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What are Analytics?

  • Using data to bring value to organizations
  • Multiple corporate functions:

Accounting/Finance

Business Intelligence

Market & Customer Research

HR/People Analytics

  • Many branches of analytics

Reporting HR data

Ad hoc insights

Data Science, Machine Learning, Advanced Analytics (i.e., “Big Data”)

Who Works in HR analytics?

HR Analyst (Functional Specialist)

Expert in local data

Little knowledge of statistics or business functions

  • Data Scientist

Expert in advanced statistical models & big data (econometrics, statistics, etc.)

Typically less knowledgeable about HR content

  • HR Business Partner

Expert in connecting analyses to the business

Working knowledge of statistics and business functions

LAMP Model

  • LOGIC: Do you rightly understand the connections between HR, business strategy, employee behavior, and financial outcomes

  • ANALYTICS: Are your causal inferences valid?

  • MEASURES: Are your measures accurate?

  • PROCESS: Does your analysis bring about any impact?

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LAMP Model

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Bersin Talent Analytics Stage model

How many left?

Who left?

Why did they leave?

Who will leave next? What can we do?

McNulty People Analytics Steps

Levels of Analysis

Employees are (usually) nested within Groups, which are nested within Departments, which are nested in Divisions, which are nested in Organizations – different Constructs

Why Does it Matter?

  • Data nested within a group tend to be more alike than data from individuals selected at random.
  • Non-independence

  • Nature of group dynamics will tend to exert an effect on individuals.
  • Hierarchical/Multilevel Modeling

Hierarchical Modeling

Validity of Inferences

  • Is what I believe to be true actually true?

In philosophy, is my argument “free from fallacy”?

Are my causes and effects right?

  • Research designs can also have “fallacies,” leading to potentially invalid conclusions
  • There are four key areas of inferential validity

Internal Validity (do we have cause and effect right?)

Statistical Conclusion Validity (are the statistics interpreted correctly?)

External Validity (does it generalize?)

Construct Validity (are the measures accurate?)

Data Analytics (Big Data)

Two trends that make this era of big data very different.

First, virtually everything is digitized which results in new types of large and real-time data across a spectrum of industries.

Second, today’s organizations have access to advanced technologies and techniques that enable them to extract insights from data with previously unachievable levels of sophistication, accuracy, and speed

Workforce Analytics

  • There is a tremendous amount of data collected on customer satisfaction, product quality, productivity, revenue, costs, profits, market share, and for publically-held organizations stock price and earnings per share.

 

Strategic Outcomes

  • Innovation
  • Productivity
  • Customer Satisfaction

Financial

Outcomes

  • ROE
  • EVA
  • EPS

Workforce Analytics

  • Predictive selection software collects resume, personal, and personality data to select optimal job candidates.

  • Online resume, applicant tracking, onboarding, payroll, benefits, performance management, training and succession planning systems, provide streams of real-time employee data.

  • Organizations also collect employee data through various inventory systems that collect skills and competency data.

 

  • A massive amount of employee data are collected through ongoing employee engagement and organizational climate surveys.

Linkages to Strategic Outcomes

Y = a + β1x1 + β2x2

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Strategic Linkages

Driver

Driver

Driver

Driver

Driver

Employee

Engagement

.15

.08

.25

.21

.12

Customer

Satisfaction

Financial

Outcomes

Turnover

-.23

-.21

Innovation

.21

.12

.18

Test for Significance where p < α (e.g. .05)

The probability there is no relationship (Null

Hypothesis is true)

R2 Goodness of Fit

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Example Workforce Planning Analytics

Y = a + x1b1 + x2b2 + x3b3

Y = Number of employees

X1 = Revenue

X2 = Profit Margin

X3 = Customer Satisfaction Index

Y = a + x1b1 + x2b2 + x3b3

Y = 6,250 + x1(.000001) + x2(525) + x3.(125)

Example: x1= 20 billion, x2 =25, x3=85

= 6,250 +20,000 + 13,125 + 10,625

= 50,000

Example Workforce Planning Analytics

Y = a + x1b1 + x2b2 + x3b3

.1 = 65 or 95

.3 = 68 or 92

.5 = 70 or 90

.7 = 75 or 88

.8 = 80 or 87

.9 = 82 or 86

.1 = 18 or 32

.3 = 20 or 30

.5 = 21 or 28

.7 = 22 or 27

.8 = 23 or 25

.9 = 24 or 26

.1 = 12 billion or 31 billion

.3 = 15 billion or 27 billion

.5 = 16 billion or 25 billion

.7 = 17 billion or 23 billion

.8 = 18 billion or 22 billion

.9 = 19 billion or 21 billion


Monte Carol Simulations

  • A technique used to model the uncertainty in forecasts and assess the implications of this uncertainty
  • The power of this technique lies in your ability to assess a range of outcomes with associated probabilities.
  • The end result is a probability distribution of all possible outcomes

Example Workforce Planning Analytics

40K 45K 47k 50k 53k 55k 60k

34% probability +/- 3k, 2.5% probability +/- 5k, .5% probability +/- 10k

Scales

Multiple items measuring the same thing, e.g., five questions about employee engagement, take mean score for one construct. Scales assumes the responses to items are caused by an underlying construct.

To identify which practices should be combined into a single measure researchers make use of factor or principal components analysis, with an eigenvalue of 1 or higher.  

If one assumes that the items are caused by an underlying construct and are equivalent measures of this construct, they should have relatively high intercorrelations. In this case, want to see high Cronbach’s alpha (Rwg) .7 or higher or low variance of within group agreement.

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Construct Validation

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A review of eigenvalues indeed revealed two factors yielding values of 2.40 and 3.03 respectively and a Cronbach’s Alpha of .89 and .91 .

Intraclass Correlations

Intraclass Correlations – compare the covariance of the ratings with the total variance; are used when measuring various characteristics, e.g. generational preferences, cultural dimensions, etc. across groups or firms by having a rater assign scores to observed people or events. When using such a measuring technique, it is desirable to measure the extent to which two or more raters agree when rating the same set of things.

For ICC to be meaningful there is an assumption that differences on ratings between groups or firms are meaningful and greater than the variance among raters within these groups and firms

ICC(1) – to see if there is variance between groups, compares ratings across groups or firms – expect to be different, have more variance (low correlation <.05). Expect Convergence within the same company and Divergence among different companies.

ICC(2) – how reliable is the group mean – measures internal consistency. Measures how consistent are the ratings (each rater can be different, but how consistent where they) – expect rating to be same low variance (high correlation> .40 - .70).

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Indexes

Index – Multiple items measuring different things, e.g. High-Performance HR System - questions about staffing, compensation, training, etc., can take mean or add scores for a broader construct.

An Index is made up of items that determine the level of a construct and is not assumed or expected that the practices should have high intercorrelations and Cronbach’s alpha is not appropriate. Use the average of ratings to measure the overall index.

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How Best To Present Information

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The Balanced Scorecard

Sample Financial Metrics

  • Stock price appreciation
  • Dividend growth
  • Shareholder mix (institutional vs. individual vs. employee)
  • Price-earnings ratio
  • Dividend payout ratio
  • Gross Profit Margin
  • Net income
  • Meet growth targets in sales, market value, market share
  • ROI (return on investment)
  • ROE (return on equity)
  • ROCE (return on capital employed)
  • ROIC (return on invested capital)
  • EVA (Economic Value Added)
  • Asset turnover
  • Earnings per share

Sample Customer Metrics

  • Become a provider/supplier of choice to designated customers/industries.
  • Create new products or services that are differentiated from competitors’.
  • Develop new markets or market segments.
  • Focus on narrow markets or market segments.
  • Focus on wider markets or market segments.
  • Improve quality of products and services.
  • Increase market share in established markets.
  • Increase presence in international markets.
  • Provide superior value to customers.
  • Percent of sales from new products
  • Product differentiation
  • Supplier performance and quality
  • Market Share (%)
  • Customer retention
  • Cross-sell ratio
  • Service error rate
  • Request fulfillment time

Sample Internal Process Metrics

  • Productivity: Yield, scrap, spoilage
  • Quality
  • Percent “perfect orders”
  • Number of new product introductions
  • Life cycle of product to maturity
  • Time to market versus competition
  • Cycle time
  • Down time
  • Number of EPA citations
  • Inventory run-out rate
  • Dollars saved through sales of recycled products
  • Percent of production materials derived from re-cycled products
  • Maintain or improve operating margins.
  • Maximize operating efficiency

Sample High Performance Work Systems Measures

  • How many exceptional candidates do we recruit for each strategic job opening?

  • What proportion of all new hires have been selected based primarily on validated selection methods?
  • To what extent has your firm adopted a professionally developed and validated competency model as the basis for hiring, developing, managing, and rewarding employees?
  • How many hours of training does a new employee receive each year?
  • What percentage of the workforce is regularly assessed via a formal performance appraisal?
  • What proportion of the workforce receives formal feedback on job performance from multiple sources?

Sample HPWS Measures (Continued)

  • What proportion of merit pay is determined by a formal performance appraisal?
  • If the market rate for total compensation would be the 50th percentile, what is your firm’s current percentile ranking on total compensation?

  • What percentage of your exempt and non-exempt employees is eligible for annual cash or deferred incentive plans, or for profit-sharing?
  • What percentage of the total compensation for your exempt and non-exempt employees is represented by variable pay?
  • What is the likely differential in merit pay awards between high-performing and low-performing employees?
  • To what extent does the average employee in your firm understand how his or her job contributes to the firm’s success?

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  • Partner vs. Player
  • HR’s Deliverable: Workforce Success
  • Workforce Success Metrics
  • HR Practices
  • HR Success Metrics
  • Competitive Advantage
  • Strategic Choice(s)
  • Success Metrics
  • Strategic Culture
  • Strategic Capabilities
  • Strategic Positions
  • Strategic Players
  • Strategic Human Capital Planning
  • Workforce Philosophy

A

Workforce Strategy

Business Strategy

HR Strategy

What culture/
capabilities?

How grow?

What should
HR do?

B

C

DIFFERENTIATION

Outside

Inside

HR’s Business Model
Success Metrics

What are the
relevant metrics?

Business Model
Success Metrics

Business
Process
Success

Customer
Success

Workforce
Success

Business
Process
Success

Financial
Success

Workforce
Success

Mindset

Capability

Behavior

HR Systems

HR Practices

HR Competencies

Leveraging the Workforce’s Impact on Competitive Advantage

A

*

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Customer Success
What specific customer desires and expectations must be satisfied?

Financial Success
What specific financial commitments must be met?

Operational Success
What specific internal operational processes must be optimized?

Balanced Scorecard

Workforce Success
Has the workforce accomplished the key strategic objectives for the business?

Leadership and Workforce Behaviors Are the leader-ship team and workforce consistently behaving in ways that will lead to achieving our strategic objectives?

Workforce Mind-set and Culture Does the workforce understand our strategy and embrace it, and do we have the culture we need to support strategy execution?

Workforce Competencies
Does the workforce, especially in the key or “A” positions, have the skills it needs to execute our strategy?

Workforce
Scorecard

HR
Scorecard

HR Systems

  • Align
  • Integrate
  • Differentiate

HR Workforce
Competencies

  • Strategic partner
  • Change agent
  • Employee advocate
  • Administrative expert
  • Work design
  • Staffing
  • Development
  • Performance management
  • Rewards
  • Communication

HR Practices

Managing
Human Capital to Execute Strategy

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Right HR Professionals

The Five “Rights” of HR Measurement

Right HR Practices

Right Types of HR Alignment

Right HR Costs

(Relative to Value)

Right Business Outcomes

(HR Deliverables)

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Cost-Benefit Analyses for HRM Interventions

  • An HR Scorecard can help you to understand what needs to change in your HRM system

  • Cost-benefit analyses can help you to understand how these changes should be implemented

  • Always use Net Present Value (NPV) of costs and benefits in all analysis.

Net Present Value

Where: CFT = expected cash flow in period T

R = the cost of capital

I = the initial investment

The NPV rule states that firms should accept projects with NPV > 0.

Internal Rate of Return - IRR

  • The internal rate of return (IRR) is “the” discount rate that makes the PV of a stream of cash flows equal to zero.

  • Loosely speaking, the IRR can be regarded as the rate of return associated with the cash flows.

Internal Rate of Return - IRR

IRR is found by setting the NPV equation to zero and solving for IRR.

The IRR rule states that firms should accept project if IRR > R.

Summary of Measurement Competencies

  • The line of sight between HR investments and business outcomes is often indirect and long-linked.

  • Research shows that today’s investments in people aren’t capitalized by the market for at least 18 months.

  • HR professionals need to begin to think in causal terms in order to evaluate how HR is driving firm performance

TABLE 3

Factor Structure of Interdependency and Criticality Scales

Questionnaire Item

1 2 Alpha

Interdependency items .89

The contract workers…

Works closely with employees. .93

Frequently coordinate efforts with employees. .79

Spends time in face-to-face communication with employees .92

Criticality Items .91

The work contract worker performs…

Contributes to important work group or organizational goals. .79

Contributes to the creation of customer value. .87

Requires skills not widely available in the labor market. .85

Requires skills that are difficult for our company to duplicate. .93

Extraction Method: Principal Component Analysis

Rotation Method: Varimax with Kaiser Normalization

NPV

I

CF

R

T

T

T

N

=

-

+

+

=

å

/

(

)

1

1

0

1

1

=

-

+

+

=

å

I

CF

IRR

T

T

T

N

/

(

)