The Strategic HR

Metrics That Your CEO

Cares About
HR analytics must alarm and drive CEO’s to act

DHi – Nov. 10, 2016

© Dr John Sullivan
Go to www.drjohnsullivan.com for a copy of these slides 1
 3 goals for today’s presentation
My primary goal is to get you to re-think and to
challenge your current metrics approach
Another goal is… to clearly demonstrate the
difference between… a “so what” metric approach
& a Omg actionable business impact metric
(Where a CEO Omg metric is… 1) attention
grabbing, 2) it drives action and 3) that action
measurably improves business results
A third goal is… to show you the high business
impact HR areas that most CEO’s would want to
know about
Please interrupt and ask questions at any time
2
Let’s begin with a CO quote

3
4

I was happy with our HR approach, but

now… “I want that one”

CEO of General Mills

Let’s begin with an illustrative example

Showing the difference between “so what”

and “Omg … I must take action” metrics

5
Which metric would a CEO want to know about?
Hiring costs (CPH) are a one-time .001% cost item

“So what” Omg

CPH $ returns & impacts of a
new-hire last for years
LeBron vs. Homer Simpson

But the performance of a great or a weak hire…

lasts for years! (VW or Wells Fargo) 6
 CEO’s would want to know about…
the performance differential between new-hires
What is the % of increased output added by top performers?
 The top 1% of your workforce produce what % of
your total output? 10% (or 10 times their expected output)
 The top 5% produce 26% (over 5X their expected output)
(U of Indiana study by O’Boyle and Aguinis)

An innovator produces what “multiple” more?

(i.e. How many times more than the average new-hire in the same job?
GE, Netflix & Yahoo - 10 times the average
Apple - 25 times more than average employee
Google - 300 times more than the average
Conclusion: there may be an 80/20 rule
when it comes to employee performance…
so you should prioritize your employees 7
 Also focus your hiring on high priority jobs…
to maximize your visible business impacts
1. Hire the top sales managers
2. Hire top people in revenue generating positions
3. Hire top people that are innovators
4. Hire the best in product development positions
5. Hire great executives & managers
6. Hire the top recruiters of salespeople
Also
7. Hire into already measured jobs ($ or quantified)
8. Hire the best away from your competitors
9. Hire those that also have leadership capabilities
10.Hire top people that stay longer
11.Hire those with a high career trajectory
 CEO’s would want to know…
the tremendous cost of weak hires and employees
 A weak employee causes errors and disruptions
each year up to 2___
¼ times their annual salary
(Source: O’Boyle and Aguinis, U of Indiana)
 Weak employees take up a manager’s time, so a
manager must… spend what % of their time
dealing with them 1 day a week (17%) (Source: Robert Half)
 Toxic employees make their teammates what 54 %
more likely to quit (Source: Cornerstone Selection survey)
 Replacing a weak manager equals the impact of
adding 1… to an 8 person team Source: National Bureau of Economic Research

 Bad ones stay forever… weak hires may stay 20

years, multiplying their negative impacts 9
The Omg approach also changes how
you report metrics…

For example…
just changing the way turnover is
reported… changes it from a “so what”
metric… into a Omg! metric

10
 CEO’s care about metrics that…
show them that they must act immediately
Here is a standard turnover report
1. Last year we had a 18% turnover rate

2. Among that 18%... 98 salespeople left

3. But we aren’t concerned… because it seems like

every firm in our industry is having sales
turnover problems

Th a t’s i nteres ting… b u t “ s o w h a t?”

11
 This 10 point quantified reporting approach is
guaranteed… to get a CEO’s attention
With the CFO, we calculated actual turnover costs as:
1. Of the 98 that quit… 26% were top-ranked performers
2.At 3X salary for average and 4X for top performers,
the initial loss was $30.3 mil.
3. In vacant sales territories, we lost 4… $10 mil customers
4.Also the turnover resulted in 303 sales vacancy
days @ $4000 per day (a loss of $1.2 mil.)
5.And new-hires performed 8% below those they
replaced ($80k (8% of $1 mil.) X 98 = $79 mil. a yr.)
6.And 50% or $13 mil. of that turn was preventable
7.And 26% of the turn went to competitors (cost 2X)
8.Total cost $166 mil or 6.2 % of corporate rev.
9.The projected turn for next year is up 10%
10. BTW the stay interview tool cut’s turnover in ½ 12
 As a foundation…
let’s understand HR’s potential

Jack Welch, former CEO of GE and Fortune’s

“Manager of the Century” has made HR’s potential
crystal clear…

“When it is used appropriately”, HR… “is the most

important department of a company”

Source : https://blog.kissmetrics.com/winning-and-profitability/
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But are we using HR appropriately?

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15

Almost everyone agrees that HR must…

become more strategic
When CEO’s and board-level executives rank
strategic business functions…
Which one is listed as the most strategic?

Sales

Where was HR ranked on the list?

“The least strategic function”

Source: DDI survey 15
 Almost everyone agrees that HR must…
increase its business impacts
Of the 18 business factors that contributed the
most to business outcomes…

#1 - With the highest impact was…

Reducing operational cost structures

And talent was ranked…

“Talent was dead last” (#18 out of 18)

(Source: KPMG / HfS research) 16

What percent of CEO’s have faith in HR metrics?

Unfortunately, “Only 12% of CEO’s are confident

with the quality of Human Capital metrics”

AICPA survey

BTW… C- Level execs. rated “new hire quality” as the

most important performance metric (Source: Survey by staffing.org)

17
Where does HR rank among functional metric users?

Rank in analytical ability Experts Poor

1.R&D 13.2% 11.4%
2.Executive team 12.4% 8.8%
3.Finance 12.2% 5.7%
4.Operations 10% 8.3%
5.Marketing 9.1% 9.4%
6.Sales 5.3% 11.4%
7.HR 4.4% 16.7%
Learning: compared to the executive team, HR has only
1/3 of the experts and double the number of poor users
18
Source: AMA/i4cp 2013 Conquering Big Data
Where do executives rate our effectiveness in…
“making a business case” and predictive metrics?

(12th out of 13)

(13 out of 13)

19
 CEO’s care about…
the strategic challenges that they face
What are the top global business challenges
according to CEO’s?
• Operational Excellence
• Customer Relationships
• Regulation and Risk
• Corporate Brand and Reputation
• Innovation and Digitalization
• Human Capital
• Sustainability
20
Source: The Conference Board survey of CEO’s 2016
 HR is #1 in the challenges they care about
CEO’s are watching us (The top CEO challenges)
1.Human Capital For the fourth year in a row
2.Customer Relationships (tied)
2.Corporate Brand and Reputation (tied)
4 of the 5
4.Operational Excellence top challenges require
5.Innovation and Digitalization outstanding employees
6.Regulation and Risk
7.Sustainability
Would you agree it’s time for bold changes…
when we are still the top challenge after 4 years?
21
Source: The Conference Board survey of CEO’s 2016
 Part I

The 3 basic categories of HR metrics

(and 2 of them stink)

22
 The first category of HR metrics are…

So what
metrics
They generate no action or interest on the part of a CEO
 “So What” HR metrics are everywhere

Yawns don’t drive action

 The offer acceptance rate
 The number of training hours offered
 Compensation cost per employee
 Workers Comp cost per employee
 Average # of days of vacation used per employee

So what ? 24
 Now shifting to the 2nd kind of bad metric

“is a high or
low number
better” metric?
They confuse a CEO
 “Is a high or a low number better”?

1.Cost Per Hire – cheap may mean low quality hires

2.Time to Fill – fast hiring might be careless hiring
3. Benefit Costs – do lower benefits hurt rec. / retention?

4.Absence Rate – coming to work sick is expensive

5.Tenure – don’t costs go up with tenure? (performance)
6.Turnover – what could a low turnover # mean
Source: Unicorn HRO
26
 The best category of metrics

Lets shift to…

OMg
metrics
Report a metric in the areas that have the
highest impact on productivity / innovation
 CEO’s care about…
the returns from their labor investments
Let’s compare the workforce productivity in high-tech – Rev. per ee #
Average in this industry $211,000
IBM $212,000 (Average)
HP-E $212,000 (Average)
Amazon $555,000 (Nearly 2 ½ times the average)
Microsoft $745,000 (Nearly 3 ½ times the average)
Google $1,380,000 (Nearly 6.5 times the average)
Apple $1,850,000 (Nearly 8 ¾ times the average)
Facebook $1,940,000 (Nearly 9 ¼ times the average))
Key learning – Facebook can produce the same revenue
as IBM with nearly 8X fewer workers 28
Source: MarketWatch.com 11/5/16
 What are the HR programs that cause
this huge productivity differential?

But in case your firm hasn’t already done those

calculations…
The Boston Consulting Group has provided us with
some ranked benchmark data
29
 HR leaders must know and focus on…
the highest impact HR programs
Pick the top & bottom 3 HR programs based on
their impact on revenue and profit
1. Managing flexibility and labor costs
2. Restructuring the organization
3. Managing work/life balance
4. Managing an aging workforce
5. Employee engagement
6. Managing change and cultural transformation
7. Recruiting
8. Retention
9. Managing talent for productivity and innovation
10.Employer branding 30
 Focus on the HR sub-functions that have
the highest business impacts

Which HR area normally has the highest impact on rev. & profit?

Source: BCG/WFPMA - From Capability to Profitability: Realizing the Value of People Management 31
 OMG

Other Omg high productivity impact

areas that CEO’s want metrics on…

33
 CEO’s would want to know that…
People companies have a much higher stock value
“People companies” outperform by 10 times

S&P

Firms made Fortune list 3 out of 10 yrs. (109%) vs. S&P (10%)
Source: BCG 34
 CEO’s care about…
the factors that increase business results
Workforce analytics is a major contributor to results
The Harvard Business Review concluded that…
advanced users of workforce analytics produced
much higher business performance:

 Profitability - a 65% increase in performance

 Growth - a 65% increase in performance

 Productivity - a 64% increase in performance

(* when compared to the performance of competitor firms that were less effective in the use of analytics) 35
 Part III

The new approach to metrics is called…

“Business Impact Data-driven” HR

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37

Google is the benchmark firm to follow

“All people decisions are based on data & analytics”

 “We apply the same level of rigor, analysis and
experimentation on people as we do the tech side”

Source: Google 37
 What is business impact data-driven HR?
A strategic forward-looking approach to HR (vs.
the current historical metrics)
It replaces HR’s all too common reliance on…
opinions, intuition, hunches, trial & error learning &
automatically continuing on with past practices
It instead relies on… data, facts, analysis, charts,
metrics, algorithms, statistics, & predicted
trends… to improve the accuracy, speed and the
business impacts of key HR decisions
It shifts to real-time and predictive metrics
38
 Improvement tips

Tips for improving your metrics

1. Build a compelling business case for your effort
2. Report metrics inside standard financial reports
3. Only report strategic metrics and limit the number
(between 3 and 7)
4. Develop a process for “just-in-time alerts” to give
managers a heads up
5. Calculate the cost of a delay or doing nothing
6. Pretest your metrics to ensure that they cause
alarm and drive action
39
 CEO’s care about metrics that…
drive them to act immediately
10 metric components that drive CEO’s to act
1. A stoplight icon to show the need for attention
2. The corporate strategic goal that is impacted
3. The problem is converted into dollars
4. Provide predictive and forward-looking metrics
5. Add a visual trend line revealing a neg. trajectory
6. Provide comparison numbers for each metric
7. Executive want to know “why” (the root causes of problems)
8. Provide a list of the prescribed solutions… and
their costs, time required and likely success rate
9. Identify the accountable individual
10.Distribute ranked metrics widely to get noticed 40
 An example…
of an actionable predictive analytic display

41
An example - Distribute ranked/quantified metrics
(retention flight risk)

Source: Workday Insights Retention Analytics 42

 Part IV

The top 7 strategic HR metrics

to report to your CEO

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 Strategic HR metrics – Revenue per employee

1. Revenue per employee - for measuring the

productivity & innovation of your workforce
• Accepted by the CFO – this is the standard
workforce productivity metric
• Output focus – it focuses is on the value of the
output of a firm’s workforce (revenue dollars)
• The most productive firms – produce a higher #
• The formula – the total yearly corporate revenue
divided by the average number of FTE employees
• It is easily comparable – it utilizes publicly
available information to compare firms in the
same industry (found at MarketWatch.com) 44
 Strategic HR metrics – Quality of hire

2. The improvement in the performance of new

hires (quality of hire improvement)
• Hiring better performers increases team
productivity - if you hire a volume of new
employees, if each one performs a % better than
those they replace, the productivity of the team improves
• Focus on already measured jobs – don’t measure
all jobs, instead focus on those jobs that are already
measured in dollars or quantified with numbers
• Use performance appraisal scores as an
alternative – the percentage improvement in
performance appraisal scores can also be utilized 46
 Strategic HR metrics – Quality of hire

Report the quality of hire (continued)

• Q of H is a delayed measure – where after 6/12
months on the job… you compare the performance
of the new hire to the performance of the employee
they replaced… you report the % of improvement
• Add new hire retention – as a companion measure
you can calculate the voluntary turnover rate of new
hires during their first six months
• Add diversity hires – a companion measure is to
calculate the % of diversity hires in key positions
• $ impact – calculate the total $ impact from the
improved performance of all new hires during the year 47
 Strategic HR metrics – Performance turnover

3. Performance turnover in key jobs

• Losing top performers in key jobs is expensive –
double-digit turnover is not rare so it’s important to
measure the % of employees that voluntarily quit
each month and over the whole year
• Focus on key jobs – it’s important to focus only on
key jobs with high business / revenue impacts
• Weight the turnover by performance – because
losing top performers is more expensive, put a
weight (the % that the departed individual
performed above the average) so that top performer
turnover counts more then low performer turnover 48
 Strategic HR metrics – Performance turnover

Performance turnover in key jobs (continued)

• Also report the dollar impact – calculate and
report the total dollar impact from top performer
turnover in key jobs

49
 Strategic HR metrics – Performance turnover

4. $’s of revenue lost due to position vacancy days

• No revenue is generated when a position is
vacant – when an employee quits, there is a loss of
productivity & revenue until the position is filled…
With slow hiring those “vacancy days” increase
• Focus on revenue-generating positions – the
highest impact from vacancy days occurs in
revenue jobs… so focus your measure on them
• Calculate the $ loss per day – determine the
amount by dividing the average total yearly
revenue in the job by the number of working days
• Report – the decrease in vacancy days and the $
reduction in the amount of lost revenue 50
 Strategic HR metrics – The hottest talent issue

5. Track a metric covering the highest impact

current “hot” talent problem at your firm
• Report metrics on the hottest current issue - in
addition to the fixed metrics already covered, report
on one or more currently hot talent problems
• Select a talent item on the executive committee’s
agenda - add a metric covering 1-3 issues that are
“keeping your executives up at night”. Start with
the high impact areas including: increasing
innovation, onboarding, developing leaders,
diversity in customer impact positions, key skills
shortages and increasing internal movement 51
Strategic HR metrics – Contribution to productivity
6. Survey to identify “Which HR programs helped
me to increase my productivity?”
• A survey is cheap and effective – you can best
determine the impact of individual HR programs
through a survey of managers and employees
• Rate their impact – survey a sample of managers
and employees… and ask each how much each HR
program contributed to their reaching their
productivity goals. Utilize a 1 to 10 scale with a 10
indicating that the function exceeded their expected
contribution
• Areas to cover –cover recruiting, retention,
innovation, training, compensation, leadership
development, internal movement, performance
management, onboarding, benefits, and diversity 52
Strategic HR metrics – Contribution to productivity

Survey “Which HR programs helped me to

increase my productivity?” (continued)
• Also ask for $ impact - for any rating of eight or
lower, ask the surveyed person to estimate the $
amount of their reduced productivity

• Survey every 6 / 12 months – conduct a survey at

least once a year… and every six months if the
results of the last survey were negative

53
 Strategic HR metrics – HR strategic goals met

7. The % of HR strategic goals that were met

• Report the % of goals met – it’s important for all
strategic functions meet their goals. So the HR
function should report to executives the percentage
of its strategic goals that were met or exceeded
• List the percentage of target met – HR should
also list the percentage of the target that was
reached for each of its top five goals
• Report at 6 / 12 months – halfway through and
also at the end of every fiscal year report on HR’s
goal attainment
54
 Part V

Hot areas that CEO’s would want metrics in…

If they knew their cost or their impact on
productivity/ innovation

So consider metrics in each of these areas

55
4 different sources indicate a failed hiring process
What % of all new-hires fail within 18 months?
“46%” (Source: Leadership IQ)

What % of all hourly employees quit or are fired

within their first 6 months
“50%” (Source: Humetrics)

What % of management new-hires fail within 18 mths.

“Between 40 and 60%” (Source: Harvard Business Review)

What % of executive new-hires fail within 18 mths”

“Nearly 50%” (Source: The Corporate Leadership Council)

Is this 6 Sigma quality? 56

 CEO’s would want to know…
how HR improved new-hire performance
Footlocker improved new hire performance
 Used applicant data from an on-line assessment
to more accurately select interview slates
 To increase commitment, HR, sales and finance
were also involved to support the bus. case
Results from the pilot
 Double digit increase in sales-per-hour
 Double-digit reduction in staff turnover
 Managers also reviewed fewer applicants, (From
as many as 300 to as few as 3 per opening)
Source: Talent Management 12/4/15 58
 CEO’s would want to know…
slow hiring loses performers and innovators

Source: Officevibe.com

 "If you have complex online job applications, you're going

to lose top talent
 The typical fortune 500 company loses 9 out of 10 qualified
applicants to these unwieldy processes
 Netflix’s process takes only 1 minute, Salesforce (3
minutes), Intel (4 minutes) and Apple (5 minutes)”
Source: Indeed 2016 survey 59
 CEO’s would want to know…
the actual impact on applications from your EB
Employer Brand metric – applications per employee
 EB goal – the purpose of an employer brand is to
increase the # of applications for your jobs

 The top benchmark target – Google receives

nearly 3 million applications for 61,000 employees
(the ratio of 52 to 1)

 The average target – the # of applications each

week should equal your number of employees

60
 CEO’s care about metrics that…
Demonstrate future business success factors

What is the #1 predictive strategy for global

financial performance?
“Building an inclusive culture”
Source: Bersin by Deloitte

Does gender or racial diversity impact sales revenue?

61
 CEO’s would want to know…
the elements that increase innovation

Google has an algorithm for increasing innovation

(i.e. a formula)

Innovation = Discovery + Collaboration +Fun!

(i.e. learning)

Source: K M World Magazine Webinar 2008

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 CEO’s would want to know…
the # 1 competency in a fast changing world…
Most fail to assess the learning ability
 “Learning ability is the key determiner in
deciding among candidates” (Google - along with technical capabilities)
 The # 1 desirable trait in college hires (Futurestep)
 Intellectual curiosity is among the top 4 factors
that managers use to ID top performers (LinkedIn survey)
 Also look for a growth mindset
The business impacts of learning ability
1.An increase in productivity
2.More collaboration and innovation
3.Fewer major errors
4.More current and effective solutions
5.Adaptability / scalability in a VUCA world 63
64
CEO’s would want to know… that you can improve
the performance of 75% of your worst managers
Google’s “project oxygen" showed it was possible
“to improve 75% of our worst-performing
managers” with these 8 actions Source: L. Bock
8. Have key technical skills to advise the team (not #1)
7. Have a clear vision and strategy for the team
6. Help your employees with career development
5. Be a good communicator & listen to your team
4. Don’t be a sissy; Be productive / results-oriented
3. Show interest in their success & personal well-being
2. Empower your team and don’t micromanage
1. Be a good coach – hold regular one-on-one’s and
provide personalized constructive feedback 64
 CEO’s would want to know…
which key employees are soon to quit
Google uses predictive metrics to ID who might quit
 Employee reviews
 Promotion history
 Pay history
 Employee surveys
 Peer reviews (360 degree)
 Employee training
 Leadership meetings
They look for employees who “feel underused”
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 CEO’s would want to know…
the hidden cost-cutting costs in other departments
Most miss the costs of unintended consequences…
That occur later in the budgets of other departments
Froze safety training (Saved $50,000… in the
training department’s budget)
But track “other department’s added costs” after 1 yr.
(i.e. other pocket costs)

Safety dept. – Accident rates doubled -$400,000

Insurance – Insurance rates up 23% -$187,000
Operations – Turnover of employees - $89,000
+15

Other not-tracked dept. budget costs - $676,000

66
 CEO’s would want to know…
if HR improved new-hire time to productivity
½ of the managers of new hires were sent a JIT on-
boarding email… a control group got no reminders
The email reminded the managers to do 5 things
1.Have a discussion on their role and responsibilities
2.Match your new hire with a peer buddy
3.Help your new-hire build a social network
4.Set check-ins once a month for their first 6 months
5.Encourage an open dialogue
Bus impact $ – new hires of the “reminded managers”
had a 25% increase in speed (weeks to min. new-
hire productivity)… compared to the control group
Source: Laszlo Bock Google
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 Did I make you think?

Please connect with me on LinkedIn

www.drjohnsullivan.com or JohnS@sfsu.edu 68