We see it every day in the headlines, particularly over the last few years – ‘Top Company Cuts 1000s of Staff’.
All too often, there is a knee-jerk reaction after senior executives and managers conclude that headcount equals only cost and they neglect to consider what value their people bring to the business.
They look at the numbers in terms of staff pay, benefits and facilities and panic about the size of their overheads. What they all too often don’t realise, however, is that people also drive revenue and profit increases.
As a result, many organisations underperform, in some cases dramatically, and have no idea why.
The good news is that there is a little-known solution lurking in the wings that can help increase shareholder value. This important tool is called workforce analytics and can assist companies in developing a clear understanding of the value of their workforce as well as the levers that can be pulled to boost turnover and profits.
These levers are simple: get hold of accurate data to ensure you have the right number of people in the right place at the right time. Workforce analytics technology has been proven to help senior executives understand the contribution that ‘headcount’ makes to the business and to show how an increase in, and effective deployment of, the right kind of staff can improve shareholder return.
Indeed, while researching these facts in the process of writing our book entitled ‘Calculating Success’, we came across evidence that leaders in many companies manage their workforces without knowing how many employees they have, how they are deployed, how many more they require or what type of roles would help them to grow and expand the business.
As a result, employees are all too often simply overheating under heavier workloads following headcount reductions as their employer tries to deal with the aftermath of the financial crisis. The problem is that, frequently, there are simply too few people attempting to undertake too much work, with two people sometimes even working on the same task without knowing it.
But these are all problems that effective workforce analytics tools could help to solve. The area is, in effect, a discipline and involves introducing a clear set of processes, a robust predictive data analytics system and staff training to ensure that people understand it all.
To this end, we developed a six-step model:
1. Frame the central problem and define the business challenges – This involves taking the time to really understand the organisation’s issues and may entail HR conducting interviews with key managers from their own function, finance and others. It will also be necessary to review documents that provide context and insights into areas such as organisational structure, central business initiatives and project plans.
2. Apply a conceptual model to underpin analysis – This means identifying any workforce or business variables that could have an impact on how you deal with the organisation’s challenges. Variables could include idiosyncratic events or any relevant additional data.
3. Capture relevant data – This information should come from all relevant business units, be it HR, operations, finance or marketing. Any differences in definitions, codes and time frames will need to be reconciled and the clean data should be stored in analytical databases.
4. Apply formal quantitative analysis techniques to the data – The aim here is to find consistent patterns over a given time frame. It is at this stage that the necessary insights that can help solve business issues will be unearthed because valid data reveals the true underlying story.
5. Work through the statistical findings with key stakeholders to ensure buy-in and suitable decision-making – This means presenting the results in a way that managers without a statistical background can understand. At this stage, also evaluate any new problems that surface along with any issues that require further analysis and understanding.
6. Implement change based on your findings – This may involve introducing operational change into policies and procedures relating to recruitment, staff development and deployment in order to produce desired improvements in performance. Any changes should be monitored and tweaked in a process of continual improvement based on the six step cycle.
The bottom line is that, if more companies develop a better understanding of the value, as opposed to just the cost, of their workforce, productivity will improve and, in turn, lead to better revenues and profits. Recent studies show that, when organisations see people as forming profit centres, they tend to grow in size and value and, ultimately, they start to hire more people.
In today’s environment of high unemployment, this scenario begs the question of whether joblessness needs to be as high as it is in the western world today? We believe that it does not, but for the situation to change, organisations would have to understand the actual value of their people.
So the real question is this – is the HR organisation up to the task of making this situation a reality? We are not sure. But neither is Professor Dave Ulrich, an HR guru best known for the Ulrich Model. He recently spoke at one of our events entitled ‘What’s next for HR?’, which explored the importance of workforce analytics in the changing HR landscape.
According to Ulrich, when HR professionals are asked about the biggest challenges that they face, answers tend to range from “building credibility with my line managers” to “bringing in new talent” and even “handling employee grievances”.
But, he points out, all of these problems are administrative, focusing on rewards and communication practices, while the future of HR will be to find ways of responding to external business conditions. In other words, it is no longer enough to create value by serving the needs of employees. Instead the future will be about ensuring that the services offered within the company align with the expectations of people outside of it.
This means that HR needs to become aware of the value that it creates for people outside of the company. Put another way, professionals must not just respond to strategy, they must also help shape and create it.
Shift in thinking
In order to achieve this, Ulrich believes that a seismic shift needs to take place in order to transform the way that HR is thought of today. HR professionals must start adding the phrase ‘so that’ to their aims, challenges and achievements in order to understand the outcomes of what they do rather than just the work itself.
Even better, Ulrich says, is if HR practitioners incorporate two ‘so that’ stages into their activities so that they start connecting HR with the broader context in which the business operates.
For example, if the phrase ‘so that’ is added to the sentence ‘my biggest challenge is to build credibility with my line managers’, the result is ‘my challenge is to build credibility with my line managers so that we can make better investments that help the business reach its goals so that we can anticipate and respond to external business conditions and deliver value to customers’.
This means that HR professionals are no longer simply dealing with administrative processes, but are addressing the wider business context and the expectations held by people outside of the company. But this shift in thinking is highly dependent upon HR practitioners understanding this business context and the value of their staff.
In Ulrich’s research on HR competencies, however, he found that many HR professionals consistently lack business acumen. Indeed, it appears that a good number went into the area to avoid the quantitative side of business in the first place.
But in order to chime with the future of HR, it is no longer possible to just ignore data, evidence and analytics – disciplines that can help to bring rigour into the way in which the function operates. As HR becomes increasingly aligned with the business, workforce analytics have and will become increasingly important in helping practitioners stay ahead of the game.
Tim Ringo is a partner at management consultancy, Maxxim Consulting.
