Learn what human capital is, the importance of measuring and reporting human capital, and how HR can improve understanding of this important concept
Date: 03/04/13 Duration 00:23:13
In this podcast CIPD's Chief Executive Peter Cheese. Robert Bolton, Partner, Leader of Global HR Transformation Centre of Excellence, KPMG and Hayley Brown, Talent Intelligence Analyst, Europe, Middle East and Africa (EMEA), for AVON Cosmetics, discuss the results of a survey and how HR needs to be able to use analytics to prove its own value to the business.
View the full podcast transcript
Philippa Lamb: According to a recent CIPD survey two in every three HR leaders believe they play an integral role in strategy making at the organisations where they work. The bad news is that only one in three business leaders agrees with them. So what’s causing that perception gap? Is HR overestimating the value it adds or is the profession just failing to demonstrate that value to senior management in a convincing way?
I asked Peter Cheese Chief Executive of the CIPD why he thinks so many business leaders still don’t see HR as integral to strategy.
Peter Cheese: It’s still therefore a reflection of the concern we’ve talked about for many years in the world of HR about how do we get the proverbial seat at the table, seen to be integral. It clearly has to be still a reflection that whatever business leaders feel is on their agenda HR is not either able to engage with that agenda or use the language that makes business leaders understand why, what HR people worry about should be part of the agenda but we still clearly haven’t fully closed that loop and I think in the context of this conversation part of it is still being able to talk in more quantitative terms about what we mean and many environments of course such as engineering and finance and so forth the culture is very, very numbers and analytical driven and we have to be able to respond to those sorts of contexts.
PL: The key point here is that board level decision making is increasingly driven by data, it’s quantitative. HR on the other hand is still widely perceived as qualitative, often seen as driven more by relationships than data and for boards used to relying heavily on analytics that's a concern. Here’s Peter Cheese again.
PC: We shouldn’t be too defensive about that. I mean the reality is there are many dynamics and parts of an organisation which are more qualitative. I mean let’s take engagement, there is no precise measure of engagement. The important thing is that we measure engagement and we seek to at least understand where it is and understand its trends and that we help business leaders from the top down understand why it might be important. So it’s not always that the whole world has got to be defined in very precisely defined quantitative terms but we’ve clearly got to be able to start with that base and then with that base of understanding build then out the case for more qualitative understanding of organisations.
PL: The argument here is that if HR wants to be taken more seriously by CEOs and to play a bigger part in business strategy then it needs to think more creatively about what sort of data it’s collecting and what it can do with it.
PC: And many people would observe that HR sits on more data than any other function in the business and there's all this data about people and in a world that we’re now moving into where people refer a lot to big data.
PL: Just tell me before we get into that conversation about big data how exactly would you define it?
PC: We define it and I'm not sure if it’s our definition but it’s a good one, big data being defined by three Vs, it’s sheer volume, it’s variety because it comes from many different sources and it’s velocity because it changes a lot. So if it’s trying to understand for example consumer trends and buying behaviours then you’re taking a variety of sources with data that's changing all the time.
So for example companies like Google are able to profile people just on the basis of the searches that they execute and of course that can be applied in all sorts of ways, lots of positive ways but equally ways which I think we all know to and are very mindful of, don’t scare us and create a Big Brother mentality as well.
So it’s big data really being a multiplicity of sources of data which we then try and correlate and I would say that HR needs to be at the leading edge of that type of thinking because the reality is that we have HR information systems that's providing some parts of the data, we have other information about things like surveys we do across the workforce, we may even be moving into the world as the world of marketing is to understand things like email trails or other sources of electronic profiling of the organisation to understand how it interacts.
So you've got all this data which we need to be able to cross correlate and understand and draw insight from and I would certainly argue that not only is that critical to the strategic agenda for HR but it is not actually just HR’s agenda. I think this sort of debate is something which the finance function is really keen to engage with. I think many business leaders want to understand it better so there is, I think, a positive pull for us to engage with this stuff and we need to acknowledge that we’ve got to bring others along with us on that journey, financial expertise, analytical expertise, even marketing expertise to help us understand how to interpret big data.
PL: Robert Bolton is a partner and leader of global HR transformation at the centre of excellence for KPMG. He's also a firm believer that HR should be doing more with analytics and as part of his role he helps clients develop strategically differentiated HR functions that can prove the value they bring to the business. So what does he make of the CIPD’s HR outlook findings and why does he think the value that HR can add is still so often underestimated by senior management.
Robert Bolton: Part of the problem connects to bringing evidence to these issues and decisions is something that HR doesn’t always do and the evidence that it sometimes does have is rear view mirror-like, it’s historic, it’s kind of like activity levels of the HR function. I can best convey the issue from quoting Terry Leahy when he was chief executive of Tesco and he said, “When the marketing manager comes to me he brings insightful and predictive information about our customers. We know what our customers are thinking and feeling, what they’re going to do, how they see Tesco in relation to their needs and wants. It’s hugely insightful we make decisions on it.” So that's what he said about marketing. He said, “When the HR manager comes to our meetings it’s not predictive, it’s not insightful, it’s rear view mirror and we can't make decisions on it.” Now I add that he gave us that quote about five years ago and I absolutely think that Tescos have done a lot on their HR function to be more like their marketing department.
But I think that challenge that he laid down there exists in many of the organisations up and down the country that we see. You need to start to take the information that the HR function has and I think to really drive insight you need to explore it, you need to work with it, you need to integrate it with other sources of information and it’s only then will it start to tell a story.
PL: But how does he think HR has got into this position?
RB: I think HR has been too reliant on relationships, I think it’s been too reliant on the basic information that its sometimes quite antiquated ERP system is able to give it which sometimes isn’t a lot. And I think the third issue is actually bringing hard evidence to decisions.
Daniel Pink does this wonderful TED lecture where he explores all the things that science knows but business doesn’t do and there's a lot of hard research out there that really calls into question things like performance-related pay, calls into question stuff around succession, calls into question stuff around employee engagement. But because we run our businesses on the basis of assertion and belief and that we’re not used to bringing hard evidence to the decision making I think that's the third issue. So yes an overreliance on relationships and in an environment where you’re not relying on data why wouldn’t you rely on relationships, incomplete information, fragmented information and I think this need now to fundamentally question what we hold to be true and bring data to that.
PL: Based on his wide experience Robert has clear views about the sort of data HR should be gathering and what it should be thinking about when presenting to CEOs.
RB: First of all really understand the value chain of the business, understand how it works because from that you'll understand some of the questions and you'll form hypotheses and I see there's two types of data analytics broadly, there's the data analytics that focuses in perhaps on a particular role and brings data to understanding perhaps how do we get more consistent high performers in that role, you may look at it as sales or management or whatever.
So there's that role-specific analytical approach. But then there's also the more kind of aggregate macro view of the health of the workforce and for that I often have just in my mind five words that begin with C. You’re going to want to have a sense of the cost issues. Is our total cost of employment greater or less than the competition? For many organisations compliance is now becoming a significant issue, we’re seeing it in banking but there's health and safety in places like heavy engineering and oil and gas and so forth. So I think at a basic level that cost and compliance thing is almost like the hygiene data.
PL: Must haves.
RB: Must haves. Then it starts to get more interesting what about capacity? Let’s look and see, you know, do we have the right profile of workforce? How are we structured? Are we structured in a lean, effective way? So looking at capacity and productivity.
And then there's the two buckets that really do connect to competitive advantage. One we call connections. How connected is your workforce? So this is where you get into that stuff around employee engagement, getting a sense of real time engagement, perhaps using things like advocacy ratings, you know, the degree to which employees advocate their organisation is seen as almost like a double-starred item in terms of its criticality to future performance. But there's also connections in terms of how connected are people to strategy? How connected are employee goals to higher organisational goals? So connections operates across a number of dimensions.
PL: Buy in across the board?
RB: Buy in across the board. And then the final C is capability. What capabilities do you have now but also what capabilities do you need for the future because they’re not necessarily the same thing?
PL: Hayley Brown is talent intelligence analyst for the Emir region at Avon Cosmetics. Now Avon is a household name here in the UK but you may not know that it’s actually a US company operating in more than 100 countries and in 36 countries in the Emir region alone. That adds up to around a million self-employed Avon representatives worldwide and about 60,000 employees. Hayley’s main role is to look at data and how Avon can leverage that data to future proof the business. So I asked her what sort of data she collects.
Hayley Brown: We do predominantly focus on talent and the more operational stuff we leave to the HR people in the regions and really it was for us about looking where can we use data to optimise our value. So that was around things like succession planning data because that represents quite a big cost and a big risk for a particular set of roles, so we collect data about that and we also do quite a bit of monitoring on our high potential population as well, so people that we would define as talent.
PL: So you've got all this data and how does that play through into corporate strategy? What do you, presumably you add value to that don’t you, you don’t just present raw data to your chief exec, so tell me how you play that into something that's usable for the board?
HB: We’re very fortunate at Avon actually because there is a focus in our global strategy as a company on talent management and increasing that capability internally. So what we would do is we run talent reviews every six months. What they consist of, we’ve actually had quite a radical change, it did used to seem to be a little bit of a recalibration because we did have the nine box grid and what we’re looking at now is really simplifying that, possibly even to four categories rather than nine and focusing much more on for the business what is going to drive us forward and what represents the biggest risks and the biggest costs. And that is succession. So in our talent reviews what we would be looking at is yes who are our stars in our different regions, hopefully facilitating some sort of brokerage as well so we’ve not just got somebody fantastic in South Africa with nowhere to go and then a gap in Russia but really looking at succession in terms of what do we need now, what do we need in the short term and then what do we need three to five years down the line in the longer term.
PL: And as Hayley explained Avon’s HR function uses analytics in a range of very sophisticated ways.
HB: HR are very aligned to the business, we’re into our HR business partnering approach, very much so. I think it comes from a combination of HR expertise in terms of being able to look and have a bird’s eye view of the business but then also from that kind of functional expertise for what they need for their areas. So we’ll have like a KPI but that might be different in one department from another as to what’s an acceptable percentage tolerance.
PL: So Avon collects and processes very large volumes of data and HR collects it in a variety of ways.
HB: Where we get our data from at Avon has typically been quite diverse but they are HR management systems. What we’ve started to do recently is branching out looking at departments that do generate revenue or have a budget and whether they come in or over that budget, we’ve looked at that compared to talent but we’re also starting to look at using technology as well to enable talent reviews and to enable talent processes.
So one of the things that we’ve got is quite widespread investment in an internal social media system and I would quite like to see us using that for things like measuring engagement in an ongoing way so somebody can come in and say, “Based on today’s day of work would you recommend Avon as an employer?” or they can just put a smiley face or a frowny face and we can track that. Or how would they rate their own performance and how would the manager rate their performance and it can be a click of a button for the day and then aggregating that data it would be quite an interesting picture but just getting it more from different ways rather than traditional HR information systems which can feel a little bit clunky I think for the business to participate in.
PL: And retrospective because what you’re talking about will give you much more real time data wouldn’t it as it’s happening?
HB: Absolutely yeah so we can act on things and we can just be a lot more swift with using the data. Because that's the other thing it’s not just collecting it, it is really acting on it and making sure that it makes a difference because there's no value in just sitting with all your spreadsheets around you you've got to go out and do something with it and make it compelling for people to want to change.
PL: Avon’s HR team is highly adept at using data analytics to align their work as closely as possible to the needs of the broader business. Many other HR departments are collecting the same sort of data but they’re still not having the impact in the boardroom that they would like so what do they need to do differently? I put that question to Robert Bolton.
RB: The data is there.
PL: They’re not using it?
RB: But they’re not using it. So I’ll come back to that cost one. I think an HR function ought to be able to work out the total cost of employment. So that's all well and good but it’s when you do things like just map it to the value chain that it starts to create different insights for you. So I actually think what you can do to have an impact and to be insightful isn’t necessarily hugely complicated it’s using a bit of imagination and making the information engaging and connecting it to the issues that makes sense to the business. So we’ve talked about the cost stuff but the capacity stuff around, you know, have you got an optimal profile of workforce for the demands that you currently have and for predicted demands?
PL: Yes any CEO is going to understand the relevance of that.
RB: Absolutely but doing that analysis it just needs a little bit of extra effort to make it truly relevant and it doesn’t always happen.
PL: As Peter Cheese stresses HR needs to be creative about the data it collects, what it does with it and crucially how it’s presented.
PC: We have to make sure we’ve got a good quantitative base of understanding and what I mean by that is the most basic information such as how many people to employ. And that's always one of the favourite trick questions for HR and the reality is that you have to define what you mean by it. Do you mean all the contractors, all the part-time workers, all the open positions? And whatever you define it to be you should define it, you should understand it and you should measure. And that's a good example of basic quantitative information. You then add other key elements such as turnover rates and recruitment rates and things of that nature, again very quantifiable, and I would say small data things. You don’t need lots of complex analysis to understand those things.
That's the foundation and then you start to build from that which may start to engage more qualitative information like engagement but making these correlations so you can draw true insight about how the organisation’s behaving and responding, what are the trends, and being able to get to more predictive analytics which of course again is a huge trend of interest to many people.
PL: And while there's clearly room for HR to improve its use of analytics there's also room for CEOs to think about how they respond to their HRs and the data they bring forward. Here’s KPMG’s Robert Bolton again.
RB: If you've got your CEO who is saying, “Talent is a big issue for me,” and you've got then this view that only two out of ten people think HR is currently driving any business value then where is that disconnect coming from and I think it could be coming from the fact that this point about really couching things in terms of the value chain as opposed to external best practice is this or that. And I think the problem sometimes with HR is its intention is absolutely spot on but its route to trying to make a point is often through asserting what best practice looks like and what someone down the road is doing as opposed to, “Look we’ve done the numbers on our sales force, we understand what upper quartile performance is for that group of people and we can now systematically go and select for it on a much more predictive basis.” I don't know any CEO that wouldn’t pay attention to that. But the trick is I think to be less concerned about what other people are doing and to really drive it from an understanding of your business and its need for competitive advantage.
PL: And as Peter Cheese points out if HR wants to shrink that perception gap about the contribution it can make to strategy HR will need to be bold.
PC: If we need to be able to engage in those debates with business leaders, to have the confidence to challenge then we have got to have information and data to support our arguments or our position.
PL: Because that's the language they speak.
PC: Because that's the language they speak. Now I'm determined as the CIPD that we will help to advance that debate because what we’re starting to discuss is what, from the highest level, are the kinds of questions that any business should be asking about its organisation and its workforce and those sorts of questions range from good corporate governance. There's all this debate for example about corporate culture and building the right corporate cultures and we’ve got people like Anthony Jenkins the new chief executive of Barclays saying he's going to build a new corporate culture and instil values in the business, fantastic.
The next question has to be how would I know if he's accomplishing that? What measures have we got to use to understand the nature of how the organisation is changing? And this is tough. There is not a precise definition of culture, there's not one single measure, you've got to take a variety of measures or proxies to understand what might be going on and that can range from things like staff turnover to engagement surveys and so on. So we need to work also on this very top down and say what would be a good set of metrics, of measures, that almost any organisation should have, that any board should have at their disposal so that the executive team can explain to them what’s going on, that other stakeholders should have some visibility to as well.
And we’ve been through this debate in the past, we had this thing called Accounting for People back in the early 2000s. I think a lot of thinking there was good but it just wasn't the right time. Now I think we’re in the right time, we’re at a time when people are asking questions about things like leadership and talent pipelines and corporate cultures and all those sorts of things and so we need a basis of quantitative and qualitative understanding to give insight to those sorts of issues.
So it’s a critically important agenda for us. We need, as the CIPD, to be working with other institutes and in particular we’re going to be working with CIMA, the Chartered Institute Of Management Accountants, because as I said before this is an issue which is not just of interest to HR people, it’s critically of interest to the finance function in particular and we need to be working collaboratively on it.
PL: That's it for this month. Thanks for listening join me next time
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