People Data

How to Use and Apply Human Capital Metrics in your Company

Tine Huus

• Editore: Palgrave Macmillan
• Anno: 2015
• ISBN:
  9781137466969
• Argomento: Business
• Categoria: Matematica applicata al business

People are an organizations' biggest asset and easily amount to 30% of company costs so even small improvements can have a bottom-line impact. A unique toolkit to an important new trend, People Data demystifies and simplifies the process of understanding and working with human capital metrics.

chapter 1

Why Bother about Human Capital Metrics?

If we in business aspire to make better people decisions and take more targeted people actions, we must bother about human capital metrics. Whatever business you lead and manage, people objectives are essential. Whatever industry you compete in, the roles, responsibilities, skills, and expertise of managers and workers should be part of the business plan. Your business plan helps to secure funding for your enterprise; it gives the business a sense of purpose and direction, and, finally, people objectives and financial forecasts provide the business with targets to aim for and enable the business to monitor its progress. Using and applying people data swiftly and cleverly are about improving business performance.

In this chapter, you will be introduced to the terms of human capital, human capital metrics, people data, and a brief overview of their history. Next, you find an outline of the value proposition for human capital metrics, seen from the employer’s as well as the employee’s perspectives. A central question is how usage and application of people data can counterbalance, if not eliminate, biases and mistakes in human judgment. The process from data to action is important, as the end goal of human capital metrics should be action. Another question is around urgency and how urgent it is for you to start bothering about human capital metrics. In this book I argue that in the current VUCA (volatility, uncertainty, complexity, and ambiguity) times, it should become a matter of priority. VUCA puts time, cost, and decision quality pressures on people and businesses that can be alleviated by measurement and management of organization culture and capabilities. Finally, I put forward the idea of an analytical culture as differentiator, what the characteristics are of an analytical organization, and how it starts with you as an individual organization leader. Knowing your people challenges and due decisions, and being able to bring them to successful outcomes, can become your distinct competitive advantage as an organization and unique brand as a manager. Being metrics literate is also likely to help you future-proof your career in VUCA times.

Human capital and human capital metrics

The term “capital” has several meanings in business. Its meaning in this context is as a factor of production. “Human Capital” is one form of capital or factor of production, others being natural and physical capital. Natural capital is all natural resources like land, air and water. Physical capital is machinery, buildings, equipment and finance needed for the production of goods and services. Human capital can be defined as the skills, knowledge, and experience of an individual or population, viewed in terms of their value or cost to an organization¹. “Human Capital Metrics” are data points, in various shapes and forms, quantitative and qualitative, which organizations and managers collect to measure and manage people processes in the same way as financial metrics are collected to guide decision-making, performance, and compliance. The terms human capital metrics and people data are used interchangeably throughout the book.

In stark contrast to the human in human capital, “human capital” management was practiced as early as 1750 by slave plantation owners in the West Indies. Slave owners developed an equivalence unit called “the prime field hand” against which slave workers were measured and managed. Values of “half hand” and “quarter hand” were aggregated to prime hands as a production capability metric of the plantation². If nothing else, this book will aim to help rehabilitate the term.

People data or human capital metrics have been in focus in management literature and HR consultancy practice for decades. In the first decade of the 21st century, software tools to hold and process people data have also become more mature. Still, human capital metrics, analytics, and big data for people decisions and results do not seem to be taking off in the same way as metrics are being used for other business processes such as marketing, sales, supply chain, operations and finance. You may ponder why human capital metrics are not being utilized more widely. I have wondered why this is the case and I think that it is surprising that we in business are not that interested in people. We have the tendency to see people in terms of salary costs and “people” are historically viewed from a humanistic perspective, meaning we can try to subjectively understand them, however, we cannot objectively explain and categorize them. The general lack of utilization and application could mean that development of this area within your company poses a competitive advantage, both in terms of improving business performance and in terms of setting the standard for an organization’s measurement capability and analytical culture.

Human capital metrics should not be mistaken for Human Resource (HR) statistics. HR statistics are basic data on the workforce and how efficient the HR function is in terms of servicing and supporting the business. Whereas HR statistics typically has a transactional reach, with HR as service provider, human capital metrics support the entire business agenda, strategically and operationally, with HR in a business-consulting role. Human capital metrics are broadly focused on all people decisions and results.

I would like to give you a word of warning here at the outset: a metric is just a data point. If the metric is not understood, interpreted in the context, shared, and acted on, it will never have any impact. Getting the balance between measurement and management right is imperative and some will say that the 80/20 rule applies—with 80% time and effort spent on managing and 20% on measuring. Another danger is that organizations spend a lot of time and money on developing tools and technology without at the same time in parallel developing the ability to use and apply the metrics in ways that will make a difference for the business.

The value proposition

Culture eats strategy for breakfast³. Many organization leaders appreciate that however motivating their vision of the future is and however brilliant the strategy, neither can be realized, if people—who make up the culture—do not support it. People amount to a minimum 30% of the cost base of a company and hence constitute a great asset. Even small improvements in people processes will have bottom-line impact. People unlike machines cannot be turned on and off at random but must sit in fitting roles and be motivated to contribute with passion, creativity, and that extraordinary performance when they are at work. This is the kind of work environment you want in your company. In addition, challenging conventional thinking on people as costs, as opposed to assets, is only apt in the 21st century, several centuries after the abolition of slavery from where the term “human capital,” as illustrated, originated.

Unfortunately the majority of leaders do not know what they want with their leadership. According to the current Edelman Trust Barometer⁴, an annual global study on trust in business, there is a leadership crisis and the largest ever gap between trust importance and trust performance in business and government since the study began in 2001. One of the recommendations in their 2014 report was for the CEO to become the Chief Engagement Officer, taking responsibility for establishing the context in which change will occur. We increasingly trust technical experts and “a person like yourself” more than top leadership. In general, employee engagement surveys show a substantial gap in perceptions between senior management and experts or workers on engaging leadership and culture of trust. Top of the house perceptions can be three times as favorable and simply out-of-touch with their own organization and people.

There is plenty of research that demonstrates the connection between human capital and organization success.⁵ Research from Gallup Q12, an employee engagement survey business, illuminates financial benefits as well as health and well-being benefits to businesses. Highly engaged and committed employees create between 10 to 20% more financial benefits such as customer recommendation, profitability, and productivity than an average workforce. Highly engaged and committed employees also create superior organizational health outcomes, for example being less than 40% absent from work, involved in 50% fewer accidents, and having between 60 to 80% better physical and mental health than their average peers. We can boil the ingredients of an agile and healthy performance culture down to:

1. A work environment that is both externally and internally focused.
2. Teams where diversity, collaboration, and execution are characteristics.
3. Purposeful Leadership from the boardroom to the front lines.

And we should be tuned in for high engagement AND high performance which together give us the desirable organizational impact in the form of better team performance, better product or service quality, customer loyalty, individual and organizational health, bigger market share, business growth and sustainable profit.

As an experiment, take a measurement for your business performance and a measurement for people engagement and check how they interrelate. To get management’s attention, I once produced a graphical illustration overlaying the company’s share price and employee engagement index for a period of five years. The two graphs were almost on top of each other, though with the employee engagement graph as first mover on increases as well as decreases. Such a simple illustration of interrelationship will create a lot of debate, particularly on what drives what. Whether high engagement predicts performance or high performance drives engagement. While this is a chicken and egg dilemma, the interrelationship is indeed established and managers will begin to care more about the way they lead and manage people for organization success.

Today’s talent comes with aspirations, expectations, and choices. Employees want and aspire to be part of and contribute in a high performance environment, full of energy and excitement, where they are fully utilized and can develop. Employees expect their company to engage in an ongoing dialogue on how it is to work here. If they do not like it here, they have choices. They may just do their job and nothing more. They may choose to be creative solely outside of work. They will opportunity network for themselves, not the company. They may vote with their feet and leave. In most cases, your top talent is most critical and will act quicker.

Combining art and science

Accenture, a global consulting company, has found that 40% of major decisions are based on the manager’s gut, not on facts⁶. In the case of major people decisions, I would deem this percentage to be even higher, perhaps around 70%, based on my experience.

The problem with managers, of course, is that we are human. We have biases. A typical bias is the one described above. We over rely on our first thoughts, become overconfident, or give too much weight to past experiences. We also make mistakes. A common mistake is to pose the wrong question or to frame a problem poorly. I believe that as a manager you should always challenge yourself and your subordinates with different frames and reframe the problem in different ways and at various points all the way through the execution process.

Used wisely, human capital metrics counterbalance, if not eliminate, biases and mistakes in human judgment. Data and facts offer an objective perspective. Data is the best starter for quality dialogues and decisions, perhaps especially for difficult conversations and tough scenarios. Companies, small and large, hold a lot of data in HR systems, and with managers asking relevant people questions and requesting this data—in new forms—this has the potential to greatly enhance people management capabilities and make decisions for the workforce across the business data-driven. Software can crunch piles of information and look for patterns that are not immediately apparent. It may point to unimaginable correlations and counter-intuitive findings. These would be the claims of advocates of “big data.” It is a fact that currently a lot of investment is going into big data business systems and the focus of this book will also be to help you build the managerial capacity to take a stand on big data.

I believe the essence is to use a combination of art and science. Effective decision-makers acknowledge subjective and objective factors and mix intuitive and analytical thinking. On the one hand, you use your experience, draw on the company culture, put your knowledge to work, consult with your network, and collaborate with peers. On the other hand, you gather relevant data and facts and use and apply measurements and analytics. This combination will help you arrive at impactful decisions and better results as well as greatly reduce your dependence on luck for success (unless you are Irish).

Beyond data: training a probing mind

We have all witnessed the data overload situation. Private, public, and non-for-profit organizations alike excel in amassing data, reports, and recommendations which many times fail to answer the simple question “so what” and end up gathering dust on the shelf or in the cloud. Conversely, too little data may limit your scope and opportunity.

Even before we start to gather data, we need to go beyond data. By this I mean that we must train our minds to be curious and probing all the way. Curiosity will enable you to ask the right questions, reframe the problem, and challenge conventional thinking. The probing mind never settles. It continuously seeks to raise the bar, and it sees oppor...