We see it every day in the media, particularly over the past few years: “Top company cuts thousands of staff.” All too often, senior executives and managers leap to the belief that headcount equates to only cost, neglecting the value side of the equation. They look over the numbers for staff pay packets, staff benefits and various staff facilities, and panic about how much their costs are adding up. What senior executives don’t often realise is that headcount is also about driving increases in revenue and profit. As a result, most organisations are underperforming, in some cases dramatically, and don’t know why.

The good news is there is a little-known solution lurking just around the corner, ready to be brought to bear to help increase shareholder value. This solution is workforce analytics – an important tool to help companies develop a clear understanding of the value of their people and the levers that can be pulled to increase revenue and profit. These levers are simple: accurate data about getting the right number of people in the right place at the right time. Workforce analytics has been proven to help senior executives understand the contribution of headcount to profitability, and how an increase (and effective deployment) of the right kind of staff can be beneficial to the company and for shareholder return.

Indeed, while researching workforce analytics during the process of writing the upcoming book, Calculating Success, we came across evidence that leaders in many companies are managing workforces without knowing how many employees they have or how they are deployed, let alone how many more or what type of staff are needed in order to grow and expand the business. As a result, following headcount reductions caused by the financial crisis, many workforces are simply overheating under an increased workload, with too few people trying to complete too much work (and sometimes two people working on the same task without even realising it).
These are all problems that effective workforce analytics could solve.

A six-step model
Understanding workforce analytics is a discipline. It involves implementing clear set processes, creating a robust system for predictive data analytics, training up staff and getting people’s heads around it.

In Calculating Success, we developed a six-step model to simple, but effective, workforce analytics.

First, it is necessary to frame the central problem. This involves taking time to really understand the organisational issues at hand. This may involve interviewing key managers across HR, finance and other functions, as well as reviewing documents that provide context, such as organisational structure, central business initiatives and project plans.

Once the organisation issues and the problems to be solved are defined, step two involves applying a conceptual model to guide the analysis. This means it is necessary to identify workforce and business variables which are likely to have associations with the problem outcome. This may involve being alert to idiosyncratic events and additional data that could be relevant.

The third step involves capturing the relevant data across all the relevant business units, be it HR, operations, finance or marketing. Any differences in definitions, codes and time frames can then be reconciled while valid data is stored in analytical databases.

Formal quantitative techniques can then be applied to this data, looking for stable patterns over time. This fourth step is where insights to solving the business issues are developed – valid data that tells us what the real story is all about. Using this data, statistical findings should be worked through with key stakeholders to gain buy-in and take decisions at the fifth step. It is essential that these results are presented in a way that is understandable to managers who do not have a statistical background. In this stage, any new problems that surface can be considered, along with any issues which require further analysis and understanding.

Finally, action must be taken to implement solutions. This may involve operational changes in policies, procedures and management actions regarding workforce recruitment, development and deployment: designed to produce the desired changes in workforce performance. Any changes in actions should then be monitored and updated; and the six-step cycle begins again.

Counting value over cost
If more companies gain a better understanding of the value – instead of just the cost – of their workforce, they will increase productivity, and thus improve revenue and profit. In our experience (and recent studies show), organisations that see people as profit centres tend to grow in size and value, and ultimately hire more people. In many countries unemployment and underemployment is at an all-time high – but if organisations came to understand the actual value of people, this wouldn’t be the case.

The big question is, “Is your HR organisation up to the task?” And sadly, the answer tends not to be a positive one.

HR guru Professor Dave Ulrich, best known for his eponymous HR Roles Model, recently spoke at Maxxim Consulting’s recent event, “Whats next for HR?” which looked at the importance of workforce analytics in the changing HR landscape.

According to Ulrich, when HR workers are asked about the biggest challenge in their jobs, he found the answers tended to range from “building credibility with my line managers,” to “bringing in new talent,” or even “handling employee grievances.” Although all of these concerns are essential to HR (there is no opportunity for development if you cannot do the basics well) these are all problems which are associated with the administrative functions of HR, or the design of innovative practices surrounding rewards and communication. The future for HR, however, is to be able to apply HR practices to respond to external business conditions.

In other words, it is no longer enough to just think about creating value by serving employees, but by making sure that services offered inside the company align to the expectations outside of it. Every HR practice can be transformed by seeing the value that it creates for those outside of the company. This positions HR not just to respond to strategy but to helping shape and create it.

Outcomes, not actions
In order to achieve this, Ulrich says, a seismic shift needs to take place to transform the way HR is considered today. HR professionals need to begin to think more in terms of consequences, instead of actions, and focus on the phrase ‘so that.’ By appending ‘so that’ to their aims, achievements and challenges, HR professionals are pushed to see the outcome of their work – not just the work itself.

Even better, says Ulrich, is when two ‘so that’ stages can be incorporated, to connect HR with the broader context of a business. It is no longer enough to merely think “My challenge is to build credibility with my line managers.” Instead develop the statement into, for example, “My challenge is to build credibility with my line managers; so that we can make better investments that help the business reach its goals; so that we can anticipate and respond to external business conditions and deliver value to customers.” In this way, HR professionals are no longer merely responding to the administrative functions of HR, but are looking at the greater business context and expectations outside of the company.

This shift in the thinking of HR professionals, however, is highly dependent upon those professionals understanding their business context and the value of people. Unfortunately, in Ulrich’s research on HR competencies, he found that HR professionals were consistently lacking in business acumen. Indeed, many HR professionals went into HR to avoid the quantitative side of business in the first place! However, in order to move with the future of HR, it is no longer possible to side-step data, evidence and analytics – disciplines which bring rigour to HR.

As HR has become increasingly aligned with business, workforce analytics have become increasingly important. While many HR decisions require insight and judgment, improved workforce metrics helps HR move towards professional rigour. This is where workforce analytics, the topic of Calculating Success, is so essential to help HR stay ahead of the times, and become an essential component to the development of any business.

For more information – www.maxximconsulting.com