence what we value. We know that different cultures in the world have different customs and values; thus, it follows that they naturally interpret metrics differently in their own cultural context. For example, what an American might rate a 5 (on a five-point scale), the German might rate a 4, and the Frenchman a 3—even though they are all rating the same thing. Their perceptions of the world are different because of their different cultures.
Personalities (optimists versus pessimists), cultures (independent versus interdependent), nations (democratic versus socialist), and historical/political events (aggressive, passive, isolationist) are just some of the factors influencing how we perceive things and how we take action in the world. The concept of cultural relativity must be applied to human capital analytics if we want to be relevant to the business on a global basis.
MICHAEL KELLY
Survey Consultation, Former Saratoga Institute Survey Director
The dreaded response to any data is also the most common: “So what?” Human capital data just sit inert unless they can be arrayed in patterns of tenure, trends in turnover, influences on innovation, and other movements that extend fast forward into the future. Enter human capital analytics.
The manager’s question, “What should we do next year?” can be answered with “Take steps to curb turnover by 5 percent and net income will soar by 8 percent.” HR analytics shift the focus forward in ways that will be taken seriously by anyone who understands a balance sheet, especially those who follow sales forecasts.
An organization’s greatest need today is for clarity in what is going on in the workplace and what the market holds for the future. HC analytics are the future for those who learn to read the messages hidden in the number piles. HR finally has the power to turn a new understanding into profit.
JAY JAMROG AND MARY ANN DOWNEY
Respectively, Senior Vice President, Research, and Talent Pillar Director, i4cp
What will HR metrics look like ten years from today? Over the past twenty-five years, many calls have been made for the HR profession to install better ways to measure not only the efficiency but also the effectiveness of various HR functions and, even more important, the impact that HR is having on the organization. The theory is this would lead to more enlightened strategies for managing human capital and give HR the long-lost respect that the profession craves.
So, how far have we come? The results of i4cp’s 2009 survey show that while almost three-quarters of the respondents said that they had HR measurements, most were only measuring the efficiency of HR functions. Less than a quarter were attempting to develop effectiveness metrics, and very few were measuring the impact on the organization.
No board or CEO would ever accept this paucity of data from any other department. If marketing were measuring only efficiency, they would be reporting something like, “Last year marketing placed more ads in more magazines at less costs.” The board would demand that marketing give data on increases in sales or market share.
So, what can HR do? A thriving human capital management metrics process takes four ingredients: good people information, a culture that makes decisions based on data, effective tools, and dedicated resources. Most organizations are not willing to devote much time and effort to this process. As a result, we believe that, for most organizations, the measurement of human capital management will look only incrementally better ten years from now.
Still, organizations willing to devote the resources over time will have predictive models that can help determine which roles, skills, and knowledge give the organization a competitive advantage. They will represent real-world versions of a modern managerial ideal: the organization that is so excellent in so many areas that it consistently outperforms most of its competitors.
PATTI PHILLIPS
President and CEO, ROI Institute
With increasing interest by the chief financial officer in human capital investment, effective human capital analytics will become an increasingly sought-after process in tomorrow’s organizations. Robust quantitative methods will be applied to derive meaning from various levels of results, providing usable information to decision makers. Attention will be paid to indicators of commonly reported constructs such as reaction, learning, and application. The benefit-cost ratio and ROI metrics will continue to be critical measures of economic feasibility and program success. Utility will be the focus of measurement processes as data will be used to improve workforce productivity, plan for future resource needs, and minimize investment risks. Human capital analytics will become the linchpin between an organization’s largest investment and its overall success.
KEVIN MARTIN
Vice President, Enterprise Research, Aberdeen Group
As organizations seek to gain visibility in key business processes and to eliminate the “gut feel” that has dominated in years past, data-driven decisions pertaining to the future state of the organization will become essential. This is why human capital analytics is a prerequisite to successful long-term workforce planning. And, it is also why workforce planning at best-in-class organizations will be tightly integrated with the organization’s overall strategic planning.
The multiyear HR transformations pursued by organizations over the past decade must include and go beyond the ability to centralize disparate HR data into a single source. They must include the integration of that data with other functional data to enable gap analysis or the modeling of future scenarios. However, all will be minimized unless HR and line-of-business managers are trained to use the reporting and analytics to make employee-related decisions that correlate to business objectives.
ERIK BERGGREN
Director of Customer Solutions, SuccessFactors
The best way to predict the future is to invent it. With the lion’s share of your operating expense in labor, there is no other area of your business that could yield better return from better decisions made. At the same time as people constitute the biggest expense, they are the only active ingredient for executing your strategy. With that said, it’s remarkable to see how much companies invest in order to manage everything else in relation to what is invested in managing the human capital.
With increased understanding of your workforce comes better knowledge of managing it. This is knowledge that, if adequately presented to managers, can and will be used to make better decisions. The reality is that those companies that manage data on human capital are doing much better than their competitors.
To get that strategic knowledge, you have to collect strategic data in your transactions. People’s potential, performance, skills, and so on are all examples of strategic data. Ignoring the data means missing a huge opportunity. Start tracking it and analyze the meaning of trends in a business context so that all the HR-related data answer questions on how to help the company grow, reduce costs, and improve productivity, margin, and market share. Smart use of strategic HCM data is today’s answer to the problems of tomorrow.
ALEXIS FINK
People Insight Research Manager, Microsoft Corporation
Scientific reasoning and numerical understanding have been giving humanity the power to understand, predict, and improve since the time of Copernicus. Our challenge in HR is to finally move beyond superstition and conjecture in our approach to the assets that, in the end, truly drive our businesses. Specialty subdisciplines like industrial-organizational psychology have successfully applied research and analytics to human capital problems for decades, but they have largely done so within a limited set of topic areas and organizations. Infusing HR as a discipline with the rigor and expertise to truly solve problems rather than making guesses is the next great opportunity in business.
Capitalizing on this opportunity, however, presents a system challenge. HR leaders, business leaders, and HR professionals must all reconceptualize the management of human capital and also have the skills and capabilities to ask new questions and deliver different answers. Those organizations that can make this transition most effectively and most efficiently will bring a significant advantage to the marketplace.
RUGENIA POMI
Sextante Brasil
The economic crises of September 2008 have affected society worldwide. In Brazil, in our culture, September always brought the springtime, the blossoming of the beauty and colors and the anticipation of the new fruit! And suddenly in 2001, September 11 brought a sign of rupture—a collective alert of danger. Then, seven years later (again in September, from the same powerful country), and unexpectedly for most academics and experts in all fields, a world economic crisis impacted all segments of our society.
What of our dreams and what will they become now?
Our conflicts, our problems, and our challenges—where have they gone?
Where do we want to go?
Can we dream? Do we have a new vision capable of replacing the old one?
Who were the ones we used to trust, and whom do we want to establish alliances with for tomorrow?
From my perspective, I see a paradigm shift in the economic, social, and political model. Departing from the philosophical vision and landing on the operational one, I see these most immediate facts regarding people management in our organizations.
First, companies have drastically cut their expenses and have become even more selective when making investments—where absolute prudence is now the rule for new ventures. Second, there will be space and opportunity for those professionals who seek self-knowledge and who understand how to contribute creative solutions in a spirit of network collaboration. Third, we need to reduce everything that does not generate positive financial and social values, and discourage behaviors and attitudes that bring organizational disease: gossip, intrigue, suspicion, disparaging the competition, insecurity, low morale, threats, and fears.
At the same time, it’s necessary to organize the house, to clean, maintain, and repair. After that, it is necessary to rethink the employment contract and remuneration process itself. It is time to create more flexible work relationships—to give some time off, negotiate periods of unpaid leave, offer part-time work, and so on.
Ideally, future companies will make their decisions about their human assets based on objective methodologies, intelligent planning, and evaluation tools for the production of goods and services. Cultural assessment of the organization’s DNA, with performance metrics and frequent benchmarking, will become even more essential. It’s time to understand the current context as a tremendous opportunity to analyze, review, adjust, redirect, and rewrite the definition of talent.
JOHN BOUDREAU
Professor, University of Southern California
The future of human capital analytics lies more in the minds of leaders and employees than in human capital analysis systems. Of course, the future will bring ever greater and more accessible amounts of data about people in and beyond the organization. Of course, leaders must advance their competencies for human capital analysis and data-based decisions.
Yet, these points have been true for decades, and research at the Center for Effective Organizations suggests that progress has been all too slow. Indeed, one of the lowest-scored questions in our research is: “Do HR systems educate leaders about the quality of their human capital decisions?” The future may hinge more on the implied mental models that underlie our analytics and whether our constituents understand or even believe them. The ultimate measure of human capital analytics is not their elegance, predictive power, and reliability but, rather, whether leaders and employees improve their decisions when they use those analytics.
JOHN GIBBONS
Evidence-Based Practice Leader, The Conference Board
Just when we got the proverbial “seat at the table” somebody moved the chairs again. Ensuring that the HR function is aligned with the strategies of the business just won’t cut it in the business environment of the future.
Simply put, the word alignment means to ensure that something is in line with or in agreement with something else. In the case of HR, alignment has come to commonly refer to building HR programs and interventions that support the strategies of the business. And aligning an organization’s people strategies with its business strategies has become the goal of nearly every HR practitioner in the twenty-first century.
Consider the evidence. Work systems that foster innovation and management styles that actively engage employees’ intellects and passions have been shown to have a direct link to business performance, whether at the individual, group, or enterprise level. The question, then, becomes: Why should HR leaders settle for a role that is simply “in agreement with” the goals of the business? The answer is that they shouldn’t, and they won’t in the future. Alignment will be a given, while impact will emerge as the goal of people who manage the human component of the business equation.
HR metrics (and human capital analytics, in general) will become the means by which HR will make this transition. Analytics that are evidence-based and that demonstrate a causal link between the variables in the human dimension and the variables in the financial and operational dimensions of business will become the basis for decision makers across the entire enterprise, not just HR. HR leaders will also be different. A new generation of HR practitioners is already emerging who are well grounded in the underpinnings of driving a business; have a mastery of the information systems; and, most of all, employ an analytic frame of reference that allows them to make decisions based on cause-and-effect arguments and evidence of impact.
And for those of us who may find this future a bit cold compared to our relatively warm, mostly intuitive HR world of today, simply consider this: When you can speak with authority, your arguments for doing the right thing will never again fall on deaf ears. In fact, for many, that seat at the table may very well be the one at the head of the table.
ED GUBMAN
Founder and Principal, Strategic Talent Solutions; Executive Editor, People & Strategy
Our field has been pursuing better human capital metrics for a long time now, but despite some real creativity, we are hampered by lack of agreement on the big-outcome measures. We have trouble getting metrics to capture mind share and popular usage because we have nothing comparable to finance’s ROI, net income, and the like. And, without accepted outcome measures, deep-dive HR analytics leads us further into the trees without knowing where the forest is.
What to do? As a profession, we need to take ownership and responsibility for a few key aspects of human capital that measure and drive business success, particularly productivity, engagement, and the leadership talent pool. In particular, HR people rarely want to own the productivity measure in their organizations, claiming that there are too many things outside their control. So what? People productivity is the biggest value driver in most companies. If we would own it, we could elevate our profession and our metrics to become vital to our businesses. Until we do these things, we will have sequoia-size measurement aspirations and sapling-size realities.
MARK HUSELID
Professor of HR Strategy, Rutgers University
As the markets for products and services become increasingly globalized, uncertain, and risky, the temptation for many managers is to abandon the conventional analytical tools (e.g., headcount projections, regression analyses, Markov Chains, ROI analyses) in favor of ad hoc planning and analyses (or no planning at all).
I think that this is a mistake. The solution, I believe, is not to attempt to develop overall models of labor supply and demand and then translate them into estimates of return on investment of various HR management practices (selection, development, etc.). Rather, more focused analytical procedures designed to ensure that top talent is placed in critical positions are much more likely to prove useful. Developing such procedures means that we have to be very clear about:
Our strategy—how we will grow, where we will play, how we will win
Our strategic capabilities—the bundle of information, technology, and people that will differentiate us from our peers
Our strategic positions—those roles that have a disproportionate impact on our future success
Our inventory of strategic talent—the extent to which we can consistently place top talent in strategic positions
Our HR action plan—how we will redesign our HR management system to support the process of strategy execution
Once we’ve developed this level of clarity and focus, we’re in a strong position to be able to understand those situations where improved levels of talent do, and do not, make a difference for business success. Then, we’re able to bring not only traditional workforce planning tools to bear on the problem but also new and more promising tools developed by social scientists, such as network analyses, structural equation models, and a wide variety of new approaches using artificial intelligence. The goal of such models is to help managers focus less on average performance levels and more on performance variability as predictors of employee performance, and ultimately, strategic success.
LIBBY SARTAIN
Former CHRO, Yahoo HR Adviser
Predictive workforce analytics have long been the Holy Grail for HR. If we can better predict our future workforce needs based on long-term strategic planning, we can deliver the right workers ready to do the right work at the right time. But, the world of work is changing. In the past few years, the marketplace for talent has churned like never before. Organizations’ need for top talent has intensified while the supply and demand of essential workers ebbs and flows. Conditions are uncertain. Past variables no longer predict future outcomes. Perhaps the secret lies in the current workforce: What can we do to get them ready to be our future workforce?