During our most recent Visier Customer Forum, keynote speaker Dave Ulrich told a story that has stayed with me, as it’s illustrative of many of the key challenges we face in connecting workforce outcomes to business outcomes.
The CHRO of a large organization had called to get advice on a vexing issue. They had uncovered that a company they were considering acquiring had a culture that was negative and at odds to their own. What should they do?
Many of us in the room wondered if the CHRO should consider objecting to the deal. Others wondered what type of plan HR should put in place to handle creating a new combined culture. The thoughts mostly centered on how to address this cultural challenge and minimize its impact.
Few of us expected the answer that was given: reduce the acquisition price by $10 million. It worked, and the CHRO saved the company $10 million.
This story highlights how we too often fall into the trap of overly fixating on the HR answer — the cultural gap — rather than connecting the workforce to the business question at hand — the acquisition of a company. And it succinctly states a very real, and substantial, monetary advantage for connecting a workforce concern to a business outcome.
But how was the $10 million figure determined? Why not a bigger or smaller number? In telling the story, Dave Ulrich highlighted there was no way to measure this precisely. Yes, data was analyzed and research was done, but it is important to be comfortable with the imprecision. This is a critical point, as most connections of workforce outcomes to business outcomes will require you to deal with some level of approximation.
Making the Connection
In The Medici Effect, author Frans Johansson argues that when “you step into an intersection of fields, disciplines, or cultures, you can combine existing concepts into a large number of extraordinary new ideas”. Innovation comes when we make connections, and when those connections span “fields, disciplines, or cultures.”
One of my favorite stories from this book relates how we determined a massive meteor as the most likely cause of the dinosaur extinction. Today this is widely understood and accepted, but prior to 1980, few would even have put it forth as a guess, let alone a scientific theory.
Neither one was a paleontologist, but by combining nuclear chemistry with geology, they uncovered critical evidence of a meteor impact that aligned with the end of the Cretaceous period. This intersection of disciplines led to the extraordinary idea, that others within the discipline had ignored.
How does this relate to workforce outcomes and business outcomes? Because “extraordinary new ideas” will come at the intersection of fields and disciplines: of the workforce and the business.
However, while HR has the best knowledge of human dynamics in the organization, it is still building the skills and capabilities needed to understand the business. The choice is either to ask business leaders to be the experts in human resources, or to address HR’s historical lack of business literacy.
HR’s Economic Literacy Test
According to Deloitte’s Global Human Capital Trends Study 2015, only 22% of HR professionals say they have the data- and business-oriented skillset and mindset necessary for business success. Even the most data-savvy HR teams may not know their company’s financial and business strategy, or be able to communicate the value of their workforce programs, plans, and decisions in business terms.
If you gave your HR team a business literacy test today, how would they do? Could they name your company’s top customers? Competitors? How about what conditions could generate risks and opportunities for your business?
In this paper, The New HR Competencies: Business Partnering from the Outside-In, Dave Ulrich, Jon Younger, Wayne Brockbank, and Mike Ulrich found that, “high-performing HR professionals think and act from the outside-in. They are deeply knowledgeable of and able to translate external business trends into internal decisions and actions.” (Read more about HR From the Outside-In here.)
To be great in HR, you must be able to connect workforce outcomes to business outcomes. And when you are able to do this consistently and — more importantly — successfully, then you’ve found the Holy Grail of HR.
Measuring the Impact
Exceptional companies know that the best people decisions drive the best business outcomes:
- More diverse workforces outperform others.
- Companies with stronger HR programs, outperform on financial metrics.
- Organizations with stronger HR analytics programs have a higher return on equity.
There are countless examples of these connections, but how do you make the connection for your organization?
To start, HR must first figure out what the rest of the business is measuring. While we focus on headcount, turnover, time to hire, etc, the business will be thinking about revenue, profit, customer satisfaction, patient readmission rates, same store sales, cost per unit, assets under management, return on capital, and many other metrics. Your industry, and your company, will have their own core business metrics and it is important to understand what they are, and why they matter.
The second step is to combine your workforce metrics with the business metrics to understand how they are influencing each other. For example, headcount is a workforce metric and sales per hour is a common business metric in the retail industry. When you connect the two metrics, you can start to ask the right questions that will get you to the insights you need to create optimal business outcomes. Questions such as:
- Does increasing turnover lead to decreases in sales? By how much?
- Did the new training program improve our sales? As tenure increases, do sales increase?
- How does the workforce compare at our best performing stores, versus worst?
If you find formulating these questions difficult, then partner with one of the business leaders in your organization. Bring your separate disciplines together, and ask them to help you understand how decisions about the workforce impact that leader’s ability to deliver their business outcomes.
For most organizations, while the desire to answer such questions is high, the capabilities to connect the data, uncover the insights, and deliver them to the business in a timely fashion are low. Fortunately, new cloud-based Applied Big Data technology greatly shortens and simplifies the process of datafying HR — and at a fraction of the cost of hiring external consultants or having IT build custom systems. With the right solution in place, HR can move past the technical hurdle of answering questions about talent and instead, connect talent directly to its impact on the business.
It’s Time to Learn the Lingo
With talent shortages looming and the global business environment shifting at high speed, companies can no longer afford to make intuition-based decisions about their workforce. And with 78% of corporate U.S. executives saying their company cannot succeed without a CHRO who takes on responsibility for contributing to business performance, HR can no longer afford not to become more data-driven and business-oriented.
The right technology can enable HR to take their strategic seat at the table, but this also requires practitioners to start getting comfortable with speaking the language of the business. Ulrich said it best: “HR that starts with the business, doesn’t get as much resistance from the business.”
It’s time to translate the language of the workforce into one business leaders can understand — and action on. And there’s no one better to lead the charge than HR.