Sunday, October 16, 2011

Trajectories and Root Causes in HCM

As most HR professionals know, HR was among the last corporate functions to rely heavily on metrics and KPI’s. So now that we have a plethora of metrics to leverage in HR / HCM, including both leading and lagging indicators, we are now ready to take the next step – or next few steps. These next steps include: looking at the direction or trajectory of metrics data, and when the trajectory turns negative or unsatisfactory, evaluating and addressing potential root causes.

For many decades, Finance departments and CFO’s have paid close attention to key business indicators such as major changes in DSO (Days Sales Outstanding), or changes in Cost of Sales, or fluctuations in Cost of Capital, or G&A expenses on the rise as a percentage of total expenses, etc.

Foundational HR-related metrics such as revenue per employee, engagement and/or turnover rates, ratio of HR staff to total workforce, time-to-productivity – and even more creative metrics like % of first choice candidates hired, or average time to be promotion-ready -- can also be very instructive or telling when they reverse course or trend-line. When that occurs, organizations should thoroughly examine potential causal factors until suitable actions are determined.

Sometimes “causal factor analysis” will reveal that the changing trajectory of a metric might be acceptable, or no real cause for action; e.g., when employee engagement turns ‘South’ right after a staff reduction; or when the ratio of HR staff to total workforce temporarily turns ‘North’ when new Benefit plans are introduced -- or when a company increases HR staff after outsourcing HR services to a firm which perhaps over-commoditized HR service delivery with too much emphasis on automation / technology-enablement.

Other times, “causal factor analysis” will highlight instances when corporate / HR action is necessary to avoid business problems becoming more pronounced. When revenue per employee or employee engagement starts turning for the worse, and no intervening variables can readily explain the change (e.g., nothing was taken away from employees and the organization is fairly stable) … there are some likely explanations which should be investigated.

We will probably start seeing more HR technology offerings which include very practical “decision-support guidance”… highlighting likely explanations for the types of trajectory changes mentioned here, and essentially teeing-up alternative courses of action. Customers that avail themselves of these capabilities might experience these hypothetical scenarios – and business benefits:

- Time-to-productivity trending down … Determined to be largely due to encouraging / incenting early retirements, which resulted in losing mentors who likely kept time-to-productivity within acceptable ranges

- Employee engagement trending down … Determined to be largely due to hiring less experienced, less costly people-managers

- Average performance ratings of key talent trending down … Determined to be largely due to shifting away from relying heavily on executive search firms for key roles -- to increasing employee referral incentives when referred employees are ‘A’ players

1 comment:

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