2002 Women's Conference

2002 Women's Conference

HR- ROI Strategically Aligned Measurement: ROI Evaluations - Whats Missing?January 17, 2003 Jeanne Carsten & Luke Monck Copyright: JPMorgan Chase New Paradigm for Human Resource Professionals Old Paradigm Staff function Tactical Focus on administrative efficiency Reactive Measures for compliance/ monitoring New Paradigm

Part of the executive team Strategic partner* Focus on alignment of HR to business strategy Proactive Measures for strategic decision-making * Ulrich, 1997 2 Roles and Responsibilities Management Determine strategic vision Strategic vision informs the goals of the organization

Communicate the vision/ goals to organization Manage the business systems through which these goals are accomplished Human Resources Identify the relationship between HR systems and the strategic goals Determine which HR systems are appropriate levers for attaining organizational goals Develop initiatives for effecting these levers Assess the impact of these initiatives 3

Importance of Metrics and Measurement Build a fact-based view of human capital levers within the business system Provide actionable information Demonstrate value of human capital investments Prioritize human resource initiatives to maximize impact and allocate limited resources 4 Im pa c on t of Pe M e Tr rfo as aj rm ur ec e to anc me

ry e nt Using Metrics to Drive HR & Business Priorities Evolution Develop system view Diagnose alignment / gaps Assess movement Evaluation Articulate links between HR programs and business needs Conduct programmatic assessments Education Educate HR and business on role and uses of measurement Build capability and tools (skills, metrics, databases) 5 HR Measurement: Moving Up the Performance Trajectory Programmatic

Focus: improving the effectiveness and delivery of HR function and justifying costs Identifies HR costs and benefits associated with improving the process Usually expressed in dollars Example: Reducing turnover reduces costs associated with recruiting, staffing, training and development, etc. Strategic Focus: demonstrating

impact of HR on the strategic goals of the organization Establishes empirical relationships between HR process and organizational goal of interest Expressed in any metric aligned to the goals of the organization Example: Reducing turnover in service delivery staff increases capacity and quality, and thus customer loyalty/ share of wallet 6 Implementing Programmatic Measurement Essentially creating an exhaustive list of costs and benefits associated with the HR process in question. Required KSAs: Analytic skills Once the costs have been fully explicated the HR practitioner can obtain a cost per hire (actually turnover) and illustrate the revenue benefit associated with reduction of amount of turnover Managers time to terminate/hire HR time to terminate/hire

Recruiting/ advertising costs Selection tools/ onboarding process + Entry training expense Total Cost of Turnover 7 Implementing Strategic Measurement Required KSAs: Research methods Organizational development/ systems view Statistical analysis Organization of databases High Turnover Satisfaction - X ppt Turnover Low Customer + Y ppt Customer Sat. 8 Where to Start: Establishing a Human

Resource Measurement Strategy 1. Begin with the strategic objectives 2. Identify business outcome metrics to measure those objectives 3. Hypothesize relationship between HR processes and business outcomes 4. Create HR strategy based on hypothesized relationships 5. Test hypotheses through organizational research 6. Determine impact of change in HR lever on key outcomes 7. Develop initiatives to impact lever (measurement is an initiative) 8. Build measurement strategy 9. Integrate metrics into management scorecard 9 Culture Levers for Change Formal Levers

Vision/Values/Mission Strategic Direction Goals Work Process Technology Structure and Roles Information & Measurement Decision Making Processes Recruiting & Training Performance Management Recognition Compensation Leadership Practices Creating Creating Alignment Alignment Communicating

Gaining Commitment Shaping and Reinforcing Behavior Aligning Resources Building Durability Measurement Tools: Behavior / output metrics Behaviors What we need people to do Organization Scorecards Results What we need to accomplish

Pinpoint behaviors of interest *Culture is a pattern of behaviors that is reinforced and pursued by people and systems over time 10 CLG 2001 Case in a Commercial Bank Commercial banking segment of a large multinational financial organization Undergoing organizational change designed to transform the structure and processes and realize latent market sales revenue Assess the impact of people management on the achievement of latent sales revenue

Objective is to align management of human resources to business goal Create a strategic HR dashboard 11 Key Levers Capacity Management Sales roles filled with qualified people Competency Management Workforce ability/ performance level Environment Direction and motivation

Turnover/ retention Recruitment/ selection Training & development Performance management Leadership Culture 12 Programmatic Measurement of Turnover Measurement Goal: Identify the cost of turnover Population of interest: Consumer Bankers Termination costs: Cost of managers time Cost of HR time Recruiting costs: Cost of recruiting and selection (internal and external) Development costs Cost of entry level training 13 Programmatic Measurement of

Turnover Established the programmatic cost of turnover of a Consumer Banker (internal and external) Turnover in 2001 among Consumer Bankers A 1% reduction in turnover would lead to $XXX in savings for the organization Note: Excludes costs associated with the learning curve, performance reduction for employees working among new hires, etc. 14 Strategic Measurement of Turnover Measurement goal: Identify the impact of turnover on strategic goals of the organization Population of interest: Consumer Bankers Step 1 Established correlational relationship between Consumer Banker turnover and sales revenue (as measured by percentage of goal achieved) at the branch level

Step 2 Regressed Branch sales performance on turnover, branch location, and branch size Established R squared for the model Established the beta weight for turnover on branch performance 15 Illustrated Example: Strategic Measurement of Turnover Beta weight = -.221 Average sales achieved = $ Given a -.221 change in turnover ratio we can expect a 1% change in goal achieved Can calculate impact of change in turnover ratio on sales revenue 16 Next Step - Managing the Metrics

Sales turnover integrated into manager objectives HR partners with managers to identify reasons for turnover and develop solutions Managers accountable for level of turnover For example: 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 1 Quarter 2001 2 Quarter 2001 3 Quarter

2001 4 Quarter 2001 1 Quarter 2002 2 Quarter 2002 3 Quarter 2002 4 Quarter 2002 Sales Turnover ratio 17 Challenge: Establishing the Relationships through Organizational Research

Multiple Baseline Design (Cook and Campell, 1990) Establishes impact through staggered implementation Eliminates need for control group Ideal when the organization rolls-out an initiative in waves ABAB Design (Cook and Campell, 1990) Establishes impact through the implementation, removal, and re-implementation Eliminates need for control group Ideal when distribution of results/ measurement is the initiative Naturally occurring control group Does not establish impact but can eliminate some alternatives Ideal when measurement strategy was developed post-hoc and historical data are available 18 Importance of Metrics and

Measurement Build a fact-based view of human capital levers within the business system Provide actionable information Demonstrate value of human capital investments Prioritize human resource initiatives to maximize impact and allocate limited resources 19 HR- ROI Strategically Aligned Measurement

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