50 years ago, large organizations could not measure “good” or “bad” when it came to their own workforce trends. It was difficult to tell, for example, whether a surge in employee turnover was something that required action. This all changed in 1980, when Dr. Jac Fitz-enz — now celebrated as the father of human capital strategic analysis and measurement — founded the Saratoga Institute, and developed the first international HR benchmarking service. Finally, HR had a way to demonstrate relative performance: “We have a 20% turnover rate, but our peers are only at 10%. This is definitely a bad thing!” In this first wave of benchmarking, HR was provided with static comparison data that was typically 24 months old. This was sufficient at a time when commercial markets were more predictable and industries evolved more slowly. But now, in a hyper-connected VUCA world, disruption is the new norm. As the experts from Deloitte state, “successful organizations must be designed for speed, agility, and adaptability to enable them to compete and win in today’s global business environment.”
Enter HR Benchmarking 2.0: Built for Speed and Agility
The demands of a volatile business world will lead to the rise of what I call HR benchmarking 2.0. Delivered within an analytics platform, HR benchmarking 2.0 takes a CEO from saying “who cares?” to “we need to act.” Benchmarking 2.0 — or dynamic benchmarking — is the new standard for strategic HR pros. Here are three key things it enables HR to do:
1. Speak the Language of Business
What is guaranteed to get the attention of a CEO? Demonstrating the dollar impact of a problem. This means HR needs to be continually demonstrating how people issues relate to areas such as revenue, profit, and shareholder value. Traditional HR benchmarks will tell you whether your percentage of women engineers is lower than industry average, for example, but not how much this is costing you in terms of lost productivity or corporate revenue. With analytics-integrated benchmarking, on the other hand, you can more easily link current diversity comparisons to financial data, tying the numbers back to something the business cares about.
2. Explore the “Why” of Problems
Traditional benchmarks will help you validate that there is a situation that needs investigating. But you can’t solve a problem unless you know what causes it. Let’s say that your turnover rate is 10% above the industry average. The benchmarks indicate a problem, but you still can’t pinpoint the cause: Is it because you cut your training programs? Is it your approach to rewards? Are toxic managers bringing down morale? At this point, you can go back and test your hypotheses one by one by digging through the information in your HRIS. This can be time consuming. With dynamic benchmarks supported by analytics, more advanced statistical approaches provide a kind of shortcut. For example, a clustering analysis can help you see what is common across people who are resigning and what is common across people who are staying. When the problem is clearly defined, HR is more likely to get C-suite buy-in for programs.
3. Provide Relevant Insights
An organization’s fate, which is more precarious in a VUCA world, is the primary preoccupation of the C-suite. In the same way that journalists focus on facts that will help the public answer the question “Are we safe?,” HR must focus on facts that will help the CEO answer the question “Is our business safe?” To do this, benchmarking data needs to be timely and granular. For instance, seeing up-to-date benchmarks by performance groups will help you determine whether your ability to fill critical roles is at risk. When this is combined with predictive capabilities, you can paint a picture for the future and identify any potential red flags that can be addressed immediately.
When Only the Strongest Will Thrive
In a business environment where the only constant is change, it’s important to keep moving the needle on business outcomes. To maintain a concerted effort, always have timely, critical benchmarking numbers accessible to key people on a self-service basis. And just because you are better than the benchmark, don’t assume that’s as good as you can be, particularly when innovation is a major focus for your organization. Like athletes who break new records with every Olympics, successful businesses are continually outperforming the competition and setting new standards.