Bringing HR and finance together with analytics
If one asks most CFOs if people are a source of competitive advantage, a strategic asset and something which the organization should invest in, they almost invariably answer “Yes, of course.” That’s long been the problem for Human Resources. Organizations do believe in and publicly state workforce and talent to be their most valuable assets and key to future success. However, because the value of talent is difficult to measure, and few HR leaders have been able to effectively use metrics to measure workforce talent impact, Finance therefore defaults to measuring workforce talent only as a cost to be minimized.
I often ask Finance professionals where in the balance sheet is the company’s stated most valuable asset, the employees, shown. I usually get a wry smile since the answer is in fact, from an accounting standpoint, employees, aka human capital, is defined as a liability not an asset on a company’s balance sheet. This means the only place that employees, workforce and talent show up on a typical balance sheet is on the liability or negative side, and that’s troubling.
As a result, HR often feels misunderstood, unsupported, underfunded, and left to simply execute on company initiatives without adequate resources or the ability to strategically drive talent management initiatives in the organization.
So how can it be that HR and Finance agree on people as a source of competitive advantage, a strategic asset and worthy of increased investment, yet Finance so quickly and routinely declines HR spending requests? The simple answer is really about communications and language.
Finance believes HR needs to be able to speak the language of business, which is numbers, more specifically, business and financial results ($$$). This is the language that every publicly traded company, as well as non-profit and public sector organizations speak. It is the language that Finance thinks, speaks, lives, and breathes. Finally, it is the language that top management also live and speak, and is known and spoken by every other functional group in the organization.
What HR needs are some standard metrics that are included in standardized workforce or human capital talent reports and scorecards which clearly show the value of the human capital, thus translating the language of talent into the language of business, so even the most diehard Finance professional can better understand talent, its impact, and its worth.
Perhaps the best argument for HR to adopt and use human capital metrics and analytics is that it puts numbers to people that CFOs and the rest of the organization can finally begin to understand – and from which HR can change the game to drive superior decisions about people and talent using facts and numbers woven into a story that HR is uniquely qualified to tell.
How can HR better learn to speak with metrics and numbers that show directly the impact of workforce decisions on business results?
Five Steps to Speak the Language of Business.
The first step in learning to speak the language of business is simply to ask the right questions about talent and the workforce. The right questions must be business questions, not HR questions and should combine or link directly to the workforce and talent. Many of these types of questions are already being asked actively in organizations around the world; however HR has historically not seen such questions as falling within their area of responsibility.
For example, questions that many CEOs ask include:
- How do we know we have the right size and cost of workforce?
- What is our workforce productivity and is it improving?
- Are we hiring, promoting and retaining the best talent?
Such questions are clearly aimed at the workforce, but historically HR has not addressed or answered such questions.
The second step, and the method by which to answer such complex questions starts with the uniquely powerful data and potential metrics that HR has at its disposal. HR today is increasingly swimming in a sea of data. Harnessing this ocean of data by integrating it from the many HR systems and computers where it may be stored, and then analyzing and reporting on it via metrics will allow HR to begin to speak this new language.
The third step is to put data analysis into charts that enable management to gain actionable insights into specific workforce and talent management issues. Ideally such insightful charts will answer one of the key business questions identified in step one.
In step four, HR harnesses all of steps one, two and three to do what it is already very good at, telling a story. However by combining a compelling question, good data and metrics, and a powerful visual chart, a Finance or line management audience is finally ready to hear and understand the story. It is often the same story that HR may have told before, but the difference is that HR is now using the tools and language of business, data and numbers, to support and tell its story.
The fifth and last step is to top off all of steps one, two, three and four with a final cost-benefit, ROI or value creation metric that speaks squarely to Finance and line management executives. Imagine for a moment, if you could clearly show that investing an additional $1.0 million dollars in training, which will reduce the voluntary turnover rate by 10 percent, will save $1.5 million dollars while simultaneously increasing workforce productivity by 5 percent. By means of training, HR can improve the productivity of the workforce – yes HR can.
This means the organization can increase revenue, production, or customers served by 5 percent, with only minimal increases in workforce cost. For a company with $1.0 billion dollars in annual revenue, this would be worth up to $50.0 million in ROI to the organization as increased revenue, improved profit margins and reduced costs. Now those numbers are a language that even the most skeptical Finance person could understand.
Excerpt reprinted with the permission of Jeff Higgins, CEO of Human Capital Management Institute, a driving force in workforce analytics helping companies transform data into intelligence and ROI via workforce planning and predictive analytics.He can be reached at email@example.comThe complete article can be accessed at: http://www.ihrimpublications.com/WSR_Online_Archives/Jeff_Higgins-WSR_May14.pdf